<PAGE>

PATENTS AND PROPRIETARY RIGHTS

    The Company believes that patents and other proprietary rights are important
to its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to its business and that provide a competitive advantage. Focal also
relies on trade secrets, general know-how, in-licensing opportunities and
continuing technological innovation.

    The Company has received, licensed or believes it has the option or right to
license 41 issued United States patents and 29 foreign patents corresponding to
certain of the issued United States patents, has five additional United States
patent applications that have been allowed and has 24 patent applications
pending in the United States, as well as foreign counterparts of certain of
these applications. The issued United States patents have expiration dates
ranging from 2010 to 2016. These patents and patent applications cover certain
aspects of the Company's photopolymerizable polymer formulations, surgical
sealant compositions and methods, and designs for delivery devices.

    The Company has licensed from the University of Texas and Endoluminal
Therapeutics, Inc. (a company controlled by one of the Company's founding
scientists) worldwide rights to certain technologies which are the subject of
issued patents and pending patent applications based upon technologies developed
by two of the Company's founders. These licenses are terminable in the event of
failure by the


<PAGE>
Company to pay scheduled royalties, failure to commercialize products in the
fields covered by these licenses and under certain other conditions.

    Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the medical products industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, the Company intends to seek
patent protection for its proprietary technology, products and processes.

    The Company's success will depend in part on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights, and operate without infringing upon
the proprietary rights of others, both in the United States and internationally.
There can be no assurance that the Company's pending or future patent
applications will issue, or that the claims of the Company's issued patents, or
any patents that may issue in the future will provide any competitive advantages
for the Company's products or that they will not be successfully challenged,
narrowed, invalidated or circumvented in the future. Moreover, litigation and
interference or opposition proceedings associated with enforcing or defending
patents or trade secrets is expensive and can divert the efforts of technical
and management personnel.

    The Company has filed patent applications in certain foreign countries
corresponding to certain patent applications that it filed in the United States
and may file additional patent applications inside and outside the United
States. The Company believes that the protection afforded by foreign patents or
any other foreign intellectual property protection, if obtained, may be more
limited than that provided domestically. In addition, there can be no assurance
that competitors will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, use, import and
sell its products.

    The Company is aware that certain medical device, pharmaceutical and other
companies, universities and research institutions have filed patent applications
or have issued patents relating to the compositions and methods for wound
closure and adhesion prevention. In addition, the medical device and
pharmaceutical industries have been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the medical device and pharmaceutical industries have employed intellectual
property litigation to gain a competitive advantage. There can be no assurance
that litigation will not be brought against the Company by third parties in the
future challenging the Company's patent rights or claiming infringement by the
Company of patents held by the third parties. Because patent applications in the
United States are confidential until the patents issue, and publication of
discoveries in the scientific and patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that Company
inventors or licensors were the first to conceive of inventions covered by
pending patent applications or that Company was the first to file patent
applications for such inventions.

    The Company may be required or find it desirable to obtain licenses to
patents or proprietary rights of others. No assurance can be given that any
licenses required under any patents or proprietary rights of third parties would
be made available on terms acceptable to the Company, or at all. If the Company
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. Litigation may be necessary to defend against or assert claims of
patent infringement or invalidity, to enforce or defend patents issued to the
Company, to protect trade secrets or know-how owned by the Company, or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings declared by the United States Patent and
Trademark Office, or opposition proceedings in a foreign patent office, may be
necessary to determine the priority of inventions with respect to patent
applications of the Company or its licensors. Litigation, interference or
opposition proceedings could result in substantial costs to and diversion of
effort by the Company, and adverse


<PAGE>
determinations in any such proceedings could have a material adverse effect on
the business, financial condition or results of operations of the Company.

    The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its commercial partners, collaborators,
employees and consultants. The Company also has invention and patent assignment
agreements with its employees and certain, but not all, commercial partners and
consultants. There can be no assurance that relevant inventions will not be
developed by a person not bound by an invention assignment agreement. There can
be no assurance that binding agreements will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by competitors.

GOVERNMENT REGULATION

    UNITED STATES

    The Company's proposed products and its research and development activities
are subject to regulation by numerous governmental authorities, principally the
FDA and corresponding state and foreign regulatory agencies. The Federal Food,
Drug, and Cosmetic Act (the "FDC Act"), as amended, the regulations promulgated
thereunder, and other federal and state statutes and regulations, govern, among
other things, the preclinical and clinical testing, manufacture, safety,
efficacy, labeling, storage, record keeping, advertising and promotion of
medical devices and drugs, including the products currently under development by
the Company. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.

