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                                                                    EXHIBIT 99.1
                                  RISK FACTORS



FORWARD LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

     This report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "intend," "potential" or "continue" or the negative of
such terms or other comparable terminology. Actual events or results may differ
materially from such statements due to a number of factors, including those set
forth in this section and elsewhere in this Form 10-Q. These factors include,
but are not limited to, the risks set forth below.

WE MAY NOT SUCCESSFULLY DEVELOP OR DERIVE REVENUES FROM ANY PRODUCTS OR SERVICES

DISCOVERY SERVICES

     Our gene discovery programs are still in the early stages of development
and may not result in marketable products. We direct our technology and
development focus primarily toward identifying genes or gene fragments which are
responsible for, or indicate the presence of, certain diseases. Our technologies
and approach to gene discovery may not enable us to identify successfully the
specific genes that cause or predispose individuals to the complex diseases that
are the targets of our gene discovery program, even where we have identified
candidate genes. In addition, the diseases we are targeting are generally
believed to be caused by a number of genetic and environmental factors. It may
not be possible to address such diseases through gene-based therapeutic or
diagnostic products. Accordingly, even if we are successful in identifying
specific genes, our discoveries may not lead to the development of commercial
products.

     Even if we, or our collaborators, are able to develop pharmaceutical
products, those products will fail to produce revenues unless they:

     -     are safe and effective;

     -     meet regulatory standards in a timely manner;

     -     successfully compete with other technologies and products;

     -     avoid infringing on the proprietary rights of others;

     -     can be manufactured in sufficient quantities at reasonable costs;
           and

     -     can be marketed successfully.

     We are not certain that we will be able to achieve these conditions for
product revenues. We expect that it will be a number of years, if ever, before
we will recognize revenue from therapeutic or diagnostic product sales or
royalties on such sales. Our initiatives in pharmacogenomics and the study of
the function of genes, a field known as functional genomics, are not certain to
provide any revenues. There may be no market for these services because of
competition, lack of market acceptance or our inability to develop these
services successfully. We may not be able to develop our functional genomics
capabilities to a state that is adequate for realizing revenues.

DATABASE SERVICES

     We received the License to create and operate the Icelandic Health Sector
Database (the "License") in January 2000, and accordingly, are at the early
stages of its development. The collection of genotypic data, which is another
integral part of the deCODE Combined Data Processing system, is also in the
early stages of development. We expect that it will take several years before we
have fully developed the deCODE Combined Data Processing system. We are
presently devoting substantial resources to the development of the deCODE
Combined Data Processing system and its components. We plan to continue to
devote substantial resources to this development for the foreseeable future. We
cannot be sure that the deCODE Combined Data Processing system will result in
marketable products or services. Our intended method for cross-referencing
genealogical, genotypic and healthcare data is central to the development of the
deCODE Combined Data Processing system and is unproven.
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     The success of our database services is contingent upon:

     -     the development of the Icelandic Health Sector Database and
           collection of genotypic data;

     -     the creation of database and cross

     -     reference software that is free from design defects or errors;

     -     compliance with governmental requirements regarding the Icelandic
           Health Sector Database;

     -     the security and reliability of encryption technology;

     -     the cooperation of the Icelandic healthcare system;

     -     the ability to obtain blood samples from consenting Icelanders and
           consents to the use of their genotypic data by cross-referencing
           through the deCODE Combined Data Processing system;

     -     the usefulness of information derived through the deCODE Combined
           Data Processing system in disease management, analysis of drug
           response, gene discovery and drug target validation; and

     -     the development of marketing and pricing methods that the intended
           users of the deCODE Combined Data Processing system will accept.

     If we fail to successfully commercialize our database services, we will not
realize revenues from this part of our business.

HEALTHCARE INFORMATICS

     Our bioinformatics and privacy protection products have, to date, been
tested only in connection with our own use of them and they may not meet the
needs of potential customers. We are at a very early stage of development of our
medical decision-support systems for healthcare providers, and we have generated
no revenues from sales or licenses of bioinformatics, decision-support, or
privacy protection products. To date we have not produced any decision-support
tools and there can be no assurance that we can successfully develop or
commercialize medical decision-support systems or that there will be a market
for our bioinformatics, decision-support or privacy protection products for
healthcare delivery.

IF OUR ASSUMPTION ABOUT THE ROLE OF GENES IN DISEASE IS WRONG, WE MAY NOT BE
ABLE TO DEVELOP USEFUL PRODUCTS

     The products we hope to develop involve new and unproven approaches. They
are based on the assumption that information about genes may help scientists
better understand complex disease processes. Scientists generally have a limited
understanding of the role of genes in diseases, and few products based on gene
discoveries have been developed. Of the products that exist, all are diagnostic
products. To date, we know of no therapeutic products based on disease gene
discoveries. If our assumption about the role of genes in the disease process is
wrong, our gene discovery programs may not result in products, the genetic data
included in our database and informatics products may not be useful to our
customers and those products may lose any competitive advantage.

IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED,
OR IN AN AMOUNT GREATER THAN ANTICIPATED, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS

     We incurred net losses of $16,087,763 for the quarter ended March 31, 2001,
and $6,898,139 for the quarter ended March 31, 2000. As of March 31, 2001, we
had an accumulated deficit of $126,841,463. To date, we have never generated a
profit and we have not generated any significant revenues except for payments
received in connection with our research collaboration with Roche and interest
revenues. The development of our technologies will require substantial increases
in expenditures over the next several years. In addition, we expect to spend
more in connection with our internal research programs and the preparation of
the Icelandic Health Sector Database, the deCODE Combined Data Processing system
and informatics. As a result, we expect to incur operating losses for several
years. If the time required to generate product revenues and achieve
profitability is longer than we currently anticipate or the level of operating
losses is greater than we currently anticipate, we may not be able to continue
our operations.
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IF WE ARE NOT ABLE TO OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR EXPANDING
CAPITAL REQUIREMENTS, WE MAY BE FORCED TO REDUCE OR TERMINATE OUR RESEARCH
PROGRAMS AND PRODUCT DEVELOPMENT

