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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                         COMMISSION FILE NUMBER 0-26872

                          GELTEX PHARMACEUTICALS, INC.
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                            04-3136767
(State or other jurisdiction of                              (I.R.S. Employer
 Incorporation or organization)                             Identification No.)

           153 Second Avenue
         Waltham, Massachusetts                                   02451
(Address of principal executive offices)                        (Zip Code)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 290-5888

<TABLE>

<S>                                                                <C>
Securities registered pursuant to Section 12(b) of the Act:        None

    Securities registered pursuant to Section 12(g) of the Act:    Common Stock, $.01 par value per share
                                                                   Junior Participating Preferred Stock
                                                                   Purchase Rights

                                                                   (Title of Class)
</TABLE>

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

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

    The aggregate market value, based upon the closing sale price of the shares
as reported by The Nasdaq Stock Market(R), of voting stock held by
non-affiliates (without admitting that any person whose shares are not included
in such calculation is an affiliate) at March 23, 2000 was $387,627,880.

    As of March 23, 2000, 19,817,006 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
   PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS 2000 ANNUAL
                   MEETING OF STOCKHOLDERS ARE INCORPORATED BY
              REFERENCE INTO PART III OF THIS REPORT ON FORM 10-K.


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PART I

ITEM 1. BUSINESS

OVERVIEW

    GelTex Pharmaceuticals, Inc. ("GelTex" or the "Company") has historically
focused its efforts on the development of non-absorbed, polymer-based
pharmaceuticals that selectively bind to and eliminate target substances from
the intestinal tract. With the acquisition of SunPharm Corporation ("SunPharm")
in November 1999, the Company acquired expertise in two chemically related
classes of molecules, polyamines and iron chelators. The Company received
approval from the United States Food and Drug Administration (the "FDA") for its
lead product Renagel(R)* Capsules (sevelamer hydrochloride) in October 1998, and
from each of the European Commission and the Health Protection Branch in Canada
in February 2000. In July 1999, the Company submitted a New Drug Application
("NDA") to the FDA for its second compound, Cholestagel(R)* (colesevelam
hydrochloride). Additionally, throughout 1999, the Company continued its product
discovery and development efforts focused on therapeutic agents for the
treatment of obesity and infectious diseases.

    Renagel Capsules had been studied in over 400 hemodialysis patients prior to
FDA approval, and is indicated for the treatment of elevated serum phosphorous
levels (hyperphosphatemia) in end stage renal disease patients. Commercial sales
of Renagel commenced in November 1998 through a joint venture (the "Renagel JV")
between the Company and Genzyme Corporation ("Genzyme").

    In July 1999, the Company submitted a NDA to the FDA to market Cholestagel
for the treatment of hypercholesterolemia, a condition characterized by
undesirably high blood cholesterol levels. Prior to the submission of the NDA,
Cholestagel had been studied in eight clinical trials as a monotherapy and in
combination with widely prescribed HMG CoA reductase inhibitors commonly
referred to as "statins".

    In December 1999, the Company entered into a Collaboration Agreement with
Sankyo Pharma Inc. ("Sankyo") for the final development and commercialization of
Cholestagel, granting Sankyo the exclusive right to market Cholestagel in the
United States in exchange for the Company's receipt of certain initial,
milestone and royalty payments from Sankyo. At the same time, the Company
entered into another Collaboration Agreement with Sankyo under which the Company
sold Sankyo an option to obtain the exclusive right to develop and market a
second generation cholesterol lowering compound in the United States, and, at
Sankyo's option, in Europe and Japan. Sankyo has agreed to pay for all
development costs for the second generation compound for so long as its option
to license the compound remains in effect.

    The Company's acquisition of SunPharm in November 1999 provided the Company
with expertise in two chemically related classes of molecules, polyamines and
iron chelators. The Company acquired a License and Research Agreement with the
University of Florida and a consulting agreement with Dr. Raymond Bergeron, the
Duckworth Professor of Drug Development at the University of Florida, under
which the Company expects that substantially all of its research and a large
portion of the early pre-clinical development work related to polyamines and
iron chelators will be conducted. The Company will continue to fund Dr.
Bergeron's research. The SunPharm acquisition also provided the Company with
strategic alliances with Warner-Lambert Company ("Warner-Lambert"), Nippon
Kayaku Co., Ltd. ("Nippon Kayaku") and Schein Pharmaceutical, Inc. ("Schein")
relating to compounds licensed to the Company by the University of Florida.

    In 1999, the Company continued its anti-obesity drug discovery program
focusing on the identification of polymers that act in the gastrointestinal
tract to inhibit lipase and bind fat. The lipase-inhibiting component of the
polymer would prevent fat digestion and the fat binding component would
simultaneously bind the fat and limit the side effects often associated with
lipase inhibition. The Company also continued its efforts in the area of
infectious diseases focusing on the discovery of polymers that bind to and
inactivate the toxins of Clostridium difficile ("C. difficile"), a major cause
of antibiotic-associated diarrhea. The anti-obesity and infectious disease
programs are the primary focus of the Company's internal research and
development efforts and are in early stages of pre-clinical development.


------------------------------
* Renagel and Cholestagel are registered trademarks of the Company

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    The Company commenced operations in 1992 and has incurred operating losses
since that time. As of December 31, 1999, the Company had an accumulated deficit
of approximately $109 million. Although the time required to reach sustained
profitability is highly uncertain, the Company expects operating losses to
continue through at least 2000.

THE COMPANY'S TECHNOLOGY

Polymer Based Non-Absorbed Products

    During the digestive process, the intestinal tract delivers nutrients and
water to the bloodstream and eliminates waste products and indigestible
materials through the bowel. Absorption of nutrients, electrolytes, water and
certain digestive substances such as bile acids is controlled by the intestinal
wall, which acts as a gateway from the intestines to the bloodstream, allowing
small molecules to pass from the intestinal tract into the bloodstream and
preventing larger molecules from entering circulation. Orally administered drugs
are either absorbed through the intestinal wall into the bloodstream, or are
non-absorbed and achieve their intended therapeutic effect by acting in the
intestinal tract. Non-absorbed drugs are less likely to cause the toxicities
associated with many absorbed drugs.

    GelTex's polymers are designed to act in the intestinal tract without
absorption into the bloodstream, thereby minimizing the potential for adverse
effects. The Company's product development approach represents an advance in the
use of polymers as pharmaceuticals. The Company's technology combines an
understanding of chemical interactions necessary for molecular recognition with
the ability to design and synthesize polymers. The Company's technology enables
it to combine commercially available or novel monomers that have distinct
structural qualities to create proprietary, non-absorbed polymers that
selectively bind target molecules. The Company designs its polymers to carry a
high density of binding sites for the targeted molecules, making them potent at
low dosage levels.

    GelTex's polymer based non-absorbed products are designed to be orally
administered in capsule or tablet form. The compounds are not broken down during
the digestive process and are too large to be absorbed through the intestinal
wall and into the bloodstream. As the polymers pass through the stomach and into
the intestines, they bind targeted molecules and pass easily through the
intestinal tract and, with the attached target molecules, are excreted from the
body.

    The Company's enabling technology offers the following benefits:

    -   Broad Application to Diseases and Conditions. The Company believes its
        enabling technology is applicable to a broad range of diseases and
        conditions treatable through the intestinal tract such as elevated
        phosphorus levels, elevated LDL cholesterol, obesity and certain
        infectious diseases.

    -   Low Risk of Adverse Side Effects. The Company's polymer-based products
        are designed to be non-absorbed and well tolerated. Since the products
        act only in the intestinal tract and are not absorbed into the
        bloodstream, they are less likely to cause the toxicities associated
        with many absorbed drugs.

    -   Convenient Oral Dosage Form. The Company's polymer-based products are
        designed to be potent enough to permit oral administration in a
        convenient capsule or tablet form.

Polyamines and Iron Chelators

    Polyamines (putrescine, spermidine and spermine) are naturally occurring
compounds found in human cells that remain as metabolically distinct entities
within the cells. Research indicates that these polyamines bind to nucleic acids
and promote the integrity and fidelity of many of their functions, such as
replication, supercoiling, ribonucleic acid transcription and processing,
protein synthesis and protein modification. These functions of polyamines are
necessary for cellular proliferation to occur. Dr. Bergeron's research at the
University of Florida has been directed towards the development of polyamine
analogues as potential anti-cancer agents. Rapidly proliferating cancer cells
have both a high rate of polyamine biosynthesis and higher concentrations of
polyamines than normal cells. The Company's polyamine analogue compounds are
structurally similar to the cell's naturally occurring polyamines, and as a
result these analogues are recognized as natural polyamines by the cell's
polyamine uptake system and gain entry to the cell. Once inside the cell, the
Company's polyamine analogues disrupt the cell's


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polyamine balance and biosynthetic network, causing the cell to shut down the
enzymes ornithine decarboxylase ("ODC") and S-adenosylmethionine decarboxylase
("SAMDC") that would normally make natural polyamines, and to increase
production of spermidine/spermine N1-acetyltransferase ("SSAT"), the enzyme that
is responsible for the breakdown and export of natural polyamines from the cell.
The combined effect on the enzymes controlling the proper level of polyamines in
the cell results in a reduction in the amount of natural polyamines in the cell
and a corresponding increase in the amount of analogues in the cell. Because
cancer cells have a high rate of polyamine biosynthesis and contain higher
concentrations of essential polyamines than normal cells, the Company believes
that the substitution of its polyamine analogues for the naturally occurring
polyamines will counteract the increased level of polyamines present in the
cancer cells, thereby reducing the ability of the cancer cells to proliferate.

    Metal chelators are drugs that bind tightly to certain metals, such as iron,
in the bloodstream and inside cells, acting to eliminate quantities in excess of
the body's needs, thereby avoiding damage to vital organs such as the liver,
heart and pancreas. Chelators are administered to enhance the body's ability to
get rid of excess metal concentrations. GelTex, through research in Dr.
Bergeron's laboratory, is developing novel therapies aimed at treating iron
overload disorders. Dr. Bergeron has discovered an injectable iron chelator with
superior activity to desferrioxamine, the most common treatment agent for iron
overload disorders, in primate models of iron overload. In addition, Dr.
Bergeron has discovered orally active chelators with efficacy superior to
desferrioxamine in primate models of iron overload.

RENAGEL

Overview

    The United States Health Care Financing Administration ("HCFA") estimates
that, at the end of 1998, approximately 246,000 patients in the United States
were receiving chronic dialysis treatment for end-stage renal disease. According
to HCFA data, the number of dialysis patients in the United States increased by
7% to 9% annually between 1988 and 1998. Based on reported growth rates of
approximately 5% to 7% per year, the Company estimates that the number of
dialysis patients in Europe at the end of 1998 was approximately 220,000. In
Japan, with reported growth rates of approximately 6% to 7% per year, the
Company estimates that the number of dialysis patients at the end of 1998 was
approximately 190,000.

    Control of blood phosphorus levels is central to the prevention of renal
bone disease in patients with chronic kidney failure. Phosphate is absorbed into
the bloodstream through the small intestine from protein-rich high-phosphate
foods such as meat, fish and dairy products. Healthy kidneys maintain a delicate
balance between phosphorus and calcium levels in the blood by excreting excess
phosphorus in the urine. In patients with chronic kidney failure, the kidneys
are unable to remove enough phosphorus to maintain the necessary balance.
Elevated phosphorus levels signal the body to excrete parathyroid hormone
("PTH"), which breaks down bone to release calcium into the blood in an effort
to reestablish the balance between calcium and phosphorus. Chronic kidney
failure patients with uncontrolled elevated phosphorus levels experience bone
loss as well as calcification of the circulatory system caused by excessive
amounts of phosphorus and calcium in the blood.

    To reduce elevated phosphorus levels, nearly all dialysis patients use some
form of phosphate binder, currently the only available treatment for
hyperphosphatemia. Phosphate binders bind dietary phosphate in the intestinal
tract, thereby preventing its absorption into the bloodstream. The Company
estimates that the potential worldwide market for phosphate binders for dialysis
patients is between $300 and $500 million. In addition, a portion of the
patients in the early stages of chronic kidney failure (the pre-dialysis
population) also use phosphate binders.

    In October 1998, the Company received FDA approval for Renagel Capsules
(sevelamer hydrochloride). Other available phosphate binders include calcium
acetate, the only other FDA-approved phosphate binder, and calcium carbonate and
aluminum hydroxide, neither of which is approved in the United States for the
control of hyperphosphatemia. The treatment of hyperphosphatemia with calcium
has been shown to result in elevations in blood calcium levels (hypercalcemia).
Treatment with aluminum has been shown to result in aluminum-related
osteomalacia (softening of the bones), anemia and dialysis dementia
(deterioration of intellectual function). Renagel is the first approved
calcium-free and aluminum-free phosphate binder. Renagel offers physicians the
ability to aggressively treat hyperphosphatemia without the risk of aluminum
toxicity and with significantly fewer incidences of hypercalcemia than have been
observed with calcium-based products. In February 2000, the Renagel JV received
marketing


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authorization for Renagel Capsules (sevelamer hydrochloride) in Canada and
Europe.

Continuing Product Development

         The Renagel JV continues to conduct additional clinical studies with,
and to further develop Renagel. In September 1999, the Company submitted a NDA
to market Renagel tablets for the treatment of hyperphosphatemia in patients on
dialysis. The Company believes that a tablet formulation of Renagel will benefit
patients taking Renagel because fewer tablets are required to be taken by the
patient each day as compared to capsules.

         Recently, GelTex and its partner in the Renagel JV, Genzyme,
successfully completed an investigational study of Renagel in 79 chronic renal
failure patients not requiring dialysis (pre-dialysis patients). The study was
conducted in recognition of the fact that many pre-dialysis patients develop
hyperphosphatemia as they lose kidney function. In the study, Renagel lowered
serum phosphorus significantly and was generally well tolerated. As part of the
ongoing clinical development program, the Renagel JV will continue additional
development of Renagel in pre-dialysis patients.

Commercialization and Manufacturing

    In June 1997, the Company formed the Renagel JV, a joint venture with
Genzyme for the final development and commercialization of Renagel in the United
States, Europe and other territories not previously licensed to Chugai
Pharmaceutical Co., Ltd. ("Chugai"). See "Development and Marketing Agreements."
The Renagel JV launched Renagel for commercial sale in the United States in
November 1998. Renagel is currently marketed by an experienced dedicated sales
force consisting of 38 sales representatives and 4 regional sales managers. In
1999, sales of Renagel totaled $19.5 million, with approximately 145,000
prescriptions written for Renagel and an estimated 30,000 patients in the United
States taking the product at year-end.

    The Renagel JV will continue to rely upon third parties to manufacture
commercial quantities of Renagel, including the starting material for the
product, bulk material and finished goods. Together, the Renagel JV and the
Company currently have in place one long-term fixed price supply agreement for
starting material, two long-term fixed price supply agreements for Renagel bulk
material, and one long-term fixed price agreement for finished goods. Should any
of these manufacturing relationships terminate or should any of the suppliers be
unable to satisfy the Renagel JV's requirements for starting material, bulk
material or finished goods, the Renagel JV may be unable to continue the
commercialization of Renagel as expected, and the Company's business and
financial condition could be materially and adversely affected.

CHOLESTAGEL

Overview

    Since the mid-1980s, elevated LDL cholesterol (hypercholesterolemia) has
been widely recognized as a significant risk factor for coronary heart disease.
As a result of the increased awareness and the broad prevalence of elevated LDL
cholesterol, cholesterol-reducing drugs have emerged as one of the largest and
fastest growing pharmaceutical product categories. In 1999, the worldwide market
for cholesterol-reducing drugs exceeded $13 billion. During 1999, the United
States market for cholesterol reducing drugs experienced dollar growth of
approximately 23%.

    While the risks of hypercholesterolemia are well recognized, the condition
remains significantly under-treated worldwide. An estimated 24 million Americans
require drug therapy to achieve adequate reductions in cholesterol levels.
However, only 8 million Americans are receiving cholesterol-reducing drugs, and
it is estimated that more than 60% of this population is not at their
appropriate National Cholesterol Education Program LDL-C goal. Worldwide,
approximately one-third of the individuals who should be receiving
cholesterol-reducing drugs are receiving therapy. The market for
cholesterol-reducing drugs is expected to grow as awareness and diagnosis
continue to increase.

    Physicians frequently prescribe a low fat, low cholesterol diet (the
National Cholesterol Education Program ("NCEP") Step I or II diet) as an initial
approach to lowering elevated cholesterol. In cases where dietary changes alone
do not adequately lower a patient's cholesterol levels, drug therapy may be
needed. Physicians have the option of prescribing one of two types of therapies:
non-absorbed cholesterol-reducing drugs (i.e., bile acid sequestrants) or
several classes of absorbed agents. One class of absorbed agents is the


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HMG-CoA reductase inhibitors (generally referred to as "statins"), the most
widely prescribed class of cholesterol-reducing agents in the United States.
Combined worldwide sales of HMG-CoA reductase inhibitors exceeded $12 billion in
1999. These drugs work by blocking cholesterol synthesis and enhancing the
liver's ability to clear LDL cholesterol from the blood.

    Bile acid sequestrants, an alternative therapy to absorbed agents such as
HMG-CoA reductase inhibitors, have been marketed for decades. Bile acids are
synthesized by the liver from cholesterol and secreted into the intestines to
aid digestion of fats. Bile acid sequestrants bind to bile acids in the
intestinal tract and increase their excretion from the body. To replenish the
bile acid pool, the liver draws cholesterol from the bloodstream, resulting in a
reduction in blood cholesterol levels. Bile acid sequestrants work without
entering the bloodstream and are generally regarded as safer than absorbed
agents such as HMG-CoA reductase inhibitors, which require frequent liver
function tests. Since cholesterol-reduction therapy typically involves a
life-long drug regimen, the NCEP guideline recommends that physicians prescribe
bile acid sequestrants as first-line drug therapy.

    Sales of bile acid sequestrants in the United States, which totaled
approximately $70 million in 1999, have been declining over the past several
years. The Company believes that this decline is due to the large dosages
required for, and the reported gastrointestinal side effects associated with,
currently marketed bile acid sequestrants. The most widely prescribed bile acid
sequestrant in the United States is cholestyramine, a polymer resin. Typically,
patients must drink a mixture of two to three tablespoons (16-24 grams) of
cholestyramine in eight ounces of water twice a day. The gastrointestinal side
effects (such as constipation) and necessarily large doses of currently
available bile acid sequestrants prompt many patients to discontinue this
therapy. As a result, many physicians either switch patients to or initially
prescribe HMG-CoA reductase inhibitors. Additionally, some patients who
discontinue bile acid sequestrant therapy may not receive any alternate
treatment.

    The Company believes that, following FDA approval, Cholestagel will meet the
needs of the market for a non-absorbed cholesterol-reducing drug that is safe
and well tolerated in long term use, effective at lower doses than currently
available bile acid sequestrants and available in a convenient dosage form.
Although the Company believes that Cholestagel will offer certain advantages
over currently available bile acid sequestrants, currently marketed products
often have a significant advantage over new entrants. There can be no assurance
that Cholestagel will compete effectively with existing bile acid sequestrants
or that the availability of Cholestagel will expand the use or acceptance of
bile sequestrants. See "Competition."

Product Development

    In July 1999, the Company submitted a NDA to the FDA to market Cholestagel
for the treatment of hypercholesterolemia. Prior to the submission of the NDA,
Cholestagel had been studied in eight clinical trials as a monotherapy and in
combination with statins, the current standard of treatment for lowering LDL
cholesterol. In these studies, when evaluated as a monotherapy, Cholestagel
significantly reduced LDL cholesterol levels while demonstrating high levels of
safety and tolerability among the target population.

    In 1999, the Company received the results of two Phase 3 clinical trials. In
the first trial, a double-blind, placebo-controlled trial conducted over a
treatment period of six months in 466 hypercholesterolemic patients, reductions
of LDL cholesterol were observed at all four dosing levels, including a 16
percent reduction at a dosing level of 3.8 grams of Cholestagel per day, and a
20 percent reduction at 4.5 grams per day. The side effects reported by those
patients on Cholestagel were minimal and were similar to those experienced by
patients on placebo.