    In the United States, medical devices are classified into three different
classes, class I, II and III, on the basis of controls deemed necessary to
reasonably ensure the safety and effectiveness of the device. Class I devices
are subject to general controls (e.g., labeling and adherence to FDA's good
manufacturing practice requirements ("GMPs")) and class II devices are subject
to general and special controls (e.g., performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed Class I or II devices).


<PAGE>
    Unless it is exempt, a new medical device can be marketed only with
marketing clearance obtained through a premarket notification under
Section 510(k) of the FDC Act or a premarket approval ("PMA") application under
Section 515 of the FDC Act. A 510(k) clearance will typically be granted by the
FDA if it can be established that the device is substantially equivalent to a
"predicate device," which is a legally marketed class I or II device or a
preamendment class III device (i.e. one that has been marketed since a date
prior to May 28, 1976) for which the FDA has not called for PMAs. The FDA has
been requiring an increasingly rigorous demonstration of substantial equivalence
and this may include a requirement to submit human clinical trial data. It
generally takes four to twelve months from the date of a 510(k) submission to
obtain clearance, but it may take longer.

    The FDA may determine that a medical device is not substantially equivalent
to a predicate device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information, could
prevent or delay the market introduction of new products that fall into this
category. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect the safety or
effectiveness, or that constitute a major change in the intended use of the
device, will require new 510(k) submissions.

    A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device, or if it is a
preamendment class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence to demonstrate the
safety and effectiveness of the device, typically including the results of
clinical trials, bench tests, and laboratory and animal studies. The PMA must
also contain a complete description of the device and its components, and a
detailed description of the methods, facilities and controls used to manufacture
the device. In addition, the submission must include the proposed labeling,
advertising literature, and any training materials. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.

    Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. The FDA review of a PMA application generally takes one to three years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of
clinicians, may be convened to review and evaluate the application and provide a
recommendation to the FDA as to whether the device should be approved. The FDA
accords substantial weight to the recommendation but is not bound by it. Toward
the end of the PMA review process, the FDA generally will conduct an inspection
of the manufacturer's facilities to ensure compliance with applicable GMP
requirements, which include elaborate testing, control documentation and other
quality assurance procedures. The Company recently underwent an FDA GMP
inspection of its facilities in Lexington, Massachusetts in connection with its
PMA application for FocalSeal L sealant for lung surgery. Also, prior to PMA
approval, the FDA undertakes a bioresearch monitoring review of some of the
investigational sites to assure the accuracy of the clinical data. The FDA has
undertaken such a review and Focal is presently working with the FDA in
connection with the bioresearch monitoring inspections of the FOCALSEAL-L
surgical sealant data. The Company believes it has satisfied the FDA's
bioresearch monitoring questions raised to date.

    If FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing marketing of the device for certain indications. If
the FDA's evaluation of the PMA application or


<PAGE>
manufacturing facilities is not favorable, the FDA will deny approval of the PMA
application or issue a "non-approvable" letter. The FDA may determine that
additional clinical trials are necessary, in which case the PMA may be delayed
for one or more years while additional clinical trials are conducted and
submitted in an amendment to the PMA. Modifications to a device that is the
subject of an approved PMA, its labeling or manufacturing process may require
approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA often
require the submission of the same type of information required for an initial
PMA, except that the supplement is generally limited to that information needed
to support the proposed change from the product covered by the original PMA.

    If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) must file an investigational device exemption ("IDE") application prior
to commencing human clinical trials. The IDE application must be supported by
data, typically including the results of animal and laboratory testing. If the
IDE application is approved by the FDA and one or more appropriate Institutional
Review Boards ("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from the
studies support the safety and efficacy of the device or warrant the
continuation of clinical studies. Sponsors of clinical trials are permitted to
sell investigational devices distributed in the course of the study provided
such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.

    The Company's FOCALSEAL surgical sealant products will be regulated as a
class III medical device and will require a separate PMA approval for each
indication to be marketed in the United States. There can be no assurance that
the Company will receive FDA approval of its PMA application for FOCALSEAL-L
surgical sealant for lung surgery in the United States, In addition, the Company
may be required to obtain IDEs for additional applications of FOCALSEAL surgical
sealant and for other products that the Company develops that are regulated by
the FDA as medical devices. There is no assurance that data, typically the
results of animal and laboratory testing, that may be provided by the Company in
support of future IDE applications will be deemed adequate for the purpose of
obtaining IDE approval, that the Company will obtain approval to conduct
clinical studies of any such future product, or that such clinical studies, if
completed, will generate data adequate to support PMA approval. There can be no
assurance that PMA approval can be obtained for any product in a timely fashion,
or at all.