     We have used substantial amounts of cash to fund our research and
development activities. We expect our capital and operating expenditures to
increase over the next several years as we expand our research and development
activities, construct the Icelandic Health Sector Database and the deCODE
Combined Data Processing system, collect the genotype data and develop
healthcare informatics products. Many factors will influence our future capital
needs, including:

     -     the progress of our discovery and research programs;

     -     the number and breadth of these programs;

     -     our ability to attract collaborators for, subscribers to or
           customers for our products and services;

     -     our achievement of milestones under our research collaboration
           agreement with Roche;

     -     our ability to establish and maintain additional collaborations;

     -     our collaborators' progress in commercializing our gene discoveries;

     -     the level of our activities relating to commercialization rights we
           retain in our collaborations;

     -     competing technological and market developments;

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

     -     the costs and timing of regulatory approvals.

     We intend to rely on Roche and future collaborators for significant funding
in support of our research efforts. In addition, we may seek additional funding
through public or private equity offerings and debt financings. Additional
financing may not be available when needed. If available, such financing may not
be on terms favorable to us or our stockholders. Stockholders' ownership will be
diluted if we raise additional capital by issuing equity securities. If we raise
additional funds through collaborations and licensing arrangements, we may have
to relinquish rights to certain of our technologies or product candidates, or
grant licenses on unfavorable terms. If adequate funds are not available, we
would have to scale back or terminate our discovery and research programs and
product development. We believe that the net proceeds from our initial public
offering, other cash and investment securities and anticipated cash flow from
Roche will be sufficient to support our current operating plan for several
years. We have based this belief on assumptions that may prove wrong.

IF WE DO NOT MAINTAIN THE GOODWILL AND RECEIVE THE COOPERATION OF THE ICELANDIC
POPULATION, WE MAY BE UNABLE TO PURSUE OUR GENE IDENTIFICATION PROGRAMS,
PHARMACOGENOMICS OR FUNCTIONAL GENOMICS EFFORTS, COLLECT GENOTYPE DATA OR
DEVELOP THE ICELANDIC HEALTH SECTOR DATABASE AND THE DECODE COMBINED DATA
PROCESSING SYSTEM

     Our approach to gene identification and the development and maintenance of
genotype data, the Icelandic Health Sector Database and the deCODE Combined Data
Processing system depend on the goodwill and cooperation of the Icelandic
population, including the Icelandic government and the healthcare system. Our
development of the Icelandic Health Sector Database will be impaired if
individual Icelanders refuse to allow information from their medical records to
be included in the Icelandic Health Sector Database or healthcare providers
attempt to prevent us from having access to medical records of their patients.
Individuals may opt-out of having their records included in the Icelandic Health
Sector Database. As of March 31, 2000 approximately 7% of the population has
exercised this right. Some doctors practicing in Iceland have expressed
opposition to the Icelandic Health Sector Database and may attempt to withhold
their patients' data from inclusion in such database or encourage their patients
to exercise their opt-out rights. Our development of genotype data and our
cross-referencing through the deCODE Combined Data Processing system of that
data with information about the manifestations of disease, which are known as
phenotypes, in the Icelandic Health Sector Database require that a substantial
portion of the Icelandic population provide us with blood samples for genotyping
and consent to the use of their DNA to cross-reference molecular genetics data
with the Icelandic Health Sector Database. To date, between eighty and ninety
percent of individuals that we have asked to participate in our research
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projects have done so. Because only a small portion of the Icelandic population
may carry certain mutations, the unwillingness of even a small portion of the
population to participate in our programs could diminish our ability to develop
and market information based on the use of genotypic data.

OUR RELIANCE ON THE ICELANDIC POPULATION IN OUR GENE DISCOVERY PROGRAMS AND
DATABASE SERVICES MAY LIMIT THE APPLICABILITY OF OUR DISCOVERIES TO CERTAIN
POPULATIONS

     In general, the genetic make-up and prevalence of disease vary across
populations around the world. Common complex diseases generally occur with a
similar frequency in Iceland as in other western countries. We are already
studying some of these diseases in our gene discovery programs. However, the
populations of other western nations may be genetically predisposed to certain
diseases because of mutations not present in the Icelandic population. As a
result, we and our partners may take more time or may be unable to develop
diagnostic products that are effective on all, or a portion, of those people
with such diseases. Similarly, any difference between the Icelandic population
and the populations of other countries may have an effect on the usefulness of
the Icelandic Health Sector Database and deCODE Combined Data Processing system
in studying disease in populations of countries other than Iceland. We do not
anticipate developing any products solely for the Icelandic market. For our
business to succeed, we must apply discoveries that we make on the basis of the
Icelandic population to other markets.

OUR CREATION AND OPERATION OF THE ICELANDIC HEALTH SECTOR DATABASE IS BASED UPON
THE LICENSE FROM THE ICELANDIC MINISTRY OF HEALTH AND SOCIAL SECURITY (THE
"MINISTRY") AND IS SUBJECT TO GOVERNMENT SUPERVISION AND REGULATION, WHICH MAY
MAKE OUR DEVELOPMENT OF DATABASE PRODUCTS MORE EXPENSIVE AND TIME-CONSUMING THAN
WE ANTICIPATED

