DYAX CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001,

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 000-24537
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DYAX CORP.
(Exact name of Company as specified in its charter)

DELAWARE 04-3053198
(State of Incorporation) (IRS Employer Identification No.)

300 TECHNOLOGY SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices and zip code)

Company's telephone number, including area code: (617) 250-5500

Securities registered pursuant to Section 12(b) of NONE
the Act:
Securities registered pursuant to Section 12(g) of COMMON STOCK, $.01 PAR VALUE
the Act:
(TITLE OF CLASS)

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Indicate by checkmark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

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

The aggregate market value of the Company's common stock held by
nonaffiliates of the Company as of March 25, 2002, based on the last reported
sale price of the Company's common stock on The Nasdaq National Market as of the
close of business on that day, was $64,381,724. The number of shares outstanding
of the Company's Common Stock, $.01 Par Value, as of March 25, 2002, was
19,579,489.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders to be held on May 16, 2002, which Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year-end of December 31, 2001, are
incorporated by reference into Part III of this Form 10-K.

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ANNUAL REPORT ON FORM 10-K
INDEX

PART I

ITEM 1. BUSINESS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS,
INCLUDING STATEMENTS REGARDING OUR RESULTS OF OPERATIONS, RESEARCH AND
DEVELOPMENT PROGRAMS, CLINICAL TRIALS AND COLLABORATIONS. STATEMENTS THAT ARE
NOT HISTORICAL FACTS ARE BASED ON OUR CURRENT EXPECTATIONS, BELIEFS,
ASSUMPTIONS, ESTIMATES, FORECASTS AND PROJECTIONS FOR OUR BUSINESS AND THE
INDUSTRY AND MARKETS IN WHICH WE COMPETE. THE STATEMENTS CONTAINED IN THIS
REPORT ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS, WHICH ARE DIFFICULT TO PREDICT. THEREFORE, ACTUAL
OUTCOMES AND RESULTS MAY DIFFER MATERIALLY FROM WHAT IS EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS WHICH MAY AFFECT FUTURE OPERATING
RESULTS, RESEARCH AND DEVELOPMENT PROGRAMS, CLINICAL TRIALS AND COLLABORATIONS
INCLUDE, WITHOUT LIMITATION, THOSE SET FORTH IN EXHIBIT 99.1 "IMPORTANT FACTORS
THAT MAY AFFECT FUTURE OPERATIONS AND RESULTS" TO THIS FORM 10-K, WHICH IS
INCORPORATED INTO THIS ITEM BY THIS REFERENCE.

OVERVIEW

We are a biopharmaceutical company principally focused on the discovery,
development and commercialization of therapeutic products. Two of our product
candidates are in early stage clinical trials and we are preparing to begin
clinical trails for one of these candidates in a second indication. We also have
a number of other research and development programs. Our focus is on protein,
peptide and antibody-based drugs. We use a proprietary and patented method,
known as phage display, to identify a broad range of compounds with potential
for the treatment of various diseases. We are using phage display technology to
build a broad portfolio of product candidates that we plan to develop and
commercialize either ourselves or with others. We believe that our phage display
technology can assist in rapidly and cost-effectively determining the potential
medical uses of newly discovered proteins and genes and facilitate subsequent
discovery of biopharmaceutical product candidates. Given the quantity of genetic
information made available by the mapping of the human genome, we believe that
the advantages of our technology over other technologies should increase in
importance. We believe that phage display can have the greatest potential impact
on our business through our discovery of proprietary biopharmaceuticals.

Although we will continue to seek collaborators to co-develop the product
candidates in our portfolio, we expect to fund a substantial portion of such
development ourselves. We plan to continue to invest substantially in programs
using our phage display technology to discover new product candidates. We have
accumulated losses since inception as we have invested in our businesses. We
seek to offset some of our development costs by generating a combination of
revenue from the partnering of our portfolio of product candidates, through our
non-core activities that include funded research for others in separations and
diagnostic imaging, and the licensing of our phage display patents, as well as a
greater market penetration for our chromatography products. We do not expect to
generate significant profits until therapeutic products from our development
portfolio reach the market. Obtaining regulatory approvals to market therapeutic
products is a long and arduous process. We cannot currently predict when, if
ever, we will obtain such approvals.

On behalf of collaborators, we also use phage display technology to identify
compounds that can be used in therapeutics, diagnostic imaging, the development
of research reagents, and in purifying and manufacturing biopharmaceuticals and
chemicals. We are further leveraging our phage display technology through
collaborations and licenses that are structured to generate revenues through
research funding, license fees, technical and clinical milestone payments and
royalties.

Through our Biotage subsidiary we develop, manufacture and sell
chromatography separations systems and products that are used in laboratories
and pharmaceutical manufacturing to separate molecules in liquid mixtures. We
are a leading developer, manufacturer and supplier of chromatography

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separations systems that use disposable cartridges to separate and thereby
purify pharmaceuticals being produced for research or clinical development.

BACKGROUND

Traditional drug discovery has relied on screening thousands of potential
biopharmaceutical candidates one at a time. With the advent of modern biology,
scientists were better able to identify an individual target and the role that
it played in a specific disease. Until recently, however, identifying and
isolating the genetic basis of targets was a laborious and time-consuming
process. Scientists were limited to several hundred identified human genes and
their encoded proteins to use as targets out of the estimated 30,000 total human
genes.

Recent improvements in life science research tools and significant
investments of financial and scientific resources have greatly accelerated the
identification of human genetic sequence information. Scientists now know the
identity of most of the genes in the human genome. However, with few exceptions,
scientists do not understand the function of an individual gene in health and
disease.

Furthermore, traditional approaches to identifying the genes that cause a
disease and screening drug candidate compounds that positively affect the
disease are too time consuming to effectively evaluate the large number of newly
identified human genes. The mapping of the human genome has created a
significant potential role for technologies that can facilitate the following:

- TARGET VALIDATION. The first step in the discovery and development of a
biopharmaceutical is to identify a molecular target that is involved in a
disease. The binding of a molecule to another molecule, or target, is the
mechanism nature uses to modulate biochemical and physiological processes
such as cellular growth, differentiation, metabolism or death. When
scientists demonstrate that the presence or absence of the target is
correlated to a disease state, they conclude that they have validated the
target.

