<PAGE>


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

                                    FORM 10-Q

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

                      FOR THE QUARTER ENDED MARCH 31, 2001


                         COMMISSION FILE NUMBER 0-21481

                          TRANSKARYOTIC THERAPIES, INC.
             (Exact name of registrant as specified in its charter)

                             ----------------------

           DELAWARE                                           04-3027191
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

            195 ALBANY STREET
        CAMBRIDGE, MASSACHUSETTS                               02139
(Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (617) 349-0200

                             ----------------------


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                        Yes      |X|          No       |_|


         At April 30, 2001, there were 22,760,191 shares of Common Stock, $.01
par value, outstanding.



<PAGE>



                                            Transkaryotic Therapies, Inc.




                                      INDEX

<TABLE>
<CAPTION>
                                                                                                        PAGE NUMBER
                                                                                                        -----------
<S>               <C>                                                                                   <C>
PART  I.          FINANCIAL INFORMATION

Item  1.          Condensed Consolidated Financial Statements (unaudited)

                  Condensed Consolidated Balance Sheets as of
                  March 31, 2001 and December 31, 2000                                                            3

                  Condensed Consolidated Statements of Operations for the Three Months
                  Ended March 31, 2001 and 2000                                                                   4

                  Condensed Consolidated Statements of Cash Flows for the Three
                  Months Ended March 31, 2001 and 2000                                                            5

                  Notes to Condensed Consolidated Financial Statements                                        6 - 8

Item  2.          Management's Discussion and Analysis of Financial Condition and
                  Results of Operations                                                                      9 - 24

PART  II.         OTHER INFORMATION

Item 1.           Legal Proceedings                                                                         25 - 26

Item 6.           Exhibits and Reports on Form 8-K                                                               26


SIGNATURES                                                                                                       27
</TABLE>

                                                                     2



<PAGE>


Part 1- Item 1- Condensed Consolidated Financial Statements

                                    Transkaryotic Therapies, Inc.
                                 Condensed Consolidated Balance Sheets
                                              (unaudited)

<TABLE>
<CAPTION>
(in thousands, except par values)                                                  March 31,            December 31,
                                                                                      2001                  2000
                                                                               -------------------   -------------------
<S>                                                                            <C>                   <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                            $  45,665             $  49,445
   Marketable securities                                                                  175,043               196,011
   Prepaid expenses and other current assets                                                2,527                 1,842
                                                                               -------------------   -------------------
      Total current assets                                                                223,235               247,298
Property and equipment, net                                                                32,797                23,597
Other assets                                                                                1,524                 1,498
                                                                               -------------------   -------------------
Total assets                                                                            $ 257,556             $ 272,393
                                                                               ===================   ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                     $   3,071             $   3,986
   Accrued expenses                                                                         8,530                 8,550
   Current maturities of long-term debt                                                     2,000                 2,500
                                                                               -------------------   -------------------
      Total current liabilities                                                            13,601                15,036

Long-term debt, less current maturities                                                     9,000                 9,500

Stockholders' equity:
   Series A convertible preferred stock, $.01 par value, 10 shares authorized;
      10 shares issued and outstanding at March 31, 2001 and December 31, 2000,
      respectively                                                                              1                     1

   Series B preferred stock, $.01 par value, 1,000 shares authorized; no shares
      issued and outstanding at March 31, 2001 and December 31, 2000,
      respectively                                                                              -                     -

   Common stock, $.01 par value; 100,000 shares authorized; 22,753 and 22,700
      shares issued and outstanding at March 31, 2001 and December 31, 2000,
      respectively                                                                            228                   227

   Additional paid-in capital                                                             413,288               413,242
   Accumulated deficit                                                                   (179,461)             (165,429)
   Deferred compensation                                                                     (668)                 (860)
   Accumulated other comprehensive income                                                   1,567                   676
                                                                               -------------------   -------------------
      Total stockholders' equity                                                          234,955               247,857
                                                                               -------------------   -------------------
Total liabilities and stockholders' equity                                              $ 257,556             $ 272,393
                                                                               ===================   ===================
</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                     3


<PAGE>


Part 1- Item 1- Condensed Consolidated Financial Statements

                                    Transkaryotic Therapies, Inc.
                            Condensed Consolidated Statements of Operations
                                           (unaudited)

<TABLE>
<CAPTION>
(in thousands, except per share amounts)                       Three Months Ended
                                                                    March 31,
                                                            2001                  2000
                                                       ----------------     -----------------
<S>                                                    <C>                  <C>
License and research revenues                                 $  1,218              $      -
Operating expenses:
   Research and development                                     16,506                12,684
   Selling, general and administrative                           4,959                 3,037
                                                       ----------------     -----------------
                                                                21,465                15,721
                                                       ----------------     -----------------
Loss from operations                                           (20,247)              (15,721)
Other income (expense):
  Gain on sale of investment                                     2,785                     -
  Interest income, net                                           3,430                 2,622
                                                       ----------------     -----------------
                                                                 6,215                 2,622
                                                       ----------------     -----------------
Net loss                                                      $(14,032)             $(13,099)
                                                       ================     =================
Basic and diluted net loss per share                          $  (0.62)             $  (0.58)
                                                       ================     =================
Shares used to compute basic and diluted
   net loss per share                                           22,718                22,630
                                                       ================     =================
</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                     4


<PAGE>


Part 1- Item 1- Condensed Consolidated Financial Statements

                                    Transkaryotic Therapies, Inc.
                             Condensed Consolidated Statements of Cash Flows
                                            (unaudited)

<TABLE>
<CAPTION>
(in thousands)                                                                        Three Months Ended
                                                                                           March 31,
                                                                                    2001               2000
                                                                               ---------------    ----------------
<S>                                                                            <C>                <C>
OPERATING ACTIVITIES:
Net loss                                                                            $(14,032)           $(13,099)
Adjustments to reconcile net loss to net
   cash provided by operating activities:
      Depreciation and amortization                                                    1,340                 556
      Compensation expense related to
         equity issuances                                                                180                 193
Changes in operating assets and liabilities                                           (1,568)               (248)
                                                                               ---------------    ----------------
Net cash used for operating activities                                               (14,080)            (12,598)
                                                                               ---------------    ----------------
INVESTING ACTIVITIES:
Proceeds from sales and maturities of marketable securities                           50,320              11,984
Purchases of marketable securities                                                   (28,401)            (70,802)
Purchases of property and equipment                                                  (10,540)               (895)
Changes in other assets                                                                  (26)                 79
                                                                               ---------------    ----------------
Net cash provided by (used for) investing activities                                  11,353             (59,634)
                                                                               ---------------    ----------------
FINANCING ACTIVITIES:
Issuance of common stock                                                                  58               1,316
Repayment of long-term debt                                                           (1,000)               (500)
                                                                               ---------------    ----------------
Net cash provided by (used for) financing activities                                    (942)                816
Effect of exchange rate changes on cash and cash equivalents                            (111)                  -
                                                                               ---------------    ----------------
Net decrease in cash and cash equivalents                                             (3,780)            (71,416)
Cash and cash equivalents at January 1                                                49,445             151,202
                                                                               ---------------    ----------------
Cash and cash equivalents at March 31                                               $ 45,665            $ 79,786
                                                                               ===============    ================
</TABLE>

      See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                     5


<PAGE>



PART I - Item 1 - Condensed Consolidated Financial Statements


                              Transkaryotic Therapies, Inc.
             Notes to Condensed Consolidated Financial Statements (unaudited)
                                March 31, 2001 and 2000

1.       BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The results
of operations for the interim period ended March 31, 2001 are not necessarily
indicative of the results to be expected for the year ending December 31,
2001.