     We may construct the Icelandic Health Sector Database and cross-reference
it with our genealogical and genetic data, through the deCODE Combined Data
Processing system, only in accordance with the stipulations of the License which
the Ministry granted us pursuant to the Act on the Health Sector Database (the
"Act"). The License permits the processing of healthcare data from healthcare
records and other relevant data into the Icelandic Health Sector Database. The
Icelandic Health Sector Database Monitoring Committee (the "Monitoring
Committee"), the Data Protection Authority of Iceland, or the Authority, and an
Interdisciplinary Ethics Committee will supervise our construction and operation
of the Icelandic Health Sector Database. These committees report to the
Ministry. In addition, the Icelandic Bioethics Committee will review our
operation of the Icelandic Health Sector Database. The Ministry may withdraw our
License in the event that we violate the terms and conditions of the License,
the Act or its rules. In addition, the Icelandic parliament could amend the Act
in ways which would adversely affect our ability to develop or market the
Icelandic Health Sector Database and, consequently, the deCODE Combined Data
Processing system. Because the Icelandic parliament and government recently
adopted the Act and its rules, there is no precedent interpreting the Act or the
rules. In preparing the Icelandic Health Sector Database, we must comply with
the Authority's technical requirements. These technical requirements cover areas
such as data encryption and privacy protection. The Authority may review these
requirements from time to time and may require greater technical capabilities
than we currently have. Compliance with these requirements can be expensive and
time-consuming and may delay the development of the Icelandic Health Sector
Database and the deCODE Combined Data Processing system or make such development
more expensive than we anticipated. In addition, the agencies imposing these
requirements will evaluate our compliance efforts. We cannot control the time
required for this evaluation, and accordingly, the evaluation process may lead
to delay in the development of the Icelandic Health Sector Database and the
deCODE Combined Data Processing system.

     The Interdisciplinary Ethics Committee has the power to withdraw permission
for any type of research program in the Icelandic Health Sector Database not
conducted in accordance with international rules of bioethics. At the expiration
of the License, we are required to ensure that the Ministry or its designee will
receive, without payment of consideration, intellectual property rights
necessary for the creation and operation of the database for public health
purposes and for scientific research.

     We are subject to a very extensive indemnity clause in our agreement with
the Ministry, pursuant to which:
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     -     we have agreed not to make any claim against the government if the
           Act or the License are amended as a result of the Act or rules
           relating to the Icelandic Health Sector Database being found to be
           inconsistent with the rules of the European Economic Area, or EEA,
           or other international rules and agreements to which Iceland is or
           becomes a party;

     -     we have agreed that if the Icelandic State, by a final judgment, is
           found to be liable or subject to payment to any third party as a
           result of the passage of legislation on the Icelandic Health Sector
           Database and/or issuance of the Icelandic Health Sector Database
           license, we will indemnify it against all damages and costs in
           connection with the litigation; and

     -     we have agreed to compensate any third parties with whom the
           Icelandic government negotiates a settlement of liability claims
           arising from the legislation on the Icelandic Health Sector Database
           and/or the issuance of the License, provided that the Icelandic
           government demonstrates that it was justified in agreeing to make
           payments pursuant to the settlement.


IF WE ARE NOT ABLE TO ENTER INTO AGREEMENTS WITH MORE ICELANDIC HEALTH
INSTITUTIONS, AS THE ICELANDIC HEALTH SECTOR DATABASE LICENSE REQUIRES, IN ORDER
TO COLLECT DATA FROM THE INSTITUTIONS, WE WILL NOT BE ABLE TO CONSTRUCT AND
OPERATE THE ICELANDIC HEALTH SECTOR DATABASE

     The License requires us to enter into agreements with Icelandic health
institutions and self-employed health service professionals regarding access to
and the processing of information from medical records. To date we have only
entered into such agreements with 19 Icelandic health institutions. We cannot be
certain that we will be able to enter into such agreements with a sufficient
number of health institutions as the operations of the Icelandic Health Sector
Database will require. Neither can we be certain that such agreements will be on
terms favorable to us. Some doctors practicing in Iceland have expressed
opposition to the Icelandic Health Sector Database and it is possible that those
who have private practices and as such have authority to enter into agreements
with us may refuse to do so or those who are employed by health institutions may
encourage the institutions to refuse to do so. We cannot be certain that
individuals within health institutions will adhere to the requirements of such
agreements. The Icelandic Medical Association is currently publicly opposing
some aspects of the way in which the Icelandic Health Sector Database will be
created. Our inability to enter into additional such agreements on favorable
terms or in a timely manner, or to obtain others' compliance with the terms of
such agreements, could have a material adverse effect on our ability to
construct and operate the Icelandic Health Sector Database.

IF WE CANNOT OBTAIN AN EXTENSION OF THE TERM OF THE ICELANDIC HEALTH SECTOR
DATABASE LICENSE BEYOND ITS EXPIRATION DATE IN JANUARY 2012, WE WILL NOT BE ABLE
TO OPERATE OR DERIVE RESOURCES FROM THE ICELANDIC HEALTH SECTOR DATABASE OR THE
DECODE COMBINED DATA PROCESSING SYSTEM AFTER THAT DATE

     Even if we are successful in creating and marketing the Icelandic Health
Sector Database and the deCODE Combined Data Processing system, the License will
expire in January 2012 unless we are able to obtain an extension. There is no
assurance that we will obtain further access rights on favorable terms, if at
all. Our negotiations with healthcare institutions, the process of genotyping
and the development of database infrastructure, among other factors, will
determine when we can begin marketing the deCODE Combined Data Processing
system. We expect that the Icelandic Health Sector Database and the deCODE
Combined Data Processing system will not be fully operational for up to four
years. The License will be subject to a review in 2008, and at that time, in
accordance with an agreement we entered into with the Ministry simultaneously
with the granting of the License, we and the Ministry will enter into
discussions on renewal of the License at the end of the term. The Ministry might
not renew the License in 2012 and we cannot guarantee any renewal.