    The second Phase 3 trial conducted in 100 hypercholesterolemic patients over
a treatment period of six weeks was designed to evaluate the
cholesterol-lowering activity of Cholestagel in once daily and split dosing. The
results of this trial indicate that once daily is similar in efficacy to split
dosing.

    The Company also received data from two Phase 2 clinical trials during 1999.
These trials were designed to evaluate the cholesterol-lowering effect achieved
by administering Cholestagel in combination with a low dose of two of the most
widely prescribed HMG-CoA reductase inhibitors, or "statins". The results of
these two trials were consistent with earlier Phase 2 data from combination
therapy, showing that administration of Cholestagel with the statin resulted in
an additive reduction of LDL cholesterol. In these trials, the reduction in LDL
cholesterol observed during the co-administration of Cholestagel and the statin
was statistically superior to that observed with either Cholestagel or the
statin alone.


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Second Generation Compound

    The Company recently completed a Phase 2 study of its second-generation
lipid-altering product. In this placebo controlled study conducted with 260
patients, levels of LDL cholesterol decreased by 12% to 16% at dosing levels of
2.0 grams to 3.2 grams, which represents a reduction in unit dose as compared to
Cholestagel. Also, when combined with a statin, there was an additive effect in
LDL cholesterol lowering. The Company and its partner, Sankyo, will continue
development of a second-generation product.

Commercialization and Manufacturing

    In December 1999, the Company entered into a Collaboration Agreement with
Sankyo for the final development and commercialization of Cholestagel, granting
Sankyo the exclusive right to market Cholestagel in the United States in
exchange for the Company's receipt of certain initial, milestone and royalty
payments from Sankyo. At the same time, the Company entered into another
Collaboration Agreement with Sankyo under which the Company sold Sankyo an
option to obtain the exclusive right to develop and market a second generation
cholesterol lowering compound in the United States, and, at Sankyo's option, in
Europe and Japan. Sankyo has agreed to pay all development costs for the second
generation compound for so long as their option to license the compound remains
in effect.

    Under the terms of the Collaboration Agreement with Sankyo, the Company is
obligated to supply Sankyo with commercial quantities of Cholestagel at fixed
prices. The Company will continue to rely upon its third party contract
manufacturers in order to satisfy this obligation to Sankyo. The Company has
entered into a long-term fixed price supply agreement providing for the supply
of raw material for Cholestagel, and the Company has entered into a contract for
the initial commercial supply of drug substance for Cholestagel. The Company is
currently in the process of negotiating long-term fixed price supply agreements
for commercial quantities of drug substance and for Cholestagel tablets. The
Company cannot assure that its suppliers of Cholestagel drug substance or
Cholestagel tablets will be able to deliver materials to the Company at or below
the fixed prices the Company has offered to Sankyo. To the extent its suppliers
are not able to satisfy the Company's requirements at such prices, the Company's
results of operations would be materially adversely affected. In addition,
should any of the Company's existing manufacturing relationships or ongoing
negotiations terminate, or should any of the suppliers be unable to satisfy the
Company's requirements for starting material, drug substance or tablets, the
Company would be unable to meet its commitment to Sankyo, and Cholestagel would
not be commercialized as expected. This would have a materially adverse effect
on the Company's business and financial condition.

ANTI-OBESITY PROGRAM

Overview

    Obesity is a global healthcare concern and represents one of the most
serious problems facing the medical community today. This chronic and often
debilitating disease, which is associated with an increase in mortality and
morbidity, has a significant impact on the healthcare system. The conventional
therapy for the treatment of obesity is behavioral modification, which includes
a change in quantity and quality of food and a regular exercise program.
However, the majority of patients who enter most weight loss programs are not
successful in losing weight. Approximately 66% of all patients who initially
lose weight regain the weight in one year, and virtually all of them regain the
weight in five years. Because obesity is believed to be a complex metabolic
disease with genetic and behavioral components, the medical community and the
obese patient population continue to seek effective anti-obesity agents.

    Dietary fat is a major source of calories and contributes to obesity and its
associated health problems, including diabetes, coronary artery disease and
hypertension. On average, a person on a western diet consumes approximately 35
percent of their calories in the form of fat, predominately triglycerides. In
the gastrointestinal tract, ingested fat is broken down into fatty acids by
pancreatic lipase, permitting absorption by the intestinal lining. The fatty
acids are then transported throughout the bloodstream to body tissues. An excess
of fat delivered to body tissues leads to obesity.

    One approach to the treatment of obesity is to inhibit the activity of
lipase in the gastrointestinal tract and prevent the digestion of triglycerides
into fatty acids. By preventing fat breakdown, fat is eliminated from the body
and a patient loses weight. In clinical trials, lipase inhibitors have been
shown to cause


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significant and sustained reductions in body weight. However, the treatment of
obesity by inhibiting the activity of lipase can often be limited by the
gastrointestinal side effects, in particular, oily leakage in the stool,
associated with the elimination of undigested triglyceride from the intestine.

Application of the Company's Technology

    In 1999, the Company focused its efforts and resources for its anti-obesity
program on the development of a polymer that would inhibit lipase while also
binding triglycerides to reduce the side effects associated with other lipase
inhibitors. The Company believes that a non-absorbed product that would both
inhibit the function of lipase, and prevent the occurrence of oily leakage in
the stool that may accompany lipase inhibition, would offer significant benefits
in the treatment of obesity.

INFECTIOUS DISEASES PROGRAM

Overview

    The treatment of infectious diseases has become increasingly more
complicated with the recent appearance and recognition of new pathogenic
organisms and the emergence of resistance to available antibiotics. Organisms
and resistance patterns previously thought to be exotic or rare are becoming
increasingly more prevalent. These events have stimulated renewed interest
throughout the pharmaceutical and biotechnology industries in research and
development focused on the treatment of infectious diseases.

    The Company is applying its expertise in polymer design and synthesis to
discover agents that kill microorganisms and agents that bind microbial toxins.
During 1999, the Company focused its research in this area on non-absorbed
compounds for the treatment of gastrointestinal and non-systemic infections.

Application of the Company's Technology

    During 1999, the Company focused its research efforts on identifying
polymers that bind, inhibit or inactivate toxins which are essential virulence
factors in diseases caused by many bacterial infections, such as C. difficile.
C. difficile is a major cause of antibiotic-associated diarrhea and is a
significant problem in hospitals and extended care facilities, affecting
approximately 500,000 patients per year in the United States. Under normal
conditions the bacteria flora of the gastrointestinal tract prevent in the
United States the growth of C. difficile. However, in hospitalized patients,
antibiotics that are used to treat unrelated infections alter the normal
intestinal flora, allowing for the proliferation of C. difficile. C. difficile
releases two toxins, Toxin A and Toxin B, which cause the pathological effects.
The clinical symptoms of the infection range from diarrhea to severe colitis.

    C. difficile is currently treated with antibiotics. However, concerns over
antibiotic resistance and a significant relapse rate in patients with the
disease has created a need for new therapies to treat this disease. GelTex has
identified polymers that have exhibited promising activity in inactivating the
toxins and preventing disease in animal models. The Company has selected a
development candidate and preclinical development has been initiated. The
Company believes this presents a new approach for the management and prevention
of hospital-associated C. difficile.

POLYAMINES

Overview

    Human cells contain three essential, naturally occurring polyamines,
putrescine, spermidine and spermine. Research indicates that these polyamines
bind to nucleic acids and promote the integrity and fidelity of many of their
functions, such as replication, supercoiling, ribonucleic acid transcription and
processing, protein synthesis, and protein modification. These functions of
polyamines are necessary for cellular proliferation to occur.

    Human cells employ a family of enzymes to maintain the proper balance or
equilibrium of polyamines. Included in this family of enzymes are ODC and SAMDC,
which make or synthesize polyamines for the cell, and SSAT, which controls the
export and/or recycling of polyamines from the cell. All three of these enzymes
are rapidly inducible proteins, and are tightly regulated by intracellular
polyamine pools. Working together, these enzymes function in a highly
coordinated manner to maintain polyamine pools within a very narrow range of
concentrations inside the cell.


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Application of the Company's Technology

    The Company's polyamine analogue compounds, all of which have been licensed
to the Company by the University of Florida, are structurally similar to the
cell's naturally occurring polyamines. Because of this similarity, these
analogues are recognized as natural polyamines by the cell's polyamine uptake
system and gain entry to the cell. Once inside the cell, the Company's polyamine
analogues disrupt the cell's polyamine balance and biosynthetic network, causing
the cell to shut down the enzymes ODC and SAMDC that would normally make natural
polyamines, and to increase production of SSAT, the enzyme responsible for the
breakdown and export of natural polyamines from the cell. The combined effect on
the enzymes controlling the proper levels of polyamines in the cell results in a
substantial reduction in the amount of natural polyamines in the cell and a
corresponding increase in the amount of analogues in the cell. Because cancer
cells have a high rate of polyamine biosynthesis and contain higher
concentrations of essential polyamines than normal cells, the Company believes
that the substitution of its polyamine analogues for the naturally occurring
polyamines will counteract the increased level of polyamines present in the
cancer cells, thereby reducing the ability of the cancer cells to proliferate.
Research by Professor Bergeron at the University of Florida has demonstrated
that the Company's polyamine analogues inhibit growth of cancer cells and reduce
tumors in animals. Polyamines also have physiological functions that are
independent of their effects on cell growth. These functions include modulation
of smooth muscle functions, modulation of fluid and electrolyte excretion and
control of neuronal transmission.

Product Development

    Diethylnorspermine ("DENSPM") is currently undergoing clinical testing by
the Company's corporate partner, the Parke-Davis Pharmaceutical Research
division of Warner-Lambert, in patients with solid tumors.

IRON CHELATORS

Overview

    Metal chelators are drugs that bind tightly to certain metals, such as iron,
in the bloodstream and inside cells, acting to eliminate quantities in excess of
the body's needs, thereby avoiding damage to vital organs such as the liver,
heart and pancreas. Chelators are administered to enhance the body's ability to
rid itself of excess metal concentrations.

    Bodily stores of iron are tightly regulated by a family of iron binding
proteins. These proteins include ferritin and transferrin. In cases of iron
overload or excess, the body's ability to control iron is exceeded and cellular
levels of free iron increase. Free iron within the cell catalyzes the generation
of toxic free hydroxyl radicals through a chemical reaction known as the Fenton
reaction. Hydroxyl radicals attack and destroy proteins and lipids leading to
cell damage. Iron overload toxicity is associated with several conditions where
blood transfusions are required. Since the body has minimal capacity to excrete
iron, blood transfusions often lead to iron overload. Transfusion-induced iron
overload is associated with thalessemia, sickle cell disease, aplastic anemia
and myeloblastic dysplasia. Iron chelators are used to lower iron stores in
transfusion associated iron overload. Currently, the most common treatment agent
for iron overload disorders is desferrioxamine, which requires daily 6 to 12
hour infusions and is typically poorly tolerated by patients. Iron overload is
also associated with hereditary hemochromatosis where a genetic defect in a
protein involved in iron absorption leads to excess absorption of iron and iron
overload toxicity.

Application of the Company's Technology

    GelTex, through research in Dr. Bergeron's laboratory, is pursuing novel
therapies aimed at treating iron overload disorders. Dr. Bergeron has discovered
an injectable iron chelator that has demonstrated superior activity to
desferrioxamine in primate models of iron overload. In addition, Dr. Bergeron
has discovered orally active chelators that demonstrate superior efficacy to
desferrioxamine in primate models of iron overload.

Product Development


                                       9

<PAGE>   10

    An injectable iron chelator has recently been licensed to Schein, and the
Company expects clinical testing to begin this year. Under the terms of the
agreement, Schein is financially responsible for completing pre-clinical and
clinical development of the compound.

DEVELOPMENT AND MARKETING AGREEMENTS

    The Company's strategy is to commercialize its products through development
and marketing agreements with pharmaceutical companies or other strategic
partners. GelTex expects that such agreements will provide the Company with (i)
financial support in the form of license, research and development and/or
milestone payments, (ii) capabilities in research and development and sales and
marketing and (iii) a revenue stream on product sales following regulatory
approvals. If the Company is unable to enter into development and marketing
agreements to support new products as planned, it may need to delay such
development and/or commercialization, or expend its resources to fund such
activities, which could result in a need for the Company to seek additional
sources of funding.

Genzyme Corporation

    In June 1997, GelTex and Genzyme formed the Renagel JV, a 50/50 joint
venture under which the parties finalized the development of and will
commercialize Renagel (sevelamer hydrochloride) in all countries other than
Japan and other Pacific Rim countries. In 1998 and 1999, the Company received
payments of $15 million and $10 million, respectively, from Genzyme in
connection with the FDA approval of Renagel. Under the agreement, the Company
and Genzyme are each required to make capital contributions to the Renagel JV in
an amount equal to 50% of all costs and expenses associated with the development
and commercialization of Renagel, including costs and expenses incurred by
either party in performing under the agreement, and the Company and Genzyme will
share equally in the profits generated from sales of the product. To the extent
that either party fails to fund its 50% share of costs and expenses and the
other party does not exercise its right to terminate the agreement, the profit
sharing interests and the future funding obligations of the parties will be
proportionately adjusted to correspond to the cumulative amount of capital
contributions made by each party as of such date. Under the agreement, GelTex
licensed all of its rights to Renagel in the territory to the Renagel JV and
Genzyme was appointed as the exclusive distributor of Renagel in the territory.
The Renagel JV commenced sales of Renagel Capsules in the United States in
November 1998 with an experienced and dedicated sales force consisting of 38
sales representatives and 4 regional managers. The Renagel JV received marketing
approval in Europe and Canada in February 2000 and plans to launch Renagel in
those territories in 2000.

Chugai Pharmaceutical Co., Ltd.

    In December 1994, GelTex granted Chugai an exclusive license to develop and
commercialize Renagel in Japan and other Pacific Rim countries. Chugai, a
leading Japanese pharmaceutical company, is the largest distributor in Japan of
rHuEPO, a product used to treat anemia in patients with chronic kidney failure.
In 1998, Chugai entered into an agreement with Kirin Brewery Co. Ltd. to jointly
develop and commercialize Renagel in Japan and certain other Pacific Rim
countries.

    The agreement between GelTex and Chugai provides for Chugai to fund the
development of Renagel in Japan and other Pacific Rim countries and grants
Chugai the exclusive right to manufacture and market the product in the
territory. Chugai made an upfront license payment to GelTex and has agreed to
make milestone payments to GelTex, payable throughout the development process in
Japan. Chugai will pay a royalty to GelTex on net product sales in the
territory. Chugai has the right to terminate the agreement on short notice at
any time prior to product approval in Japan. Termination will relieve Chugai of
any further payment obligations under the agreement and will end any license
granted to Chugai by GelTex. The Company received two milestone payments of $1
million each from Chugai, in December 1996 and December 1997 upon Chugai's
initiation of Phase 1 and Phase 2 clinical trials, respectively, and a payment
of $3 million in March 2000 upon Chugai's initiation of Phase 3 clinical trials.


                                       10

<PAGE>   11


Sankyo Pharma Inc.

    In December 1999, the Company entered into a Collaboration Agreement with
Sankyo for the final development and commercialization of Cholestagel, granting
Sankyo the exclusive right to market Cholestagel in the United States in
exchange for the Company's receipt of certain initial, milestone and royalty
payments from Sankyo. The Company also entered into a Collaboration Agreement
with Sankyo under which the Company sold Sankyo an option to obtain the
exclusive right to develop and market a second generation cholesterol lowering
compound in the United States, and, at Sankyo's option, Europe and Japan. Sankyo
has agreed to pay for all development costs for the second generation compound
for so long as their option to license the compound remains in effect. The
Company received payments in 1999 of $13 million in connection with these
agreements.

Warner-Lambert, Nippon Kayaku and Schein

    As a result of the acquisition of SunPharm, the Company is party to
sublicensing arrangements with each of Warner-Lambert, Nippon Kayaku and Schein.

    The sublicensing arrangement with Warner-Lambert grants Warner-Lambert
exclusive worldwide rights (excluding Japan) to manufacture and market the
polyamine, DENSPM, for all cancer indications in exchange for the Company's
receipt of certain milestone and royalty payments from Warner-Lambert. Warner
Lambert is responsible for completing all clinical trials at its expense.

    The sublicensing arrangement with Nippon Kayaku grants Nippon Kayaku
exclusive rights to develop and market DENSPM for cancer indications in Japan in
exchange for the Company's receipt of certain milestone and royalty payments.
Nippon Kayaku is responsible for completing all necessary clinical trials and
regulatory submissions at its own expense.

    The sublicensing arrangement with Schein grants to Schein an exclusive
sublicense to make and sell an injectable iron chelator in the European
Community, the United States, Canada, Cyprus, Australia and New Zealand, in
exchange for the Company's receipt of certain milestone and royalty payments.
Schein is financially responsible for completing pre-clinical and clinical
development of the compound.

STARTING MATERIAL AND MANUFACTURING

    The Company's two lead products, Renagel and Cholestagel, are manufactured
from a starting material which is covered by patents owned by a third party. The
Company has obtained a non-exclusive license under these patents to manufacture
the material in connection with the production of Renagel and Cholestagel. The
Company may not sublicense its rights under this license without the licensor's
consent, except to the Company's current supplier of the starting material and
certain other parties specified in the license. The license agreement may be
terminated upon short notice if the Company fails to meet its material
obligations under the license agreement, including lump sum payments, royalties
and confidentiality obligations.

    The Company has non-exclusively sublicensed its rights to manufacture the
starting material for its two lead compounds, Renagel and Cholestagel, to two
suppliers and is purchasing quantities of this material from one supplier under
a long-term fixed price supply agreement. The Company and the Renagel JV have
relied and will continue to rely upon third parties to manufacture commercial
quantities of Renagel. The Company and the Renagel JV have entered into
long-term supply agreements and a letter of intent with certain manufacturers
for the supply of drug substance for Renagel and for certain finishing,
packaging and labeling services to be provided to the Company and the Renagel JV
with respect to Renagel.

    Under the terms of the Collaboration Agreement with Sankyo, the Company is
obligated to supply Sankyo with commercial quantities of Cholestagel at fixed
prices. The Company will continue to rely upon its third party contract
manufacturers in order to satisfy this obligation to Sankyo. The Company has
entered into a contract for the initial commercial supply of drug substance for
Cholestagel. The Company is currently in the process of negotiating long-term
fixed price supply agreements for commercial quantities of drug substance and
for Cholestagel tablets. The Company cannot assure that its suppliers of
Cholestagel drug substance or Cholestagel tablets will be able to deliver
materials to the Company at or below the fixed prices the Company has offered to
Sankyo. To the extent the Company's suppliers are not able to satisfy its
requirements at such prices, the Company's results of operations would be
materially adversely affected.


                                       11

<PAGE>   12

    The Company is continuing to work with its third party manufacturers to
increase capacities and efficiencies for the commercial production of Renagel
and Cholestagel. In addition, the Company is exploring relationships with other
suppliers to complement its relationships with its existing suppliers. The
Company has established a quality control program, including a set of standard
operating procedures, intended to ensure that third party manufacturers under
contract produce the Company's compounds in accordance with the FDA's current
Good Manufacturing Practices.

    The Company also plans to rely on third parties for the production of
polyamine analogue compounds and iron chelators in limited quantities for
pre-clinical and clinical trials and does not currently possess the staff or
facilities necessary to manufacture these compounds in commercial quantities.
The Company cannot ensure that it or its suppliers can manufacture the polyamine
analogue compounds or iron chelators at a cost or in quantities necessary to
make these compounds commercially viable.

    The production of GelTex's compounds is based in part on technology that the
Company believes to be proprietary. GelTex maintains confidentiality agreements,
contractual arrangements and patent filings to protect this proprietary
knowledge. In the event that the Company's manufacturers fail to abide by the
limitations or confidentiality restrictions in the manufacturing arrangements,
the proprietary nature of GelTex's technology could be adversely affected and,
consequently, any competitive advantage that GelTex has achieved as a result of
the proprietary nature of this technology could be jeopardized.