- DISCOVERY OF BIOPHARMACEUTICAL LEADS. Once scientists identify and
validate a disease target, they search for a compound that will bind to
this target to achieve a desired effect. In order for a binding compound
to be considered a promising biopharmaceutical product candidate, it must
have a high degree of specificity, which means it must be able to
distinguish between the correct target and other closely related
molecules. For maximal effectiveness, the compound must bind tightly to
the target under appropriate physiological conditions. The binding
strength of a molecule for its target is referred to as affinity. To a
great extent, the safety and efficacy of a biopharmaceutical product
depends on its affinity and specificity of the therapeutic for the disease
target. Scientists use several drug discovery technologies to identify
product candidates, known as leads, with appropriate affinity and
specificity.

New technologies are required to validate targets rapidly and discover
biopharmaceutical leads with appropriate specificity and affinity. We believe
that phage display offers significant advantages over other technologies for
addressing these challenges.

OTHER DRUG DISCOVERY TECHNOLOGIES

Scientists use several technologies to address the need for rapid drug
discovery, including combinatorial chemistry, single target high throughput
screening and hybridoma technology. These technologies play important, though
specific, roles in accelerating the productivity and effectiveness of drug
discovery and are likely to continue to be used into the foreseeable future.

COMBINATORIAL CHEMISTRY. Combinatorial chemistry involves the creation of
large collections of chemical compounds for identifying leads. Combinatorial
chemistry has made possible the synthesis of up to millions of molecules in a
shorter period of time than previously possible. Over the last decade, the field
of combinatorial chemistry has been augmented by computational approaches to
facilitate

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molecular design and synthesis. While both combinatorial chemistry and
computational approaches are useful in drug discovery, they are limited by
several significant factors:

- libraries of these compounds are expensive to produce and screen;

- library compounds and costly biological reagents are consumed during the
screening process; and

- initial leads rarely have the requisite affinity, purity or specificity
and therefore require time-consuming and expensive optimization
procedures.

TARGET HIGH THROUGHPUT SCREENING. High throughput screening is a highly
automated method used to test large populations of potential drug candidates for
activity against a single target. Typically, scientists use automated equipment
to add the target to tens of thousands of miniaturized testing vessels, each
containing a different compound, to identify those compounds that bind to the
target. Scientists then optimize these binding compounds one-step at a time
using an iterative design and synthesis and testing regimens to achieve the
desired binding affinity and specificity for the target. This process has
produced several drug candidates based upon the rapid screening of well-known
genetic targets. While this process was acceptable when targets were discovered
one at a time, its usefulness is limited now that thousands of potential targets
are available.

HYBRIDOMA TECHNOLOGY. Antibodies are part of the body's principal defense
mechanism against disease-causing organisms. Antibodies recognize and bind to a
specific target referred to as an antigen. When bound to a target the antibody
triggers physiological processes that protect humans against disease. The
antibodies that are produced naturally consist of a mixture of molecules having
varying affinities and specificities for the target. Hybridoma technology allows
the production of a homogenous antibody preparation capable of binding a
specific portion of a target with a known specificity and affinity. The
resulting antibody is called a monoclonal antibody.

Historically, mice have been the source of cells that produce monoclonal
antibodies that have been developed into biopharmaceutical products. Although a
mouse monoclonal antibody can be produced to bind to a specific antigen, the
mouse antibody contains characteristic protein sequences that tend to be
recognized as foreign by the human immune system, and this may impair efficacy
(due to rapid protein elimination) and/or cause life threatening allergic
responses in humans. The measure of the immune response that a mouse monoclonal
antibody produces in a human is known as its immunogenicity. Using new technical
approaches, scientists have been able to replace most of the mouse protein
sequences of a monoclonal antibody with corresponding human sequences. These new
antibodies retain the target affinity and specificity of the mouse antibody but
do not trigger as extensive of an immune response in humans. The new antibodies
are referred to as "humanized" or "chimeric" monoclonal antibodies. More
recently, scientists have specifically engineered laboratory mice to replace
their mouse antibody genes with a portion of the large number of possible human
antibody genes. When immunized with a purified target, these "human mice"
produce fully human antibodies that bind to the target. These antibodies are
called "human-mouse" antibodies.

These monoclonal antibody approaches have yielded multiple successes for
antibody-based products. There are currently at least eight monoclonal
antibodies approved for human therapy, and we estimate that there are over 100
other monoclonal antibodies in clinical trials. These approaches, however, are
limited by several significant factors:

- they typically require at least four to six months to produce a sufficient
quantity of antibody for testing;

- they are generally able to produce antibodies against only one target per
test group of mice at a time;

- they are limited by the range of target candidates that the mouse immune
system recognizes as foreign and to which its immune system can respond.

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The abundance of potential disease targets within the human genome
emphasizes the need and associated opportunity for a more rapid, high
throughput, cost effective process for discovering human antibodies and other
new biopharmaceutical lead compounds.

PHAGE DISPLAY

In the late 1980s, Dyax scientists invented phage display, a novel method to
individually display up to tens of billions of peptides and proteins, including
human antibodies and enzymes, on the surface of a small bacterial virus called a
bacteriophage or phage. Using phage display, we are able to produce and search
through large collections, or libraries, of peptides and proteins to rapidly
identify those compounds that bind with high affinity and high specificity to
targets of interest. We describe the technology of phage display in more detail
under the caption "Dyax Technology".

Our phage display process generally consists of the following steps:

- generating one or more phage display libraries;

- screening new and existing phage display libraries to select binding
compounds with high affinity and high specificity; and

- producing and evaluating the selected binding compounds.

Scientists can use phage display to improve the speed and cost effectiveness
of drug discovery and optimization. Phage display offers important advantages
over, and can be used synergistically to improve, other drug discovery
technologies such as combinatorial chemistry, single target high throughput
screening and monocolonal antibodies, which are currently employed to identify
binding proteins. Over the past decade, our scientists, collaborators and
licensees have applied this powerful technology to a wide range of
biopharmaceutical applications. We and our collaborators and licensees are using
phage display technology at many stages of the drug discovery process to
identify and determine the function of novel targets and to discover
biopharmaceutical leads.

ADVANTAGES OF PHAGE DISPLAY TECHNOLOGY IN THERAPEUTIC DRUG DISCOVERY. We
believe our phage display technology has the following advantages over other
drug discovery technologies:

DIVERSITY AND ABUNDANCE. Many of our phage display libraries contain
billions of potential binding compounds that are rationally-designed
variations of a particular peptide or protein framework. Furthermore, we can
isolate a diverse family of genes by including, for example, those that
encode human antibodies. The size and diversity of our libraries
significantly increase the likelihood of identifying binding compounds with
high affinity and high specificity for the target. Once we generate
libraries, we can reproduce them rapidly in phage and use them for an
unlimited number of screenings.