WE MAY NOT BE ABLE TO FORM AND MAINTAIN THE COLLABORATIVE RELATIONSHIPS THAT OUR
BUSINESS STRATEGY REQUIRES

     Our strategy for deriving revenues from the discovery of genes and the
development of products based upon our discoveries depends upon the formation of
research collaborations and licensing arrangements with several partners at the
same time. We
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currently have only two substantial collaborative relationships. To succeed, we
will have to maintain these relationships and establish additional
collaborations. We cannot be sure that we will be able to establish the
additional research collaborations or licensing arrangements necessary to
develop and commercialize products using our technology, that any future
collaborations or licensing arrangements will be on terms favorable to us, or
that current or future collaborations or licensing arrangements ultimately will
be successful. If we are not able to manage multiple collaborations
successfully, our programs will suffer.

     We also expect to rely on collaborations in other parts of our business
such as the construction of the deCODE Combined Data Processing system. During
the development of the deCODE Combined Data Processing system, we intend to
pursue collaborations to assist us in the development of certain of its
components. Such collaborations may involve the use of particular technologies
or collaborative development and marketing activities. If we are unable to enter
into such collaborations on favorable terms, our ability to commercialize the
deCODE Combined Data Processing system will be adversely affected.

     To develop our healthcare informatics products, we also plan to rely on
collaborative relationships. To date we have not established any such
collaborative relationships. If we are unable to form or maintain such
collaborative arrangements, our healthcare informatics operations will be
adversely affected.

OUR DEPENDENCE ON COLLABORATIVE RELATIONSHIPS MAY LEAD TO DELAYS IN PRODUCT
DEVELOPMENT AND DISPUTES OVER RIGHTS TO TECHNOLOGY

     Currently we do not expect to develop or market pharmaceutical products on
our own. As a result, we will be dependent on collaborators for the pre-clinical
study and clinical development of therapeutic and diagnostic products and for
regulatory approval, manufacturing and marketing of any products that result
from our technology. Our agreements with pharmaceutical collaborators or
collaborators for gene research projects will typically allow them significant
discretion in electing whether to pursue such activities. We cannot control the
amount and timing of resources collaborators will devote to our programs or
potential products. Our collaborations may have the effect of limiting the areas
of research that we may pursue either alone or with others.

     In addition, we expect to develop our database products, in part, with
various collaborators, and we may develop healthcare informatics tools which are
designed to work in conjunction with or to enhance the healthcare informatics
tools of other developers. These arrangements may place responsibility for key
aspects of product development and marketing on our collaborative partners.
Accordingly, the performance of these key aspects is uncertain and beyond our
direct control. If our collaborators fail to perform their obligations, our
database products could contain erroneous data, design defects, viruses or
software defects that are difficult to detect and correct and may adversely
affect our revenues and the market acceptance of our products.

     If any pharmaceutical, healthcare informatics or database collaborator were
to breach or terminate its agreement with us, or otherwise fail to conduct
collaborative activities successfully and in a timely manner, the development or
commercialization of products, services, technologies or research programs may
be delayed or terminated. Competing products that our collaborators develop or
to which our collaborators have rights may result in their withdrawal of support
for our products and services. Disputes may arise in the future over the
ownership of rights to any technology developed with collaborators. These and
other possible disagreements between us and our collaborators could lead to
delays in the collaborative research, development or commercialization of
products. Such disagreements could also result in litigation or require
arbitration to resolve.

ETHICAL AND PRIVACY CONCERNS MAY LIMIT OUR ABILITY TO DEVELOP AND USE THE
ICELANDIC HEALTH SECTOR DATABASE AND THE DECODE COMBINED DATA PROCESSING SYSTEM
AND MAY LEAD TO LITIGATION AGAINST US OR THE ICELANDIC GOVERNMENT

     The Icelandic parliament's passage of the Act and the Ministry's granting
of the License have raised ethical and privacy concerns in Iceland and
internationally among healthcare professionals and others including the
Icelandic Medical Association and the World Medical Association. Ethical and
privacy concerns about the development and use of the Icelandic Health Sector
Database and the deCODE Combined Data Processing system may
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lead to litigation in U.S., Icelandic or other national courts, or in
international courts such as the European Court of Human Rights in Strasbourg
(e.g., on the basis of an alleged breach of the patient-doctor confidential
relationship, constitutional privacy issues, international conventions dealing
with protection of privacy issues or human rights conventions). One such lawsuit
has been brought against the Directorate of Public Health in Iceland. The
results of such litigation could have a material adverse affect on our ability
to construct and operate the Icelandic Health Sector Database and the deCODE
Combined Data Processing system.

CERTAIN PARTIES HAVE ANNOUNCED AN INTENTION TO INSTITUTE LITIGATION TESTING THE
CONSTITUTIONALITY OF THE ACT, WHICH COULD DELAY OR PREVENT US FROM DEVELOPING
AND OPERATING THE ICELANDIC HEALTH SECTOR DATABASE AND THE DECODE COMBINED DATA
PROCESSING SYSTEM

     In February 2000, an organization known as The Association of Icelanders
for Ethics in Science and Medicine, or Mannvernd, and a group of physicians and
other citizens issued a press release announcing their intention to file
lawsuits against the State of Iceland and any other relevant parties, including
us, to test the constitutionality of the Act. According to the press release,
the intended lawsuit will allege that the Act and the License involve human
rights violations and will challenge the validity of provisions of the Act which
allow the use of presumed consent for the processing of health data into the
Icelandic Health Sector Database and the grant of a License to operate a single
database. To date no such suit has been brought against us. We believe that any
such litigation would be without merit and intend to defend vigorously any such
action in which we become a party. One such lawsuit has been brought against
the Directorate of Public Health in Iceland. In the event that the Icelandic
State by a final judgment is found to be liable or subject to payment to any
third party as a result of the passage of legislation on the Icelandic Health
Sector Database and/or the issuance of the License, our agreement with the
Ministry requires us to indemnify the Icelandic State against all damages and
costs incurred in connection with such litigation. In addition, the pendency of
such litigation could lead to delay in the development of the Icelandic Health
Sector Database and the deCODE Combined Data Processing System, and an
unfavorable outcome would prevent us from developing and operating the Icelandic
Health Sector Database and the deCODE Combined Data Processing system.