    If clearance or approval is obtained, any device manufactured or distributed
by the Company will be subject to pervasive and continuing regulation by the
FDA. The Company will be subject to inspection by the FDA and will have to
comply with the host of regulatory requirements that usually apply to medical
devices marketed in the United States, including labeling regulations, GMP
requirements, the Medical Device Reporting ("MDR") regulation (which requires a
manufacturer to report to the FDA certain types of adverse events involving its
products), and the FDA's prohibitions against promoting products for unapproved
or "off-label" uses. The Company's failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

    Other products that may be developed by the Company, including products for
local drug delivery, may be regulated as drugs requiring FDA approval of a new
drug application ("NDA") prior to commercialization in the United States. The
NDA approval process is generally considered more onerous, costly and lengthy
than the PMA process, often requiring more extensive preclinical and clinical
testing, and


<PAGE>
many products for which NDAs have been submitted by other companies have never
been approved for marketing.

    If the FDA believes that a company is not in compliance with law, it can
institute proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the Company, its
officers and its employees. Failure to comply with the regulatory requirements
could have material adverse effect on the Company's business, financial
condition and results of operations. In addition, regulations regarding the
manufacture and sale of the Company's products are subject to change. The
Company cannot predict the effect, if any, that such changes might have on its
business, financial condition or results of operations.

    INTERNATIONAL

    In order for the Company and its strategic partners to market the Company's
products in Europe and other foreign countries, the Company and/or its partners
must obtain required regulatory approvals and comply with extensive regulations
governing safety, quality and manufacturing processes. These regulations vary
significantly from country to country. The time required to obtain approval to
market the Company's products may be longer or shorter than that required in the
United States. In order to market FOCALSEAL surgical sealants and other products
being developed by the Company in the member countries of the European Union,
the Company will be required to obtain CE mark certification. CE mark
certification is an international symbol of adherence to quality assurance
standards and compliance with applicable European medical device directives. In
December 1997, the Company received a CE mark for its FOCALSEAL-L surgical
sealant for lung surgery and obtained ISO 9001 status. In November 1999, the
Company received a CE mark for its FOCALSEAL-S sealant for neurosurgery. In
September 1999, Focal successfully completed the annual CE Mark surveillance
audit. Although the audit has been successfully completed, there can be no
assurance that the Company will be successful in maintaining its CE mark
certification and ISO 9001 status or that additional CE Mark approvals will be
received for other clinical indications.

SALES AND MARKETING

    Focal intends to market and sell its surgical sealants in North America
through Genzyme Surgical Products and internationally through Ethicon. Genzyme
Surgical has a team of 25 sales representatives who will be distributing the
FOCALSEAL-L lung surgery sealant product throughout the United States and a team
of six sales representatives who will be distributing the product in Canada. The
sales representatives in the United States will initially be focused on the
several hundred largest centers that account for a substantial portion of the
lung surgery procedures performed annually.

    Ethicon has a team of specialized sales representatives to sell Focal's
product in Europe and certain other countries including Australia and New
Zealand. Sales to date have not been substantial. However, there has been more
aggressive adoption in selected areas by certain surgeons who have historically
been early adopters of new technologies. In an effort to increase market
penetration, during 2000 Focal plans to add additional marketing resources to
work more closely with the Ethicon sales force. Additionally, the Company plans
to use the knowledge obtained from working directly with surgeons in Europe to
leverage the Company's market opportunity in the United States

    The Company's sales and marketing strategy for other products that it may in
the future seek to develop, may include using a combination of the Company's own
direct sales force, strategic marketing partners and distributors. The sales and
marketing plans for these products, if any, will be dependent on the Company's
success in entering into strategic marketing relationships, its ability to
leverage its own internal sales force to market additional products beyond the
surgical sealant products and its ability to hire and retain additional
specialized sales personnel. There can be no assurance that the Company will be
able to secure any additional strategic marketing partners or international
distributors on terms that are


<PAGE>
acceptable to the Company, or at all, or that the Company will be successful in
building a direct sales force in the United States.

MANUFACTURING

    The Company has only limited experience in manufacturing its FOCALSEAL
surgical sealants. The Company believes it has sufficient manufacturing capacity
at its Lexington, Massachusetts facility to meet anticipated supply requirements
for FOCALSEAL-L and FOCALSEAL-S surgical sealant in the United States and in
international markets for the next several years.

    The Company performs certain steps in the FOCALSEAL surgical sealant
manufacturing process internally and relies on outside contractors for others.
Certain proprietary processes, including polymer synthesis, are performed by
Focal. The Company uses outside contractors for nonproprietary, high volume
processes including sterilization and aseptic filling. The Company also
contracts with third parties for the manufacture of syringes, applicators, light
sources and light wands.