SPEED AND COST EFFECTIVENESS. We can construct phage display libraries in a
few months and screen them in a few weeks to identify binding compounds.
Conventional or combinatorial chemistry approaches require between several
months and several years to complete this process. Similarly, mouse and
human-mouse technologies generally require four to six months to identify an
antibody. As a result, our phage display technology can significantly reduce
the time and expense required to identify a protein, peptide or antibody
with desired binding characteristics.

AUTOMATED PARALLEL SCREENING. In an automated format, we can apply our
phage display technology to many targets simultaneously to discover
specific, high-affinity proteins, including human monoclonal antibodies, for
each target. In contrast, human-mouse antibody technology identifies
antibodies that bind to a single target per test group of mice and is
difficult to automate. Among antibody technologies, phage display is
particularly well suited for functional genomic applications, due to the
large number of genetic targets that need to be screened for specific
antibodies.

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RAPID OPTIMIZATION. We screen phage display libraries to identify binding
compounds with high affinity and high specificity for the desired target and
can design and produce successive generations of phage display libraries to
further optimize the leads. We have demonstrated between 10- and 100-fold
improvement in binding affinity with second generation phage display
libraries. This optimization cannot occur with humanized mouse or
human-mouse antibody technologies and cannot progress as rapidly or with
equivalent diversity.

COMPLEMENTS OTHER DRUG DISCOVERY TECHNOLOGIES. Phage display works
synergistically with other drug discovery technologies, including
human-mouse antibody technology and high throughput screening, to improve
drug candidate screening. For example, following immunization of "human
mice," we can collect the antibody genes from the mice and use them to build
a phage display library for rapid screening and optimization of the antibody
leads. This process allows for more rapid selection of a highly diverse
population of therapeutic human antibodies. High throughput parallel
screening can be used to expose multiple targets simultaneously to the
diversity of proteins expressed by our phage libraries. This combination of
phage display with automated, high throughput screening technology allows a
multi-target approach to lead discovery that is more efficient than the
traditional single-target approach. The resulting increase in discovery
throughput and capacity is advantageous considering the large number of new
genomic targets.

ADVANTAGES OF OUR PHAGE DISPLAY TECHNOLOGY IN OTHER APPLICATIONS. Our phage
display technology also has potentially broad applications in other areas:

AFFINITY SEPARATIONS PRODUCTS. Purification of a biopharmaceutical product
is a complex, multi-step process, which can be a time-consuming step in the
discovery process and is often the most expensive step in the manufacturing
process. Our phage display technology is a powerful tool for developing new
separations media that can be designed using small stable compounds known as
ligands that have high affinity for the biopharmaceutical product. We
believe that for some biopharmaceutical products this affinity purification
will be more cost effective and efficient than other purification processes.
Affinity purification should be particularly useful for purifying the large
number of new biopharmaceutical and diagnostic leads and products resulting
from advances in genomics.

DIAGNOSTIC AND IMAGING PRODUCTS. Binding compounds are essential to most
diagnostic products. Often the binding compounds that we discover for
biopharmaceutical and separations targets can be used in diagnostic or
imaging formats to assess therapeutic effectiveness and monitor disease
progression. As biopharmaceuticals are being designed for unique gene
targets, the availability of diagnostic methods to detect the relevant gene
target will be essential to correctly match patients with appropriate
therapy.

RESEARCH REAGENTS. Binding compounds are active components of many research
products used in drug discovery and development, specifically to detect and
analyze proteins. We are able to use our phage display technology to
identify and develop antibodies that can be used in these areas, including
antibodies for use in biochips and western blots for protein quantification
in the field of proteomics.

OUR BUSINESS STRATEGY

Our goal is to become a fully integrated biopharmaceutical company. We use
our phage display technology to discover and develop novel products aimed at
addressing unmet medical needs. We expect to maximize the value of our phage
display technology primarily by pursuing internal product discovery and
development programs. Our business model is designed to augment this value
creation through a combination of collaborative arrangements to discover
therapeutic products for others and to exploit our technology in non-core areas
such as separations, diagnostic imaging and research reagents and through our
patent licensing program.

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The following are the principal elements of our business strategy:

- DISCOVER AND DEVELOP PROPRIETARY BIOPHARMACEUTICAL PRODUCTS. We have
internally developed two proteins, both of which are in Phase II clinical
trials in Europe. One of these product candidates is being developed and
commercialized in an alliance with Genzyme and the other with Debiopharm.
For one of these candidates, we are also preparing to initiate clinical
trials for a second indication. We are also expanding our pipeline by
identifying peptides, proteins and antibodies that may be developed as
candidates for the treatment of some inflammatory diseases and cancers. We
intend to identify new leads for targets that we discover or license from
others. We intend to develop and commercialize these leads ourselves or
through collaborative arrangements.

- LEVERAGE OUR TECHNOLOGY THROUGH BIOPHARMACEUTICAL PRODUCT COLLABORATIONS.
We are leveraging our technology and maximizing our opportunities through
collaborative arrangements with several biotechnology and pharmaceutical
companies for the discovery and/or development of biopharmaceuticals. The
goal of this strategy is to build a more diverse portfolio of product
candidates and to increase our opportunities for success.

- LEVERAGE OUR TECHNOLOGY BY LICENSING OUR PHAGE DISPLAY PATENTS AND
LIBRARIES. We are further creating value from our phage display patents by
licensing them to companies and institutions on a non-exclusive basis to
encourage the broad application of our technology. We make some of our
phage display libraries available to some of our licensees in limited
fields in exchange for technology transfer payments, milestone payments
and royalties. We intend to enter into additional license agreements for
our phage display patents and libraries.

- LEVERAGE PHAGE DISPLAY IN NON-THERAPEUTIC AREAS. We are applying our phage
display technology to develop diagnostic products for IN VIVO imaging. We
have partnered the development of IN VIVO imaging products with the Bracco
Group, a leader in the imaging products market. We are collaborating with
BD Biosciences in the research products field and have licensed Amersham
Biosciences non-exclusively in the area of separations. Through
collaborative arrangements with pharmaceutical and biotechnology
companies, we are identifying compounds that purify the collaborator's
specific biopharmaceutical product.