IF WE FAIL TO PROTECT CONFIDENTIAL DATA ADEQUATELY, WE COULD INCUR LIABILITY OR
LOSE OUR LICENSE

     The Act and the License require us to encrypt all patient data and to take
other actions to ensure confidentiality of data included in the Icelandic Health
Sector Database and restrict access to it. We are developing the Icelandic
Health Sector Database according to the Authority's technology, security and
organizational terms. The Authority may periodically review and amend such terms
in light of new technology or change of circumstances. We must comply with any
such revised data protection terms within a deadline that the Authority may
establish when it revises the terms. Although, to date, one expert in this field
has criticized the security terms, we believe that they are, and will continue
to be, in line with international best industry-practice standards. In addition,
the customers for other products we may develop may impose confidentiality
requirements. Accidental disclosures of confidential data may result from
technical failures in encryption technology or from human error by our employees
or those of our customers or collaborators. Any failure to comply fully with all
confidentiality requirements could lead to liability for damages incurred by
individuals whose privacy is violated, the loss of the License, the loss of our
customers and reputation and the loss of the goodwill and cooperation of the
Icelandic population including healthcare professionals.

ETHICAL AND PRIVACY CONCERNS MAY LIMIT THE USE OF GENETIC TESTING AND THEREFORE
THE COMMERCIAL LIABILITY OF ANY PRODUCTS WE DEVELOP

     Other companies have developed genetic predisposition tests that have
raised ethical concerns. It is possible that employers or others could
discriminate against people who have a genetic predisposition to certain
diseases. Concern regarding possible discrimination may result in governmental
authorities enacting restrictions or bans on the use of all, or certain types
of, genetic testing. Similarly, such concerns may lead individuals to refuse to
use genetics tests even if permissible. These factors may limit the market for,
and therefore the commercial viability of, products that we and our
collaborators develop.
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WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH BIOTECHNOLOGY COMPANIES AND
ESTABLISHED PHARMACEUTICAL COMPANIES IN THE DEVELOPMENT AND MARKETING OF
PRODUCTS BASED UPON THE IDENTIFICATION OF DISEASE-CAUSING GENES

     A number of companies are attempting to rapidly identify and patent genes
that cause diseases or an increased susceptibility to diseases. Competition in
this field is intense and is expected to increase. We have numerous competitors,
including major pharmaceutical and diagnostic companies, specialized
biotechnology firms, universities and other research institutions, the United
States-funded Human Genome Project and other government-sponsored entities. Many
of our competitors have considerably greater capital resources, research and
development staffs and facilities, and technical and other resources than we do,
which may allow them to discover important genes before we do. We believe that a
number of our competitors are developing competing products and services that
may be commercially successful and that are further advanced in development than
our potential products and services. To succeed, we, together with our
collaborators, must discover disease-predisposing genes, characterize their
functions, develop genetic tests or therapeutic products and related information
services based on such discoveries, obtain regulatory and other approvals, and
launch such services or products before competitors. Even if our collaborators
or we are successful in developing effective products or services, our products
and services may not successfully compete with those of our competitors. Our
competitors may succeed in developing and marketing products and services that
are more effective than ours or that are marketed before ours.

     Our collaboration with Roche does not prevent it from initiating its own
gene research or developing products based upon its, or any other party's, gene
research. Such products may compete with any products that we develop through
our gene discovery programs. We expect that future collaborations may allow our
future partners to undertake research and develop products on their own or with
third parties.

     Competitors have established, and in the future may establish, patent
positions with respect to gene sequences related to our research projects. Such
patent positions or the public availability of gene sequences comprising
substantial portions of the human genome could decrease the potential value of
our research projects and make it more difficult for us to compete. We may also
face competition from other entities in gaining access to DNA samples used for
research and development purposes.

     We expect competition to intensify as technical advances are made and
become more widely known. Our future success will depend in large part on
maintaining a competitive position in the genomics field. Others' or our rapid
technological development may result in products or technologies becoming
obsolete before we recover the expenses we incur in developing them. Less
expensive or more effective technologies could make future products obsolete. We
cannot be certain that we will be able to make the necessary enhancements to any
products we develop to compete successfully with newly emerging technologies.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH ESTABLISHED COMPANIES AND
GOVERNMENT AGENCIES IN THE FIELD OF DATABASE SERVICES

     Others are currently developing or marketing a number of databases to
assist participants in the healthcare industry and academic researchers in the
management and analysis of their own genomic data and data available in the
public domain. Although we believe that our existing genealogy database and our
License provide us with a unique opportunity to cross-reference databases that
include genetic makeup, genealogy, medical history, disease symptoms, resource
use and treatment outcomes, we cannot be sure that any of the databases that we
create will achieve greater market acceptance than those of our competitors. We
plan to grant limited Internet access to our genealogy data to the Icelandic
public for non-business use. Although our genealogy data will be restricted both
by technical and legal means, it is possible that this Internet access will in
some way facilitate the construction of similar databases intended for
commercial purposes.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER COMPANIES IN THE FIELD OF
HEALTHCARE INFORMATICS

     The healthcare informatics field is highly competitive. Many companies
compete with us to develop healthcare informatics similar to our expected
products, including
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products relating to medical record maintenance, medical decision-support
systems and systems design. We expect that competition will continue to
intensify. Many of our competitors have significantly greater financial
resources and market presence than we have. We cannot be sure that any products
that we develop in the field of healthcare informatics, including medical
decision-support systems, will compete effectively with those of our
competitors.