    There can be no assurance that the Company will be able to attract, train
and retain the required manufacturing personnel or will be able to increase its
manufacturing capability in the future to meet potentially increasing demand for
its surgical sealant products in a timely manner, or at all. Manufacturers often
encounter difficulties in scaling up production of their products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel. The Company anticipates that it
will need to significantly increase its current manufacturing capacity to meet
commercial needs over the next several years and that it may need to establish
additional manufacturing capacity to meet these anticipated needs. In addition,
the Company expects that it will need to identify and qualify additional sources
for materials and outsourced manufacturing processes. There can be no assurance
that the Company's manufacturing scale-up efforts will be successful or that
reliable, high-volume manufacturing can be established or maintained at
commercially reasonable costs on a timely basis, or at all.

    The Company would experience supply interruptions in the event it is unable
to establish or maintain commercial levels of polymer synthesis, as the
Company's polymer formulations are proprietary and are not available from third
parties. In addition, there can be no assurance that the Company will not
encounter unanticipated problems and delays in connection with its contract
manufacturers and suppliers. Delays associated with or difficulties encountered
in establishing commercial manufacturing, the establishment of new manufacturing
facilities, or problems encountered with contract manufacturers and suppliers,
would result in disruptions of product supply to the Company's marketing
partners and for use in clinical trials. In such event Ethicon could, under its
agreement with the Company, commence manufacturing of surgical sealants for
sales in all territories outside North America. Any of the foregoing would have
a material adverse affect on the Company's business, financial condition and
results of operations.

    The Company purchases raw materials used in its products from various
suppliers. Certain materials and components are currently purchased by the
Company from single sources. These materials have generally been readily
available in the marketplace and have not been the subject of shortages. There
can, however, be no assurance that the Company or its suppliers or contract
manufacturers will not experience material shortages in the future. Any such
future shortages of materials or components could have a material adverse effect
on the Company's business, financial condition and results of operations.

    The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. As such, the Company is
subject to inspections by the FDA for compliance with applicable GMP
requirements, which include elaborate testing, control documentation and other
quality assurance procedures. Further, the Company and the third party
manufacturers of its products are required to comply with various FDA
requirements for design, safety, advertising and labeling.


<PAGE>
    Complex medical devices, such as the Company's products, can experience
performance that require review and possible corrective action by the
manufacturer. There can be no assurance that component failures, manufacturing
errors or design defects that could result in an unsafe condition or injury will
not occur. If any such failures or defects were deemed serious, the Company
could be required to withdraw or recall products, which could result in
significant costs to the Company. There can be no assurance that market
withdrawals or product recalls will not occur in the future. Any future product
problems could result in market withdrawals or recalls of products, which could
have a material adverse affect on the Company's business, financial condition or
results of operations.

COMPETITION AND TECHNOLOGICAL CHANGE

    The Company competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies. In the surgical sealant area,
the Company will compete with existing methodologies for sealing air and fluid
leaks resulting from surgery, including some traditional wound closure products
such as sutures and staples, marketed by companies such as Johnson & Johnson,
and United States Surgical Corporation (Tyco). Other products currently being
marketed include fibrin glue, sold in Europe and the Pacific Rim countries by
Immuno AG, Cention and Fujisawa and in the U.S. by Baxter Healthcare Corporation
and others. Additional products are under development at Bristol-Myers Squibb
Company and Vitex. Other potential competitors in the surgical sealant market
include Closure Medical Corporation, B. Braun GmBH, Cryolife and Cohesion and
others. Competitive products may also be under development by other large
medical device, pharmaceutical and biopharmaceutical companies. The other areas
in which Focal is developing products, such as local drug delivery and adhesion
prevention, are intensely competitive markets and the Company will encounter
competition from major medical device, pharmaceutical and biopharmaceutical
companies in such markets. Many of the Company's current and potential
competitors have substantially greater financial, technological, research and
development, regulatory and clinical, marketing and sales, and personnel
resources than the Company.

    Certain of these competitors may also have greater experience in developing
products, conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing such products. Certain of these competitors may
obtain patent protection, approval or clearance by the FDA or foreign countries
or product commercialization earlier than the Company, any of which could
materially adversely affect the Company. Furthermore, if the Company attains
significant commercial sales of its products, it will also be competing with
respect to manufacturing efficiency and marketing capabilities, areas in which
it currently has limited experience. Finally, there can be no assurance that the
Company's marketing partners will not pursue parallel development of other
technologies or products, which may result in a marketing partner developing
additional products that would compete with the Company's products.

    Other recently developed technologies or procedures are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected.

THIRD PARTY REIMBURSEMENT

    Reimbursement and health care payment systems in international markets vary
significantly by country. In connection with international product
introductions, the Company and its strategic marketing partners may be required
to seek international reimbursement approvals. If required, there can be no
assurance that any such approvals will be obtained in a timely manner, or at
all, and failure to receive such international reimbursement approvals could
have an adverse effect on market acceptance of the Company's products in the
international markets in which such approvals are sought.