- CONTINUE TO EXTEND OUR INTELLECTUAL PROPERTY AND TECHNOLOGY. We plan to
continue to develop internally and to acquire technology that is
complementary to our existing technology. Through our patent licensing
program, we will continue to enhance our phage display technology by
obtaining access to phage display improvements that our licensees develop.

OUR BIOPHARMACEUTICAL PROGRAMS

We are using phage display technology internally and through collaborative
arrangements to discover and develop biopharmaceutical products. Our product
development programs are primarily focused on inflammatory diseases and cancers.

INFLAMMATORY DISEASES

DX-890 (formerly known as EPI-HNE-4). In a number of inflammatory diseases,
the body secretes an excess of the enzyme known as neutrophil elastase, or
elastase. Excess elastase activity, or a decrease in the elastase inhibitor
destroys lung tissue. Using phage display, we have developed a novel human
neutrophil elastase inhibitor, DX-890. This inhibitor binds to elastase with
high affinity and high specificity, suggesting that it may be a potent and
specific treatment for lung disease mediated by elastase. Based on its
biological activity, DX-890 may be effective in stopping the destruction of lung

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tissue due to excess elastase activity. DX-890 may be an effective therapy in a
variety of inflammatory diseases, including:

- CYSTIC FIBROSIS. There are approximately 55,000 patients in the United
States and Europe who suffer from cystic fibrosis. The median survival age
of cystic fibrosis patients is approximately 32 years. A genetic mutation
causes a number of problems including progressive lung destruction and
frequent infections in these patients. Large amounts of elastase are found
in the lungs of cystic fibrosis patients where it is thought to play a
significant role in the disease process. The elastase directly destroys
tissue and contributes to recurrent infections, a cycle of inflammation,
and repeated tissue destruction. Current treatments inadequately prevent
this cycle of inflammation, infection, and destruction of tissue. By
blocking elastase, DX-890 may significantly prevent tissue destruction in
cystic fibrosis and preserve pulmonary function.

- CHRONIC OBSTRUCTIVE PULMONARY DISEASES. Approximately 16 million Americans
suffer from chronic obstructive pulmonary diseases, which include chronic
bronchitis and emphysema. Genetic mutations or inhaled irritants,
including cigarette smoke, cause these diseases, which are characterized
by a progressive deterioration in lung function. Over $14 billion is spent
annually to treat this group of diseases, which is the fourth leading
cause of death in the United States. Elastase is thought to play a role in
the progressive destruction of lung tissue in these diseases. DX-890 may
block elastase and retard further damage, improving the quality of life
and life expectancy for these patients.

- ALPHA1 ANTI-TRYPSIN DEFICIENCY. Alpha1 Anti-Trypsin, or A1AT deficiency is
a genetic disease affecting nearly 100,000 patients in the United States.
The role of A1AT in normal people is to modulate the effect of neutrophil
elastase. A1AT is the body's natural inhibitor to neutrophil elastase and
makes certain the enzyme does its job without causing excessive
destruction. Patients who are genetically deficient in A1AT have lung and
liver damage caused by the overactivity of neutrophil elastase. Current
therapy utilizes plasma derived A1AT to supplement the low levels seen in
patients with a genetic deficiency. DX-890 may be an effective replacement
therapy to prevent lung damage in these patients.

- ULCERATIVE COLITIS. Ulcerative colitis is an inflammatory bowel disease
that affects 400,000 people in the United States. The etiology of the
disease is currently unknown but these patients suffer from severe
inflammation of the lower gastro-intestinal tract and often require very
potent immunosuppressive therapy. Patients with ulcerative colitis are at
risk for frequent bowel infections, bowel obstructions from chronic
inflammation, recurrent painful and bloody diarrhea, and colonic rupture.
We are determining whether DX-890 could potentially be used as a therapy
for these patients.

Our collaborator Debiopharm has completed Phase I clinical trials in Europe
to evaluate the safety of aerosol administration of DX-890 to healthy
volunteers. A Phase II clinical trial is currently underway in Europe evaluating
the safety and efficacy of DX-890 in adult cystic fibrosis patients. Additional
Phase II studies in adult and pediatric cystic fibrosis patients are being
planned. We will convene scientific advisory panels in the first half of 2002 to
facilitate the selection of a second indication for DX-890.

OTHER INFLAMMATORY DISEASES OR CONDITIONS

DX-88. The enzyme kallikrein is a key component responsible for the
regulation of the inflammation and coagulation pathways. Excess kallikrein
activity is thought to play a role in a number of inflammatory and autoimmune
diseases. Using phage display, we have developed DX-88, a high affinity, high
specificity inhibitor of human kallikrein. In disease states where inhibiting
kallikrein is desirable for a therapeutic effect, DX-88 may have fewer side
effects and/or greater efficacy than naturally occurring inhibitors, which lack
its specificity and affinity for kallikrein.

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- HEREDITARY ANGIOEDEMA. Between 5,000 and 12,000 patients in the United
States suffer from hereditary angioedema, which is a genetic disease that
can cause painful swelling of the larynx, gastrointestinal tract and/or
extremities. Severe swelling of the larynx is life-threatening and may
require insertion of a breathing tube into the airway to prevent
asphyxiation. In the United States, the only currently approved and
available treatments during severe attacks are steroids, pain control,
removal of the inciting event, and rehydration. Patients are frequently
given synthetic anabolic steroids but these have a variety of side effects
and may not be well tolerated. Researchers believe kallikrein is a primary
mediator of both the pain and swelling in hereditary angioedema. DX-88, a
potent kallikrein inhibitor, may decrease the severity and frequency of
symptoms during the acute attacks of hereditary angioedema and therefore
provides an effective treatment for this disease.

- COMPLICATIONS OF CARDIOPULMONARY BYPASS. In the United States there are
approximately 600,000 cardiac surgeries annually which use cardiopulmonary
bypass, the vast majority of which involve cardiopulmonary bypass graft
surgery, known as CABG. Cardiopulmonary bypass elicits a systemic
inflammatory response, which adversely affects the patient post
operatively. Nearly all patients undergoing CABG experience significant
intraoperative blood loss, requiring transfusion. In addition it has been
estimated that 25% of patients have post-operative cardiac, pulmonary,
hematologic or renal dysfunction. Kallikrein has been implicated in the
body's response to cardiopulmonary bypass as a major contributor to the
significant blood loss seen in CABG patients and to the pathologic
inflammation that plays a role in the complications of CABG surgery.
Aprotinin, a kallikrein inhibitor derived from cattle, is currently
approved in the U.S. for use to reduce transfusion requirements in
patients undergoing CABG. DX-88 may have benefits over this existing
therapy, since the DX-88 compound is recombinant rather than bovine
sourced, and its sequence is based on that of a human protein, which
should make it appear less foreign to the patient's immune system. DX-88
is also 1,000 times more potent than aprotinin and is a more specific
inhibitor of kallikrein. We believe that DX-88 may offer equal or improved
outcomes in the patient population, require lower doses and result in
fewer side effects than aprotinin.