         These financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December
31, 2000 included in the Company's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission.

         Gene-Activated(R)and the TKT(R)logo are registered trademarks of
Transkaryotic Therapies, Inc. Niche Protein(TM), Replagal(TM), and
Transkaryotic Therapy(TM), are trademarks of Transkaryotic Therapies, Inc.
Dynepo(TM)is a trademark of Aventis Pharmaceuticals, Inc. ("Aventis").

2.       BASIC AND DILUTED NET LOSS PER SHARE

         The Company calculates net loss per share in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share." Basic earnings per share is computed using the weighted average
shares outstanding.

         Basic net loss per share was equivalent to diluted net loss per
share for the three months ended March 31, 2001 and 2000 since common
equivalent shares from preferred stock and stock options have been excluded
as their effect is antidilutive.

3.       COMPREHENSIVE INCOME

         The Company had a total comprehensive loss of $13,141,000 and
$13,074,000 for the three months ended March 31, 2001 and 2000, respectively.
The items of comprehensive income consist primarily of unrealized gains
(losses) on marketable securities.

                                                                     6


<PAGE>



4.       LEGAL PROCEEDINGS

         The Company cannot provide assurance as to the outcome of any legal
proceedings. A decision by a court in the U.S. or in any other jurisdiction
in a manner adverse to the Company could have a material adverse effect on
the Company's business, financial position, and results of operations.

DYNEPO(TM) PATENT LITIGATION

         As previously disclosed in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, the Company and Aventis are involved in
a patent infringement action with Amgen, Inc. ("Amgen").

         In January 2001, the U.S. District Court for the District of
Massachusetts ruled that the Company infringed eight of eighteen claims
asserted by Amgen. In particular, the District Court ruled that the asserted
claims of U.S. Patent No. 5,547,933 are not infringed (and, if this finding
is in error, that the asserted claims are invalid); that the asserted claims
of U.S. Patent 5,618,698 are not infringed; that Claims 2, 3 and 4 of U.S.
Patent No. 5,621,080 are valid, enforceable and infringed under the doctrine
of equivalents; that Claims 1, 3, 4 and 6 of U.S. Patent No. 5,756,349 are
valid, enforceable and literally infringed, but that Claim 7 of the `349
patent is not infringed; and that Claim 1 of U.S. Patent No. 5,955,422 is
valid, enforceable and literally infringed. Amgen did not seek and was not
awarded monetary damages.

         In January 2001, TKT and Aventis filed a Notice of Appeal from the
Judgment of the District Court with the U.S. Court of Appeals for the Federal
Circuit in this case. The Company believes it has strong grounds for appeal.
Amgen filed a Notice of Cross-Appeal in February 2001 with the U.S. Court of
Appeals for the Federal Circuit.

         In addition, in July 1999, Aventis and the Company commenced legal
proceedings in the U.K. against Kirin-Amgen, Inc. ("Kirin-Amgen"), seeking a
declaration that a U.K. patent held by Kirin-Amgen will not be infringed by
the Company's activities related to Dynepo and that certain claims of
Kirin-Amgen's U.K. patent are invalid. The English High Court of Justice
ruled that one of four claims of the patent asserted by Amgen was infringed
by the Company and Aventis. The Company believes it has strong grounds for
appeal and filed a Notice of Appeal in April 2001.

         Pursuant to an Amended and Restated License Agreement, dated March
1995, between Aventis and the Company, Aventis has assumed the legal costs of
the Amgen and Kirin-Amgen litigation. The Company will reimburse Aventis for
the Company's share of the litigation expenses, as defined, from future
royalties, if any, received from the sale of Dynepo and in certain other
circumstances.

                                                                     7


<PAGE>


REPLAGAL(TM) PATENT LITIGATION

         In July 2000, Genzyme Corporation ("Genzyme") and Mount Sinai School
of Medicine of New York University ("Mt. Sinai") filed a patent infringement
suit against the Company in the U.S. District Court for the District of
Delaware, alleging that the manufacture, use, intended sale, and/or intended
offer for sale of the Company's Replagal(TM) product infringes one or more
claims of U.S. Patent No. 5,356,804. Genzyme and Mt. Sinai seek injunctive
relief and an accounting for damages. Discovery proceedings commenced in
February 2001, and the District Court has scheduled trial in this action to
begin in March 2002.

5.       RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities- Deferral of the Effective Date of FASB
Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements establish
accounting and reporting standards for derivative instruments and for hedging
activities.

         Currently, the Company does not hold derivative instruments and has
not entered into any hedging arrangements. The Company does not hedge its
foreign currency exposures. Thus, the Company anticipates that the adoption
of SFAS 133 will not have a material impact on the Company's financial
position or results of operations.

                                                                     8


<PAGE>


PART I - Financial Information

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

OVERVIEW

         Since its inception in 1988, the Company has been primarily engaged
in the development and commercialization of products based on the Company's
three proprietary development platforms: Gene-Activated(R) proteins, Niche
Protein(TM) products and gene therapy. The Company anticipates approval for
its Replagal product in Europe in mid-2001. However, as of March 31, 2001, no
revenue has been derived from the sale of any products. With the exception of
1995, the Company has incurred substantial annual operating losses since
inception and expects to incur significant operating losses until substantial
product sales are generated. Until substantial product sales are generated,
the Company is dependent upon existing cash resources, interest income,
external financing from equity offerings, debt financings or collaborative
research and development arrangements with corporate sponsors to finance its
operations. At March 31, 2001, the Company's accumulated deficit was
$179,461,000.

         Results of operations may vary significantly from period to period
depending on, among other factors, the receipt, if any, and timing of
approvals to market the Company's products either in the U.S. or abroad, the
progress of the Company's research and development efforts, the receipt, if
any, and timing of additional license fees and milestone payments, the timing
of certain expenses, and the establishment of additional collaborative
research agreements.

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
condensed consolidated financial statements and the related footnotes thereto.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000

         License and research revenues totaled $1,218,000 for the three
months ended March 31, 2001. Revenues in the first quarter of 2001 were
earned from collaborative agreements with Sumitomo Pharmaceutical Co. Ltd.
("Sumitomo") and Genetics Institute, Inc. There were no revenues for the
corresponding period in 2000.