PATENTS AND TRADE SECRETS

    The biotechnology and pharmaceutical industries place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company actively seeks, when appropriate, protection
for its products and proprietary information by means of United States and
foreign patents and registration of its trademarks. In addition, the Company
relies upon trade secrets and contractual arrangements to protect certain of its
proprietary information and products.

    The Company owns 24 issued U.S. patents, 5 allowed U.S. patent applications
and approximately 30 pending U.S. patent applications. In addition, the Company
owns 14 issued foreign counterpart patents and over 100 pending foreign
counterpart patent applications. The U.S. and foreign patents issued to the
Company include those which cover several classes of orally administered,
non-absorbed polymers and their use in the treatment of hyperphosphatemia
including technology related to the Company's commercialized phosphate-binding
product sold under the trademark, Renagel(R). Other U.S. patents issued to the
Company cover multiple classes of orally administered non-absorbed polymers and
their use as bile acid sequestrants including claims covering the Company's
Cholestagel bile acid sequestrant and uses therefor. Several other of the
Company's issued U.S. patents cover technology relating to polymers and their
uses in the treatment of infectious diseases. There can be no assurance that any
patents will issue from any of the Company's other patent applications. Further,
there can be no assurance that any current or future patents will provide the
Company with significant protection against competitive products or otherwise be
of commercial value.

    As a result of the Company's acquisition of SunPharm, the Company is the
exclusive, worldwide licensee of 47 issued U.S. Patents, 4 issued foreign
patents, 26 pending U.S. patent applications and over 40 pending foreign
counterpart patent applications owned by the University of Florida. The U.S. and
foreign patents licensed from the University of Florida include patents covering
technology relating to polyamines and their uses as therapeutics for the
treatment of various diseases. Other U.S. patents licensed from the University
of Florida include patents covering iron chelators and their uses in the
treatment of disease.

    Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of its scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires its employees and certain consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company. These
agreements require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by employees and, when possible
and appropriate, consultants, advisors and collaborators. There can be no
assurance that these agreements will effectively prevent disclosure of the
Company's confidential information or will provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure.


                                       12
<PAGE>   13


Furthermore, the Company's business may be adversely affected by competitors who
independently develop substantially equivalent or improved technology.

COMPETITION

    The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company, including research and
development of products for hyperphosphatemia, hypercholesterolemia, cancer,
iron overload, obesity, and infectious diseases.

    Phosphate binders are currently the only available treatment for
hyperphosphatemia. In addition to Renagel, there are several other phosphate
binders available or under development. A prescription calcium acetate
preparation is currently the only other product approved in the United States
for the treatment of elevated phosphorus levels in patients with end-stage renal
disease. Other products used as phosphate binders include over-the-counter
calcium-and aluminum-based antacids and dietary calcium supplements. The
treatment of hyperphosphatemia with calcium has been shown to result in
hypercalcemia, and the treatment of hyperphosphatemia with aluminum has been
shown to result in aluminum-related osteomalacia (softening of the bones),
anemia and dialysis dementia (deterioration of intellectual function). Despite
the lower price points associated with other phosphate binders, the Company
believes that Renagel will effectively compete with existing phosphate binders.
Renagel is the only phosphate binder that is both aluminum-free and
calcium-free. As a result, Renagel offers an opportunity to aggressively treat
hyperphosphatemia without the risk of aluminum intoxication, and with
significantly decreased incidences of hypercalcemia.

    In the cholesterol-reduction field, products are currently available that
address many of the needs of the market. These products include other bile acid
sequestrants, HMG-CoA reductase inhibitors, fibric acid derivatives and
niacin-based products. In 1999, sales of HMG-CoA reductase inhibitors
represented approximately 97% of the market for cholesterol-reducing drugs sold
in the United States. Combined worldwide sales of HMG-CoA reductase inhibitors
exceeded $12 billion in 1999. Bile acid sequestrants work without entering the
bloodstream and are generally regarded as safer than absorbed agents such as
HMG-CoA reductase inhibitors, which require frequent liver function tests. The
most widely prescribed bile acid sequestrant in the United States is
cholestyramine, a polymer resin. The Company believes that Cholestagel will
effectively compete with currently available bile acid sequestrants by offering
improved potency and tolerability and a more palatable formulation than that of
currently available bile acid sequestrants. However, currently marketed products
often have a significant competitive advantage over new entrants and there can
be no assurance that the Company will be able to secure a sufficient percentage
of its targeted market to meet its current revenue projections. Failure to do so
will adversely affect the Company's ability to achieve and sustain
profitability.

    In addition to currently available therapies, several of the Company's
competitors are engaged in development activities and clinical trials of other
types of cholesterol-reducing and phosphate-binding agents. Many of the
Company's competitors have substantially greater financial and other resources,
larger research and development staffs and more extensive marketing and
manufacturing organizations than the Company. These competitors may also compete
with the Company in establishing development and marketing agreements with
pharmaceutical companies. There are also academic institutions, governmental
agencies and other research organizations that are conducting research in areas
in which the Company is working.

    The Company's other projects are also in highly competitive areas. The
Company cannot assure that competitors will not succeed in developing
technologies and products that are more effective than any which the Company is
developing or anticipates developing.


                                       13

<PAGE>   14


GOVERNMENT REGULATION

    The development, manufacture and potential sale of therapeutics is subject
to extensive regulation by United States and foreign governmental authorities.
In particular, pharmaceutical products are subject to rigorous pre-clinical and
clinical testing and to other approval requirements by the FDA in the United
States under the Federal Food, Drug and Cosmetic Act and the Public Health
Service Act and by comparable agencies in most foreign countries.

    Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. The data, obtained from studies in several
animal species, as well as from laboratory studies, are submitted in an
Investigational New Drug ("IND") application (or its equivalent in countries
outside the United States) in the country in which clinical studies are to be
conducted. The pre-clinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initiation of clinical
trials.

    Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase 1, which frequently begins with the initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse affects, dosage,
tolerance, absorption, metabolism, excretion and pharmacology effects. Phase 2
typically involves studies in a small sample of the intended patient population
to assess the efficacy of the compound for a specific indication, to determine
dose tolerance and the optimal dose range as well as to gather additional
information relating to safety and potential adverse effects. Phase 3 trials are
undertaken to further evaluate clinical safety and efficacy in an expanded
patient population at geographically dispersed study sites, in order to
determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. For studies conducted in the United States, each protocol must be
submitted to the FDA as part of the IND.

    Data from pre-clinical and clinical trials are submitted to the FDA in a NDA
for marketing approval and to other health authorities as a marketing
authorization application or similar dossier. The process of completing clinical
trials for a new drug is likely to take a number of years and require the
expenditure of substantial resources. Preparing a NDA or marketing authorization
application involves considerable data collection, verification, analysis and
expense, and there can be no assurance that FDA or any other health authority
approval will be granted on a timely basis, if at all. The approval process is
affected by a number of factors, including the risks and benefits demonstrated
in clinical trials as well as the severity of the disease and the availability
of alternative treatments. The FDA or other health authorities may deny a NDA or
marketing authorization application if the authority's regulatory criteria are
not satisfied. Alternately, they may require additional testing or information.

    Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase 4 post-marketing studies, may be required to
provide additional data on safety or effectiveness. In addition, new studies
will be required to gain approval for the use of a product as a treatment for
clinical indications other than those for which the product was initially
approved. Also, the FDA and other regulatory authorities require post-marketing
reporting to monitor the side effects of the drug. Results of post-marketing
programs may limit or expand the further marketing of the products. Further, if
there are any modifications to the drug, including changes in indication,
manufacturing process or labeling or a change in manufacturing facility, an
application seeking approval of such changes will be required to be submitted to
the FDA or other regulatory authority.

    Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in most foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings in the European Union, in general, each country
at this time has its own procedures and requirements. Further, the FDA regulates
the export of products produced in the United States and may prohibit the export
even if such products are approved for sale in other countries.

    In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances




                                       14
<PAGE>   15

Control Act, the Resources Conservation and Recovery Act and other present and
potential future federal, state and local regulations.

    Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and a lengthy period of time.
Delay or failure in obtaining the required approvals, clearances or permits by
the Company, its corporate partners or its licensees would have a material
adverse effect on the ability of the Company to generate sales or royalty
revenue. The impact of new or changed laws or regulations cannot be predicted
with any accuracy.

HUMAN RESOURCES

    As of March 10, 2000, GelTex had 112 full-time employees. Ninety-seven of
these individuals (32 of whom hold Ph.D. or M.D. degrees) are involved in
research and development, and 15 are in general and administrative functions.
The Company has also engaged a number of expert consultants from a variety of
different disciplines, with expertise in polymer chemistry, medicinal chemistry,
molecular recognition, clinical pharmacology and clinical medicine.

RESEARCH AND DEVELOPMENT COSTS

    The information required by Item 101(c)(xi) of Regulation S-K is
incorporated by reference from Part II, Item 8 "Financial Statements and
Supplementary Data" and specifically from the "Statement of Operations" set
forth on page F-4 of the Company's attached financial statements.

ITEM 1(A) MANAGEMENT

EXECUTIVE OFFICERS

    The executive officers of the Company, who served at the discretion of the
Board of Directors during 1999, are as follows:


       NAME                       AGE                 POSITION

 Mark Skaletsky                   51         President, Chief Executive
                                             Officer and Director

 Edmund J. Sybertz, Ph.D.         49         Senior Vice President, Research
                                             and Development

 Joan E. Bell, Ph.D.*             44         Vice President, Project
                                             Management and Strategic Planning

 Steven K. Burke, M.D.            39         Vice President, Clinical Research

 Paul J. Mellett, Jr.             44         Vice President, Administration
                                             and Finance, Chief Financial
                                             Officer and Treasurer

 Douglas Reed, M.D.*              46         Vice President, Business
                                             Development

* Dr. Bell and Dr. Reed are no longer employed by the Company.

    MARK SKALETSKY, President, Chief Executive Officer and Director. Mr.
Skaletsky joined GelTex in May 1993 as President, Chief Executive Officer and a
Director of the Company. He also served as Treasurer of the Company from August
1993 until May 1997. Mr. Skaletsky previously served from 1988 to 1993 as
Chairman and Chief Executive Officer of Enzytech, Inc., a biotechnology company,
and President and Chief Operating Officer of Biogen, Inc., a biotechnology
company, from 1983 to 1988. He is a director of Isis Pharmaceuticals, Inc. and
Microcide Pharmaceuticals, Inc.



                                       15
<PAGE>   16


    EDMUND J. SYBERTZ, JR., Ph.D., Senior Vice President, Research and
Development. Dr. Sybertz joined the Company in March 1998. Prior to joining
GelTex, Dr. Sybertz held various positions of increasing responsibility at
Schering Plough Research Institute, the pharmaceutical research arm of
Schering-Plough Corporation, a pharmaceuticals corporation, from 1979 to 1998,
including most recently Senior Director and Presidential Fellow, Biological
Research, New Drug Discovery.

    JOAN E. BELL, Ph.D., Vice President, Project Management and Strategic
Planning. Dr. Bell joined the Company in February 1999 and resigned in February
2000. Prior to joining GelTex, Dr. Bell was Vice President, Development
Management from 1998 to 1999 and Director, R & D Administration from 1993 to
1998 at Genetics Institute of Wyeth-Ayerst, a research-based pharmaceutical and
health care products company.

    STEVEN K. BURKE, M.D., Vice President, Clinical Research. Dr. Burke joined
GelTex in 1994 after having served as Associate Director, Gastrointestinal
Clinical Research of Glaxo, Inc., a pharmaceutical company, from 1992 to 1994
and Assistant Clinical Professor of Medicine, Gastroenterology, at the
University of North Carolina from 1993 until 1994. Dr. Burke also served as a
Staff Physician, Gastroenterology, at the Brockton/West Roxbury VA Medical
Center from 1995 to 1998. He was a Research Fellow in Gastroenterology from 1991
to 1992 and a Clinical Fellow in Gastroenterology from 1990 to 1991 at Brigham
and Women's Hospital.

    PAUL J. MELLETT, JR., Vice President, Administration and Finance, Chief
Financial Officer and Treasurer. Mr. Mellett joined the Company in April 1997
from Marshall Contractors, Inc. where he most recently served as Chief Financial
Officer. Marshall Contractors, Inc. is a construction management firm
specializing in biotechnology and microelectronics projects. Before joining
Marshall Contractors, Inc. in 1994, Mr. Mellett was an Audit Partner with
Deloitte & Touche LLP in Boston which he joined in 1977.

    DOUGLAS REED, M.D., Vice President, Business Development. Dr. Reed joined
GelTex in 1998 after having served as Vice President, Business Development of
NPS Pharmaceuticals, Inc., a pharmaceutical company, from 1996 to 1998. Dr. Reed
was Vice President of S.R. One, Limited Venture Investments, an affiliate of
Smith Kline Beecham, from 1991 to 1996. Dr. Reed resigned from GelTex in January
2000.

ITEM 2. PROPERTIES

    The Company leases approximately 80,000 square feet of space (including
67,000 square feet of laboratory and office space with the remainder available
for expansion) in one building at 153 Second Avenue, Waltham, Massachusetts
under the terms of a synthetic lease. The building serves as the Company's
headquarters and houses all of the Company's operations. The lease commenced in
October 1998. Under the terms of the lease, the lessor funded an aggregate of
$25.0 million for the purchase of the building and for the costs associated with
the build-out of this facility. The Company served as construction agent for the
lessor and moved into the facility in September 1999. The lease term expires in
2005. The Company has the option to purchase the building and improvements
during the lease term and at the end of the lease (see Note 15 to the Notes to
Financial Statements).

    In October 1999, the Company completed the purchase of a building and land
adjacent to the Company's new headquarters consisting of 19,200 square feet on
4.7 acres. The Company obtained financing for $3.0 million of the $3.2 million
purchase price from its principle banking institution and has pledged $3.0
million of its marketable securities as collateral for the note. The note is
repayable on September 30, 2002.

    The Company leases its former facility under a ten-year agreement expiring
in February 2007. The lease requires annual payments of $302,000 until March
2002, and $353,000 for the remainder of the term. The Company intends to
sublease this facility. The Company continues to lease a prior facility under an
agreement expiring in 2004. The prior facility has been sublet under an
agreement expiring in 2004, and the payments to the Company under the sublease
are expected to cover the Company's costs associated with this facility.

ITEM 3. LEGAL PROCEEDINGS

    The Company is not a party to any material legal proceedings.


                                       16
<PAGE>   17

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

    Not applicable.

PART II

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

    The Company's Common Stock is quoted on The Nasdaq Stock Market(R) under the
symbol "GELX." The following table sets forth, for the periods indicated, the
range of the high and low last sale prices for the Company's Common Stock:


                                             HIGH          LOW
      1998
        First Quarter                     $ 29 7/8      $ 25 5/8
        Second Quarter                      27 1/16       18 5/8
        Third Quarter.                      24 3/4        14 5/8
        Fourth Quarter                      27 3/8        16 1/4

      1999
        First Quarter                     $ 28 1/8      $ 13 15/16
        Second Quarter                      22 5/8        13 7/8
        Third Quarter.                      17 3/16       10 1/16
        Fourth Quarter                      14 5/16        9 1/2

    The Company has never declared or paid cash dividends on shares of its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, for use
in its business. In addition, the terms of the Company's bank debt prohibit the
payment of dividends.

    As of March 23, 2000, there were approximately 242 holders of record and
6,029 beneficial holders of the Company's Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

    The following selected financial data for the five years ended December 31,
1999 are derived from the Company's audited financial statements. The data set
forth below should be read in conjunction with the Company's audited financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Annual Report on Form 10-K.


                                       17

<PAGE>   18


<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                              -----------------------
                                                            1995         1996           1997           1998           1999
                                                        -----------  -----------    -----------    -----------     ---------
 (IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
<S>                                                      <C>           <C>            <C>            <C>            <C>
Revenue:
  License fee and research revenue ................      $   750       $  1,244       $  1,000       $ 25,000       $10,668
  Collaborative Joint Venture project reimbursement           --             --          9,196          7,658         5,781
  Research grant ..................................          157            419            289             --            --
                                                         -------       --------       --------       --------       -------
    Total revenue .................................          907          1,663         10,485         32,658        16,449
Costs and Expenses:
  Research and development ........................        6,504         21,755         22,251         27,904        32,602
  Collaborative Joint Venture project costs .......           --             --          9,196          7,658         5,781
                                                         -------       --------       --------       --------       -------
    Total research and development ................        6,504         21,755         31,447         35,562        38,383
  General and administrative ......................        1,873          2,924          4,089          5,583         6,935
  Other, nonrecurring .............................           --            230             --             --         9,530
                                                         -------       --------       --------       --------       -------
    Total costs and expenses ......................        8,377         24,909         35,536         41,145        54,848
                                                         -------       --------       --------       --------       -------
Loss from operations ..............................       (7,470)       (23,246)       (25,051)        (8,487)      (38,399)
Interest income ...................................          684          3,343          3,095          5,069         4,372
Interest expense ..................................          (99)           (75)          (218)          (613)         (485)
Equity in loss of Joint Venture ...................           --             --         (2,310)        (7,536)       (7,937)
                                                         -------       --------       --------       --------       -------
Net loss ..........................................      $(6,885)      $(19,978)      $(24,484)       (11,567)      (42,449)
                                                         =======       ========       ========       ========       =======
Net loss per common share and per common share
   assuming dilution ..............................      $ (0.85)      $  (1.60)      $  (1.80)      $  (0.72)      $ (2.50)
                                                         =======       ========       ========       ========       =======
Shares used in computing net loss per common
  share and per common share assuming dilution ....        8,109         12,513         13,592         16,023        17,003


                                                                                    DECEMBER 31,
                                                                                    ------------
                                                            1995         1996           1997           1998           1999
                                                        -----------  -----------    -----------    -----------     ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash, cash equivalents and marketable
  securities....................................         $33,175        $73,425        $52,623       $104,952       $72,429
Working capital.................................          31,824         72,461         49,099        110,821        68,446
Total assets....................................          35,993         78,068         67,118        133,445       106,089
Long term obligations, less current portion.....             420            124          6,923          5,206         6,560
Stockholders' equity............................          33,650         75,056         53,418        120,020        92,702
</TABLE>

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

Overview

    Since inception, the Company has focused its resources on the research and
development of non-absorbed, polymer-based pharmaceuticals that selectively bind
to and eliminate target substances from the intestinal track, including the
development of processes to manufacture product candidates. In November 1999,
with the acquisition of SunPharm, the Company acquired expertise in two
chemically related classes of molecules, polyamines and iron chelators. GelTex
has not generated significant revenue from product sales and has been dependent
upon funding from external financing, strategic corporate alliances, interest
income and government grants. The Company has not been profitable since
inception and had an accumulated deficit of $109.0 million at December 31, 1999.
Losses have resulted principally from costs incurred in research and
development, and manufacturing and clinical testing of products and potential
products, and from general and administrative expenses. The Company expects its
research and development expenses to continue to increase in connection with the
continuing expansion of its anti-obesity, infectious diseases, polyamine and
iron chelator programs, and the Company expects to report continuing losses from
its interest in the Renagel JV through at least 2000. As a result, the Company
expects to incur additional operating losses through at least 2000. The
Company's ability to achieve and sustain profitability is dependent on the
successful commercialization of Renagel, the ability to obtain regulatory
approval for, and the successful commercialization of, Cholestagel, the
Company's ability to enter into product development and commercialization
agreements with corporate partners, and the



                                       18
<PAGE>   19

Company's ability to secure and maintain contract manufacturing services for the
commercial supply of its potential products at an acceptable cost. Revenue the
Company may earn from strategic corporate alliances may result in the Company
experiencing periods of profitability. However, the Company's results of
operations for such periods may not be indicative of the Company's results of
operations for other periods in which the Company does not earn revenue from
strategic corporate alliances.