In collaboration with Genzyme, we have successfully completed a Phase I
clinical trial to evaluate the safety of intravenous administration of DX-88 in
healthy subjects. We have begun enrollment of patients in a Phase II clinical
trial in three countries in Europe in our lead indication, hereditary
angioedema. Our Phase II trial for hereditary angioedema progressed slower than
we expected. As a result, late in 2001, we made a number of changes to
facilitate the study's rate of accrual. We amended the protocol criteria to
include the more frequent peripheral form of hereditary angiodema so that more
episodes could be included in the trial. We have initiated additional clinical
sites in Europe and will do so in the U.S. during the coming year. We are
preparing to initiate a Phase I/II study in the U.S. in patients undergoing
cardiopulmonary bypass during CABG.

OTHER BIOPHARMACEUTICAL DISCOVERY AND DEVELOPMENT PROGRAMS

We are pursuing biopharmaceutical discovery programs in the fields of
immunology, tumor angiogenesis, tumor biology and inflammation using optimized
phage libraries that express peptides, proteins and human antibodies. We have
been able to establish a broad discovery platform to identify compounds that
interact with a wide array of targets that have been shown to be involved in
pathologic processes and are membrane proteins, circulating proteins or enzymes.
Our processes have been automated, thus we are now able to evaluate a large
number of molecules binding to each target. In this way we can rapidly identify
and select a specific peptide, protein or antibody with the desired biochemical
and biological characteristics.

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OUR THERAPEUTIC PRODUCT COLLABORATIONS

DEBIOPHARM. On January 24, 2001 we entered into a collaboration and license
agreement with Debiopharm S.A. for the commercialization of our neutrophil
elastase inhibitor, DX-890, for the treatment of cystic fibrosis. This agreement
arose out of our March 1997 research and development program with Debiopharm for
the clinical development of DX-890. Debiopharm is responsible for funding the
clinical development program for Europe and North America. Under our
collaboration and license agreement, Debiopharm has exclusive rights to
commercialize DX-890 in Europe for cystic fibrosis, acute respiratory distress
syndrome and chronic obstructive pulmonary diseases and for these indications we
have retained the rights to North America and the rest of the world. If we wish
to outlicense the commercialization of any of these indications to a third party
outside of Europe, Debiopharm has a first right of refusal to obtain the
outlicensing rights. We have also retained worldwide rights to DX-890 for all
other therapeutic indications, subject to Debiopharm's first right to negotiate
for a license in Europe should another party not already have such rights or if
we do not wish to retain the indication. Under this collaboration, we are
entitled to receive a percentage of revenues generated by Debiopharm from the
commercialization of the cystic fibrosis product in Europe and we will pay
Debiopharm a percentage of royalties we receive on product sales outside of
Europe. None of the product candidates developed under this collaboration have
been approved for sale. Thus, we have neither paid nor received any royalties to
date and our future receipts of royalties will depend on future sales of any
products that may be developed and approved for sale. The parties' financial
obligations to each other on product sales will expire on the later of ten years
from the first commercial sale of a product or the life of the patent rights
covering the product.

GENZYME. In October 1998, we entered into a collaboration agreement with
Genzyme Corporation for the development of DX-88 as a treatment for hereditary
angioedema and other inflammatory diseases. Genzyme will jointly oversee
development with us and provide a commercialization plan and exclusive marketing
and distribution services for all products developed in the collaboration. When
we entered into the collaboration, Genzyme provided us with a $3.0 million loan
facility and purchased preferred stock for a total purchase price of
$3.0 million. We funded the first $6.0 million of development and
commercialization costs, and under our agreement will share equally with Genzyme
all subsequent development and commercialization costs of the collaboration. We
will be entitled to receive potential milestone payments of $10.0 million for
the first FDA approved product derived from DX-88, and up to $15.0 million for
additional therapeutic indications, as well as 50% of the profits from sales of
products developed under this collaboration. The term of this collaboration is
perpetual unless terminated by either party with prior written notice or upon a
material breach by the other party or immediately upon a change of control or
bankruptcy of the other party. We currently anticipate that this collaboration
will not terminate until the parties determine that no commercial products will
result from the collaboration or, if commercial products are eventually sold,
until the sale of those products is no longer profitable. Because the drug
discovery and approval process is lengthy and uncertain, we do not expect to be
able to determine whether any commercial products will result under this
collaboration until the completion of clinical trials.

OUR TECHNOLOGY AND TARGET ACCESS COLLABORATIONS FOR THERAPEUTICS

In addition to our therapeutic product development collaborations with
Debiopharm and Genzyme, we are also leveraging our phage display technology in a
variety of other collaborations and licenses to enhance the discovery of
therapeutic leads for ourselves and our collaborators and to access targets for
our own biopharmaceutical discovery programs. In addition to the specific
arrangements discussed below, we have also licensed others, e.g., Amgen Inc. and
Imclone Systems, Inc., to use our phage display technology in the therapeutics
field. We also seek to gain access to targets by in-licensing them from academic
institutions. For example, in November 2001, we obtained from Licentia Ltd., an

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exclusive license in the therapeutics and diagnostics fields to an angiogenesis
target that was developed by Dr. Kari Alitalo of the University of Helsinki.