         Research and development expenses totaled $16,506,000 in the first
quarter of 2001, as compared to $12,684,000 during the same period in 2000.
The increase in 2001 of $3,822,000, or 30%, was principally due to increases
in research and development staffing and external development services in
each of the Company's product development platforms. During the remainder of
2001, the costs related to both preclinical and clinical programs for the
Company's Fabry disease, Hunter syndrome, hemophilia A and other Niche
Protein programs are expected to

                                                                     9


<PAGE>


increase significantly as product development activities are initiated or
expanded.

         Selling, general and administrative expenses were $4,959,000 in the
quarter ended March 31, 2001, compared with $3,037,000 during the same period
in 2000. The increase in 2001 of $1,922,000, or 63%, was principally due to
costs incurred in preparation for worldwide launch of the Company's Replagal
product. During 2001, selling, general and administrative costs are expected
to increase significantly as product launch activities related to the
Company's Replagal product accelerate.

         During the first quarter of 2001, TKT sold substantially all of its
investment in a European biotechnology company resulting in a gain of
$2,785,000. In 1996, TKT made a strategic investment of $300,000 in such
company.

         Interest income was $3,654,000 and $2,622,000 for the three months
ended March 31, 2001 and 2000, respectively. The average cash and marketable
securities balances were $233,311,000 and $186,425,000 in 2001 and 2000,
respectively. The increase in interest income of $1,032,000 resulted from
higher average cash and marketable securities balances, as well as higher
rates of return in the first quarter of 2001.

         Interest expense was $224,000 for the three months ended March 31,
2001. For 2000, no interest expense was recognized, as interest expense of
$257,000 was capitalized in connection with construction in process.

         The Company had a net loss of $14,032,000 and $13,099,000 for the
three months ended March 31, 2001 and 2000, respectively. Basic and diluted
net loss per share was $0.62 for the three months ended March 31, 2001, as
compared to a basic and diluted net loss per share of $0.58 for the
corresponding period in 2000.

LIQUIDITY AND SOURCES OF CAPITAL

         Since its inception, the Company has financed its operations through
the sale of common and preferred stock, borrowings under debt agreements,
revenues from collaborative agreements and interest income.

         The Company had cash, cash equivalents and marketable securities
totaling $220,708,000 at March 31, 2001, including marketable securities
collateralizing letters of credit totaling $8,475,000. Cash equivalents and
marketable securities are invested in U.S. government and agency obligations
and money market funds.

         In June 2000, the Company sold 10,000 shares of Series A Convertible
Preferred Stock to investment funds affiliated with E. M. Warburg, Pincus &
Co., L.L.C., resulting in net proceeds to the Company of $99,797,000.

         In December 1998, the Company obtained an unsecured term loan
facility for up to $14,000,000 to finance the capital costs related to leased
space. The loan became payable in December 1999 on the basis of a seven year
amortization schedule over a five year period, with a final payment for any
remaining amount in September 2004. The loan bears interest at either the

                                                                    10


<PAGE>


prime rate or LIBOR plus 1.50% at the Company's election. The interest rate
of the loan was 6.4% as of March 31, 2001. The note contains certain
restrictive covenants, including, among other things, minimum cash and
tangible net asset requirements and limitations on the payment of dividends.
At March 31, 2001, $11,000,000 was outstanding under the loan.

         In August 2000, the Company entered into a ten year lease for a new
corporate headquarters and research and development facility in Cambridge,
Massachusetts. The lease requires a security deposit of $7,680,000, of which
$680,000 was paid in cash and the balance provided in the form of a letter of
credit. An investment with a value of $7,883,000 collateralizes the letter of
credit. The Company expects to spend up to an additional $30,000,000 for
leasehold improvements.

         In January 2001, the Company purchased a 45,000 square foot
development facility for $8,800,000. In addition, it leased an adjoining
44,000 square foot facility under the terms of a ten year lease. The Company
expects to spend up to an additional $10,000,000 for leasehold improvements
for these facilities.

         The Company may seek financing for all or a significant portion of
the cost of the leasehold improvements described above. There can be no
guarantee that financing will be available on favorable terms, if at all.

         At March 31, 2001, the Company had committed to pay approximately
$25,000,000 to third parties for certain product development activities
through 2004.

         At December 31, 2000, the Company had net operating loss
carryforwards of approximately $144,264,000, which expire at various times
through 2020. Due to the degree of uncertainty related to the ultimate use of
loss carryforwards and tax credits, the Company has fully reserved against
any potential tax benefit. The future utilization of net operating loss
carryforwards and tax credits may be subject to limitation under the changes
in stock ownership rules of the Internal Revenue Code. Because of this
limitation, it is possible that taxable income in future years, which would
otherwise be offset by net operating losses, will not be offset and,
therefore, will be subject to tax.

         Substantial additional funds will be required to support the
Company's research and development programs, for acquisition of technologies,
for preclinical and clinical testing of its products, pursuit of regulatory
approvals, acquisition of capital equipment, expansion of laboratory and
office facilities, establishment of production capabilities, establishment of
sales and marketing capabilities and for general and administrative expenses.
Until such time, if any, as the Company's operations generate significant
revenues from product sales, cash resources, interest income and proceeds
from equity offerings, debt financings and funding from collaborative
arrangements will be required to fund operations.

         The Company expects to pursue opportunities to obtain additional
financing in the future through equity financings, debt financings, lease
arrangements related to facilities and capital equipment and collaborative
research agreements. The source, timing and availability of any future
financing will depend principally upon equity and debt market conditions,
interest rates and, more specifically, on the Company's continued progress in
its exploratory, preclinical and

                                                                    11


<PAGE>


clinical development programs, and the extent of its commercial success.
There can be no assurance that such funds will be available on favorable
terms, if at all.

         The Company expects that its existing capital resources, together
with revenues from collaborative agreements and interest income, will be
sufficient to fund its operations into 2003. The Company's cash requirements
may vary, however, depending on numerous factors. Lack of necessary funds may
require the Company to delay, scale back or eliminate some or all of its
research and product development programs or to license its potential
products or technologies to third parties.

         The Company has been engaged in litigation with Amgen and
Kirin-Amgen with respect to the development of Dynepo and with Genzyme and
Mt. Sinai with respect to the development of Replagal. Pursuant to the
Amended and Restated License Agreement, dated March 1995, between Aventis and
the Company, Aventis has assumed the legal cost of the Amgen and Kirin-Amgen
litigations. The Company is required to reimburse Aventis for the Company's
share of litigation expenses, as defined, from future royalties, if any,
received from the sale of Dynepo and in certain other circumstances.