REGULATORY AUTHORITIES MAY DETERMINE THAT OUR LICENSE TO DEVELOP THE ICELANDIC
HEALTH SECTOR DATABASE INFRINGES UPON COMPETITION RULES IN THE EUROPEAN ECONOMIC
AREA, OR EEA, WHICH COULD NEGATIVELY AFFECT OUR ABILITY TO DERIVE REVENUES FROM
THE ICELANDIC HEALTH SECTOR DATABASE AND THE DECODE COMBINED DATA PROCESSING
SYSTEM

     Iceland is a member of the European Free Trade Association, or EFTA,
together with Norway, Switzerland and Liechtenstein. Through this membership,
Iceland has become a part of the EEA which was created by the EEA agreement
between EFTA and the European Union, or EU. The EEA agreement extends the EU
internal market and its regulations to EFTA countries that adopt certain EU
legislation. Accordingly, Iceland is subject to both EFTA and EU competition and
public procurement rules. A determination that the Act or our License is in
breach of such rules could result in a revocation or dilution of the License for
the Icelandic Health Sector Database and could have a negative impact on the
profitability and marketing potential of the deCODE Combined Data Processing
system.

OTHERS MAY CLAIM INTELLECTUAL PROPERTY RIGHTS TO OUR GENEALOGY DATABASE, WHICH
COULD PREVENT US FROM USING SOME OR ALL OF OUR DATABASE AND IMPAIR OUR ABILITY
TO DERIVE REVENUES FROM OUR DATABASE AND GENE DISCOVERY SERVICES

     We are aware that there are other firms and individuals who have prepared,
or are currently preparing, genealogy databases similar to the one we have
developed. If any parties should successfully claim that the creation or use of
any of our databases infringes upon their intellectual property rights, it could
have a material adverse effect on our business. Two parties alleging to hold
copyrights to approximately 100 Icelandic genealogy books have filed a copyright
infringement suit against us in Iceland claiming that we have used data from
these books in the creation of our genealogy database, in violation of their
rights. The claimants seek a declaratory judgment to prevent our use of the
database and monetary damages in the amount of approximately 616 million
Icelandic kronas, or approximately $6.7 million (as of March 31, 2001). We
believe that this suit is without merit and intend to defend it vigorously, but
if it were successful it could have a material adverse effect on our database
and gene discovery services.

WE MAY NOT BE ABLE TO PROTECT THE PROPRIETARY RIGHTS THAT ARE CRITICAL TO OUR
SUCCESS

     Our success will depend on our ability to protect our genealogy database
and genotypic data and any other proprietary databases that we develop,
proprietary software and other proprietary methods and technologies. Despite our
efforts to protect our proprietary rights, unauthorized parties may be able to
obtain and use information that we regard as proprietary.

     Our commercial success will depend in part on obtaining patent protection.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including ours, are generally uncertain and involve complex legal and
factual considerations. We cannot be sure that any of our pending patent
applications will result in issued patents, that we will develop additional
proprietary technologies that are patentable, that any patents issued to us or
our partners will provide a basis for commercially viable products, will provide
us with any competitive advantages or will not be challenged by third parties,
or that the patents of others will not have an adverse effect on our ability to
do business.

     In addition, patent law relating to the scope of claims in the area of
genetics and gene discovery is still evolving. There is substantial uncertainty
regarding the patentability of genes or gene fragments without known functions.
The laws of some European countries provide that genes and gene fragments may
not be patented. The Commission of the EU has passed a directive that prevents
the patenting of genes in their natural state. The U.S. Patent and Trademark
Office initially rejected a patent application by the National Institutes of
Health on partial genes. Accordingly, the degree of future protection for our
proprietary rights is uncertain and, we cannot predict the breadth of claims
allowed in any patents issued to us or to others. We could also incur
<PAGE>   10
substantial costs in litigation if we are required to defend ourselves in patent
suits brought by third parties or if we initiate such suits.

     Others may have filed and in the future are likely to file patent
applications covering genes or gene products that are similar or identical to
our products. We cannot be certain that our patent applications will have
priority over any patent applications of others. The mere issuance of a patent
does not guarantee that it is valid or enforceable; thus even if we are granted
patents we cannot be sure that they would be valid and enforceable against third
parties. Further, a patent does not provide the patent holder with freedom to
operate in a way that infringes the patent rights of others. Any legal action
against us or our partners claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes could, in addition to
subjecting us to potential liability for damages, require us or our partners to
obtain a license in order to continue to manufacture or market the affected
products and processes. There can be no assurance that we or our partners would
prevail in any action or that any license required under any patent would be
made available on commercially acceptable terms, if at all. If licenses are not
available, we or our partners may be required to cease marketing our products or
practicing our methods.

     If expressed sequence tags, single nucleotide polymorphisms, or SNPs, or
other sequence information become publicly available before we apply for patent
protection on a corresponding full-length or partial gene, our ability to obtain
patent protection for those genes or gene sequences could be adversely affected.
In addition, other parties are attempting to rapidly identify and characterize
genes through the use of gene expression analysis and other technologies. If any
patents are issued to other parties on these partial or full-length genes or
gene products or uses for such genes or gene products, the risk increases that
the sale of our or our collaborators' potential products or processes may give
rise to claims of patent infringement. The amount of supportive data required
for issuance of patents for human therapeutics is highly uncertain. If more data
than we have available is required, our ability to obtain patent protection
could be delayed or otherwise adversely affected. Even with supportive data, the
ability to obtain patents is uncertain in view of evolving examination
guidelines, such as the utility and written description guidelines that the U.S.
Patent and Trademark Office has adopted.

     While we require employees, academic collaborators and consultants to enter
into confidentiality agreements, there can be no assurance that proprietary
information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques, otherwise gain
access to our trade secrets or disclose such technology, or that we can
meaningfully protect our trade secrets. If the information processed by the
deCODE Combined Data Processing system is disclosed without our authorization,
demand for our products and services may be adversely affected.