HUMAN GENOME SCIENCES, INC. In October 2001, we modified our collaboration
and license agreement with Human Genome Sciences, Inc., or HGSI, effective as of
July 1, 2001. Under the modified agreement, we will receive non-exclusive
research access to up to 20 HGSI targets. We will fund our own research in
connection with such targets through June 2003 using one-half of the research
personnel previously allocated to the HGSI funded research effort under our
original March 2000 agreement. This modification reduces the overall funding
commitment of HGSI by approximately $4.0 million. We have options to obtain
exclusive licenses to develop therapeutic product candidates for up to three of
the targets for which we fund the research, subject to achieving specified
research goals, and HGSI has options to assume development and commercialization
of the product candidates upon the completion of the first Phase IIa clinical
trial. The modified agreement also adds technical milestones that may be payable
to us in connection with the portion of the research that continues to be funded
by HGSI until March 2003. The $6.0 million upfront license fees that we received
in March 2000 under the original agreement are now being recognized as revenue
over the term of the modified agreement. We will receive milestones and
royalties on all products developed by HGSI under the collaboration and will
share HGSI's revenues on any of those products that it outlicenses and HGSI will
receive milestones and royalties on any therapeutic products developed by us.
This agreement will terminate upon the expiration of the last to expire of the
parties' royalty obligations under the agreement. The parties' royalty
obligations will expire on a country by country and product by product basis on
the later of ten years after the first country wide launch of a product or the
expiration of the last to expire of the applicable product patents. If, for
example, a U.S. patent is issued covering products developed under this
agreement, then the royalty obligations will terminate on the earlier of ten
years from the date of first commercial sale of a product or twenty years after
the patent application filing date. Currently, no products have been developed
under this collaboration. Either party may terminate this agreement upon failure
to pay amounts due for thirty days or upon any material breach if not cured
within sixty days.

CORVAS. In September 2001, we entered into a collaboration agreement with
Corvas International, Inc. to discover and develop cancer therapeutics focused
on serine protease inhibitors. In the research phase of the collaboration, we
are using our phage display technology to identify small protein, peptide and
antibody compounds that bind to two serine protease targets that were isolated
and characterized by Corvas. These compounds will be evaluated principally for
cancer treatment using IN VITRO and IN VIVO models. Each party bears the expense
of its efforts during the research phase. The compounds generated in the
collaboration may serve as drug candidates that may be jointly developed by us
and Corvas with the development costs to be shared equally by the parties. The
parties will also share equally any profits realized from the commercialization
of any of the compounds.

ABGENIX. In January 2001, we entered into a collaboration and license
agreement with Abgenix, Inc. to develop new technology for discovering and
developing human antibody therapeutics. Under this agreement, we will combine
our phage display technology with Abgenix's XenoMouse-TM- technology to create
libraries of human antibody sequences for each party's drug discovery programs.
We will share equally with Abgenix the costs of creating the new libraries. Each
party will have the right to use for internal research use any antibodies it
discovers and each party is entitled to select a number of therapeutic product
candidates for product development. If either party develops any antibody
product from leads discovered from the libraries, commercialization fees will be
paid to the other party.

XTL BIOPHARMACEUTICALS. In December 2000, we entered into a collaboration
agreement with XTL Biopharmaceuticals pursuant to which we will combine our
phage display technology with XTL's Trimera technology with the goal of
discovering fully human monoclonal antibodies for the treatment of

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and/or prevention of selected fungal infections. The parties will share equally
the cost of the research projects conducted under this collaboration. The
parties may develop and/or commercialize any of the product candidates
discovered during the research projects.

LEVERAGING PHAGE DISPLAY IN NON-CORE AREAS AND THROUGH LICENSING

While our focus is on therapeutic programs, we are able to leverage our
phage display technology in a number of other ways. Specifically, we have formed
collaborations in the diagnostic imaging and research product fields. We also
license others to practice our phage display technology. In addition to the
specific transactions discussed below, we previously used our phage display
technology to identify peptides for Epix Medical, Inc. to use in blood clot
imaging applications in the magnetic resonance imaging field. We also continue
to seek collaborative partners in the discovery and development of affinity
separations products. We have granted a non-exclusive license to Amersham
Biosciences, a market leader in the separations media field, to practice our
phage display patents to discover ligands from peptide libraries for
chromatography separations.

DIAGNOSTICS IMAGING COLLABORATIONS

BRACCO GROUP. In November 2000, we entered into a collaboration with Bracco
Group to exploit diagnostic imaging and related therapeutic applications of our
phage display technology. We granted Bracco exclusive worldwide rights to our
phage display technology for the development of diagnostic imaging products.
Bracco also has the right to develop diagnostic imaging products using our
product leads that have potential imaging applications. Bracco also has the
opportunity to evaluate for possible imaging applications the peptide leads that
we have access to through our alliance with The Burnham Institute. We received a
$3.0 million up-front licensing fee, and will receive an additional
$3.0 million per year in research funding for a total of three to six years from
the commencement of the collaboration in connection with the performance of
research projects aimed at the discovery of product leads for Bracco for which
Bracco will have an exclusive license in the imaging field. Subject to Bracco's
exclusive rights in the imaging field and a limited option in therapeutics in
favor of Bracco, we have retained ownership rights to the leads we generate
during the collaboration and have retained rights for ourselves in therapeutics
and other fields. We will also receive development milestones and royalties on
Bracco's product sales. Bracco's royalty obligation to us for each product
arising out of the collaboration is for ten years from the date the product is
first launched for sale in each country. Bracco has a right to terminate our
collaboration on six months prior notice, which may only be given after the
funded research term expires. Either party may terminate the agreement for
material breach by the other party if the breach is not cured within sixty days.

RESEARCH PRODUCTS

BD BIOSCIENCES. In June 2001 we entered into a collaboration and license
agreement with BD Biosciences, a division of Becton, Dickinson and Company, to
discover antibodies using our phage display technology. Under the terms of the
agreement, BD Biosciences has obtained rights to antibodies identified using our
proprietary human antibody library and screening technology. BD Biosciences has
the exclusive right to market our antibodies as research products to the life
science market. BD Biosciences also has the option to extend its rights to IN
VITRO diagnostic products. We have retained all rights to use these antibodies
in the therapeutic field. Under the agreement, we will perform research using
our antibody phage display technology for a period of up to three years. In
addition to the license fee, we will receive royalties on all of BD Bioscience's
product sales. BD Bioscience is obligated to pay royalties on a product by
product basis for a period of ten years from the first product sale.

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PATENT AND LIBRARY LICENSING PROGRAMS

We have established a broad licensing program for our phage display patents
for use in the fields of therapeutics, IN VITRO diagnostics and phage display
research kits. Through this program, we grant companies and research
institutions non-exclusive licenses to practice our phage display patents in
their discovery and development efforts in the licensed fields. We also grant
licenses to use our phage display libraries in selected fields. We have granted
over 55 companies and institutions patent licenses as a result of these efforts.
We believe that the success of our patent licensing program provides support for
our patent position in phage display, enhances the usefulness of phage display
as an enabling discovery technology and generates short term and long term value
for us through licensing fees, milestones and royalties. Under these
non-exclusive licenses, we have retained rights to practice our phage display
technology in all fields. Our license agreements generally provide for signing
or technology transfer fees, annual maintenance fees, milestone payments based
on successful product development and royalties based on any future product
sales. In addition, under the terms of our license agreements, most licensees
have agreed not to sue us for using phage display improvement patents developed
by the licensee that are dominated by our phage display patents. We believe that
these covenants and provisions allow us to practice enhancements to phage
display developed by our licensees and some have granted us specific access to
certain technologies developed or controlled by the licensee.