FORWARD-LOOKING STATEMENTS

         Statements that are not historical facts, including statements about
the Company's confidence and strategies and its expectations about future
products, technologies and opportunities, market demand or acceptance of
future products are forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects,"
"estimates," "intends," "should," "could," "will," "may," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements.
These include, without limitation, the following: (1) whether any of the
Company's Gene-Activated protein, Niche Protein product or gene therapy
product candidates will advance in the clinical trial process, (2) whether
such clinical trials will proceed in a timely manner, (3) whether the
clinical trial results will warrant continued product development, (4)
whether the required regulatory filings, such as Investigational New Drug
applications and Biologics License Applications, are made in a timely manner,
(5) whether the Company's products will receive approval from the U.S. Food
and Drug Administration (the "FDA"), European Agency for the Evaluation of
Medicinal Products (the "EMEA") or equivalent foreign regulatory agencies,
(6) if such products receive approval, whether they will be successfully
manufactured, distributed and marketed, (7) whether patent litigation or
orphan drug issues in which the Company is involved or may become involved
are resolved in a manner adverse to the Company, (8) the effects of
competitive products on the Company's proposed products, (9) the Company's
dependence on third parties, including collaborators, manufacturers and
distributors, and (10) the other risks set forth under the caption "Certain
Factors That May Affect Future Results" set forth below. In addition, any
forward-looking statements represent the Company's estimates only as of the
date this Quarterly Report was first filed with the Securities and Exchange
Commission and should not be relied upon as representing the Company's
estimates as of any subsequent date. While the Company may elect to update
forward-looking statements at some point in the future, the Company
specifically disclaims any obligation to do so, even if its estimates change.

                                                                    12


<PAGE>


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

          The following important factors, among others, could cause actual
results to differ from those indicated by forward-looking statements made by
the Company from time to time.

         WE MAY NOT OBTAIN GOVERNMENT APPROVALS FOR OUR PRODUCTS; THE
APPROVALS PROCESS IS COSTLY AND LENGTHY

         The testing, manufacturing, labeling, advertising, promotion,
export, and marketing, among other things, of our products are subject to
extensive regulation by governmental authorities in the U.S. and other
countries. The regulatory approval process to obtain market approval for a
new drug or biologic takes many years and requires the expenditure of
substantial resources. We have had only limited experience in preparing
applications and obtaining regulatory approvals.

         We announced in March 2001 that the Committee for Proprietary
Medicinal Products (the "CPMP") of the European Agency for the Evaluation of
Medicinal Products (the "EMEA") issued a positive opinion recommending
approval of Replagal(TM). The CPMP's recommendation for approval will be
forwarded to the European Commission (the "EC"), which will determine whether
to grant marketing authorization of Replagal in Europe. While the EC
generally follows the opinion of the CPMP, there can be no assurance that the
EC will approve the marketing authorization for Replagal.

         In 2001, the U.S. Food and Drug Administration (the "FDA") issued a
complete review letter regarding our Biologics License Application ("BLA")
for Replagal, which requested further explanation in several areas and
additional data. We can provide no assurance that any approval will be
granted on a timely basis, if at all.

         In 2000, the FDA requested that additional data be provided
regarding manufacturing information and that a new BLA for Dynepo(TM) be
submitted when the data is compiled. While we and Aventis are working with
the FDA to satisfy all of their requests, we can provide no assurance that
any approval will be granted on a timely basis, if at all.

         In general, there can be no assurance that submission of materials
requesting permission to conduct clinical trials will result in authorization
by the FDA, the EMEA or equivalent foreign regulatory agency to commence
clinical trials, or that once clinical trials have begun, testing will be
completed successfully within any specific time period, if at all, with
respect to any of our products. Furthermore, we or a regulatory agency such
as the FDA or EMEA may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed
to unacceptable health risks. Once trials are complete and an application has
been submitted, the FDA or the EMEA may deny a BLA or Marketing Authorization
Application ("MAA"), respectively, if applicable regulatory criteria are not
satisfied, may require additional testing or information, or may require
post-marketing testing and surveillance to monitor the safety or efficacy of
a product. The testing and approval process requires substantial time,
effort, and financial resources. We can provide no assurance that any
approval will be granted on a timely basis, if at all.

                                                                    13


<PAGE>


         In addition, we are developing gene therapy products. Because gene
therapy is a relatively new technology and products for gene therapy have not
been extensively tested in humans, the regulatory requirements governing gene
therapy products may be more uncertain than for other types of products. This
uncertainty may cause delays in the regulatory process relating to our gene
therapy products, including delays in our initiating clinical trials of these
products. This uncertainty may also increase the cost of obtaining regulatory
approvals of our gene therapy products.

         Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the FDA's
or EMEA's delay in approving or refusal to approve a product, withdrawal of
an approved product from the market, or the imposition of criminal penalties
against the manufacturer or the BLA or MAA holder.

         We will also be subject to a variety of regulations outside the
United States and Europe governing clinical trials and the sale of its
products. Whether or not we have obtained FDA or EMEA approval, the
comparable regulatory authorities of such foreign countries must also approve
a product prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country, and the time
may be longer or shorter than that required for FDA or EMEA approval.

         COMPETITORS' PRODUCTS MAY RECEIVE ORPHAN DRUG EXCLUSIVITY AND
THEREBY PRECLUDE US FROM MARKETING OUR NICHE PROTEIN(TM) PRODUCTS AND WE MAY
NOT BE ABLE TO OBTAIN ORPHAN DRUG EXCLUSIVITY FOR OUR NICHE PROTEIN PRODUCTS

        Some jurisdictions, including the U.S. and Europe, may designate
drugs for relatively small patient populations as `orphan drugs'. Generally,
if a product which has an orphan drug designation subsequently receives the
first marketing approval for the indication for which it has such
designation, the product is entitled to orphan drug exclusivity, i.e., other
applications to market the same product for the same indication may not be
approved, except in limited circumstances, for a period of seven to ten
years. Obtaining orphan drug designations and orphan drug exclusivity for our
Niche Protein products may be critical to our success in this area. We may
not be able to obtain orphan drug designation or exclusivity for any of our
potential products or be able to maintain such designation or exclusivity for
any of these products. For example, if a competitive product is shown to be
clinically superior to our product, any orphan drug exclusivity we have
obtained will not apply to such competitive product.

         Our competitors may also seek orphan drug designations and obtain
orphan drug exclusivity for products competitive with our products before we
obtain marketing approval. Genzyme is seeking marketing authorization in both
the U.S. and Europe for a protein product for the treatment of Fabry disease
for which it has an orphan drug designation. Concurrently with the issuance
of its positive opinion on Replagal to the EC, the CPMP issued a positive
opinion recommending approval of Genzyme's Fabry disease product to the EC.
We cannot predict whether Genzyme may in the future be able to prevent the
marketing of Replagal through an orphan drug statute in the U.S., Europe or
elsewhere.

         IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT BY THIRD

                                                                    14


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PARTY PAYORS FOR OUR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO SUCCESSFULLY
COMMERCIALIZE OUR PRODUCTS IN CERTAIN MARKETS

         The availability of reimbursement by governmental and other third
party payors affects the market for any pharmaceutical product. These third
party payors continually attempt to contain or reduce the costs of health
care by challenging the prices charged for medical products and services. In
certain foreign countries, particularly the countries of the European Union,
the pricing of prescription pharmaceuticals is subject to governmental
control.