Results of Operations

Fiscal Years Ended 1999, 1998 and 1997

    The Company earned total revenue of $16.4 million in 1999, compared to $32.7
million earned in 1998 and $10.5 million earned in 1997. Included in 1999
revenue was $8.9 million earned upon the signing of Collaboration Agreements
with Sankyo for the exclusive marketing rights in the United States for
Cholestagel and the option to acquire rights to commercialize a second
generation compound in certain specified territories. The remaining $1.7 million
of revenue resulted from non-recurring reimbursement from another corporate
partner for certain Renagel process development and manufacturing costs incurred
by the Company. Included in 1998 revenue was a $25.0 million milestone fee
earned from its partner, Genzyme, on October 30, 1998, when the Company received
FDA marketing approval for Renagel. The agreement with Genzyme also provides
that the Company and Genzyme are each expected to fund the Renagel JV in an
amount equal to 50% of budgeted costs and expenses associated with final
development and commercialization of Renagel for the relevant period. Each party
incurring project expenses, either as internal operating expenses or third party
obligations, is reimbursed by the Renagel JV for 100% of the costs incurred.
During 1999, 1998 and 1997, the Company earned $5.8 million, $7.6 million and
$9.2 million, respectively in reimbursement revenue from the Renagel JV for
certain development and manufacturing costs incurred by the Company. The amount
of reimbursement revenue earned by the Company will vary according to the
obligations of, and related expenses, incurred by the Company and is expected to
continue to decrease in the future as the Company completes its development
activities for the Renagel JV. In 1997, the Company's other sources of revenue
consisted of a $1.0 million milestone payment from a corporate partner and
approximately $290,000 under a grant from the United States Department of
Commerce's Advanced Technology Program. The Company has received all the
payments it is expected to receive under this grant.

    The Company's total operating expenses for 1999 were $54.8 million, compared
to $41.1 million in 1998 and $35.5 million in 1997. Research and development
expenses increased 8% to $38.4 million in 1999 from the $35.6 million incurred
in 1998, which was a 13% increase over the $31.4 million incurred in 1997. The
increase in 1999 was largely a result of a non-recurring process development
charge of $5.9 million related to Cholestagel manufacturing, increased expenses
related to clinical trials for Cholestagel, and increased personnel and research
and development costs associated with the Company's anti-obesity and infectious
diseases programs. In addition, in 1999, the Company incurred a one-time
in-process research and development charge of $9.5 million in conjunction with
the acquisition of SunPharm. The increase during 1998 was due primarily to
increased clinical trial and process development costs for Cholestagel, as well
as costs associated with the anti-obesity and infectious diseases programs.
General and administrative expenses increased approximately 23% to $6.9 million
in 1999 from $5.6 million in 1998 and from $4.1 million in 1997, due primarily
to increased business development costs and increased administrative personnel
and related costs.

    The Company's equity in the loss of the Renagel JV increased to $7.9 million
in 1999, compared to $7.5 million in 1998 and $2.3 million in 1997. The
increased loss in 1999 was primarily due to higher sales and marketing expenses
that were not entirely offset by decreased development costs and increased sales
revenue. The Company expects that the Renagel JV will continue to operate at a
loss at least through 2000. Interest income decreased to $4.4 million from $5.1
million in 1998 due to a lower average balance of available cash to invest.
Interest income in 1998 was significantly higher than interest income of $3.1
million in 1997 due to significantly higher average cash balances available for
investment resulting from the infusion of $76 million raised by the Company in
its March 1998 follow-on public offering of common stock.

    On November 17, 1999, the Company acquired SunPharm for an aggregate
purchase price of $16.4 million primarily through the issuance of 1.2 million
shares of its common stock. The transaction has been recorded as a purchase for
accounting purposes and the consolidated financial statements include SunPharm's
operating results from the date of the acquisition. The purchase price has been
allocated,



                                       19
<PAGE>   20

based upon an independent valuation, to the assets purchased and liabilities
assumed based upon their respective fair values, with the excess of the purchase
price over the estimated fair market value of net tangible assets allocated to
acquired in-process research and development and purchased goodwill.

    The amount allocated to purchased goodwill, of approximately $6.9 million or
6% of total net assets as of December 31, 1999, is being amortized on a
straight-line basis over a period of seven years. The 1999 amortization expense
related to these intangibles was $0.1 million. GelTex incurred a nonrecurring
charge to operations of $9.5 million for acquired in-process research and
development. The valuation of acquired in-process research and development
represents the estimated fair value related to incomplete projects that, at the
time of the acquisition, had no alternative future use and for which
technological feasibility had not been established. The income approach was used
to establish the fair value in-process research and development. This approach
establishes the fair value of an asset by estimating the after-tax cash flows
attributable to the asset over its useful life and then discounting these
after-tax cash flows back to a present value.

    With respect to the value of purchased research and development, the Company
considered, among other factors, estimates of growth rates and the aggregate
size of the respective market for each product; probability of technical success
given the stage of development at the time of acquisition; royalty rates based
on prior licensing agreements; product sales cycles; and the estimated life of a
product's underlying technology. Estimated operating expenses and income taxes
are deducted from revenue projections to arrive at estimated after-tax cash
flows. Projected operating expenses include general and administrative expenses,
and research and development costs. The discount rates used in the analysis
ranged from 40% to 45% depending upon the risk profile of the project.

    The Company believes that the assumptions used to value the acquired
intangibles were reasonable at the time of the acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate expected
project revenues, development costs or profitability, or the events associated
with such projects, will transpire as estimated. For these reasons, among
others, actual results may vary from the projected results.

    The in-process technology acquired from SunPharm consisted of two
significant research and development projects, DENSPM for solid tumor cancer and
DEHOP for AIDS-related diarrhea, with values assigned of $8.7 million and $0.8
million, respectively. Through the acquisition date, SunPharm had spent
approximately $7.4 million on in-process research and development projects.

    The successful completion of the aforementioned projects will require the
completion of significant activities over which the Company may have limited or
no control, including product validation, the successful completion of clinical
trials, and governmental regulatory approvals. If these projects are not
successfully developed, the Company may not realize the value assigned to the
in-process technology. Additionally, the value of the other intangible assets
acquired may also become impaired.

Liquidity and Capital Resources

    The Company financed its operations through December 31, 1999, primarily
from a total of $163.3 million in net proceeds from three public offerings of
equity securities, $20.7 million from private sales of equity securities, $64.5
million consisting of license fees and milestone payments earned in connection
with its collaborative relationships, and Renagel JV project reimbursement and
$16.9 million in interest income. Cash, cash equivalents and marketable
securities were $72.4 million at December 31, 1999, compared to $104.9 million
at December 31, 1998. In March 2000, the Company raised $35.0 million in net
proceeds from the sale of 1.75 million shares of its Common Stock and the
Company entered into an agreement under which the Company could elect to sell an
additional 1.75 million shares of Common Stock over a twelve month period.

    In December 1999, the Company entered into Collaboration Agreements with
Sankyo for the exclusive marketing rights in the United States for Cholestagel
and the option to acquire rights to commercialize a second generation product.
Per the terms of the agreement, the Company received initial licensing and
option fees of $13.0 million in 1999 and will receive a $20.0 million milestone
payment upon marketing approval of Cholestagel by the FDA. Should Sankyo elect
to exercise its option for the second generation compound, and should Sankyo
further elect to develop and commercialize the compound outside of the United
States, the Company may receive additional milestone payments in connection with
marketing




                                       20
<PAGE>   21

approval of the second generation product in Europe and Japan. Additionally, the
Company will receive royalties on net sales of Cholestagel and the second
generation product once they are marketed by Sankyo.

    In September 1999, the Company negotiated a $4.0 million lease line to
finance the cost of equipment purchases. As of December 31, 1999, the Company
had drawn approximately $600,000 on this lease line, and the Company expects to
draw down the remainder of the line over the next 18 months. All amounts drawn
on the line are required to be repaid in 60 equal monthly installments
commencing in March 2001.

    Under the terms of the agreement creating the Renagel JV, the Company and
Genzyme are each required to make capital contributions to the Renagel JV in an
amount equal to 50% of all costs and expenses associated with the development
and commercialization of Renagel, including costs and expenses incurred by
either party in performing under the agreement, and the Company and Genzyme will
share equally in the profits generated from sales of the product. To the extent
that either party fails to fund its 50% share of costs and expenses and the
other party does not exercise its right to terminate the agreement, the profit
sharing interests and the future funding obligations of the parties will be
proportionately adjusted to correspond to the cumulative amount of capital
contributions made by each party as of such date.

    In November 1999, the Company entered into an agreement with its
manufacturer of the raw material for Cholestagel and Renagel. Under the terms of
the agreement, the Company will be obligated to purchase certain minimum
quantities of material beginning in 2000. The Company estimates that its minimum
purchase obligations during 2000 will be approximately $3.0 million, and that
its minimum purchase obligations during each of the remaining six years of the
term of the agreement will be approximately $2.7 million. The Company has agreed
to ensure a source of raw material for the Renagel JV's and its own contract
manufacturers of Renagel and Cholestagel. The Company's raw material minimum
purchase obligations in 2000 do not exceed the amount of raw material that will
be required by the contract manufacturers of Renagel and Cholestagel to
manufacture the minimum quantities of such products which the Company or the
Renagel JV are required to purchase in 2000, as discussed below.

    The Company and the Renagel JV have entered into long-term supply agreements
and a letter of intent with certain contract manufacturers for the supply of
drug substance for Renagel and for certain finishing, packaging and labeling
services to be provided to the Company and the Renagel JV with respect to
Renagel. All of the contract manufacturing agreements and the letter of intent
require certain minimum purchase obligations to be met during 2000 and
throughout the term of the respective agreement. The Company expects that the
aggregate minimum purchase obligations that will be incurred under these
agreements and the letter of intent during 2000 will be approximately $23.9
million. All minimum purchase obligations whether arising under a contract with
the Renagel JV or with the Company are costs associated with the Renagel JV and
will be borne equally by the Company and Genzyme.

    In October 1999, the Company completed the purchase of a building and land
adjacent to the Company's new headquarters. The Company obtained financing for
$3.0 million of the $3.2 million purchase price from its principle banking
institution and has pledged $3.0 million of its marketable securities as
collateral for the note. The note is repayable on September 30, 2002.

    In October 1999, the Company completed the build-out of a new corporate
headquarters. The purchase and build-out of the facility was approximately $25.0
million and was financed through a synthetic lease transaction. The synthetic
lease is an asset-based financing structure that is treated as an operating
lease for accounting purposes. The lease term commenced on October 21, 1998 and
continues for seven years, thereafter. Upon the completion of the construction
phase in October 1999, the Company began to pay rent on a monthly basis of
approximately $187,000, which is based on a fixed rate of 8.99% on the
outstanding balance. During the term of the lease, the Company has the option to
purchase the building and the improvements for a purchase price equal to the
total amount funded by the lessor of $25.0 million, plus any accrued and unpaid
rent and certain other costs outlined in the agreements (the "Purchase Price").
At the end of the lease term, the Company has the option to (i) purchase the
building and the improvements for the Purchase Price, (ii) arrange for the
facility to be purchased by a third party, or (iii) return the building and
improvements to the lessor; provided, however, in the case of options (ii) and
(iii), the Company is contingently liable to the extent the lessor is not able
to realize 85% of the Purchase Price upon the sale or other disposition of the
property. Under the terms of the synthetic lease, the Company is required to
comply with certain financial covenants which, among other things, require the
maintenance of minimum levels of cash, tangible net worth, liquidity and debt
service coverage and prohibits the payment of dividends. The Company was in
compliance with these terms at December 31, 1999.



                                       21
<PAGE>   22

    In May 1997, the Company entered into a $5 million term loan to finance
build-out costs of a former facility. This loan was increased by $3 million in
October 1997 to finance capital equipment costs associated with a contract
manufacturing agreement for Renagel. In June 1998, these two instruments were
consolidated and the terms were modified such that the consolidated loan is
payable in quarterly installments through June 30, 2002, with a final payment of
$1.2 million due on September 30, 2002. At December 31, 1999, the outstanding
principal balance on this debt was $5.0 million.

    The Company leases its former facility under a ten-year agreement expiring
in February 2007. The lease requires annual payments of $302,000 until March
2002, and $353,000 for the remainder of the term. The Company intends to
sublease this facility. The Company continues to lease a prior facility under an
agreement expiring in 2004. The prior facility has been sublet under an
agreement expiring in 2004, and the payments to the Company under the sublease
are expected to cover the Company's costs associated with this facility.

    At December 31, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $97.1 million, which expire through 2019.
Since the Company expects to incur operating losses through 2000, the Company
believes that it is more likely than not that all of the deferred tax assets
will not be realized, and therefore no tax benefit for the prior losses has been
provided. The future utilization of net operating loss carryforwards may be
subject to limitation under the changes in stock ownership rules of the Internal
Revenue Code of 1986, as amended. Because of this potential limitation, it is
possible that the Company will be unable to utilize all or some portion of its
net operating loss carryforwards, and as a result, taxable income in future
years, which would otherwise be offset by net operating losses, will not be
offset and therefore will be subject to tax.

    The Company believes that its existing cash balances and marketable
securities coupled with the proceeds from the potential sale, if any, of the
1.75 million shares of Common Stock will be sufficient to fund its operations
through at least the year 2002. However, the Company's cash requirements may
increase materially from those now planned if, among other things, sales of
Renagel do not meet the Company's projections, Cholestagel does not receive
marketing approval or such approval is delayed, the commercialization of
Cholestagel, once approved, is not successful, the results of the Company's
research and development efforts are not favorable, the Company is unable to
enter into new relationships with strategic partners, competitive technological
advances undermine the success of the Company's products, or the FDA regulatory
process results in decisions which are not favorable to the Company. Adequate
additional funds, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license third
parties to commercialize products or technologies under terms that the Company
might otherwise find unacceptable.

Year 2000

    While no significant business interruption has occurred since January 1,
2000, the Company will continue to monitor its systems for Year 2000 compliance
issues that may still occur. The Company cannot assure that business
interruptions will not occur related to Year 2000 compliance. Additionally, the
inability of a third party upon which the Company is dependent to address issues
related to Year 2000 compliance could have a material adverse effect on the
Company's business, financial condition and results of operations.

Factors Affecting Future Operating Results

    Except for historical information contained herein, the discussion in this
section, as well as elsewhere in this Annual Report, contains forward-looking
statements including, without limitation, statements regarding the Company's
current expectations with respect to timing, sufficiency, and results of
clinical trials, the establishment of corporate partnering agreements, the
timing of the Company's cash requirements, the timing of regulatory approvals
for certain products and the potential applications of the Company's technology.
These statements represent the current expectations of the Company's management.
Actual results could differ materially from those projected due to factors
affecting the Company's cash requirements as described above. In addition, the
Company's ability to achieve the results projected is subject to certain risks
and uncertainties regarding the Company's business such as those set



                                       22
<PAGE>   23

forth below. Readers are cautioned not to place undue reliance upon these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly announce the result of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.

Minimal Product Sales to Date; Risks Related to Lead Product and Potential
Products

     As of December 31, 1999, the Renagel JV has generated cumulative revenue
from product sales in the amount of approximately $19.8 million. The Company has
not generated any other revenue from product sales. Although the FDA, the
European Commission and the Health Protection Branch of the Canadian Government
have granted marketing approval for Renagel Capsules, no assurance can be given
that the product will receive market acceptance and meet sales expectations.

     On July 30, 1999, the Company filed a NDA for Cholestagel with the FDA.
There can be no assurance that the results of any of the Company's clinical
trials will be sufficient to meet the FDA's requirements for product approval.
The failure to obtain FDA approval for Cholestagel, or any significant delay in
obtaining such approval, would have a material adverse effect on the Company. If
FDA approval for Cholestagel is obtained, the Company cannot assure that the
product will achieve market acceptance or meet expected sales goals. The failure
to do so would have a material adverse effect on the Company's results of
operations.

Dependence on Corporate Alliances; Uncertainty of Market Acceptance

     The Company's lead product, Renagel, is currently being sold in the United
States, and is expected to be launched in Europe and Canada in 2000, through a
Joint Venture with Genzyme. The Company has also entered into a collaboration
agreement with Chugai for the development and commercialization of Renagel in
Japan and other Pacific Rim countries. In December 1999, the Company entered
into a Collaboration Agreement with Sankyo for the final development and
commercialization of Cholestagel in the United States, as well as a
Collaboration Agreement granting Sankyo an option to obtain exclusive rights to
develop and commercialize a second generation cholesterol-lowering compound in
various territories. In connection with the acquisition of SunPharm, the Company
acquired a collaboration agreement with the University of Florida and a
consulting agreement with Professor Raymond Bergeron, under which substantially
all of the research and a large portion of the early preclinical development
work related to polyamines and iron chelators will be conducted. From SunPharm,
the Company also acquired strategic alliances with Warner-Lambert , Nippon
Kayaku, and Schein.

     With respect to the products and/or compounds covered by the relationships
described above, the Company plans to rely upon its corporate partners to
commercialize Renagel and other potential products; obtain certain regulatory
approvals; conduct specified research and development activities including, in
some circumstances, clinical trials; and fund certain development activities.

     If any of the Company's existing collaborations are terminated or otherwise
unsuccessful, the Company will either have to delay the continued development
and commercialization of potential products or expend its own resources to fund
such activities. A delay in product development or commercialization, or an
increase in expenditures to fund development, sales and marketing would likely
require the Company to seek additional sources of funding. The Company cannot
assure that such funding will be available when needed or on acceptable terms.
In addition, should the Company fail to retain the relationship with the
University of Florida and Professor Bergeron, there can be no assurance that it
will be able to facilitate the efficient development of its acquired
intellectual property position in iron chelator and polyamine technology.

     To the extent that the Company is successful in maintaining its corporate
partners and strategic relationships and in obtaining new corporate partners, it
will be dependent upon the efforts of these partners and there can be no
assurance that such efforts will be successful. The Company cannot assure that
Genzyme and Sankyo will be successful in achieving market acceptance for Renagel
and Cholestagel, respectively.

Dependence on Others for Manufacturing; Single Sources of Supply; Process
Development Risks


                                       23
<PAGE>   24


    The Company and the Renagel JV have relied and will continue to rely upon
third parties to manufacture commercial quantities of Renagel. The Company and
the Renagel JV currently have or are in the process of negotiating the following
manufacturing or supply relationships related to Renagel:

         *        The Company has entered into a non-exclusive Sublicense
                  Agreement granting rights to manufacture the starting material
                  for Renagel to a supplier, and have recently entered into a
                  long-term fixed-price supply agreement to purchase the
                  starting material from this supplier;

         *        The Company has entered into a long-term fixed-price supply
                  agreement with The Dow Chemical Company for the drug substance
                  for Renagel;

         *        The Renagel JV has entered into a long-term fixed-price supply
                  agreement with Genzyme to manufacture the drug substance for
                  Renagel;

         *        The Company has concluded a long-term fixed-price service
                  agreement with one encapsulator to formulate the Renagel drug
                  substance into Renagel capsules for distribution into the
                  United States, and the Company is currently negotiating a
                  long-term fixed price service agreement with the same
                  encapsulator to formulate the Renagel drug substance into
                  finished Renagel capsules for distribution into other
                  territories; and

         *        The Renagel JV is in the process of negotiating a long-term
                  fixed-price service agreement with a tabulator to formulate
                  the Renagel drug substance into Renagel tablets.

    With respect to Cholestagel, the Company currently has or is in the process
of negotiating the following manufacturing or supply relationships:

         *        The Company has entered into a non-exclusive Sublicense
                  Agreement granting rights to manufacture the starting material
                  for Cholestagel to a supplier, and has recently entered into a
                  long-term fixed-price supply agreement to purchase the
                  starting material from this supplier;

         *        The Company has entered into a supply agreement related to the
                  supply of initial commercial quantities of the drug substance
                  for Cholestagel, and are beginning negotiations regarding a
                  long-term supply agreement for commercial quantities of the
                  drug substance for Cholestagel; and

         *        The Company is in the process of negotiating a long-term
                  fixed-price service agreement with a formulator to formulate
                  the Cholestagel drug substance into Cholestagel tablets.