AFFINITY SEPARATIONS.

Purification of biopharmaceutical products is a complex, multi-step process,
which can often be rate-limiting in the development of new biopharmaceuticals
and can be the most expensive step in product manufacturing. We believe that our
phage display technology is a powerful tool for developing new affinity
separations media that can cost-effectively and efficiently purify complex
biological therapeutic products. Our phage display technology can be used to
generate small, stable binding compounds, known as ligands, that have high
affinity and high specificity for desired biological compounds. Since affinity
chromatography can typically purify the desired biopharmaceutical in a single
column, one affinity chromatography column should be able to replace multiple
conventional chromatography columns that otherwise would be required. We have
developed ligands that bind and release targets in predetermined conditions that
can be used for the purification of biopharmaceuticals. We believe that these
new affinity separations products can reduce the time, cost and risk associated
with purification at the discovery, development and production stages.

We have successfully completed funded affinity separations discovery
projects for Wyeth and HGSI. Wyeth and HGSI have each entered into a license
with us to use the ligand that we developed in their discovery project for
purification of Wyeth's recombinant blood factor product for treating
hemophilia, and HGSI's B-Lymphocyte Stimulator Protein. Under both of these
license agreements, we will be entitled to commercial milestones and product
royalties for any product that may be purified using our ligand.

BIOTAGE SEPARATIONS PRODUCTS

Purification of a pharmaceutical product is a complex, time-consuming
process, which can often be the dominant bottleneck in drug discovery and
production. A widely used separations technology, chromatography, is used for
purification during the discovery, development and manufacture of a
pharmaceutical product. Liquid chromatography separates molecules in a mixture
by making use of the different rates at which the molecules in the solution
accumulate on the surface of another material known as separations media. In
this technology, the molecules in solution pass through a chamber, or column,
packed with separations media. The migration rates of different molecules
through the column vary due to differences in the strength of binding
interactions with the media in the column. This differential separation of
molecules can be used to purify a desired novel therapeutic compound.

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We develop, manufacture and sell chromatography separations systems and
consumables through our Biotage subsidiary under the Biotage trade name. Our
customers use these systems and consumables in separations processes from the
discovery scale, where small amounts of a compound are purified for research
work, through the preparative and production scales, where a product is
manufactured for commercialization. We have designed our FLASH and BioFLASH
systems to use prepacked cartridges at all of these scales for a wide range of
chemical and biological materials. Our customers in the pharmaceutical industry
use our Flex, Quad, Horizon and Flash systems for parallel throughput
purification of synthetic organic molecules, synthetic peptides, and natural
products. We customize our Kiloprep systems to meet the requirements of
development and manufacturing scale chromatography applications for the
production of peptides and DNA diagnostics. We are a leading developer and
manufacturer of chromatography systems that use disposable cartridges to purify
pharmaceuticals being produced for research and clinical development. Our
prepacked, disposable cartridges can be packed with a wide range of separations,
or chromatography, media from a variety of sources. We believe that
cartridge-based chromatography systems provide competitive advantages to our
customers compared to manually packed systems, including:

- greater speed and convenience;

- lower cost due to less labor and reduced solvent use;

- improved safety by minimizing exposure of production personnel to media
and hazardous solvents; and

- reproducible performance.

We believe Biotage's product line addresses a large and fast growing drug
discovery and scale-up market. In 2001, sales of purification products for drug
discovery, combinatorial and medicinal chemistry increased nearly 37% and
represented 84% of Biotage's revenue. Biotage has focused its resources to gain
the maximum return from the drug discovery segment. With fewer global
opportunities, the production systems business has been structured to execute
opportunistic projects and absorb factory overhead. Biotage intends to maximize
its high potential in discovery purification.

The following table summarizes our principal chromatography products:

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DYAX TECHNOLOGY

Molecular binding is the key to the function of most biopharmaceutical
products. The binding of a molecule to a target is the mechanism nature uses to
modulate biochemical and physiological processes such as cellular growth,
differentiation, metabolism and death. To effect these processes, naturally
occurring binding molecules typically distinguish between the correct target and
other closely related molecules (specificity), and bind more tightly to the
target than non-target molecules (affinity), under appropriate physiological
conditions. Biopharmaceutical products bind to targets, including cellular
receptors and enzymes, to achieve a desired effect, and those with higher
affinity and specificity are thought to be preferable. Binding also plays a
significant role in diagnostics, research reagents and separations products.

PHAGE DISPLAY

Living organisms, such as viruses, have the ability to display a foreign
gene product, or protein, on their surfaces. Based on this ability of organisms
to display proteins, our scientists developed our patented phage display
technology for displaying large collections of proteins on filamentous
bacteriophage or "phage," a virus that infects laboratory bacteria. Our phage
display technology is a broadly applicable method for the display and selection
of proteins with desired binding properties. Our phage display process generally
consists of the following steps:

GENERATING A PHAGE DISPLAY LIBRARY. The generation of a phage display
library is based upon a single protein framework and contains tens of billions
of variations of this protein. The first step in generating a library is the
selection of the protein framework upon which the library will be created. This
selection is based on the desired product properties, such as structure, size,
stability, or lack of immunogenicity. We then determine which amino acids in the
framework will be varied, but do not vary amino acids that contribute to the
framework structure. We also control the exact numbers and types of different
amino acids that are varied, so that the resulting phage display library
consists of a diverse set of chemical entities, each of which retains the
desired physical and chemical properties of the original framework.

The next step is the creation of a collection of genes that encode the
designed variations of the framework protein. We can easily generate diverse
collections of up to hundreds of millions of different synthetic DNA sequences.
Each new DNA sequence, or gene, encodes a single protein sequence that will be
displayed on the surface of the individual phage that contain this gene. The
scientists combine the new DNA sequences with phage genome DNA and certain
enzymes so that the new DNA is inserted into a specific location of the phage
genome. The result is that the new protein is displayed on the phage surface
fused to one of the naturally occurring phage proteins. The phage acts as a
physical link between the displayed protein and its gene.