         Proposals have been considered periodically by the Health Care
Financing Administration of the U.S. Department of Health and Human Services
to reduce the reimbursement rate with respect to erythropoietin. Adoption by
the Health Care Financing Administration of any such proposal might have an
adverse effect on the pricing of Dynepo.

         In both the U.S. and certain foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the health care
system. We believe that further proposals are likely. The potential for
adoption of these proposals may affect our ability to raise capital, obtain
additional collaborative partners, and market our products.

         If we or our collaborators obtain marketing approvals for our
products, we may experience pricing pressure due to the trend toward managed
health care, the increasing influence of health maintenance organizations,
and additional legislative proposals. We may not be able to sell our products
profitably if reimbursement is unavailable or limited in scope or amount.

         WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES

         We have limited sales and marketing experience and capabilities. In
order to market our products, including Replagal, if approved in Europe, we
will need to develop this experience and these capabilities or rely upon
third parties, such as our collaborators, to perform these functions. If we
rely on third parties to sell, market, or distribute our products, our
success will be dependent upon the efforts of these third parties in
performing these functions. In many instances, we may have little or no
control over the activities of these third parties in selling, marketing, and
distributing our products. If we choose to conduct these activities directly,
as we plan to do with respect to some of our potential products, we may not
be able to recruit and maintain an effective sales force.

         THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR
INTRODUCTION

         The commercial success of our products that are approved for
marketing by the FDA, the EMEA and other regulatory authorities will depend
upon their acceptance by the medical community and third party payors as
clinically useful, cost-effective, and safe. It may be difficult for us to
achieve market acceptance of our products.

         Other factors that we believe will materially affect market
acceptance of our products include: the timing of the receipt of marketing
approvals and the countries in which such approvals are obtained; and the
safety, efficacy, convenience, and cost-effectiveness of the product as
compared to competitive products.

                                                                    15


<PAGE>


         WE HAVE LIMITED MANUFACTURING CAPABILITIES AND DEPEND ON THIRD PARTY
MANUFACTURERS

         We have limited manufacturing experience and in order to continue to
develop products, apply for regulatory approvals, and commercialize our
products, we will need to develop, contract for, or otherwise arrange for the
necessary manufacturing capabilities.

         We expect to manufacture certain of our products in our own
manufacturing facilities. We will require substantial additional funds and
need to recruit qualified personnel in order to build or lease and operate
any manufacturing facilities.

         We currently rely upon third parties for the production of certain
of our products and we expect to continue to do so in the future. There are a
limited number of such third party manufacturers capable of manufacturing our
protein products. As a result, we may experience difficulty in obtaining
adequate capacity for our future needs. If we are unable to obtain or
maintain contract manufacturing of these products, or to do so on
commercially reasonable terms, we may not be able to complete development of
these products or market them. To the extent that we enter into manufacturing
arrangements with third parties, we are dependent upon these third parties to
perform their obligations in a timely manner and in accordance with
applicable government regulations.

         OUR SUCCESS IS DEPENDENT UPON THE RETENTION AND HIRING OF KEY
PERSONNEL

         Our success is highly dependent on the retention of principal
members of our technical, commercial and administrative staff. Furthermore,
our future growth will require hiring a significant number of qualified
technical, commercial and administrative personnel. Accordingly, recruiting
and retaining such personnel in the future will be critical to our success.
There is intense competition from other companies and research and academic
institutions for qualified personnel in the areas of our activities, and
there can be no assurance that we will be able to continue to attract and
retain, on acceptable terms, the qualified personnel necessary for the
continued development of our business.

         WE ARE A PARTY TO LITIGATION WITH AMGEN AND KIRIN-AMGEN INVOLVING
DYNEPO(TM)

         We and Aventis are involved in a patent infringement action with
Amgen, Inc. ("Amgen").

         In January 2001, the U.S. District Court for the District of
Massachusetts ruled that we and Aventis infringed eight of eighteen claims
asserted by Amgen. In particular, the District Court ruled that the asserted
claims of U.S. Patent No. 5,547,933 are not infringed (and, if this finding
is in error, that the asserted claims are invalid); that the asserted claims
of U.S. Patent 5,618,698 are not infringed; that Claims 2, 3 and 4 of U.S.
Patent No. 5,621,080 are valid, enforceable and infringed under the doctrine
of equivalents; that Claims 1, 3, 4 and 6 of U.S. Patent No. 5,756,349 are
valid, enforceable and literally infringed, but that Claim 7 of the `349
patent is not infringed; and that Claim 1 of U.S. Patent No. 5,955,422 is
valid, enforceable and

                                                                    16


<PAGE>


literally infringed. Amgen did not seek and was not awarded monetary damages.

         In January 2001, we and Aventis filed a Notice of Appeal from the
Judgment of the District Court with the U.S. Court of Appeals for the Federal
Circuit in this case. We believe that we have strong grounds for appeal.
Amgen filed a Notice of Cross-Appeal in February 2001 with the U.S. Court of
Appeals for the Federal Circuit.

         In addition, in July 1999, we and Aventis commenced legal
proceedings in the U.K. against Kirin-Amgen, Inc. ("Kirin-Amgen"), seeking a
declaration that a U.K. patent held by Kirin-Amgen will not be infringed by
our activities related to Dynepo and that certain claims of Kirin-Amgen's
U.K. patent are invalid. The English High Court of Justice ruled that one of
four claims of the patent asserted by Amgen was infringed by us and Aventis.
We believe that we have strong grounds for appeal and filed a Notice of
Appeal in April 2001.

         Pursuant to an Amended and Restated License Agreement, dated March
1995, between Aventis and us, Aventis has assumed the legal costs of the
Amgen and Kirin-Amgen litigation. We will reimburse Aventis for our share of
the litigation expenses, as defined, from future royalties, if any, received
from the sale of Dynepo and in certain other circumstances.

         We can provide no assurance as to the outcome of this litigation. A
court decision adverse to us could have a material adverse effect on our
business, financial position, and results of operations.

         WE ARE A PARTY TO LITIGATION WITH GENZYME AND MT. SINAI INVOLVING
REPLAGAL(TM)

         In July 2000, Genzyme Corporation ("Genzyme") and Mount Sinai School
of Medicine of New York University ("Mt. Sinai") filed a patent infringement
suit against us in the U.S. District Court for the District of Delaware,
alleging that the manufacture, use, intended sale, and/or intended offer for
sale of our Replagal product infringes one or more claims of U.S. Patent No.
5,356,804. Genzyme and Mt. Sinai seek injunctive relief and an accounting for
damages. Discovery proceedings commenced in February 2001, and the District
Court has scheduled trial in this action to begin in March 2002.

         We can provide no assurance as to the outcome of this litigation. A
court decision adverse to us could have a material adverse effect on our
business, financial position, and results of operations.