<PAGE>
    In the United States, health care providers, such as hospitals and
physicians, that purchase medical devices such as the Company's products,
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or part of the
cost of surgical procedures. The Company anticipates that in a prospective
payment system, such as the DRG system utilized by Medicare, and in many managed
care systems used by private health care payors, there will be no separate,
additional reimbursement for the Company's products. Accordingly, the Company
believes that there will be no procedure-specific reimbursement codes for the
Company's products. The Company anticipates that hospital administrators and
physicians will justify the additional cost of surgical sealants by the
attendant cost savings and clinical benefits that the Company believes will be
derived from the use of its products.

    There can be no assurance that reimbursement for the Company's products will
be available in the United States or in international markets under either
governmental or private reimbursement systems. Furthermore, the Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors. Failure by physicians, hospitals and other users of
the Company's products to obtain sufficient reimbursement from health care
payors for procedures in which the Company's products are used or adverse
changes in governmental and private third party payors' policies toward
reimbursement for such procedures would have a material adverse effect on the
Company's business, financial condition and results of operations.

    The Company's business may be also materially adversely affected by the
continuing efforts of government and third-party payors to contain or reduce the
costs of health care through various means. For example, in certain foreign
markets, pricing or profitability of certain medical products and prescription
pharmaceuticals is subject to government control. In the United States, an
increasing emphasis on managed care has put, and will continue to put, pressure
on pharmaceutical and medical product pricing. Such initiatives and proposals,
if adopted, could decrease the price that the Company receives for any products
it may develop and sell in the future, and thereby have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, to the extent that such proposals or initiatives have a material
adverse effect on other companies that are corporate partners or prospective
corporate partners for certain of the Company's products, the Company's ability
to commercialize its products may be materially adversely affected.

EMPLOYEES

    As of December 31, 1999, the Company employed 76 persons of whom 38 were in
research and, development, 9 were in manufacturing, 19 were in clinical,
regulatory affairs and quality assurance, and 10 were in management, finance and
administration. None of the Company's current employees is represented by a
labor union or is the subject of a collective bargaining agreement. The Company
believes that relations with its employees are good.

SCIENTIFIC ADVISORS AND CLINICAL INVESTIGATORS

    Focal has recruited several physician specialists and experienced
practitioners in various fields pertaining to its products to serve as
scientific advisors and clinical investigators.

    There is no fixed term of service for the scientific advisors. Current
members may resign or be removed at any time, and additional members may be
appointed. In general, members do not serve on an exclusive basis with the
Company and are not obligated to assign inventions to the Company. Drs. Langer,
Brem, and Slepian are scientific founders of the Company and certain inventions
of Dr. Slepian have been licensed to the Company under the Company's license
agreements with Endoluminal Therapeutics, Inc., a company controlled by
Dr. Slepian. Drs. Langer and Brem also serve as members of the Company's board
of directors. Scientific advisors have from time to time received option grants
to purchase Common Stock of the Company. Scientific Advisors have also received
cash compensation, with the amount of such compensation dependent on the time
commitment and level of involvement of each advisor. All scientific advisors
receive reimbursement for expenses incurred in traveling to and attending
meetings on behalf of the Company.


<PAGE>
    The following individuals are currently either scientific advisors to Focal
or surgeons involved in Focal's clinical trials. Their respective areas of
specialization are identified below.

<TABLE>
<S>                                       <C>
BIOMATERIALS/POLYMER SCIENCE
John Eaton, Ph.D.                         Baylor University College of Medicine
Joseph Vacanti, M.D.                      Boston Children's Hospital
Allan Hoffman, Ph.D.                      University of Washington

DRUG DELIVERY AND TISSUE ENGINEERING
Robert Langer, Ph.D.                      Massachusetts Institute of Technology
Marvin Slepian, M.D.                      University of Arizona Medical Center
Henry Brem, M.D.                          Johns Hopkins Medical Center
Jane Shaw, Ph.D.                          President of Stable Network; Former President of
                                          Alza Corporation

PROCEDURE DEVELOPMENT
Joseph LoCicero III, M.D.                 Harvard Medical School
Peter Johnson, M.D.                       University of Pittsburgh Medical School
David Torchiana, M.D.                     Massachusetts General Hospital

LUNG SURGERY
John Wain, M.D.                           Massachusetts General Hospital
Larry Kaiser, M.D.                        University of Pennsylvania Medical Center
Stephen Yang, M.D.                        Johns Hopkins Medical Center
Richard Feins, M.D.                       Strong Memorial Hospital
Cameron Wright, M.D.                      Massachusetts General Hospital
David Johnstone, M.D.                     Strong Memorial Hospital
Paolo Maccharini, M.D.                    Hanover, Germany
Albert Linder, M.D.                       Lugenklinik-Heuer, Germany