IF WE OR OUR COLLABORATORS ARE UNABLE TO OBTAIN REGULATORY APPROVALS FOR
PRODUCTS RESULTING FROM OUR GENE DISCOVERY PROGRAMS, WE WILL NOT BE ABLE TO
DERIVE REVENUES FROM THESE PRODUCTS

     Government agencies must approve new drugs and diagnostic products in the
countries in which they are to be marketed. We cannot be certain that regulatory
approval for any drugs or diagnostic products resulting from our gene discovery
programs will be obtained. The regulatory process can take many years and
require substantial resources. Because some of the products likely to result
from our disease research programs involve the application of new technologies
and may be based upon a new therapeutic approach, various government regulatory
authorities may subject such products to substantial additional review. As a
result, these authorities may grant regulatory approvals for these products more
slowly than for products using more conventional technologies. Furthermore,
regulatory approval may impose limitations on the use of a drug or diagnostic
product.

     After initial regulatory approval, a marketed product and its manufacturer
must undergo continuing review. Discovery of previously unknown problems with a
product may have adverse effects on our business, financial condition and
results of operations, including withdrawal of the product from the market.

OUR DEPENDENCE UPON A SINGLE THIRD PARTY FOR SEQUENCING MACHINES MAY IMPAIR OUR
RESEARCH PROGRAMS
<PAGE>   11
     We currently use a single manufacturer to supply the gene sequencing
machines that we use in our gene discovery programs. While other types of gene
sequencing machines are available from other manufacturers, we do not believe
that the other machines are as efficient as the machines we currently use. We
cannot be sure that the gene sequencing machines will remain available in
sufficient quantities at acceptable costs. If we cannot obtain additional gene
sequencing machines at commercially reasonable rates, or if we are required to
change to a new supplier of gene sequencing machines, our gene discovery
programs would be adversely affected.

WE MAY NOT BE ABLE TO OBTAIN NECESSARY TECHNOLOGY

     We have acquired or licensed certain components of our technologies from
third parties. Changes in or termination of these third party agreements could
materially adversely affect our discovery or research programs. We cannot be
certain that we will be able to acquire any new technologies that we need.

WE WILL HAVE TO RELY ON OTHERS FOR CLINICAL TRIALS, MANUFACTURING, MARKETING,
REGULATORY COMPLIANCE AND SALES CAPABILITIES, WHICH MAY IMPAIR OUR ABILITY TO
DELIVER PRODUCTS

     In our research collaborations, we will seek to retain rights to develop
and market certain therapeutic and diagnostic products or services. If we are
able to retain these rights and successfully develop products, we expect to
contract with others for conducting clinical trials, manufacturing, marketing
and sales.

     We are not certain that we will be able to enter into such arrangements on
favorable terms, if at all. Our dependence upon third parties for the conduct of
clinical trials, the obtaining of governmental approvals or the manufacture,
marketing or sales of products may adversely affect our ability to develop and
deliver products on a timely and competitive basis. Our current facilities and
staff are inadequate for commercial production and distribution of products. If
we choose in the future to engage directly in the development, manufacturing and
marketing of certain products, we will require substantial additional funds,
personnel and production facilities.

EFFORTS TO REDUCE HEALTHCARE COSTS MAY REDUCE MARKET ACCEPTANCE OF OUR PRODUCTS

     Our success will depend in part on the extent to which government and
health administration authorities, private health insurers and other third party
payors will pay for our products. Reimbursement for newly approved healthcare
products is uncertain. Third party payors, including Medicare in the United
States, are increasingly challenging the prices charged for medical products and
services. Government and other third party payors are increasingly attempting to
contain healthcare costs by limiting both coverage and the level of
reimbursement for new therapeutic products. We cannot be certain that any third
party insurance coverage will be available to patients for any products we
discover or develop. If government or other third party payors do not provide
adequate coverage and reimbursement levels for our products, the market
acceptance of these products may be materially reduced.

OUR OPERATIONS MAY BE IMPAIRED UNLESS WE CAN SUCCESSFULLY MANAGE OUR GROWTH

     We have recently experienced significant growth in the number of our
employees and the scope of our operations. We intend to hire additional
personnel to construct the Icelandic Health Sector Database and the deCODE
Combined Data Processing system, and to develop our healthcare informatics
products. Our management and operations are, and may continue to be, under
significant strain due to this growth. To manage such growth, we must strengthen
our management team and attract and retain skilled employees. Our success will
also depend on our ability to improve our management information, research
information and operational control systems and to expand, train and manage our
workforce.

CHANGES IN OUTSOURCING TRENDS IN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES
COULD ADVERSELY AFFECT OUR GROWTH

     Economic factors and industry trends that affect our primary customers,
pharmaceutical and biotechnology companies, also affect our business. For
example, the practice of many companies in these industries has been to
outsource from organizations like ours to conduct genetic research, clinical
research and sales and marketing projects. Some industry commentators believe
that the rate of growth of outsourcing will trend
<PAGE>   12
downward. If these industries reduce their present tendency to outsource those
projects, our operations, financial condition and growth rate could be
materially and adversely affected.

     Recently, we also believe we have been negatively impacted by pending
mergers and other factors in the pharmaceutical industry, which appear to have
slowed decision making by our customers and delayed certain trials. A
continuation of these trends would have an ongoing adverse effect on our
business. In addition, numerous governments have undertaken efforts to control
growing healthcare costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical companies. If further
regulatory cost containment efforts limit the profits that can be derived on new
drugs, our customers may reduce their research and development spending which
could reduce the business they outsource to us. We cannot predict the likelihood
of any of these events or the effects they would have on our business, results
of operations or financial condition.