         WE FACE SIGNIFICANT COMPETITION, WHICH MAY RESULT IN OTHERS
DISCOVERING, DEVELOPING, OR COMMERCIALIZING PRODUCTS BEFORE OR MORE
SUCCESSFULLY THAN WE DO

                  The biotechnology industry is highly competitive and
characterized by rapid and significant technological change. Our competitors
include pharmaceutical companies, biotechnology firms, universities, and
other research institutions. Many of these competitors have substantially
greater financial and other resources than we do and are conducting extensive
research and development activities on technologies and products similar to
or competitive with

                                                                    17


<PAGE>


ours.

                  We may be unable to develop technologies and products that
are more clinically efficacious or cost-effective than products developed by
our competitors. Even if we obtain marketing approval for our product
candidates, many of our competitors have more extensive and established
sales, marketing, and distribution capabilities than we do. Litigation with
third parties, including our litigation with both Amgen and Genzyme, could
delay our time to market for certain products and enable our competitors to
more quickly and effectively penetrate certain markets.

                  We believe that the primary competition with respect to our
Niche Protein product program is from biotechnology and smaller
pharmaceutical companies. In particular, we believe that our major
competition with respect to the treatment of Fabry disease and Gaucher
disease is Genzyme. Genzyme is seeking marketing authorization in both the
U.S. and Europe for its Fabry disease product, and Genzyme has received
orphan drug designation for its Fabry disease treatment in both the U.S. and
Europe. Concurrently with the issuance of its positive opinion on Replagal in
the EC, the CPMP issued a positive opinion recommending approval of Genzyme's
Fabry disease product to the EC. In addition, Genzyme has marketed a product
for the treatment of Gaucher disease since 1991. Genzyme owns or controls
issued patents related to the production of protein products to treat Fabry
disease and Gaucher disease. Other competitors with respect to our Niche
Protein product program include BioMarin Pharmaceutical Inc., Novazyme
Pharmaceuticals, Inc., Orphan Medical, Inc., Oxford GlycoSciences Plc,
Pharming Group, N.V., and Synpac Pharmaceuticals, Ltd. The markets for some
of our potential Niche Protein products are quite small. As a result, if
competitive products exist, we may not be able successfully to commercialize
our products.

         Under our Gene-Activated protein program, some of the products we
are developing are fully human versions of proteins that are
currently-marketed. For instance, in the case of Dynepo, erythropoietin is
marketed by Amgen and Johnson & Johnson in the U.S.; F. Hoffmann-La Roche
Ltd. (Boehringer Mannheim GmbH) and Johnson & Johnson (Janssen-Cilag) in
Europe; and Sankyo Company Ltd., Chugai Pharmaceutical Co., Ltd., and Kirin
in Japan.

         Many of the protein products against which our Gene-Activated
proteins would compete have well-known brand names, have been promoted
extensively, and have achieved market acceptance by third party payors,
hospitals, physicians, and patients. Many of the companies that produce these
protein products have patents covering the techniques used to produce these
products, which have served as effective barriers to entry in the protein
therapeutics market. As with Amgen and its erythropoietin product, these
companies may seek to block our entry into the market by asserting that our
Gene-Activated proteins infringe their patents. Many of these companies are
also seeking to develop and commercialize new or potentially improved
versions of their proteins.

         Our gene therapy system will have to compete with other gene therapy
systems, as well as with conventional methods of treating targeted diseases
and conditions. In addition, new non-gene therapy treatments may be developed
in the future. A number of companies, including major biotechnology and
pharmaceutical companies, as well as development stage companies, are
actively involved in this field.

                                                                    18


<PAGE>


         WE ARE DEPENDENT ON CORPORATE COLLABORATORS TO DEVELOP, CONDUCT
CLINICAL TRIALS, OBTAIN REGULATORY APPROVALS FOR, AND, MANUFACTURE, MARKET,
AND SELL OUR PRINCIPAL PRODUCTS

         We are parties to collaborative agreements with third parties
relating to certain of our principal products. We are relying on Aventis to
develop, conduct clinical trials, obtain regulatory approvals for, and
manufacture, market, and sell Dynepo; Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo") to develop and commercialize Replagal for Fabry disease in Japan
and other Asian countries; and Genetics Institute, Inc. ("GI") to develop and
commercialize Factor VIII gene therapy for hemophilia A in Europe. Our
collaborators may not devote the resources necessary or may otherwise be
unable to complete development and commercialization of these potential
products. Our existing collaborations are subject to termination without
cause on short notice under certain circumstances.

         Our existing collaborations and any future collaborative
arrangements with third parties may not be scientifically or commercially
successful. Factors that may affect the success of our collaborations include
the following: our collaborators may be pursuing alternative technologies or
developing alternative products, either on their own or in collaboration with
others, that may be competitive with the product as to which they are
collaborating with us, which could affect our collaborative partners'
commitment to the collaboration with us; reductions in marketing or sales
efforts or a discontinuation of marketing or sales of our products by our
collaborators would reduce our revenues, which will be based on a percentage
of net sales by the collaborator; our collaborators may terminate their
collaborations with us, which could make it difficult for us to attract new
collaborators or adversely affect the perception of us in the business and
financial communities; and our collaborators may pursue higher priority
programs or change the focus of their development programs, which could
affect the collaborator's commitment to us.

         WE HAVE NOT BEEN PROFITABLE AND MAY REQUIRE ADDITIONAL FUNDING

         We have experienced significant operating losses since our inception
in 1988. We expect that we will continue to incur substantial losses and that
our cumulative losses will increase as our research and development, sales
and marketing, and manufacturing efforts expand. We expect that the losses
that we incur will fluctuate from quarter to quarter and that these
fluctuations may be substantial. To date, we have not recorded revenues from
the sale of products.

         We will require substantial funds to conduct research and
development, including preclinical testing and clinical trials of our
potential products, and to manufacture and market any products that are
approved for commercial sale. Our future capital requirements will depend on
many factors, including the following: continued progress in our research and
development programs, as well as the magnitude of these programs; the scope
and results of our clinical trials; the time and costs involved in obtaining
regulatory approvals; the cost of manufacturing activities; the cost of
commercialization activities; the cost of our additional facilities
requirements; our ability to establish and maintain collaborative
arrangements; the timing, receipt, and amount of milestone and other payments
from collaborators; the timing, receipt, and amount of sales and royalties
from our potential products in the market; the costs involved in

                                                                    19


<PAGE>


preparing, filing, prosecuting, maintaining, and enforcing patent claims and
other patent-related costs, including litigation costs and the costs of
obtaining any required licenses to technologies; the results of such
litigation; and the cost of obtaining and maintaining licenses to use
patented technologies.

         We may seek additional funding through collaborative arrangements
and public or private financings. Additional financing may not be available
to us on acceptable terms or at all.

         If we raise additional funds by issuing equity securities, further
dilution to our then existing stockholders will result. In addition, the
terms of the financing may adversely affect the holdings or the rights of
such stockholders. If we are unable to obtain funding on a timely basis, we
may be required to significantly curtail one or more of our research or
development programs. We also could be required to seek funds through
arrangements with collaborators or others that may require us to relinquish
rights to certain of our technologies, product candidates, or products which
we would otherwise pursue on our own.

         IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO
DEVELOP AND COMMERCIALIZE ANY RELATED PRODUCTS

         In order to obtain regulatory approvals for the commercial sale of
our potential products, we and our collaborators will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We may not be able to obtain authority from the FDA, the EMEA
or other regulatory agencies to commence or complete these clinical trials.

         The results from preclinical testing of a product that is under
development may not be predictive of results that will be obtained in human
clinical trials. In addition, the results of early human clinical trials may
not be predictive of results that will be obtained in larger scale, advanced
stage clinical trials. Furthermore, we, one of our collaborators, or the FDA
or EMEA may suspend clinical trials at any time if the subjects or patients
participating in such trials are being exposed to unacceptable health risks,
or for other reasons.

         The rate of completion of clinical trials is dependent in part upon
the rate of enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study, and the
existence of competitive clinical trials. In particular, the patient
population for some of our Niche Protein products is small. Delays in planned
patient enrollment may result in increased costs and program delays.

         We and our collaborators may not be able to successfully complete
any clinical trial of a potential product within any specified time period.
In some cases, we may not be able to complete the trial at all. Moreover,
clinical trials may not show any potential product to be safe or efficacious.
Thus, the FDA, the EMEA and other regulatory authorities may not approve any
of our potential products for any indication.

         Our business, financial position, or results of operations could be
materially adversely affected if: we or our collaborators are unable to
complete a clinical trial of one of our potential products; the results of
any clinical trial are unfavorable; or the time or cost of completing the

                                                                    20


<PAGE>


trial exceeds our expectations.

         WE MAY BE SUBJECT TO ADDITIONAL LITIGATION RELATING TO OUR
INTELLECTUAL PROPERTY RIGHTS

         The biotechnology industry has been characterized by significant
litigation and interference and other proceedings regarding patents, patent
applications, and other intellectual property rights. We may become a party
to additional patent litigation and other proceedings in the future beyond
the patent issues described under "--We are a party to litigation with Amgen
and Kirin-Amgen involving Dynepo(TM)", "We are a party to litigation with
Genzyme and Mt. Sinai involving Replagal(TM)" and "--We are involved and may
become involved in patent litigation or other intellectual property
proceedings relating to our Transkaryotic Therapy(TM) technology which could
result in liability for damages or stop our development and commercialization
efforts."

         Certain of our competitors have filed patent applications and have
been issued patents relating to certain methods of producing therapeutic
proteins. We believe that the risk of our becoming involved in patent
litigation is significant with respect to the therapeutic proteins that we
anticipate producing.

         An adverse outcome in any patent litigation or other proceeding
involving patents could subject us to significant liabilities to third
parties and require us to cease using the technology that is at issue or to
license the technology from third parties. We may not be able to obtain any
required licenses on commercially acceptable terms or at all.

         The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be
able to sustain these costs more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace.

         In addition, hearings have been held by Congress with respect to the
Waxman-Hatch Act. Under the safe harbor provisions of the Waxman-Hatch Act,
activities conducted solely for uses reasonably related to the production of
information for submission to the FDA as part of seeking regulatory approval
to market a product are not acts of patent infringement. If legislation
changing the safe harbor provisions of the Waxman-Hatch Act were introduced
in Congress and enacted, competitors of ours that desire to bring U.S. patent
infringement actions against us might be able to do so at an earlier time
than under the existing law.

         WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES

         Our success will depend in large part on our ability to obtain
patent protection for our processes and products in the U.S. and other
countries. The patent situation in the field of biotechnology generally is
highly uncertain and involves complex legal and scientific questions. We may
not be issued patents relating to our technology. Even if issued, patents may
be challenged, invalidated, or circumvented. Our patents also may not afford
us protection against competitors with similar technology. Because patent
applications in the U.S. are maintained in secrecy until patents issue, third
parties may have filed or maintained patent applications for

                                                                    21


<PAGE>


technology used by us or covered by our pending patent applications without
our being aware of these applications.

         We may not hold proprietary rights to certain product patents,
process patents, and use patents related to our products or their methods of
manufacture. In some cases, these patents may be owned or controlled by third
parties. As a result, we may be required to obtain licenses under third party
patents to market certain of our potential products. If licenses are not
available to us on acceptable terms, we may not be able to market these
products.

         We also rely upon unpatented proprietary technology, processes, and
know-how. We seek to protect this information in part by confidentiality
agreements with our employees, consultants, and other third party
contractors. These agreements may be breached, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may otherwise
become known or be independently developed by competitors.

         WE MAY LOSE IMPORTANT LICENSE RIGHTS IN SOME CIRCUMSTANCES

         We are a party to a number of patent licenses that are important to
our business and expect to enter into additional patent licenses in the
future. These licenses impose various commercialization, sublicensing,
royalty, insurance, and other obligations on us. If we fail to comply with
these obligations, the licensor may have the right to terminate the license.

         WE ARE INVOLVED AND MAY BECOME INVOLVED IN PATENT LITIGATION OR
OTHER INTELLECTUAL PROPERTY PROCEEDINGS RELATED TO OUR TRANSKARYOTIC THERAPY
-TM-TECHNOLOGY WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS

         We are a party to a proceeding before the U.S. Patent and Trademark
Office to determine the patentability of our Gene Therapy technology. The
participants in the interference are TKT, Genetic Therapy, Inc., which is a
wholly-owned subsidiary of Novartis AG, Syntex (U.S.A.), which is a
wholly-owned subsidiary of Roche Holdings, Inc., and Cell Genesys, Inc. This
proceeding will determine which of the parties first developed this
technology. If the technology is patentable, the party that first developed
the technology will be awarded the U.S. patent rights.

         The process to resolve an interference can take many years. We may
not prevail in this interference. Even if we do prevail, the decision in this
proceeding may not enable us meaningfully to protect our proprietary position
in the field of EX VIVO gene therapy.

         If we do not prevail in this proceeding, a consent order issued by
the Federal Trade Commission in March 1997 may be relevant to us. The Federal
Trade Commission entered this consent order to resolve anti-competitive
concerns raised by the merger of Ciba-Geigy Limited and Sandoz Limited into
Novartis AG. As part of the consent order, the constituent entities of
Novartis are required to provide all gene therapy researchers and developers
with nonexclusive, royalty-bearing licenses to the Novartis patent which is
involved in the interference proceeding described above. In addition, we have
entered into an agreement with Cell Genesys under which we would be permitted
to market our non-viral gene therapy products pursuant to a royalty-free
license agreement if Cell Genesys wins the interference.