NEUROSURGERY
Andre Grotenhuis, M.D.                    University Hospital Nijmegan, The Netherlands
Prof. Nicholas de Tribolet, M.D.          Centre Hospitalier Universitaire Vaudriis,
Prof. Bernard George, M.D.                Switzerland
Rees Cosgrove, M.D.                       Hospital Lasiboisiere, France
Henry Van Loveren, M.D.                   Massachusetts General Hospital
                                          Mayfield Neurological Institute, University of
                                          Cincinnati
</TABLE>

RISK FACTORS THAT MAY AFFECT OPERATING RESULTS

    This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be considered to be forward-looking statements. Although not
a complete list of words that might identify forward-looking statements, we use
the words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions to identify forward-looking statements. There are a number of
important factors that could cause our actual results to differ materially from
those indicated by forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Form 10-K.

    HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company has incurred net losses in each year since its
inception, including a net loss of approximately $16.8 million during 1999. At
December 31, 1999, the Company had an accumulated deficit of $76.2 million. The
Company's operating losses have resulted primarily from expenses incurred in
connection with the Company's research and development activities, including
preclinical and clinical trials, development of manufacturing processes and
general and administrative expenses. The Company expects to incur net


<PAGE>
losses through at least 2001 and may incur net losses in subsequent periods,
although the amount of future net losses and time required by the Company to
reach profitability are highly uncertain. The Company's ability to achieve and
sustain profitability will be dependent upon obtaining regulatory approval for
and successfully commercializing its FOCALSEALsurgical sealants, including
receiving adequate sales and marketing support from its strategic marketing
partners, Genzyme Surgical Products and Ethicon. There can be no assurance that
Focal will obtain required regulatory approvals, or successfully develop,
manufacture, commercialize and market products or that the Company will ever
record product revenues or achieve profitability. Profitability, if achieved,
may not be sustained.

    UNCERTAINTIES RELATED TO EARLY STAGE OF COMMERCIALIZATION AND
DEVELOPMENT.  Except for the FOCALSEAL-L and FOCALSEAL-S surgical sealants for
lung surgery and neurosurgery indications, all of the Company's products are in
early stages of development or research. To date the Company has received a CE
Mark approval for FOCALSEAL-L surgical sealant for lung surgery, a CE mark for
FOCALSEAL-S sealant for neurosurgery and approval in Canada for FOCALSEAL-L
sealant for lung surgery. Focal has not received marketing approval for any
products from the FDA. In addition, FOCALSEAL-L and FOCALSEAL-S surgical
sealants will potentially require significant additional research and
development efforts before either is suitable for any indications beyond lung
surgery and neurosurgery, The development and commercialization of new
bioabsorbable synthetic polymer products are highly uncertain and subject to a
number of significant risks. Potential products that appear to be promising at
early stages of development may not reach the market for a number of reasons.
Such reasons include the possibilities that the potential products will be found
ineffective or cause harmful side effects during preclinical testing or clinical
trials, fail to receive necessary regulatory approvals, be difficult to
manufacture on a commercial scale, be uneconomical, fail to achieve market
acceptance or be precluded from commercialization by proprietary rights of third
parties. No assurance can be given that any of the Company's development
programs will be successfully completed, that clinical trials will generate
anticipated results or will commence or be completed as planned, that any PMA
application will be accepted or ultimately approved by the FDA, that required
regulatory approvals will be obtained on a timely basis, if at all, or that any
products for which approval is obtained will be commercially successful. If any
of the Company's development programs are not successfully completed, required
regulatory approvals are not obtained, or products for which approvals are
obtained are not commercially successful, the Company's business, financial
condition and results of operations would be materially adversely affected.

    EARLY STAGE OF CLINICAL TESTING AND LACK OF EXTENSIVE CLINICAL DATA. A 180
patient clinical trial of the Company's FOCALSEAL-L surgical sealant product for
lung surgery has been completed in the United States, and the company has
submitted its PMA to the FDA and is anticipating a panel meeting in the first
half of 2000. Although the Company believes that the results of this trial are
sufficient to obtain marketing approval in the U.S., there are no assurances
that the FDA will not require additional clinical testing of FOCALSEAL-L
surgical sealant to obtain U.S. marketing approval. Although Focal has commenced
United States clinical trials of FOCALSEAL-S surgical sealant, there are no
assurances that the FDA will not require the Company to pursue certain clinical
endpoints. It may be more difficult for the Company to demonstrate the efficacy
of FOCALSEAL-S surgical sealant in the United States trial than in the European
trial, which could result in delays or adversely affect the success of the
clinical trial.