SOME PARTS OF OUR PRODUCT DEVELOPMENT SERVICES CREATE A RISK OF LIABILITY FROM
CLINICAL TRIAL PARTICIPANTS AND THE PARTIES WITH WHOM WE CONTRACT

     We, through Encode, contract with drug companies to perform a wide range of
services to assist them in bringing new drugs to market. Its services include
supervising clinical trials, data and laboratory analysis, patient recruitment
and other services. The process of bringing a new drug to market is
time-consuming and expensive. If we do not perform our services to contractual
or regulatory standards, the clinical trial process could be adversely affected.
Additionally, if clinical trial services such as monitoring clinical trials,
adherence to good clinical practice and laboratory analysis do not conform to
contractual or regulatory standards, trial participants could be affected. In
such case these events would create a risk of liability to us from the drug
companies with whom we contract or the study participants.

     Encode also contracts with physicians to serve as investigators in
conducting clinical trials. Such testing creates risk of liability for personal
injury to or death of patients or volunteers, particularly to patients with
life-threatening illnesses, resulting from adverse reactions to the test drugs.
It is possible third parties could claim that we should be held liable for
losses arising from any deficiencies in professional conduct of the
investigators with whom we contract or in the event of personal injury to or
death of persons participating in clinical trials. We do not believe we are
legally accountable for the medical care rendered by third party investigators,
and we would vigorously defend any such claims. Nonetheless, it is possible we
could be found liable for such losses.

     In addition to supervising tests or performing laboratory analysis, Encode
will also engage in Phase I clinical trials. We also could be liable for the
general risks associated with the conducting of such trials. These risks
include, but are not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the unprofessional
practice of Phase I medical care providers. We also could be held liable for
errors or omissions in connection with our services. For example, we could be
held liable for errors or omissions or breach of contract if one of our
laboratories inaccurately reports or fails to report lab results or if our
informatics products violate rights of third parties. We maintain insurance to
cover ordinary risks but any insurance might not be adequate, and it would not
cover the risk of a customer deciding not to do business with us as a result of
poor performance.

USE OF THERAPEUTIC OR DIAGNOSTIC PRODUCTS DEVELOPED AS A RESULT OF OUR PROGRAMS
MAY RESULT IN LIABILITY CLAIMS FOR WHICH WE HAVE INADEQUATE INSURANCE

     The users of any therapeutic or diagnostic products developed as a result
of our discovery or research programs or the use of our database or medical
decision-support products may bring product liability claims against us. We
currently do not carry liability insurance to cover such claims. We are not
certain that we or our collaborators will be able to obtain such insurance or,
if obtained, that sufficient coverage can be acquired at a reasonable cost. If
we cannot protect against potential liability claims, we or our collaborators
may find it difficult or impossible to commercialize products.

WE MAY BE UNABLE TO HIRE AND RETAIN THE KEY PERSONNEL UPON WHOM OUR SUCCESS
DEPENDS
<PAGE>   13
     We depend on the principal members of our management and scientific staff,
including Dr. Kari Stefansson, Chairman, President and Chief Executive Officer,
Hannes Smarason, Executive Vice President and Senior Business and Finance
Officer, Dr. Jeffrey Gulcher, Vice President, Research and Development and Dr.
C. Augustine Kong, Vice President, Statistics. We have not entered into
agreements with any of these persons that bind them to a specific period of
employment. If any of these people leaves us, our ability to conduct our
operations may be negatively affected. Our future success also will depend in
part on our ability to attract, hire and retain additional personnel. There is
intense competition for such qualified personnel and we cannot be certain that
we will be able to continue to attract and retain such personnel. Failure to
attract and retain key personnel could have a material adverse effect on us.

OUR OPERATIONS INVOLVE A RISK OF INJURY FROM HAZARDOUS MATERIALS, WHICH COULD BE
VERY EXPENSIVE TO US

     Our research and manufacturing activities involve the generation, use and
disposal of hazardous materials and wastes, including various chemicals and
radioactive compounds. We are subject to laws and regulations governing the use,
storage, handling and disposal of these materials, including standards
prescribed by Iceland and applicable EU standards. Although we believe that our
safety procedures comply with such laws and regulations, we cannot eliminate the
risk of environmental contamination or injury. In the event of such an
occurrence, we could be held liable for any damages that result, which could
exceed our resources. Although we believe that we comply in all material aspects
with applicable environmental laws and regulations and do not expect to make
additional material capital expenditures in this area, we cannot predict whether
new regulatory restrictions on the production, handling and marketing of
biotechnology products will be imposed. Any such new regulatory restrictions
could require us to incur significant costs to comply.

OUR COMMON STOCK PRICE HAS BEEN HIGHLY VOLATILE

      The market price of our common stock has been highly volatile. In addition
to various risks described elsewhere in this report, the following factors could
also cause price volatility:

     -     announcements that we or our competitors make concerning the results
           of research activities, technological innovations or new commercial
           products;

     -     changes in or adoption of new government regulations;

     -     regulatory actions;

     -     changes in patent laws;

     -     developments concerning proprietary rights;

     -     variations in operating results; and

     -     actual, announced or threatened litigation.

     Extreme price and volume fluctuations occur in the stock market from time
to time and can particularly affect the prices of technology and biotechnology
stocks. These extreme fluctuations are unrelated to the actual performance of
the affected issuers. These broad market fluctuations may adversely affect the
market price of our common stock.

CURRENCY FLUCTUATIONS MAY NEGATIVELY AFFECT OUR FINANCIAL CONDITION

     We publish our consolidated financial statements in U.S. dollars. Currency
fluctuations can affect our financial results as revenues and cash reserves are
mostly in U.S. dollars but a portion of operating costs are in Icelandic kronas.
A strengthening of the Icelandic krona against the dollar can thus adversely
affect the "buying power" of our cash reserves and revenues. On the other hand,
weakening of the Icelandic krona can strengthen our financial position. Most of
our long-term liabilities are U.S. dollar denominated. We have not previously
engaged in, and do not now contemplate entering into, currency hedging
transactions. However, we may enter into such transactions on a non-speculative
basis to the extent that we may in the future have substantial foreign currency
exposure, for example, in connection with payments from collaborative partners
or due to investments.