                                                                    22


<PAGE>


         SOME GENE THERAPY CLINICAL TRIALS HAVE BEEN SUSPENDED AND REGULATORY
AUTHORITIES ARE REVIEWING THE NEED FOR INCREASED REGULATION OF GENE THERAPY
CLINICAL TRIALS

         Due to recent adverse events that have occurred during gene therapy
clinical trials, conducted by other biotechnology and pharmaceutical
companies and institutions, the Federal government, the FDA, the EMEA,
industry organizations, and institutions conducting gene therapy clinical
trials have grown increasingly concerned about the safety of gene therapy
clinical trials. As a result, a number of gene therapy clinical trials have
been terminated or suspended. In February 2000, Beth Israel placed a
temporary moratorium on all gene therapy clinical trials being conducted at
its facility, including our clinical trial for hemophilia A, due to national
public policy concerns relating to gene therapy trials. There had been no
adverse events associated with our trial. Upon review of our hemophilia A
clinical trial safety data, Beth Israel resumed our gene therapy clinical
trial to treat hemophilia A two weeks after its initial suspension. There can
be no assurance that increased concern over gene therapy trials generally
will not lead the FDA, the EMEA or other regulatory agencies to impose
further regulation on gene therapy clinical trials. If greater regulations
are imposed on gene therapy research generally, the delays and costs involved
in complying with such greater regulation may impair our ability to complete
clinical trials already in progress and to conduct gene therapy clinical
trials in the future.

         EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT
TO ONGOING REGULATORY REVIEW

         If regulatory approval of a product is granted, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed or contain requirements for costly post-marketing studies. As to
products for which we obtain marketing approval, we, the manufacturer of the
product if other than us, and the manufacturing facilities will be subject to
continual review and periodic inspections by the FDA, the EMEA and other
regulatory authorities. The subsequent discovery of previously unknown
problems with the product, manufacturer, or facility may result in
restrictions on the product or manufacturer, including withdrawal of the
product from the market.

         We announced in March 2001 that the CPMP issued a positive opinion
recommending approval of Replagal. The CPMP's recommendation for approval
will be forwarded to the EC, which will determine whether to grant marketing
authorization of Replagal. If the EC approves the marketing authorization for
Replagal, we and our subsidiaries will be subject to ongoing regulatory
requirements. There can be no assurance that we or our subsidiaries will be
able to comply with all applicable requirements.

         If we fail to comply with applicable regulatory requirements with
respect to any of our products, we may be subject to fines, suspension or
withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions, and criminal prosecution.

         WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO
OBTAIN ADEQUATE PRODUCT LIABILITY INSURANCE

         Our business exposes us to the risk of product liability claims that
is inherent in the testing, manufacturing, and marketing of human therapeutic
products. Although we have clinical trial liability insurance, we do not
currently have any product liability insurance. We may not be

                                                                    23


<PAGE>


able to obtain or maintain such insurance on acceptable terms or at all.
Moreover, any insurance that we do obtain may not provide adequate protection
against potential liabilities. If we are unable to obtain insurance at
acceptable cost or otherwise protect against potential product liability
claims, we will be exposed to significant liabilities, which may materially
and adversely affect our business and financial position. These liabilities
could prevent or interfere with our product commercialization efforts.

                                                                    24


<PAGE>


PART II - Other Information

Item 1.  Legal Proceedings

         The Company can provide no assurance as to the outcome of any legal
proceedings. A decision by a court in the U.S. or in any other jurisdiction
in a manner adverse to the Company could have a material adverse effect on
the Company's business, financial position, and results of operations.

DYNEPO(TM) PATENT LITIGATION

         As previously disclosed in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, the Company and Aventis are involved in
a patent infringement action with Amgen.

         In January 2001, the U.S. District Court for the District of
Massachusetts ruled that the Company infringed eight of eighteen claims
asserted by Amgen. In particular, the District Court ruled that the asserted
claims of U.S. Patent No. 5,547,933 are not infringed (and, if this finding
is in error, that the asserted claims are invalid); that the asserted claims
of U.S. Patent 5,618,698 are not infringed; that Claims 2, 3 and 4 of U.S.
Patent No. 5,621,080 are valid, enforceable and infringed under the doctrine
of equivalents; that Claims 1, 3, 4 and 6 of U.S. Patent No. 5,756,349 are
valid, enforceable and literally infringed, but that Claim 7 of the `349
patent is not infringed; and that Claim 1 of U.S. Patent No. 5,955,422 is
valid, enforceable and literally infringed. Amgen did not seek and was not
awarded monetary damages.

         In January 2001, TKT and Aventis filed a Notice of Appeal from the
Judgment of the District Court with the U.S. Court of Appeals for the Federal
Circuit in this case. The Company believes it has strong grounds for appeal.
Amgen filed a Notice of Cross-Appeal in February 2001 with the U.S. Court of
Appeals for the Federal Circuit.

         In addition, in July 1999, Aventis and the Company commenced legal
proceedings in the U.K. against Kirin-Amgen, seeking a declaration that a
U.K. patent held by Kirin-Amgen will not be infringed by the Company's
activities related to Dynepo and that certain claims of Kirin-Amgen's U.K.
patent are invalid. The English High Court of Justice ruled that one of four
claims of the patent asserted by Amgen was infringed by the Company and
Aventis. The Company believes it has strong grounds for appeal and filed a
Notice of Appeal in April 2001.

         Pursuant to an Amended and Restated License Agreement, dated March
1995, between Aventis and the Company, Aventis has assumed the legal costs of
the Amgen and Kirin-Amgen litigation. The Company will reimburse Aventis for
the Company's share of the litigation expenses, as defined, from future
royalties, if any, received from the sale of Dynepo and in certain other
circumstances.

REPLAGAL(TM) PATENT LITIGATION

         In July 2000, Genzyme and Mt. Sinai filed a patent infringement suit
against the

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Company in the U.S. District Court for the District of Delaware, alleging
that the manufacture, use, intended sale, and/or intended offer for sale of
the Company's Replagal(TM)product infringes one or more claims of U.S. Patent
No. 5,356,804. Genzyme and Mt. Sinai seek injunctive relief and an accounting
for damages. Discovery proceedings commenced in February 2001, and the
District Court has scheduled trial in this action to begin in March 2002.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

         The Exhibits filed as part of this Form 10-Q are listed on the
Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.

         (b)      Reports on Form 8-K

          Current Report on Form 8-K dated January 22, 2001 regarding the
TKT's announcement that Judge William G. Young of the U.S. District Court of
Massachusetts has issued an opinion in a patent infringement suit Amgen
brought against Aventis Pharma and TKT involving Dynepo(TM), the companies'
Gene-Activated(R) erythropoietin being developed in the United States and
Europe for the treatment of anemia.

         Current Report on Form 8-K dated January 4, 2001 regarding the TKT's
announcement that it has received a complete review letter from the U.S. Food
and Drug Administration concerning its Biologics License Application for
Replagal(TM) (agalsidase alfa), an investigational enzyme replacement therapy
for the treatment of Fabry disease.

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SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         TRANSKARYOTIC THERAPIES, INC.



Date:  May 14, 2001                      By:  /S/ DANIEL E. GEFFKEN
                                              ---------------------------
                                              Daniel E. Geffken
                                              Senior Vice President, Finance and
                                              Chief Financial Officer (Principal
                                              Financial and Accounting Officer)

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