    Should any of these manufacturing relationships or negotiations terminate or
should any of the suppliers be unable to satisfy the Company's requirements for
starting material, drug substance or finished goods, the Company would be unable
to commercialize its products as expected, and its business and financial
condition would be materially and adversely affected. In addition, the Company
has agreed to supply the Cholestagel drug substance and Cholestagel tablets to
Sankyo at fixed prices. The Company cannot assure that its suppliers of
Cholestagel drug substance or Cholestagel tablets will be able to deliver
materials to the Company at the same fixed prices. To the extent its suppliers
are not able to satisfy its requirements at such prices, the Company's results
of operations would be materially adversely affected. In addition, the Company
cannot assure that it will be successful in obtaining additional sources for any
of the products or services described above or that it will be able to obtain
such products or services on commercially reasonable terms.

    The Company will also rely on third parties for the production of polyamine
analogue compounds and iron chelators in limited quantities for pre-clinical and
clinical trials and does not at the present time possess the staff or facilities
necessary to manufacture these compounds in commercial quantities. The Company
cannot ensure that it or its suppliers can manufacture the polyamine analogue
compounds or iron chelators at a cost or in quantities necessary to make these
compounds commercially viable products.

    A shutdown in any of the manufacturing facilities utilized by the Company's
suppliers due to technical, regulatory or other problems, resulting in an
interruption in supply of products, could significantly delay



                                       24
<PAGE>   25

the manufacturing of one or more of the Company's products, which could have an
adverse impact on its financial results. The manufacturing process for
pharmaceutical products is highly regulated, and regulators may shut down
manufacturing facilities that they believe do not comply with regulations. The
FDA's current Good Manufacturing Practices are extensive regulations governing
manufacturing processes, stability testing, record-keeping and quality
standards. Because the suppliers of key components and materials must be named
in an NDA filed with the FDA for a product, significant delays can occur if the
qualification of a new supplier is required. In the event of any interruption in
supply from a contract manufacturer due to regulatory reasons, processing
problems, capacity constraints or other causes, alternative manufacturing
arrangements may not be available to the Company on a timely basis, if at all.

Reliance on License to Manufacture Starting Material

    A third party has patents covering the starting material employed in the
manufacture of Renagel and Cholestagel. The Company has obtained a non-exclusive
license under these patents to manufacture the material in connection with the
production of Renagel and Cholestagel. The Company may not sublicense its rights
under this license without the licensor's consent, except to the Company's
current supplier of the starting material and certain other parties specified in
the license. The license agreement may be terminated upon short notice if the
Company fails to meet its material obligations under the license agreement,
including lump sum payments, royalties and confidentiality obligations. If the
license is terminated and the owner of the patent is unwilling to supply
material to GelTex, the Company may not be able to commercialize its lead
products using current manufacturing procedures, if at all, which would have a
material adverse effect on the Company's financial condition and results of
operations.

Technological Uncertainty and Early Stage of Product Development

    The Company's anti-obesity, infectious diseases, polyamine, and iron
chelator programs are the primary focus of the Company's research and
development efforts. There can be no assurance that these programs or the
Company's other research and development activities will be successful or that
any product candidates will be chosen from preclinical studies. Should the
Company commence the clinical development of any compounds, there can be no
assurance that clinical trials of products under development will demonstrate
the safety and efficacy of such products at all or to the extent necessary to
obtain regulatory approvals. With respect to its research and development
activities, the Company may encounter unanticipated problems, including
development, regulatory, manufacturing and marketing difficulties, some of which
may be beyond the Company's ability to resolve.

    The Company also licenses significant technology from the University of
Florida, and exclusively licenses more than 45 issued U.S. and foreign patents
and numerous pending patent applications, subject to a nonexclusive statutory
U.S. Government license. The University of Florida may terminate the Company's
rights under this license agreement if the Company fails to pay royalties as
required, for a material breach of the license agreement, for bankruptcy or
failure to carry on business, for failure to commence marketing of a licensed
product within six months of approval in any specific market, and for failure to
comply with the terms of the sponsored research agreement with the University of
Florida. To date, no licensed products under the agreement have received
marketing approvals in any specific market. If the University of Florida
terminates the license agreement, the Company's rights to manufacture DEHOP,
DENSPM and certain other potential products would terminate, and the Company's
financial condition and results of operations could be materially adversely
affected.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information required by this Item is incorporated by reference from the
discussion under the heading Financial Instruments in the Notes to the Financial
Statements included in this Annual Report on Form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Financial Statements and Supplementary Data appear at pages F-1 through
F-20 of this Annual Report on Form 10-K immediately following the signature
page.

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



                                       25
<PAGE>   26

    Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    (a) DIRECTORS. The information with respect to directors required by this
item is incorporated herein by reference from the section entitled "Election of
Directors" in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 24, 2000 (the "2000 Proxy Statement").

    (b) EXECUTIVE OFFICERS. See the section entitled "Management-Executive
Officers" in Item 1(a) in Part I above.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by this item is incorporated herein by reference
from the section entitled "Executive Compensation" in the 2000 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this item is incorporated herein by reference
from the section entitled "Share Ownership" in the 2000 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item is incorporated herein by reference
from the section entitled "Certain Relationships and Related Transactions" in
the 2000 Proxy Statement.

PART IV

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

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

    (1) FINANCIAL STATEMENTS:

        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                       PAGE
                                                                       ----

                Report of Independent Auditors......................    F-2
                Balance Sheets as of December 31, 1999 and 1998.....    F-3
                Statements of Operations for the years ended
                     December 31, 1999, 1998 and 1997...............    F-4
                Statements of Changes in Stockholders' Equity for
                     the years ended December 31, 1999, 1998 and
                     1997...........................................    F-5
                Statements of Cash Flows for the years ended
                     December 31, 1999, 1998 and 1997...............    F-6
                Notes to Financial Statements.......................    F-7

    (2) FINANCIAL STATEMENT SCHEDULES:

    All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

    (3) EXHIBITS

    See Exhibit Index immediately following the Financial Statements.

(b) REPORTS ON FORM 8-K

    The Company filed two reports on Form 8-K during the fiscal quarter ended
December 31, 1999.

    The Company filed a report on Form 8-K dated November 15, 1999 under Item 5
reporting the execution of a binding letter of intent.


                                       26
<PAGE>   27




    The Company filed a report on Form 8-K dated November 16, 1999, reporting
the Company's acquisition of SunPharm Corporation under Item 2 and providing
certain financial statements for SunPharm Corporation under Item 7.


                                       27

<PAGE>   28


                                   SIGNATURES


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

                                 GELTEX PHARMACEUTICALS, INC.



Date: March 29, 2000             By:    /s/ Mark Skaletsky
                                      ------------------------------------------
                                        Mark Skaletsky
                                        President and Chief Executive Officer


    We, the undersigned officer and directors of GelTex Pharmaceuticals, Inc.,
hereby severally constitute Mark Skaletsky and Joann Nestor, and each of them
singly, our true and lawful attorneys, with full power to them and each of them
to sign for us, in our names and in the capacity indicated below, any and all
amendments to this Annual Report on Form 10-K for the fiscal year ended December
31, 1999, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or cause
to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
            SIGNATURE                                   TITLE                                      DATE
            ---------                                   -----                                      ----


<S>                                           <C>                                              <C>
      /s/ Mark Skaletsky                      Director, President and Chief                    March 29, 2000
     -------------------------------          Executive Officer
     Mark Skaletsky                           (Principal Executive Officer)


      /s/ Paul Mellett                        Vice President, Administration                   March 29, 2000
     -------------------------------          and Finance (Principal Financial
     Paul Mellett                             and Accounting Officer)


      /s/ Robert Carpenter                    Chairman of the Board                            March 29, 2000
     ------------------------------           and Director
     Robert Carpenter


      /s/ J. Richard Crout                    Director                                         March 29, 2000
     -----------------------------
     J. Richard Crout


      /s/ Henri Termeer                       Director                                         March 29, 2000
     -----------------------------
     Henri Termeer


      /s/ Jesse Treu                          Director                                         March 29, 2000
     -----------------------------
     Jesse Treu
</TABLE>


                                       28







<PAGE>   29
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     PAGE
                                                                     ----
Report of Independent Auditors......................................  F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998........  F-3

Consolidated Statements of Operations for the years ended
   December 31, 1999, 1998 and 1997.................................  F-4

Consolidated Statements of Changes in Stockholders' Equity for the
   years ended December 31, 1999, 1998 and 1997.....................  F-5

Consolidated Statements of Cash Flows for the years ended
   December 31, 1999, 1998 and 1997.................................  F-6

Notes to Consolidated Financial Statements..........................  F-7


                                      F-1
<PAGE>   30

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
GelTex Pharmaceuticals, Inc.

     We have audited the accompanying consolidated balance sheets of GelTex
Pharmaceuticals, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of RenaGel LLC (a limited liability company
in which the Company has a 50% interest), as of December 31, 1999 and 1998, and
for the years then ended, have been audited by other auditors whose report has
been furnished to us; insofar as our opinion on the consolidated financial
statements relates to data included for RenaGel LLC, as of, and for the years
ended, December 31, 1999 and 1998, it is based solely on their report.

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

     In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of GelTex
Pharmaceuticals, Inc. at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

                                                           Ernst & Young LLP

Boston, Massachusetts
February 22, 2000

                                      F-2
<PAGE>   31



                          GELTEX PHARMACEUTICALS, INC.

                          CONSOLIDATED  BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                         --------------------------------
                                                                               1999              1998
                                                                         ---------------    -------------
<S>                                                                      <C>                <C>
ASSETS
Current assets:
     Cash and cash equivalents.......................................    $    20,178,391    $  30,874,900
     Marketable securities...........................................         52,250,534       74,077,436
     Prepaid expenses and other current assets.......................          1,763,400        2,708,487
     Due from affiliates.............................................            411,250       10,251,100
     Due from Joint Venture..........................................            664,741        1,128,124
                                                                         ---------------    -------------
Total current assets.................................................         75,268,316      119,040,047

Long-term receivables, affiliates....................................            371,750          470,000
Long-term receivables................................................                 --           32,725
Property and equipment, net..........................................         11,117,725        7,899,470
Purchased goodwill, net..............................................          6,753,729               --
Intangible assets, net...............................................          1,282,490          818,963
Investment in Joint Venture..........................................         11,295,056        5,183,580
                                                                         ---------------  ---------------

                                                                         $   106,089,066  $   133,444,785
                                                                         ===============  ===============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued expenses...........................    $     5,175,756  $     4,848,728
     Due to Joint Venture............................................                 --        1,349,400
     Current portion of long-term obligations........................          1,646,296        2,020,614
                                                                         ---------------  ---------------

Total current liabilities............................................          6,822,052        8,218,742

Other, long-term liabilities.........................................              5,390               --
Long-term obligations, less current portion..........................          6,559,884        5,206,180
Commitments and contingencies........................................                 --               --
Stockholders' equity:
     Preferred Stock, $.01 par value, 5,000,000
         shares authorized, none issued or outstanding...............                 --               --
     Common Stock, $.01 par value, 50,000,000 shares authorized;
         18,063,122 and 16,792,444 shares issued and outstanding at
         December 31, 1999 and 1998, respectively....................            180,631          167,924
     Additional paid-in capital......................................        202,210,089      186,762,715
     Deferred compensation...........................................           (483,019)        (663,722)
     Accumulated other comprehensive income..........................           (245,099)         264,388
     Accumulated deficit.............................................       (108,960,862)     (66,511,442)
                                                                         ---------------  ---------------

Total stockholders' equity...........................................         92,701,740      120,019,863
                                                                         ---------------  ---------------

                                                                         $   106,089,066  $   133,444,785
                                                                         ===============  ===============
</TABLE>


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

                                      F-3
<PAGE>   32



                          GELTEX PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------------------
                                                               1999                1998               1997
                                                         ---------------     ---------------       ----------
<S>                                                      <C>                  <C>                 <C>
REVENUE:

     License fee and research revenue...............      $  10,667,708       $  25,000,000       $    1,000,010
     Collaborative Joint Venture project
      Reimbursement.................................          5,781,169           7,658,232            9,195,727
     Research grant.................................                 --                  --              289,254
                                                         --------------      --------------       --------------
Total revenue.......................................         16,448,877          32,658,232           10,484,991

COSTS AND EXPENSES:

     Research and development.......................         32,601,593          27,904,064           22,251,062
     Collaborative Joint Venture project costs......          5,781,169           7,658,232            9,195,727
                                                         --------------      --------------       --------------
          Total research and development............         38,382,762          35,562,296           31,446,789
     General and administrative.....................          6,934,674           5,583,361            4,089,467
     Acquired in-process research and development...          9,530,000                  --                   --
                                                         --------------      --------------       --------------
Total costs and expenses............................         54,847,436          41,145,657           35,536,256
                                                         --------------      --------------       --------------
Loss from operations................................        (38,398,559)         (8,487,425)         (25,051,265)
Equity in loss of Joint Venture.....................         (7,937,041)         (7,535,630)          (2,310,345)
Interest income.....................................          4,371,831           5,069,250            3,094,874
Interest expense....................................           (485,651)           (613,513)            (217,142)
                                                         --------------      --------------       --------------
Net loss............................................      $ (42,449,420)     $  (11,567,318)      $  (24,483,878)
                                                         ==============      ==============       ==============
Net loss per common share and common share
 assuming dilution..................................      $       (2.50)     $        (0.72)      $        (1.80)
                                                         ==============      ==============       ==============
Shares used in computing net loss per common share
 and common share assuming dilution.................         17,003,000          16,023,000           13,592,000
</TABLE>


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

                                      F-4
<PAGE>   33


                          GELTEX PHARMACEUTICALS, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                          ACCUMULATED
                                                                    ADDITIONAL                               OTHER     TOTAL STOCK-
                                                   COMMON STOCK      PAID-IN-    DEFERRED    ACCUMULATED COMPREHENSIVE   HOLDERS'
                                                  SHARES   AMOUNTS   CAPITAL   COMPENSATION    DEFICIT       INCOME       EQUITY
                                                  ------   -------  ---------- ------------  ----------- -------------  -----------
<S>                <C>                          <C>        <C>      <C>          <C>         <C>            <C>        <C>
Balance at January 1, 1997..................... 13,521,302 $135,213 $105,407,670 $  (46,129) $ (30,460,246) $  19,967  $ 75,056,475

Comprehensive income:
  Net loss.....................................                                                (24,483,878)             (24,483,878)
  Other comprehensive income, unrealized                                                                       57,435        57,435
  gain on available for sale securities........                                                                        ------------
Comprehensive income...........................                                                                         (24,426,443)
Issuance of common stock under stock option
  plan and exercise of warrants ...............     16,758      168       89,265                                             89,433
Issuance of stock to Joint Venture partner.....    100,000    1,000    2,495,678                                          2,496,678
Issuance of stock under employee stock
  Purchase plan................................      4,204       42       71,426                                             71,468
Deferred compensation associated with stock
  Option grants................................                          594,200   (594,200)                                     --
Amortization of deferred compensation..........         --       --           --    130,697             --         --       130,697
                                                ---------- -------- ------------ ----------  -------------  ---------  ------------
Balance at December 31, 1997................... 13,642,264  136,423  108,658,239   (509,632)   (54,944,124)    77,402    53,418,308

Comprehensive income:
  Net loss.....................................                                                (11,567,318)             (11,567,318)
  Other comprehensive income, unrealized                                                                      186,986       186,986
  gain on available for sale securities........                                                                        ------------
Comprehensive income...........................                                                                         (11,380,332)
Issuance of common stock under stock
  Option plan and exercise of warrants.........    130,549    1,305    1,033,150                                          1,034,455
Issuance of common stock under employee
  stock purchase plan..........................     19,631      196      317,527                                            317,723
Deferred compensation associated with stock
  Option grants................................                        1,024,190 (1,024,190)                                     --
Amortization of deferred compensation                                               870,100                                 870,100
Issuance of common stock through a follow-
  on Public Offering, net of offering costs of
  $5,240,391...................................  3,000,000   30,000   75,729,609         --             --         --    75,759,609
                                                ---------- -------- ------------ ----------  -------------  ---------  ------------
Balance of December 31, 1998................... 16,792,444 $167,924 $186,762,715 $ (663,722) $ (66,511,442) $ 264,388  $120,019,863
Comprehensive income:
  Net loss                                                                                     (42,449,420)             (42,449,420)
  Other comprehensive loss, unrealized
    loss on available for sales securities.....                                                              (509,487)     (509,487)
                                                                                                                       ------------
Comprehensive income                                                                                                    (42,958,907)
Issuance of common stock under stock option
  plan and exercise of warrants................     76,737      767      107,116                                            107,883
Issuance of common stock under employee
  stock purchase plan..........................     18,745      187      245,787                                            245,974
Deferred compensation associated with stock
  option grants................................                          377,035   (377,035)                                     --
Amortization of deferred compensation..........                                     557,738                                 557,738
Issuance of common stock for acquisition.......  1,175,196   11,752   14,717,436         --             --         --    14,729,188
                                                ---------- -------- ------------ ----------  -------------  ---------  ------------
Balance at December 31, 1999................... 18,063,122 $180,631 $202,210,089 $ (483,019) $(108,960,862) $(245,099) $ 92,701,740
                                                ========== ======== ============ ==========  =============  =========  ============
</TABLE>


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

                                       F-5
<PAGE>   34

                          GELTEX PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                       --------------------------------------------------------
                                                                            1999                  1998                 1997
                                                                       -------------         -------------         ------------
<S>                                                                    <C>                   <C>                   <C>
OPERATING ACTIVITIES
Net loss.......................................................        $ (42,449,420)        $ (11,567,318)        $(24,483,878)
Adjustments to reconcile net loss to net cash used in operating
  activities:
   Depreciation and amortization ..............................            2,124,833             1,536,564            1,193,394
   Equity in net loss of Joint Venture ........................            7,937,041             7,535,630            2,310,345
   Acquired in-process research and development ...............            9,530,000                    --                   --
   Compensation from issuance of stock options ................              557,738               870,100              130,697
   Changes in operating assets and liabilities:
          Prepaid expenses and other current assets ...........              945,088            (1,279,694)             495,085
          Due from affiliates .................................            9,839,850           (10,251,100)                  --
          Due from Joint Venture ..............................              463,383               695,753           (1,823,877)
          Long term receivables, affiliates ...................               98,250              (470,000)                  --
          Long term receivables ...............................               32,725                (5,725)              (7,000)
          Accounts payable and accrued expenses ...............             (616,333)               20,976            2,331,883
          Amount due to Joint Venture .........................           (1,349,400)            1,349,400                   --
                                                                       -------------         -------------         ------------
Net cash used in operating activities .........................          (12,886,245)          (11,565,414)         (19,853,351)

INVESTING ACTIVITIES
Purchase of marketable securities .............................         (106,049,917)         (212,710,698)         (26,388,812)
Proceeds from sale and maturities of marketable securities ....          126,633,355           165,624,065           53,135,619
Investment in Joint Venture ...................................          (14,048,517)           (9,630,014)          (5,399,541)
Purchase of intangible assets .................................             (797,382)             (592,790)            (259,904)
Purchase of property and equipment ............................           (4,886,436)           (1,536,206)          (6,228,763)
                                                                       -------------         -------------         ------------
Net cash provided by (used in) investing activities ...........              851,103           (58,845,643)          14,858,599

FINANCING ACTIVITIES
Sale of Common Stock and warrants, net of issuance costs ......              107,883            76,794,069            2,586,111
Proceeds from employee stock purchase plan ....................              245,974               317,723               71,468
Proceeds from financing of assets .............................            3,000,000                    --            8,782,495
Payments on notes payable .....................................           (2,015,224)           (1,644,925)            (426,900)
                                                                       -------------         -------------         ------------
Net cash provided by financing activities .....................            1,338,633            75,466,867           11,013,174
Increase (decrease) in cash and cash equivalents ..............          (10,696,509)            4,185,710            5,887,725
Cash and cash equivalents at beginning of year ................           30,874,900            26,689,190           20,801,465
                                                                       -------------         -------------         ------------
Cash and cash equivalents at end of year ......................        $  20,178,391         $  30,874,900         $ 26,689,190
                                                                       =============         =============         ============
Supplemental disclosures of cash flow information:
     Acquisition of SunPharm Corporation ......................
     Interest paid ............................................        $     485,651         $     613,513         $    217,142
</TABLE>


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

                                      F-6

<PAGE>   35

                          GELTEX PHARMACEUTICALS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

1. BUSINESS

     GelTex Pharmaceuticals, Inc. has historically focused its efforts on the
development of non-absorbed, polymer-based pharmaceuticals that selectively bind
to and eliminate target substances from the intestinal tract. With its
acquisition of SunPharm Corporation in November 1999, the Company acquired
expertise in two chemically related classes of molecules, polyamines and iron
chelators. In October 1998 and February 2000, the Company received approval from
the United States Food and Drug Administration, or the FDA, and the European
Commission, respectively, for its lead product Renagel Capsules (sevelamer
hydrochloride), and in July 1999, the Company filed a New Drug Application, or
NDA, with the FDA seeking approval for its second compound, Cholestagel
(colesevelam hydrochloride). Throughout 1999, GelTex continued its product
development efforts focused on therapeutic agents for the treatment of obesity
and infectious diseases.

2. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

     The accompanying financial statements include the accounts of GelTex
Pharmaceuticals, Inc. and its wholly-owned subsidiaries ("the Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The more significant areas requiring the use of management
estimates relate to future cash flows associated with assets and useful lives
for depreciation and amortization. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid debt instruments with an initial
maturity of three months or less and money market funds to be cash equivalents.
These cash equivalents are classified as "available-for-sale" and are carried at
fair value, with unrealized gains and losses reported in Accumulated Other
Comprehensive Income.

MARKETABLE SECURITIES

     Marketable securities consist of U.S. government obligations and high-grade
commercial instruments maturing within one to two years and are classified as
available-for-sale. The Company considers these investments, which represent
funds available for current operations, as an integral part of their cash
management activities. Realized gains and losses and declines in value which are
judged to be other than temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends and amortization of premiums and
accretion of discounts on available-for-sale securities are included in interest
income. The Company purchases only high grade securities, typically with short
maturities. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation on an
ongoing basis.

     As of December 31, 1999, the Company pledged $3.0 million of marketable
securities as collateral to secure $3.2 million of financing for the purchase of
a building and land adjacent to the Company's headquarters.

                                      F-7
<PAGE>   36


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at cost. Expenditures for
additions, major renewals and betterments are capitalized and expenditures for
maintenance and repairs are charged to income as incurred. Interest is
capitalized as part of the acquisition cost of major construction projects.

     Depreciation is completed by the straight-line method over estimated useful
lives which are generally as follows:

     Buildings............................ 30 years
     Leasehold improvements............... Life of building lease
     Furniture, fixtures and equipment.... 5 years

     The Company reviews the value of its property, plant and equipment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable.

INTANGIBLE ASSETS

     Intangible assets represent the excess of cost of acquired businesses over
the fair value of identifiable net assets and the cost of technology and
patents. Intangible assets are amortized on a straight-line basis over periods
of five to seven years. The Company reviews the value of its goodwill and other
intangible assets whenever events or changes in circumstances indicate that the
carrying value may not be fully recoverable.

STOCK BASED COMPENSATION

     The Company accounts for stock based compensation plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25). Accordingly, deferred compensation is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price on the date of grant. Such deferred compensation is
amortized over the respective vesting periods of such option grants. The Company
adopted the disclosure requirements of Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123), and
provides pro forma net loss and pro forma loss per share note disclosures for
employee stock option grants made after 1994 as if the fair-value based method
defined in SFAS No. 123 had been applied. Transactions with non-employees, in
which goods or services are the consideration received for the issuance of
equity instruments, are accounted for using the fair market value method defined
in SFAS No. 123 (see Note 10).

FINANCIAL INSTRUMENTS

     The Company utilizes foreign exchange forward contracts as hedges against
exposure to fluctuations in exchange rates associated with certain commitments
denominated in foreign currencies (see Note 15). Gains and losses are deferred
and recognized as adjustments of carrying amounts when the hedged transaction
occurs. As of December 31, 1999, the Company had $7.6 million of foreign
exchange contracts outstanding. Deferred gains or losses at December 31, 1999
are not material as the contracts' fair market value approximates its notional
value.

     In order to mitigate the impact of fluctuations in U.S. interest rates, the
Company has entered into interest rate swaps on an outstanding long-term
obligation (see Note 12) and on an outstanding long-term commitment (see Note
15). Net interest payable or receivable is determined on a quarterly basis and
is insignificant at December 31, 1999.

     The Company does not hold or issue derivative financial instruments for
trading purposes.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
instruments and financial instruments used in hedging activities.

                                      F-8
<PAGE>   37
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK (CONTINUED)

     The Company places its temporary cash investments with high credit quality
financial institutions and in high quality commercial paper and, by policy,
limits the amount of credit exposure with any one financial institution. The
counterparty to the agreements relating to the Company's foreign exchange
commitments is a high credit quality financial institution. The Company does not
believe that there is a significant risk of nonperformance by this counterparty.

EARNINGS PER COMMON AND POTENTIAL COMMON SHARE

     The Company accounts for earnings per share in accordance with the
provisions of the Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share." Basic earnings per share excludes any dilutive effect of
options, warrants or convertible securities. Due to its loss position, diluted
earnings per share is the same amount as basic earnings per share.

REVENUE RECOGNITION

     The Company recognizes grant revenue and collaborative Joint Venture
revenue as reimbursable expenses are incurred and license fee revenue when
performance obligations, if any, are satisfied.

RECLASSIFICATION

     Certain amounts from the prior years have been reclassified to conform to
current year presentation.

ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and interim financial reports. The Statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Under this Statement, the Company's
operations are treated as one operating segment. The adoption of the Statement
did not affect the Company's results of operations or its financial position.

     In June 1999, the Financial Accounting Standards Board issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133--an amendment of FASB Statement
133" which is required to be adopted by the Company in fiscal year 2001. The
Statement provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities in which the Company
engages. Management of the Company anticipates that, due to its limited use of
derivative instruments, the adoption of this Statement will not have a
significant effect on the Company's results of operations or its financial
position.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 is effective the
first fiscal quarter of fiscal years beginning after December 15, 1999 and
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation in accordance with
APB Opinion No. 20, "Accounting Changes." The Company has concluded that SAB 101
will not have a material impact on the financial position or results of
operations of the Company.

3. ACQUISITION

     In November 1999, the Company completed the purchase of SunPharm
Corporation, a life sciences firm that developed proprietary pharmaceuticals
based on polyamine and iron chelator technologies. The total purchase price,
including transaction costs and liabilities assumed, was $16.4 million. The
acquisition was accounted for under the purchase accounting method and resulted
in the recording of approximately $6.9 million of purchased goodwill and a
one-time charge of $9.5 million for in-process research and development. The
Company is amortizing the purchased goodwill on a straight-line basis over a
seven year life. The Company financed the acquisition through the issuance of
approximately 1.2 million of its Common Shares.  The value of the Common Stock
issued in connection with the acquisition was calculated using a fair value of
$12.31 per share.  This per share fair value represents the average closing
price of the Company's Common Stock on the date the acquisition was completed.
Common Stock issuable upon exercise of SunPharm Corporation options and warrants
was assigned a fair value using the Black-Scholes method.  The consolidated
financial statements include SunPharm Corporation's operating results from the
date of acquisition.

     Acquired in-process research and development for the merger was evaluated
utilizing the present value of the estimated after-tax cash flows expected to be
generated by the purchased technology, which, at the effective time of the
merger, had not reached technological feasibility. The cash flow projections for
revenues are based on estimates of growth rates and the aggregate size of the
respective market for each product; probability of technical success given the
stage of development at the time of acquisition; royalty rates based on prior
licensing agreements; product's sales cycles; and the estimated life of a
product's underlying technology. Estimated operating expenses and income taxes
are deducted from revenue projections to arrive at estimated after-tax cash
flows. Projected operating expenses include general and administrative expenses
and research and development costs. The rates utilized to discount projected
cash flows range from 40% to 50%, depending upon the relative risk of the
project and the weighted average cost of capital for GelTex at the time of the
merger.

                                      F-9
<PAGE>   38


3. ACQUISITION (CONTINUED)

     The acquired in-process research and development of approximately $9.5
million represents the value determined by the Company's management to be
attributable to the acquired in-process research and development assets
associated with the technology acquired in the SunPharm acquisition. Of this
amount, approximately $8.7 million is related to the DENSPM for solid tumor
cancer project and approximately $0.8 million is related to the DEHOP for
AIDS-related diarrhea project. The values associated with these programs
represent GelTex's management ascribed values, based on the discounted cash
flows currently expected from the technologies acquired. If these projects are
not successfully developed, the business, operating results, and financial
condition of GelTex may be adversely affected.

     As of the date the merger agreement was signed, GelTex concluded that once
completed, the technologies under development can only be economically used for
their specific and intended purposes and that the acquired in-process research
and development technology has no alternative future uses after taking into
consideration the overall objectives of the projects, progress toward the
objectives, and uniqueness of developments to these objectives.

     The major risks associated with the timely completion and commercialization
of these products is the ability to confirm the safety and efficacy of the
technology based on the data of long-term clinical trials.  If these projects
are not successfully developed, future results of operations of the Company may
be adversely affected.  Additionally, the value of the other intangible assets
acquired may become impaired.

     The Company believes that the assumptions used to value the acquired
intangibles were reasonable at the time of the acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate expected
project revenues, development costs, or profitability, or the events associated
with such projects, will transpire as estimated.  For these reasons, among
others, actual results may vary from the projected results.

     The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on January 1,
1998, and excludes the write-off of in-process research and development of $9.5
million:

    (IN THOUSANDS, EXCEPT           YEAR-ENDED           YEAR-ENDED
    PER SHARE AMOUNTS)          DECEMBER 31, 1999    DECEMBER 31, 1998
                                -----------------    -----------------
    Revenue                     $         17,074     $         32,889
    Net loss                    $        (37,958)    $        (16,317)
    Net loss per share          $          (2.09)    $          (0.95)

     These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.

4. JOINT VENTURE AGREEMENT

Formation of the Joint Venture

     In June 1997, the Company entered into a joint venture with Genzyme
Corporation for the final development and commercialization of Renagel(R)
Capsules (the "Joint Venture"). Under the agreement, Genzyme paid the Company a
$15.0 million non-refundable payment in 1998 upon receipt of marketing approval
from the FDA, and made an additional $10.0 million non-refundable payment one
year after FDA approval in October 1999. The terms of the Joint Venture require
the Company and Genzyme to each make capital contributions to the Joint Venture
in an amount equal to 50% of all costs and expenses associated with the
development and commercialization of Renagel, including costs and expenses
incurred by either party in performing under the agreement, and the Company and
Genzyme will share equally in the profits generated from sales of the product.

Capital Contributions to the Joint Venture

     Under the terms of the joint venture agreement, GelTex and Genzyme each
make equal capital contributions to the Joint Venture which are accounted for by
the parties as investments in the Joint Venture. The amount of the periodic
capital contributions are based upon the costs incurred for product development
and commercialization ("Project Costs") which are approved by both parties. To
the extent that either party fails to make all or any portion of a required
periodic capital contribution to the Joint Venture and the other party does not
exercise its right to terminate the agreement, each party's percentage ownership
interest in the Joint Venture will be immediately adjusted to correspond to the
cumulative amount of capital contributions made by each party as of such date.
Thereafter, each party's monthly capital contribution will be made in proportion
to each party's adjusted percentage ownership interest in the Joint Venture. At
December 31, 1999, each party had contributed approximately $29.1 million to the
Joint Venture through periodic contributions, representing each party's 50%
share of a total of approximately $58.2 million in periodic capital
contributions to the Joint Venture.  As of December 31, 1998, $1,349,400 was
owed to the Joint Venture by the Company.  The Company recorded this amount as a
current liability.  The Joint Venture recorded this amount as a contra equity
account.  This amount was subsequently paid in January 1999.

                                      F-10
<PAGE>   39

4. JOINT VENTURE AGREEMENT (CONTINUED)

Reimbursement of Project Costs

     The Company and Genzyme have agreed to undertake product development and
commercialization activities on behalf of the Joint Venture. Project Costs
include certain costs associated with the design and development of the product
manufacturing process, receipt of regulatory approval, product distribution and
marketing and selling the product, and such other costs necessary to manufacture
and sell the product commercially. The Project Costs incurred by GelTex and
Genzyme under the development and commercialization plans, either as internal
operating costs or as third party obligations, are fully reimbursed to the
parties by the Joint Venture, without regard to the percentage ownership
interest of the parties. In the accompanying statement of operations,
Collaborative Joint Venture project reimbursement represents project costs
incurred by the Company and billed to the Joint Venture. In the accompanying
balance sheet, Due from Joint Venture represents Project Costs billed to the
Joint Venture but not yet reimbursed.

Accounting for the Joint Venture

     The Company accounts for its investment in the Joint Venture using the
equity method of accounting. Accordingly, the Company recognizes its 50%
ownership interest in the net income or net loss of the Joint Venture in the
accompanying statement of operations as Equity in loss of Joint Venture.

Termination of the Joint Venture

     The Joint Venture can be terminated for certain material breaches which
remain uncured after a stated period of time has lapsed; upon the bankruptcy or
change of control of either party; or for any reason with one year prior written
notice at any time after receipt of FDA approval to market Renagel which
occurred in October 1998. Depending upon the reason for termination, each party
has certain rights to purchase the other's interest in the Joint Venture and
proceed with the development and commercialization of Renagel on its own.

     Summarized financial information regarding the Joint Venture as of, and for
year ended, December 31, 1999 is as follows:

<TABLE>
<S>                                                     <C>
     Revenues.......................................    $  19,543,000
     Other income...................................        1,557,000
     Cost of products sold..........................        7,362,000
     Selling, general and administrative expenses...       18,624,000
     Research and development expenses..............       11,154,000
     Interest income................................          166,000
                                                        -------------
     Net loss.......................................    $ (15,874,000)
     Current assets.................................    $  22,720,000
     Non-current assets.............................    $   7,965,000
     Current liabilities............................    $   8,093,000
     Non-current liabilities........................    $           -
</TABLE>

     Summarized financial information regarding the Joint Venture as of, and for
the year ended, December 31, 1998 is as follows:

<TABLE>
<S>                                                     <C>
     Revenues.......................................    $     266,000
     Cost of products sold..........................          113,000
     Selling, general and administrative expenses...        6,493,000
     Research and development expenses..............        8,778,000
     Interest income................................           22,000
                                                        -------------
     Net loss.......................................    $ (15,096,000)
     Current assets.................................    $   9,930,000
     Non-current assets.............................    $   7,209,000
     Current liabilities............................    $   8,147,000
     Non-current liabilities........................    $           -
</TABLE>

Summarized financial information regarding the Joint Venture as of, and for the
period June 6, 1997 (date of inception) through December 31, 1997 is as follows:

<TABLE>
<S>                                                    <C>
     Selling, general and administrative expenses...   $     35,000
     Research and development expenses..............      4,588,000
     Interest income................................          3,000
                                                       ------------
     Net loss.......................................   $ (4,620,000)
</TABLE>

                                       F-11
<PAGE>   40

5. AVAILABLE-FOR-SALE SECURITIES

     The following is a summary of available-for-sale securities:

DECEMBER 31, 1999:

<TABLE>
<CAPTION>
                                                         GROSS              GROSS
                                                      UNREALIZED         UNREALIZED         ESTIMATED
                                         COST            GAINS              GAINS           FAIR VALUE
                                     ------------   --------------     --------------     -------------
<S>                                  <C>            <C>                <C>                <C>
     U.S. Corporate Securities.....  $ 33,744,199   $        1,733     $      (79,347)    $  33,666,585
     U.S. Government Obligations...    16,252,291               --           (168,342)       16,083,949
     Money Market Accounts.........    18,574,249              857                 --        18,575,106
                                     ------------   --------------     --------------     -------------
     Total.........................  $ 68,570,739   $        2,590     $     (247,689)    $  68,325,640
                                     ============   ==============     ===============    =============
</TABLE>

DECEMBER 31, 1998:

<TABLE>
<CAPTION>
                                                         GROSS              GROSS
                                                      UNREALIZED         UNREALIZED         ESTIMATED
                                         COST            GAINS              GAINS           FAIR VALUE
                                     ------------   --------------     --------------     -------------
<S>                                  <C>            <C>                <C>                <C>
    U.S. Corporate Securities.....   $ 70,372,614   $       238,388    $      (13,923)    $  70,597,079
    U.S. Government Obligations...     16,967,112            39,922                --        17,007,034
    Money Market Accounts.........     12,417,649                --                --        12,417,649
                                     ------------   ---------------    --------------      ------------
    Total.........................   $ 99,757,375   $       278,310    $      (13,923)    $ 100,021,762
                                     ============   ===============    ===============    =============
</TABLE>

     The fair value of available-for-sale securities is determined using the
published closing prices of these securities as of December 31, 1999 and 1998.
These securities are classified at their estimated fair value in the
accompanying balance sheet as follows:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                       -----------------------------
                                           1999            1998
                                       ------------   --------------
<S>                                    <C>             <C>
     Cash equivalents...........       $ 16,075,106    $  25,944,326
     Marketable securities......         52,250,534       74,077,436
                                       ------------    -------------
                                       $ 68,325,640    $ 100,021,762
                                       ============    =============
</TABLE>

     The cost and estimated fair value of available-for-sale debt securities,
which excludes money market accounts, at December 31, 1999, by contractual
maturity, are shown below.

<TABLE>
<CAPTION>
                                                                 ESTIMATED
                                                     COST        FAIR VALUE
                                                 ------------   ------------
<S>                                              <C>            <C>
     Due in one year or less..................   $ 37,745,724   $ 37,665,756
     Due after one year through two years.....     12,250,766     12,084,778
                                                 ------------   ------------
                                                 $ 49,996,490   $ 49,750,534
                                                 ============   ============
</TABLE>

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consist of the following at December
31:

<TABLE>
<CAPTION>
                                         1999             1998
                                    -------------    ------------
<S>                                 <C>              <C>
     Accounts payable...........    $  3,392,854     $  3,698,102
     Accrued compensation.......         643,531          604,729
     Accrued other..............       1,139,371          545,897
                                    ------------     ------------
                                    $  5,175,756     $  4,848,728
                                    ============     ============
</TABLE>

7. PROPERTY, PLANT AND EQUIPMENT, NET

     At December 31, property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                1999            1998
                                                           ------------     ------------
<S>                                                        <C>              <C>
     Leasehold improvements............................    $  7,114,246     $  7,011,258
     Equipment.........................................       5,747,963        4,308,627
     Property and plant................................       3,344,111               --
                                                           ------------     ------------
                                                             16,206,320       11,319,885
     Less accumulated depreciation and amortization....       5,088,595        3,420,415
                                                           ------------     ------------
     Property, plant and equipment, net................    $ 11,117,725     $  7,899,470
                                                           ============     ============
</TABLE>

                                      F-12
<PAGE>   41

7. PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)

     Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was approximately $1,668,000, $1,296,000 and $816,000, respectively. Leasehold
improvements of $1,718,986, with accumulated amortization of $1,232,522, were
subject to a sublease arrangement (see Note 14).

8. INTANGIBLE ASSETS

     At December 31, intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                               1999             1998
                                           ------------     ------------
<S>                                        <C>              <C>
     Purchased goodwill................    $  6,876,524     $         --
     Less accumulated amortization.....         122,795               --
                                           ------------     ------------
     Purchased goodwill, net...........       6,753,729               --

     Patents and technology............       2,390,375        1,592,990
     Less accumulated amortization.....       1,107,885          774,027
                                           ------------     ------------
     Patents and technology, net.......       1,282,490          818,963

     Intangible assets, net............    $  8,036,219     $    818,963
                                           ============     ============
</TABLE>

9. STOCKHOLDERS' EQUITY

     In November 1999, the Company completed the acquisition of SunPharm
Corporation by issuing 1,175,196 shares of common stock.