    There can be no assurance that FOCALSEAL-L or FOCALSEAL-S surgical sealants
will receive marketing approval from the FDA or that any of the Company's other
products will prove to be safe and effective in United States or international
clinical trials under applicable regulatory guidelines. In addition, clinical
trials may identify significant technical or other obstacles to be overcome
prior to obtaining necessary regulatory or international approvals. If the
FOCALSEAL-L and FOCALSEAL-S surgical sealant products and the Company's other
products under development do not prove to be safe and effective in clinical
trials or if the Company is otherwise unable to commercialize these products
successfully, the Company's business, financial condition and results of
operations will be materially and adversely affected.


<PAGE>
    DEPENDENCE UPON FOCALSEAL SURGICAL SEALANTS.  The Company anticipates that
revenues derived from the North American launch of FOCALSEAL-L surgical sealant,
pending FDA approval, will account for a substantial majority of the Company's
near term product revenues. In addition, the Company's future success will
depend, in significant part, on its ability to successfully complete additional
clinical trials and to obtain regulatory approval and market acceptance of
FOCALSEAL-L and FOCALSEAL-S surgical sealant in the United States. Although the
Company has submitted a PMA application to the FDA based on the results of a
180-patient clinical trial in the United States, there can be no assurance that
the FDA will approve the PMA or, if marketing approval were granted by the FDA,
that the Company and its marketing partner, Genzyme Surgical Products, will
successfully commercialize FOCALSEAL-L surgical sealant in the United States.
Failure by the Company to gain marketing approval from the FDA for FOCALSEAL-L
surgical sealant or to be able to successfully commercialize FOCALSEAL-L
surgical sealant in the United States would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company's ability to pursue further development and ultimate
commercialization of its surgical sealant products for cardiovascular and
gastrointestinal surgery is contingent on its ability to secure additional
resources for these programs.

    DEPENDENCE ON STRATEGIC MARKETING PARTNERS.  The Company has established
strategic marketing alliances with Genzyme Surgical and Ethicon in the field of
surgical sealants. Under these agreements, the Company is dependent upon Genzyme
Surgical and Ethicon for the marketing and sale of the Company's surgical
sealants. In June 1999, Ethicon announced that it has excess inventory of FOCAL
SEAL-L and, consequently, the Company recorded negligible product sales under
its arrangement with Ethicon in the second half of 1999. To date, all of the
Company's revenues have been derived from sales by Ethicon. The failure of
Genzyme Surgical or Ethicon to continue to support the Company in the
commercialization of its sealant products would have a material adverse affect
on the Company's business, financial condition and results of operations.

    The Company's strategy for development and commercialization of certain of
its future products may depend upon the Company entering into additional
arrangements with research collaborators, corporate partners and others, and
upon the subsequent success of these third parties in performing their
obligations. There can be no assurance that the Company will be able to enter
into additional strategic alliances on terms favorable to the Company, or at
all. The Company's inability to enter into additional strategic alliances could
have an adverse affect on the Company's business, financial condition and
results of operations.

    The Company cannot control the amount and timing of resources which its
current or any future corporate partners devote to the Company's programs or
potential products. If any of the Company's current or future corporate partners
breach their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the clinical development and/or
commercialization of products may be delayed, and the Company may be required to
devote additional resources to product development and commercialization, or
terminate certain development programs. The termination of any current or future
strategic alliances could have a material adverse affect on the Company's
business, financial condition and results of operations.

    In addition, Focal's current and any future strategic partners may develop,
either alone or with others, products that compete directly with the development
and marketing of the Company's products. Competing products, either developed by
the corporate partners or to which the corporate partners have rights, may
result in their withdrawal of support with respect to all or a portion of the
Company's technology, marketing and development efforts, which would have a
material adverse affect on the Company's business, financial condition and
results of operations. There can be no assurance that disputes will not arise in
the future with respect to the ownership of rights to any products or technology
developed with corporate partners. These and other possible disagreements
between corporate partners in the Company could lead to delays in or termination
of the collaborative research, development or commercialization of certain
products and could require or result in litigation or arbitration, which would
be time-consuming


<PAGE>
and expensive, and would have a material adverse affect on the Company's
business, financial condition and results of operations.

    UNCERTAINTY OF MARKET ACCEPTANCE.  The Company's FOCALSEAL surgical sealants
represent a new method of sealing air and fluid leaks that arise in connection
with surgery, and there can be no assurance that these products will gain
commercial acceptance among physicians, patients and health care payors, even if
necessary international and United States marketing approvals can be obtained.
The Company believes that recommendations and endorsements by physicians will be
essential for market acceptance of FOCALSEAL, and there can be no assurance that
any such recommendations or endorsements will be obtained. Physicians will not
use the FOCALSEAL surgical sealants unless they determine, based on clinical
data and other factors, that these systems are an effective means of sealing air
and fluid leaks and that the clinical benefits to the patient and cost savings
achieved through use of these systems outweigh their cost. Such determinations
will depend, in part, on the ability of the Company's FOCALSEAL-L surgical
sealant to reduce the time a lung surgery patient must be connected to a chest
tube and the length of hospital stays associated with lung surgery. Acceptance
among physicians may also depend upon the Company's ability to train thoracic
surgeons and other potential users of the Company's products in the application
of liquid surgical sealants, which such physicians typically have not performed,
and the willingness of such users to learn these new techniques. Failure of the
Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.

    NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL.  Focal will
require substantial additional funding in order to continue its research and
product development programs, including for preclinical testing and clinical
trials of its product candidates, for operating expenses, for the pursuit of
regulatory approvals for its product candidates, and may require additional
funding for establishing manufacturing and marketing capabilities in the future.
The Company believes that its existing capital resources, interest income and
committed equity financing from Genzyme Corporation, will be sufficient to
satisfy its current and projected funding requirements for at least 12 months.
However, no assurance can be given that the Company's resources will be
sufficient to conduct its research and development programs as planned.
Moreover, the receipt of two of the three future equity payments by Genzyme is
subject to the satisfaction of certain conditions, including the receipt of FDA
approval of the PMA for FOCAL-L lung sealant, and there can be no assurance that
such conditions will be satisfied. In June 1999 and in January 2000, the Company
reduced its workforce to focus the majority of its capital resources and efforts
on the commercialization of its lung sealant product and on the clinical trials
of its neurosurgery sealant product, and certain other development efforts were
put on hold due to resource constraints.

    The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
if any, the costs involved in filing and prosecuting patent applications and
enforcing patent claims, competing technological and market developments, the
establishment of additional strategic alliances, the cost of manufacturing
facilities and of commercialization activities, and the cost of product
in-licensing and any possible acquisitions. There can be no assurance that the
Company's cash, cash equivalents and marketable securities, and interest income
earned thereon, together with funding, if any, that may be received under the
Company's Stock Purchase Agreement with Genzyme Corporation, will be adequate to
satisfy its capital and operating requirements.

    Focal intends to seek additional funding through strategic alliances, and
may seek additional funding through public or private sales of the Company's
securities, including equity securities. In addition, the Company has obtained
equipment lease financing and other forms of debt financing and may continue to
pursue opportunities to obtain additional lease or debt financing in the future.
There can be no assurance, however, that additional equity or debt financing
will be available on reasonable terms, if at all. Any additional equity
financings would be dilutive to the Company's stockholders. If adequate funds
are not


<PAGE>
available, Focal may be required to curtail significantly one or more of its
research and development programs and/or obtain funds through arrangements with
corporate partners or others that may require Focal to relinquish rights to
certain of its technologies or product candidates.

    UNCERTAINTY OF ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT, EMPLOYEES AND
CONSULTANTS. The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition among
biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions for experienced scientists. In addition, the
Company relies on members of its Scientific Advisory Board and a significant
number of consultants to assist the Company in formulating its research and
development strategy. All of Focal's consultants and the members of the
Company's Scientific Advisory Board are employed by employers other than the
Company, and may have commitments to, or advisory or consulting agreements with,
other entities that may limit their availability to the Company.

    POTENTIAL PRODUCT LIABILITY OR PRODUCT RECALL EXPOSURE; LIMITED INSURANCE
COVERAGE. The use of any of the Company's potential products in clinical trials,
and the sale of any approved products, may expose the Company to liability
claims resulting from the use of its products or to product recalls. Product
liability claims might be made directly by consumers, health care providers or
by distributors or others selling such products. Focal has obtained product
liability insurance coverage, subject to certain policy limits, for its clinical
trials. The Company intends to expand its insurance coverage to include the sale
of commercial products if marketing approval is obtained for products in
development. However, insurance coverage is becoming increasingly expensive, and
no assurance can be given that the Company will be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect the Company
against losses due to liability. There can also be no assurance that the Company
will be able to obtain commercially reasonable product liability insurance for
any products approved for marketing. A successful product liability claim or
series of claims brought against the Company or a product recall could have a
material adverse effect on its business, financial condition and results of
operations.

    HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS.  The Company's research and
development processes involve the controlled use of hazardous materials. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could exceed the resources of the Company. The Company
believes that it is in compliance in all material respects with applicable
environmental laws and regulations.

ITEM 2. PROPERTIES

    Focal currently occupies approximately 54,000 square feet of manufacturing,
laboratory and administrative space in Lexington, Massachusetts under a lease
which expires in September 2004. Focal has an option to extend this lease for
several additional five year periods. The Company believes that this facility is
sufficient to meet the Company's requirements through at least 2001.

ITEM 3. LEGAL PROCEEDINGS

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

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

    None.