     The Company has a Shareholder Rights Plan (the "Rights Plan") designed to
protect shareholders from unsolicited attempts to acquire the Company on terms
that do not maximize stockholder value. In connection with the Rights Plan, the
Board of Directors designated 500,000 shares of the Company's preferred stock as
Series A Junior Participating Preferred Stock. Under the Rights Plan, a right to
purchase one one-hundredth of one share of the Series A Junior Participating
Stock (the "Rights") was distributed as a dividend for each share of Common
Stock. The terms of the Rights Plan provide that the Rights will become
exercisable upon the earlier of the tenth day after any person or group (other
than a person or group eligible to file statements on Schedule 13G who or which
the Board of Directors determines shall not be an Acquiring Person, as defined
in the Rights Plan) acquires 20% or more of the Company's outstanding Common
Stock or the tenth business day after any person or group commences a tender or
exchange offer which would, if completed, result in the offeror owning 20% or
more of the Company's outstanding Common Stock. The Rights may generally be
redeemed by action of the Board of Directors at $0.001 per Right at any time
prior to the tenth day following the public announcement that any person or
group (other than a person or group eligible to file statements on schedule 13G
who or which the Board of Directors determines shall not be an Acquiring person,
as defined in the Rights Plan) has acquired 20% or more of the outstanding
Common Stock of the Company. The Rights expire on March 11, 2006. The Rights
have certain anti-takeover effects in that they would cause substantial dilution
to the party attempting to acquire the Company.

     In certain circumstances, the Rights allow the Company's stockholders to
purchase the number of shares of the Company's Common Stock having a market
value at the time of the transaction equal to twice the exercise price of the
Rights, or in certain circumstances, the stockholders would be able to acquire
that number of shares of the acquirer's common stock having a market value, at
the time of the transaction, equal to twice the exercise price of the Rights.
The Company will continue to issue Rights with future issuances of common stock.

10. EQUITY INCENTIVE PLANS, STOCK OPTIONS AND STOCK WARRANTS

     Under the Company's 1992 Equity Incentive Plan (the "Plan"), employees and
directors of and consultants to the Company are eligible for awards. At December
31, 1999, the Company has reserved 3,350,000 shares of its Common Stock for
awards. Awards can consist of incentive and nonstatutory stock options, stock
appreciation rights, restricted stock awards and other stock-based awards.
Certain incentive and nonstatutory options granted under the Plan may be
exercised upon grant and vest over five years and certain others are exercisable
over a four-year vesting period. The Company maintains the right to repurchase
any unvested shares of Common Stock upon termination of such stockholder's
employment with the Company.

     Incentive stock options are granted with an option price of not less than
the fair market value of the Common Stock at the award date. Nonstatutory
options may be granted at prices as determined by the Board of Directors. Stock
appreciation rights may be awarded in tandem with stock options or alone. Stock
appreciation rights granted alone may be granted at prices as determined by the
Board. The Board may also award performance shares, restricted stock and stock
units subject to such terms, restrictions, performance criteria, vesting
requirements and other conditions deemed appropriate.

                                      F-13
<PAGE>   42

10. EQUITY INCENTIVE PLANS, STOCK OPTIONS AND STOCK WARRANTS (CONTINUED)

     The Company has a 1995 Employee Stock Purchase Plan (the "ESPP") which
provides for the grant of rights to eligible employees to purchase up to 250,000
shares of the Company's Common Stock at the lesser of 85% of the fair market
value at the beginning or the end of the established offering period. There were
18,745 shares issued under the ESPP at an average price of $13.00 per share in
1999, 19,631 shares at an average price of $16 per share in 1998, and 4,204
shares at an average price of $17 per share in 1997.

     All directors who are not employees of the Company are currently eligible
to participate in the Company's 1995 Director Stock Option Plan ("Directors
Plan"). At December 31, 1999, the Company had reserved 150,000 shares of its
Common Stock for awards. The Directors Plan provides for the granting of options
with a term of 10 years to purchase up to 110,000 shares of Common Stock at an
exercise price equal to the fair market value of Common Stock at the date of
grant. Generally, upon election or re-election at each annual meeting, each
eligible director shall be granted options to purchase 4,000 shares of Common
Stock for each year of the term of office to be served. The options granted vest
in annual installments of 4,000 shares over the term served.

     The Company applies APB 25 and related interpretations in accounting for
its stock-based compensation plans, including its 1992 Equity Incentive Plan,
its 1995 Employee Stock Purchase Plan, and prior to December 15, 1998, its 1995
Director Stock Option Plan. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

     Had compensation expense for the Company's stock-based compensation plans
been determined based upon the fair market value at the grant date for stock
option awards ("stock options") and at the end of the plan period for stock
purchased under its Employee Stock Purchase Plan ("stock purchase shares"),
consistent with the methodology prescribed under SFAS 123, the Company's net
loss and net loss per share would have been $48,634,898, or $2.86 per share,
$16,242,487, or $1.01 per share, and $25,947,119 or $1.91 per share, in 1999,
1998 and 1997, respectively.

     The fair value of stock options granted and stock purchase shares issued
during 1999, 1998 and 1997 was estimated at the date of the grant and the end of
the plan period, respectively, using the Black-Scholes option-pricing model with
the following weighted average assumptions for 1999, 1998 and 1997: volatility
of 67%, 67% and 48%, respectively, risk-free interest rate of 6%, weighted
average expected life (years) of four, and no dividends. The effects on fiscal
1999, 1998 and 1997 pro forma net loss and net loss per share of expensing the
estimated fair value of stock options and stock purchase shares are not
necessarily representative of the effects on reported net loss for future years
due to such things as the vesting period of the stock options and the potential
for issuance of additional stock options and stock purchase shares in future
years.

Options Issued Under the Plan and the Directors Plan

     The weighted average per share exercise price of stock options granted,
exercised and canceled during 1999 was $14.51, $1.39 and $20.85, respectively.
The weighted average fair value of stock options granted during 1999 was $8.05
per share. The weighted average fair value of stock purchase shares issued
during 1999 was $4.50 per share.

     The weighted average per share exercise price of stock options granted,
exercised and canceled during 1998 was $22.80, $8.17 and $16.17, respectively.
The weighted average fair value of stock options granted during 1998 was $12.47
per share. The weighted average fair value of stock purchase shares issued
during 1998 was $4.95 per share. The weighted average exercise price of the
1,864,021 and 781,811 options outstanding and exercisable as of December 31,
1998, was $17.29 and $12.71, respectively.

     The weighted average per share exercise price of stock options granted,
exercised and canceled during 1997 was $23.25, $2.80 and $7.97, respectively.
The weighted average fair value of stock options granted during 1996 was $9.61
per share. The weighted average fair value of stock purchase shares issued
during 1997 was $5.49 per share. The weighted average exercise price of the
1,433,579 and 470,375 options outstanding and exercisable as of December 31,
1997, was $13.99 and $9.61, respectively.

                                      F-14
<PAGE>   43

10. EQUITY INCENTIVE PLANS, STOCK OPTIONS AND STOCK WARRANTS (CONTINUED)

     A summary of activity in the Plan and the Directors Plan through December
31, 1999 follows:

<TABLE>
<CAPTION>
                                OPTIONS
                               AVAILABLE                               PRICE
                               FOR AWARD        OUTSTANDING          PER SHARE
                               ---------        -----------          ---------
<S>                             <C>              <C>               <C>
Balance at January 1, 1997 .    261,085          1,010,466         $  .125--$24.25
Authorized .................    310,000                 --                      --
Awarded ....................   (555,300)           555,300         $17.25 --$30.75
Exercised ..................         --            (54,192)        $  .125--$20.50
Canceled or repurchased ....    100,679            (77,995)        $  .32 --$25.00
                                -------          ---------         ---------------
Balance at December 31, 1997    116,464          1,433,579         $  .125--$30.75
Authorized .................    750,000                 --                      --
Awarded ....................   (637,690)           637,690         $15.375--$29.25
Exercised ..................         --           (124,339)        $  .125--$24.75
Canceled or repurchased ....     86,409            (82,909)        $  .25 --$30.75
                                -------          ---------         ---------------
Balance at December 31, 1998    315,183          1,864,021         $  .125--$30.75
Authorized .................    640,000                 --                      --
Awarded ....................   (757,253)           757,253         $10.00 -- 28.00
Exercised ..................         --            (77,987)        $  .125--$18.25
Canceled or repurchased ....    162,933           (161,683)        $  .30 --$30.75
                                -------          ---------         ---------------
Balance at December 31, 1999    360,863          2,381,604         $  .125--$30.50
</TABLE>

     Deferred compensation of $377,035 recorded in 1999 represents the fair
value of options to purchase common stock granted to certain non-employees in
return for consulting services and is included in the table above. The related
compensation expense is being amortized ratably over the periods of service.

     A summary of the weighted-average exercise price and remaining contractual
life of options outstanding and the weighted average exercise price of options
exercisable under the Plan and the Directors Plan as of December 31, 1999
follows:

<TABLE>
<CAPTION>
                                                       WEIGHTED-
                                                       AVERAGE
                                        WEIGHTED-      REMAINING                    WEIGHTED-
                                         AVERAGE      CONTRACTUAL                    AVERAGE
   PRICE PER             OPTIONS         EXERCISE        LIFE        OPTIONS         EXERCISE
     SHARE             OUTSTANDING        PRICE         (YEARS)    EXERCISABLE        PRICE
     -----             -----------        -----         -------    -----------        -----
<C>                      <C>              <C>             <C>        <C>              <C>
$  .125--$  .32          285,172          $  .29          4.66       276,004          $  .29
$  .33 --$ 9.00            7,000          $ 9.00          5.70         5,950          $ 9.00
$ 9.01 --$15.00          631,386          $12.58          8.86       175,349          $12.11
$15.01 --$24.25          966,653          $19.37          7.78       490,576          $19.73
$24.26 --$30.50          491,393          $26.32          8.06       215,033          $26.64
                       ---------          ------          ----     ---------          ------
                       2,381,604          $16.69                   1,162,912          $15.19
</TABLE>

Options issued outside of the Plan and the Directors Plan

     In 1997, the Company issued options to employees and consultants outside of
the Plan and the Directors Plan.

     The weighted average per share exercise price of stock options canceled
during 1999 was $25.58.  No options were granted outside the Plan or the
Directors Plan in 1999.

     The weighted average per share exercise price of stock options granted and
canceled during 1998 was $26.22 and $23.67, respectively. The weighted average
fair value of stock options granted during 1998 was $14.56 per share. The
weighted average exercise price of the 159,985 and 42,709 options outstanding
and exercisable as of December 31, 1998, was $26.56 and $26.74, respectively.

     The weighted average per share exercise price of stock options granted
during 1997 was $27.06. The weighted average fair value of stock options granted
during 1997 was $8.49 per share. The weighted average exercise price of the
38,500 options outstanding as of December 31, 1997, was $27.06. There were no
options exercisable as of December 31, 1997.

                                      F-15
<PAGE>   44

10. EQUITY INCENTIVE PLANS, STOCK OPTIONS AND STOCK WARRANTS (CONTINUED)

     A summary of activity for options issued outside of the Plan and the
Directors Plan through December 31, 1999 follows:

<TABLE>
<CAPTION>
                                         OPTIONS
                                        AVAILABLE                         PRICE
                                        FOR AWARD      OUTSTANDING      PER SHARE
                                        ---------      -----------    --------------
<S>                                      <C>             <C>          <C>
     Balance at January 1, 1997......           -              -                   -
     Authorized......................     175,000              -                   -
     Awarded.........................     (38,500)        38,500      $27.00--$27.06
     Exercised.......................           -              -                   -
     Canceled or repurchased                    -              -                   -
                                         --------        -------      --------------
     Balance at December 31, 1997....     136,500         38,500      $27.00--$27.06
     Authorized......................           -              -                   -
     Awarded.........................    (145,500)       130,485      $23.25--$27.00
     Exercised.......................           -              -                   -
     Expired.........................           -              -                   -
     Canceled or repurchased.........       9,000         (9,000)     $23.25--$27.00
                                         --------        -------      --------------
     Balance at December 31, 1998....           -        159,985      $23.25--$27.06
     Authorized......................           -              -                   -
     Awarded.........................           -              -                   -
     Exercised.......................           -              -                   -
     Expired.........................     (12,209)             -      $23.37--$26.37
     Canceled or repurchased.........      12,209        (12,209)     $23.37--$26.37
                                         --------        -------      --------------
     Balance at December 31, 1999....           -        147,776      $23.25--$27.06
</TABLE>

     A summary of the weighted-average exercise price and remaining contractual
life of options outstanding and the weighted average exercise price of options
exercisable outside of the Plan and the Directors Plan as of December 31, 1999
follows:

<TABLE>
<CAPTION>
                                                       WEIGHTED-
                                                       AVERAGE
                                        WEIGHTED-      REMAINING                    WEIGHTED-
                                         AVERAGE      CONTRACTUAL                    AVERAGE
   PRICE PER             OPTIONS         EXERCISE        LIFE        OPTIONS         EXERCISE
     SHARE             OUTSTANDING        PRICE         (YEARS)    EXERCISABLE        PRICE
 --------------        ------------     ---------     -----------  -----------      ---------
<S>                      <C>            <C>               <C>         <C>           <C>
 $23.25--$27.06          147,776        $  26.65          8.16        79,841        $   26.72
</TABLE>

Options and Warrants granted through the acquisition of SunPharm Corporation

     In November 1999, in conjunction with the acquisition of SunPharm
Corporation, the Company granted 72,089 options to purchase GelTex Common Stock
at exercise prices of between $2.20 and $54.25 and 206,253 warrants to purchase
GelTex Common Stock at exercise prices of between $13.22 and $51.63. The fair
value of these options and warrants was included in the calculation of the total
purchase price of the SunPharm acquisition.

     The weighted average per share exercise price of stock options and warrants
granted during 1999 was $27.46 and $26.98, respectively.

     A summary of activity for options issued outside of the Plan and the
Directors Plan through December 31, 1999 follows:

<TABLE>
<CAPTION>
                                         OPTIONS AVAILABLE                   PRICE
                                             FOR AWARD     OUTSTANDING      PER SHARE
                                         ----------------  -----------      ---------
<S>                                         <C>                 <C>        <C>
     Balance at January 1, 1999......             -                  -                 -
     Authorized......................        72,089                  -     $2.20--$54.25
     Awarded or expired..............       (72,089)            72,089     $2.20--$54.25
     Exercised.......................             -                  -                 -
     Canceled or repurchased.........             -                  -                 -
                                             ------             ------     -------------
     Balance at December 31, 1999....             -             72,089     $2.20--$54.25
</TABLE>

                                      F-16
<PAGE>   45


10. EQUITY INCENTIVE PLANS, STOCK OPTIONS AND STOCK WARRANTS (CONTINUED)

     A summary of the weighted-average exercise price and remaining contractual
life of options outstanding and the weighted average exercise price of options
exercisable outside of the Plan and the Directors Plan as of December 31, 1999
follows:

<TABLE>
<CAPTION>
                                                       WEIGHTED-
                                                       AVERAGE
                                        WEIGHTED-      REMAINING                    WEIGHTED-
                                         AVERAGE      CONTRACTUAL                    AVERAGE
   PRICE PER             OPTIONS         EXERCISE        LIFE        OPTIONS         EXERCISE
     SHARE             OUTSTANDING        PRICE         (YEARS)    EXERCISABLE        PRICE
 -------------         -----------      ---------     -----------  -----------      ---------
<S>                      <C>              <C>             <C>         <C>             <C>
 $2.20--$54.25           72,089           $27.46          6.96        51,271          $27.46
</TABLE>


11. INCOME TAXES

     At December 31, 1999, the Company had net operating loss carryforwards of
approximately $97,094,000 and research and development tax credit carryforwards
of approximately $5,120,000, which expire through 2019. Since the Company has
incurred only losses since its inception and due to the degree of uncertainty
related to the ultimate use of the loss carryforwards and tax credits, the
Company has fully reserved this tax benefit. Additionally, the future
utilization of net operating loss carryforwards and tax credits may be subject
to limitations under the change in stock ownership rules of the Internal Revenue
Service.

     The difference between the Company's expected tax provision (benefit), as
computed by applying the U.S. Federal Corporate Tax Rate of 34% to income (loss)
before provision for income taxes and the actual tax is attributable to tax
losses for which the Company has not recognized any tax benefit.

     Significant components of the Company's deferred tax assets as of December
31 are as follows:

<TABLE>
<CAPTION>
                                                         1999             1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
     Deferred tax assets:
          Net operating loss carryforwards.......    $ 38,666,000    $ 26,166,000
          Research and development tax credits...       5,120,000       5,529,000
          Other..................................       1,263,000         661,000
                                                     ------------    ------------
     Total deferred tax assets...................      45,049,000      32,356,000
               Valuation allowance...............     (44,529,000)    (32,029,000)
                                                     ------------    ------------
     Net deferred tax assets.....................         520,000         327,000
     Deferred tax liabilities:
               Intangible assets and other.......        (520,000)       (327,000)
                                                     ------------    ------------
               Total deferred tax liabilities....        (520,000)       (327,000)
                                                     ------------    ------------
     Net deferred tax asset (liability)..........    $          -    $          -
                                                     ============    ============
</TABLE>

     The valuation allowance increased by $12,500,000 and $6,200,000 during 1999
and 1998, respectively, due primarily to the increase in tax credits and net
operating loss carryforwards.

12. LONG TERM OBLIGATIONS

     Long term obligations consist of:

<TABLE>
<CAPTION>
                                                                                                          DECEMBER 31,
                                                                                                 ------------------------------
                                                                                                      1999             1998
                                                                                                 -------------   --------------
<S>                                                                                              <C>             <C>
     Note payable to a bank bearing interest at LIBOR plus 1.55% (7.73% at December 31,
         1999) payable in quarterly installments commencing June 30, 1998 through June 30, 2002
         with a final payment of $1,178,571 due on September 30, 2002.........................   $   4,981,836   $    6,725,206
     Note payable to a bank bearing interest at prime (8.50% at December 31, 1999) payable in
         monthly installments through December 2000...........................................         224,344          501,588
     Note payable to a bank bearing interest at LIBOR (6.18% at December 31, 1999) due
         on September 30, 2002................................................................       3,000,000               --
                                                                                                 -------------   --------------
                                                                                                     8,206,180        7,226,794
                                                                                                 -------------   --------------
     Less current portion...............................................................            (1,646,296)      (2,020,614)
                                                                                                 -------------   --------------
                                                                                                 $   6,559,884    $   5,206,180
                                                                                                 =============    =============
</TABLE>

                                      F-17
<PAGE>   46

12. LONG TERM OBLIGATIONS (CONTINUED)

     In order to mitigate the impact of fluctuations in U.S. interest rates, the
Company entered into an interest rate swap in June 1998 on its principal note
payable to a bank. The Company swapped its variable rate of interest, LIBOR plus
1.55%, for a fixed rate of interest of 7.49%. Net interest payable or receivable
is determined on a quarterly basis and is insignificant at December 31, 1999.

     The bank loan proceeds have been used to finance the build-out of
facilities, the acquisition of certain equipment, and the purchase of a building
and land. Under the terms of the loan agreements, the Company is required to
comply with certain financial covenants. At December 31, 1999 the Company was in
compliance with such covenants.

     Substantially all of the Company's equipment and $3.0 million of its
marketable securities is pledged as collateral under the loan agreements.

     At December 31, 1999, the maturities of long term obligations are as
follows:

<TABLE>
<S>                                        <C>
     2000..............................    1,646,296
     2001..............................    1,421,952
     2002..............................    5,137,932
     2003..............................            -
</TABLE>

     Management believes that the carrying value of notes payable approximates
fair value at December 31, 1999, given that the interest rates on the Company's
bank debt are based on incremental borrowing rates currently available on loans
with similar terms and maturities.

13. COLLABORATION AGREEMENTS

     In December 1999, the Company entered into a Collaboration Agreement with
Sankyo Pharma Inc., which granted Sankyo exclusive rights to market Cholestagel
in the United States in exchange for certain initial, milestone and royalty
payments from Sankyo. At the same time, the Company entered into another
Collaboration Agreement with Sankyo under which the Company sold Sankyo an
option to obtain the exclusive right to develop and market a second-generation
cholesterol-lowering compound in the United States, Europe and Japan. Sankyo has
agreed to pay for all development costs for the second-generation compound for
so long as their option to license the compound remains in effect, as well as
milestone payments and royalty payments.

     In December 1994, the Company entered into a license agreement (the
"Agreement") with a different Japanese pharmaceutical company (the "Partner")
whereby the Company granted to the Partner a license to make, use, and sell
certain of the Company's products in certain areas of the world, as defined by
the Agreement (the "Territories"). The Agreement requires the Partner to bear
all costs to develop and commercialize the licensed products in the respective
Territories. In consideration of this Agreement, the Company received a
non-refundable license fee in 1994 and milestone payments in 1996 and 1997. The
Agreement calls for additional milestone payments to be paid to the Company
through the commercialization of the product licensed under the Agreement and
royalties based on certain percentages of sales, as defined in the Agreement.

14. EMPLOYEE BENEFIT PLAN

     The Company maintains an Employment Retirement Plan ("401(k) Plan") under
section 401(k) of the Internal Revenue Code covering all full-time employees.
Employee contributions may be made to the 401(k) Plan up to limits established
by the Internal Revenue Service. Company matching contributions may be made at
the discretion of the Board of Directors. The Company did not make a
contribution to the 401(k) Plan for the years ended December 31, 1999, 1998 and
1997.

15. COMMITMENTS

Synthetic Lease

     In October 1999, the Company completed the build-out of a new corporate
headquarters. The purchase and construction of the facility was approximately
$25.0 million and was financed through a synthetic lease transaction. The
synthetic lease is asset-based financing structured to be treated as an
operating lease for accounting purposes. The lease term commenced on October 21,
1998 and continues for seven years, thereafter. Upon the completion of the
construction phase in October 1999, the Company began to pay rent on a monthly
basis of approximately $187,000, which is based on a fixed rate of 8.99% on the
outstanding balance.

                                      F-18
<PAGE>   47

15. COMMITMENTS (CONTINUED)

     During the term of the lease, the Company has the option to purchase the
building and the improvements for a purchase price equal to the total amount
funded by the lessor, plus any accrued and unpaid rent and certain other costs
outlined in the agreements (the "Purchase Price"). At the end of the lease term,
the Company has the option to (i) purchase the building and the improvements for
the Purchase Price, (ii) arrange for the facility to be purchased by a third
party, or (iii) return the building and improvements to the lessor; provided,
however, in the case of options (ii) and (iii), the Company is contingently
liable to the extent the lessor is not able to realize 85% of the Purchase Price
upon the sale or other disposition of the property.

     Under the terms of the synthetic lease, the Company is required to comply
with certain financial covenants which, among other things, require the
maintenance of minimum levels of cash, tangible net worth, liquidity and debt
service coverage and prohibits the payment of dividends. The Company was in
compliance with these terms at December 31, 1999.

Manufacturing Agreements

     In September 1999, the Company entered into an agreement with its contract
manufacturer for the initial commercial production of bulk inventory for
Cholestagel. The Company is obligated under the terms of the agreement to pay
approximately 352.1 million Austrian schillings (approximately $27.3 million as
of December 31, 1999) through 2000. Under the terms of the Collaboration
Agreement with Sankyo Pharma Inc. (see Note 13), Sankyo has agreed to purchase
this initial production of inventory for approximately $21.4 million. The
difference was charged to operations in 1999.

     In November 1999, the Company entered into an agreement with its
manufacturer of the raw material for Cholestagel and Renagel. Under the terms of
the agreement, the Company will be obligated to purchase certain minimum
quantities of material beginning in 2000. The Company estimates that its minimum
purchase obligations during 2000 will be approximately $3.0 million, and that
its minimum purchase obligations during each of the remaining six years of the
term of the agreement will be approximately $2.7 million.

     In August 1999, the Company entered into a Letter of Intent with a
manufacturer to provide certain tableting, packaging and labeling services to
the Company with respect to Renagel. Under the terms of the letter of intent,
GelTex has made minimum purchase commitments, which are expected to commence in
2000 and will be in the amount of approximately $4.0 million a year. The minimum
purchase costs are costs associated with the Renagel Joint Venture with Genzyme
Corporation and will be borne equally by the Company and Genzyme. The Letter of
Intent is expected to be superseded by a definitive Manufacturing Agreement to
be entered into between the manufacturer and the Renagel Joint Venture in the
second quarter of 2000.

Subleases

     The Company leased its former offices and research laboratories under an
operating lease with an initial ten-year term and a provision for a five-year
extension. The Company is currently negotiating a sublease for this facility.
The Company has entered into a sublease arrangement for its prior facility with
another company for an initial three-year term with an option to extend for one
year. The original lease agreement between the Company and landlord remains in
effect. Total annual future minimum lease payments and minimum sublease payments
under these agreements are as follows:

<TABLE>
<CAPTION>
                                   LEASE       SUBLEASE
                                PAYMENTS       PAYMENTS
                               ----------    ----------
<S>                               <C>           <C>
     2000.................        456,297       316,800
     2001.................        457,875       316,800
     2002.................        497,284       316,800
     2003.................        481,450       316,800
     2004.................        390,300       158,400
     Thereafter...........        793,800            --
                               ----------    ----------
     Total................     $3,077,006    $1,425,600
                               ==========    ==========
</TABLE>

     The future minimum lease payments relating to the synthetic lease, which
are not included in the table above, are approximately $2.2 million per year
beginning in October 1999 and will continue for approximately six years,
thereafter.

                                       F-19
<PAGE>   48

15. COMMITMENTS (CONTINUED)

     Rental expense charged to operations was approximately $633,993 in 1999,
$441,850 in 1998 and $279,600 in 1997.

Operating Lease

     In September 1999, the Company negotiated a $4.0 million operating lease
line to finance the cost of equipment purchases. The Company will draw down the
line over the next 18 months and will repay the line in 60 equal monthly
installments commencing in March 2001. As of December 31, 1999, the Company had
drawn down $600,000 of the line and was obligated for minimum lease payments
of approximately $142,000 per year for the next five years.

     Under the terms of the lease, the Company is required to comply with
certain financial covenants which, among other things, require the maintenance
of minimum levels of cash, tangible net worth, liquidity and debt service
coverage and prohibits the payment of dividends. The Company was in compliance
with these terms at December 31, 1999.

Research Contracts

     The Company routinely contracts with universities, medical centers,
contract research organizations, and other institutions for the conduct of
research and clinical studies on the Company's behalf. These agreements are
generally for the duration of the contracted study and contain provisions that
allow the Company to terminate the study prior to its completion.

17. SUBSEQUENT EVENT

     On February 7, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of up to 3.5 million shares
of Common Stock.

                                      F-20
<PAGE>   49



                                  EXHIBIT INDEX

 3.1         Restated Certificate of Incorporation of GelTex Pharmaceuticals,
             Inc., dated June 4, 1996. Filed as Exhibit 3.1 to GelTex
             Pharmaceuticals, Inc.'s Registration Statement on Form S-3 (No.
             333-45151) and incorporated herein by reference.

 3.2         Amended and Restated By-Laws of GelTex Pharmaceuticals, Inc. Filed
             as Exhibit 3.3 to GelTex Pharmaceuticals, Inc.'s Annual Report on
             Form 10-K for the fiscal year ended December 31, 1995 and
             incorporated herein by reference.

 4.1         Specimen certificate for shares of common stock of GelTex
             Pharmaceuticals, Inc. Filed as Exhibit 4.1 to GelTex
             Pharmaceuticals, Inc.'s Registration Statement on Form S-1 (File
             No. 33-97322) and incorporated herein by reference.

 4.2         Rights Agreement dated as of March 1, 1996, between GelTex
             Pharmaceuticals, Inc. and American Stock Transfer and Trust
             Company. Filed as Exhibit 1 to GelTex Pharmaceuticals, Inc.'s
             Registration Statement on Form 8-A dated March 1, 1996 and
             incorporated herein by reference.

 4.3         First Amendment to Rights Agreement between GelTex Pharmaceuticals,
             Inc. and American Stock Transfer and Trust Company, dated as of
             July 29, 1997. Filed as Exhibit 4.3 to GelTex Pharmaceuticals,
             Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
             1997 and incorporated herein by reference.

 4.4         Amended and Restated Facility One Term Note issued by GelTex
             Pharmaceuticals, Inc. to Fleet National Bank, dated as of May 21,
             1997. Filed as Exhibit 4.1 to GelTex Pharmaceuticals, Inc.'s
             Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
             and incorporated herein by reference.

 4.5         Security Agreement (Equipment) between GelTex Pharmaceuticals, Inc.
             and Fleet National Bank, dated May 21, 1997. Filed as Exhibit 4.4
             to GelTex Pharmaceuticals, Inc.'s Registration Statement on Form
             S-3 (No. 333-45151) and incorporated herein by reference.

 4.6         Letter Agreement between GelTex Pharmaceuticals, Inc. and Fleet
             National Bank, dated May 21, 1997. Filed as Exhibit 4.5 to GelTex
             Pharmaceuticals, Inc.'s Registration Statement on Form S-3 (No.
             333-45151) and incorporated herein by reference.

 4.7         Promissory Note, dated October 31, 1997, issued by GelTex
             Pharmaceuticals, Inc. to Fleet National Bank. Filed as Exhibit 4.6
             to GelTex Pharmaceuticals, Inc.'s Registration Statement on Form
             S-3 (No. 333-45151) and incorporated herein by reference.

 4.8         Loan Modification Agreement between GelTex Pharmaceuticals, Inc.
             and Fleet National Bank, dated October 31, 1997. Filed as Exhibit
             4.7 to GelTex Pharmaceuticals, Inc.'s Registration Statement on
             Form S-3 (No. 333-45151) and incorporated herein by reference.

 4.9         Second Loan Modification Agreement between GelTex Pharmaceuticals,
             Inc. and Fleet National Bank, dated as of June 30, 1998. Filed as
             Exhibit 4.2 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1998 and incorporated
             herein by reference.

 4.10        Letter Agreement between GelTex Pharmaceuticals, Inc. and Fleet
             National Bank dated October 4, 1999. Filed as Exhibit 4.1 to GelTex
             Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for the
             quarter ended September 30, 1999 and incorporated herein by
             reference.

 4.11        Promissory Note, dated October 4, 1999 issued by GelTex
             Pharmaceuticals, Inc. to Fleet National Bank. Filed as Exhibit 4.2
             to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended September 30, 1999 and incorporated herein by
             reference.

10.1     #   GelTex Pharmaceuticals, Inc. Amended and Restated 1992 Equity
             Incentive Plan. Filed as Exhibit 10.1 to GelTex Pharmaceuticals,
             Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
             1999 and incorporated herein by reference.

10.2     *   License Agreement between GelTex Pharmaceuticals, Inc. and Chugai
             Pharmaceutical Co., Ltd., dated December 26, 1994. Filed as Exhibit
             10.14 to GelTex Pharmaceuticals, Inc.'s Registration Statement on
             Form S-1 (File No. 33-97322) and incorporated herein by reference.


                                       29
<PAGE>   50

10.3         Form of Common Stock Purchase Agreement. Filed as Exhibit 10.17 to
             GelTex Pharmaceuticals, Inc.'s Registration Statement on Form S-1
             (File No. 33-97322) and incorporated herein by reference.

10.4         Form of Restricted Common Stock Purchase Agreement. Filed as
             Exhibit 10.18 to GelTex Pharmaceuticals, Inc.'s Registration
             Statement on Form S-1 (File No. 33-97322) and incorporated herein
             by reference.

10.5     #   Form of Incentive Stock Option Certificate. Filed as Exhibit 10.19
             to GelTex Pharmaceuticals, Inc.'s Registration Statement on Form
             S-1 (File No. 33-97322) and incorporated herein by reference.

10.6     #   Form of Nonstatutory Stock Option Certificate. Filed as Exhibit
             10.20 to GelTex Pharmaceuticals, Inc.'s Registration Statement on
             Form S-1 (File No. 33-97322) and incorporated herein by reference.

10.7     #   GelTex Pharmaceuticals, Inc. Amended and Restated 1995 Director
             Stock Option Plan. Filed as Exhibit 10.2 to GelTex Pharmaceuticals,
             Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
             1999 and incorporated herein by reference.

10.8     #   GelTex Pharmaceuticals, Inc. 1995 Employee Stock Purchase Plan.
             Filed as Exhibit 99.1 to GelTex Pharmaceuticals, Inc.'s
             Registration Statement on Form S-8 (File No. 333-00864) and
             incorporated herein by reference.

10.9         Lease Agreement dated February 28, 1997, between GelTex
             Pharmaceuticals, Inc. and J.F. White Properties, Inc. Filed as
             Exhibit 10.16 to GelTex Pharmaceuticals, Inc.'s Annual Report on
             Form 10-K for the year ended December 31, 1996.

10.10    *   Contract Manufacturing Agreement between GelTex Pharmaceuticals,
             Inc. and The Dow Chemical Company. Filed as Exhibit 10.17 to GelTex
             Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for the
             quarter ended March 31, 1997 and incorporated herein by reference.

10.11    *   Collaboration Agreement among GelTex Pharmaceuticals, Inc., Genzyme
             Corporation and RenaGel LLC dated as of June 17, 1997. Filed as
             Exhibit 10.18 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on
             Form 10-Q for the quarter ended June 30, 1997 and incorporated
             herein by reference

10.12        Purchase Agreement between GelTex Pharmaceuticals, Inc. and Genzyme
             Corporation, dated as of June 17, 1997. Filed as Exhibit 10.19 to
             GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1997 and incorporated herein by
             reference.

10.13    *   Operating Agreement of RenaGel LLC, dated as of June 17, 1997.
             Filed as Exhibit 10.20 to GelTex Pharmaceuticals, Inc.'s Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1997 and
             incorporated herein by reference.

10.14    *   License Agreement between GelTex Pharmaceuticals, Inc. and Nitto
             Boseki Co., Ltd., dated as of June 9, 1997. Filed as Exhibit 10.21
             to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended June 30, 1997 and incorporated herein by
             reference.

10.15    #   Letter Agreement between GelTex Pharmaceuticals, Inc. and Paul J.
             Mellett, Jr., dated March 11, 1997. Filed as Exhibit 10.19 to
             GelTex Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the
             year ended 1997 and incorporated herein by reference.

10.16    #   Letter Agreement between GelTex Pharmaceuticals, Inc. and Edmund J.
             Sybertz, Jr., dated November 17, 1997. Filed as Exhibit 10.20 to
             GelTex Pharmaceuticals, Inc.'s Annual Report on Form 10-K for the
             year ended 1997 and incorporated herein by reference.

10.17    #   Promissory Note in favor of GelTex Pharmaceuticals, Inc. executed
             by Edmund J. Sybertz, Jr., dated June 30, 1998. Filed as Exhibit
             10.3 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form
             10-Q for the quarter ended June 30, 1998 and incorporated herein by
             reference.


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<PAGE>   51

10.18        Purchase and Sale Agreement between Sodexho USA, Inc., Service
             Supply Corporation and GelTex Pharmaceuticals, Inc., dated as of
             August 4, 1998. Filed as Exhibit 10.5 to GelTex Pharmaceuticals,
             Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30,
             1998 and incorporated herein by reference.

10.19        Agency Agreement by and between First Security Bank, N.A. and
             GelTex Pharmaceuticals, Inc., dated October 21, 1998. Filed as
             Exhibit 10.1 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1998 and incorporated
             herein by reference.

10.20        Lease Agreement by and between First Security Bank, N.A. and GelTex
             Pharmaceuticals, Inc., dated October 21, 1998. Filed as Exhibit
             10.2 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form
             10-Q for the quarter ended September 30, 1998 and incorporated
             herein by reference.

10.21    *   Manufacturing and Supply Agreement (United States) between RenaGel
             LLC and Circa Pharmaceuticals, Inc., dated as of July 31, 1998.
             Filed as Exhibit 10.4 to GelTex Pharmaceuticals, Inc.'s Quarterly
             Report on Form 10-Q for the quarter ended June 30, 1998.

10.22    #   Letter Agreement between GelTex Pharmaceuticals, Inc. and Dr.
             Douglas Reed, dated as of September 4, 1998. Filed as Exhibit 10.1
             to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended March 31, 1999 and incorporated herein by
             reference.

10.23    #   Promissory Note in favor of GelTex Pharmaceuticals, Inc. executed
             by Dr. Douglas Reed, dated December 1, 1998. Filed as Exhibit 10.2
             to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended March 31, 1999 and incorporated herein by
             reference.

10.24    #   Promissory Note in favor of GelTex Pharmaceuticals, Inc. executed
             by Dr. Douglas Reed, dated December 31, 1998. Filed as Exhibit 10.3
             to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for
             the quarter ended March 31, 1999 and incorporated herein by
             reference.

10.25    #   Promissory Note in favor of GelTex Pharmaceuticals, Inc. executed
             by Dr. Douglas Reed and Linda Reed, dated December 31, 1998. Filed
             as Exhibit 10.4 to GelTex Pharmaceuticals, Inc.'s Quarterly Report
             on Form 10-Q for the quarter ended March 31, 1999 and incorporated
             herein by reference.

10.26    #   Amendment to Promissory Note in favor of GelTex Pharmaceuticals,
             Inc. executed by Dr. Douglas Reed on December 1, 1998. Filed as
             Exhibit 10.1 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1999.

10.27    #   Amendment to Promissory Note in favor of GelTex Pharmaceuticals,
             Inc. executed by Dr. Douglas Reed on December 31, 1998. Filed as
             Exhibit 10.2 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on
             Form 10-Q for the quarter ended September 30, 1999.

10.28        Purchase and Sale Agreement between Barry L. Solar and Robert L.
             Solar as Trustees of 211 Second Avenue Realty Trust and GelTex
             Pharmaceuticals, Inc., dated as of July 26, 1999. Filed as Exhibit
             10.4 to GelTex Pharmaceuticals, Inc.'s Quarterly Report on Form
             10-Q for the quarter ended June 30, 1999 and incorporated herein by
             reference.

10.29        Agreement and Plan of Merger, dated as of August 13, 1999, by and
             among GelTex Pharmaceuticals, Inc., Shine Acquisition Sub, Inc. and
             SunPharm Corporation. Filed as Exhibit 2 to GelTex Pharmaceuticals,
             Inc.'s Registration Statement on Form S-4 (File No. 333-88459) and
             incorporated herein by reference.

10.30        Common Stock Purchase Agreement dated as of March 7, 2000 by and
             among the Registrant and certain purchasers named therein. Filed as
             Exhibit 10.1 to GelTex Pharmaceuticals, Inc.'s Current Report on
             Form 8-K dated March 6, 2000.


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<PAGE>   52

10.31        Common Stock Purchase Agreement dated as of March 7, 2000 by and
             between the Registrant and Acqua Wellington North American Equities
             Fund, Ltd. Filed as Exhibit 10.2 to GelTex Pharmaceuticals, Inc.'s
             Current Report on Form 8-K dated March 6, 2000.

10.32    *   Supply Agreement dated as of November 9, 1999 by and between
             Salsbury Chemicals, Inc. and GelTex Pharmaceuticals, Inc. Filed
             herewith.

21           GelTex Pharmaceuticals, Inc.'s subsidiaries.  Filed herewith.

23.1         Consent of Ernst & Young LLP, independent accountants. Filed
             herewith.

23.2         Consent of PricewaterhouseCoopers LLP, independent accountants.
             Filed herewith.

24           Power of Attorney. Contained on signature page hereto.

27.1         Financial Data Schedule. Filed herewith.

99.1         RenaGel LLC Financial Statements for the years ended December 31,
             1999 and 1998 and the period June 6, 1997 (date of inception)
             through December 31, 1997. Filed herewith.
-----------------
*    Certain confidential material contained in Exhibits 10.2, 10.12,
     10.11,10.13, 10.14, 10.21 and 10.32 has been omitted and filed separately
     with the Securities and Exchange Commission.

#    Identifies a management contract or compensatory plan or arrangement in
     which an executive officer or director of GelTex Pharmaceuticals, Inc.
     participates.





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