In addition to fused synthetic DNA sequences, we can also use naturally
occurring genes, such as cDNA, which are sequences that represent all of the
expressed genes in a cell or organism, to create a library. We have also
inserted genes from antibody expressing human cells into the phage genome. Using
these genes, we have constructed phage display libraries that express billions
of different human antibodies on the phage surface. From one of these libraries,
individual antibody fragments can be selected and used to build highly specific
human monoclonal antibodies.

The new phage genome is then transferred into laboratory bacteria, where the
phage genome directs the bacterial cells to produce thousands of copies of each
new phage. The collection of phage displaying multiple peptides or proteins is
referred to as a phage display library. Because we can reproduce the phage
display library by infecting a new culture of laboratory bacteria to produce
millions of additional copies of each phage, we can use libraries for a
potentially unlimited number of screenings.

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SCREENING PHAGE DISPLAY LIBRARIES. We can then select binding compounds
with high affinity and high specificity by exposing the library to specified
targets of interest and isolating the phage that display compounds that bind to
the target. For certain applications of phage display, such as separations, we
can design the binding and release conditions into the selection process. Each
individual phage contains the gene encoding one potential binding compound, and
when its displayed protein is selected in the screening procedure, it can be
retrieved and amplified by growth in laboratory bacteria.

To screen a phage display library, we expose the library to the target under
desired binding conditions. The target is normally attached to a fixed surface,
such as the bottom of a tube, or a bead, allowing removal of phage that do not
express binding compounds that recognize the target. Once these unbound phage
are washed away, the phage containing the selected binding compounds can be
released from the target. Since the phage are still viable, they can be
amplified rapidly by again infecting bacteria. The capacity of the phage to
replicate itself is an important feature that makes it particularly well-suited
for rapid discovery of specific binding compounds. We can amplify a single phage
by injecting it into bacteria and producing millions of identical phage in one
day.

If the binding affinity of the compounds identified in an initial screening
for a target is not considered sufficiently high, information derived from the
binding compounds identified in the initial screening can be used to design a
new focused library. The design, construction and screening of a second
generation library, known as affinity maturation, can lead to increases of 10-
to 100-fold in the affinity of the binding compounds for the target.

EVALUATION OF SELECTED BINDING COMPOUNDS. Screening phage display libraries
generally results in the identification of one or more groups of related binding
compounds such as proteins, peptides, or antibodies. These groups of compounds
are valuable in providing information about which chemical features are
necessary for binding to the target with affinity and specificity, as well as
which features can be altered without affecting binding. Using DNA sequencing,
we can determine the amino acid sequences of the binding compounds and identify
the essential components of desired binding properties by comparing similarities
and differences in such sequences. If desired, scientists can further optimize
the binding compounds by building additional phage display libraries based on
these key components and repeating this process. We can complete the entire
selection process in several weeks. We can produce small amounts of the binding
compound by growing and purifying the phage. For production of larger amounts,
we can remove the gene from the phage DNA and place it into a standard
recombinant protein expression system. Alternatively, if the identified binding
compound is sufficiently small, it can be chemically synthesized. These binding
compounds can be evaluated for desired properties including affinity,
specificity and stability under conditions that will be encountered during its
intended use. From each group of compounds, scientists can identify, develop and
test a compound with the desired properties for utility as a biopharmaceutical,
diagnostic or affinity separations product.

The entire phage display process for identifying compounds that bind to
targets of interest is nearly identical whether the ultimate product is to be
used for biopharmaceuticals, diagnostics, research reagents or separations,
which allows for an efficient use of scientific resources across a broad array
of commercial applications.

COMPETITION

THERAPEUTIC PRODUCTS. We compete in industries characterized by intense
competition and rapid technological change. New developments occur and are
expected to continue to occur at a rapid pace. Discoveries or commercial
developments by our competitors may render some or all of our technologies,
products or potential products obsolete or non-competitive.

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Our principal focus is on the development of therapeutic products. We will
conduct research and development programs to develop and test product candidates
and demonstrate to appropriate regulatory agencies that these products are safe
and efficacious for therapeutic use in particular indications. Therefore our
principal competition going forward, as further described below, will be
companies who either are already marketing products in those indications or are
developing new products for those indications. Substantially all of these
organizations have greater financial resources and experience than we do.

For our DX-88 product candidate, our competitors for the treatment of HAE
include Aventis Behring and Baxter Healthcare, which currently market
plasma-derived C1 esterase inhibitor products, which are approved for the
treatment of HAE in Europe. In addition, other competitors would be companies
seeking to develop recombinant C1 inhibitors, and companies that market and
develop corticosteroid drugs or other anti-inflammatory compounds. Bayer
currently markets aprotinin, which is indicated for reduction of blood loss in
patients undergoing cardiopulmonary bypass during CABG. A number of companies,
including Alexion, are developing additional products to reduce the
complications of cardiopulmonary bypass.

For our DX-890 product candidate, our competitors in the development of
treatments for cystic fibrosis include Genentech, Genzyme, Xoma and Biogen. A
number of other companies are also developing neutrophil elastase inhibitors for
broader indications. These include Inhale Therapeutic Systems, Aventis, Medea
Research, Cortech, Inc., Roche, Ono, Eli Lilly, Lexin, SuperGen, Teijin,
GlaxoSmithkline, Arriva, Sanofi-Synthelabo, and Ivax.

For potential oncology product candidates coming out of our
biopharmaceutical discovery and development programs, competitors could include
Bristol-Meyers Squibb, Pfizer, GlaxoSmithkline, Genentech, Pharmacia, Wyeth and
numerous other pharmaceutical and biotechnology companies.

In addition, most large pharmaceutical companies seek to develop orally
available small molecule compounds against many of the targets for which we and
others are seeking to develop protein, peptide, and/or antibody products.

Our phage display technology is one of several technologies available to
generate libraries of compounds that can be used to discover and develop new
protein, peptide, and/or antibody products. The primary competing technology
platforms that pharmaceutical, diagnostics and biotechnology companies use to
identify antibodies that bind to a desired target are transgenic mouse
technology and the humanization of murine antibodies derived from hybridomas.
Abgenix Inc., Medarex Inc., Genmab, and Protein Design Labs, Inc. are leaders in
these technologies. Further, we license our phage display patents and libraries
to other parties in the fields of therapeutics and IN VITRO diagnostic products
on a non-exclusive basis. Our licensees may compete with us in the development
of specific therapeutic and diagnostic products. In particular, Cambridge
Antibody Technology Group plc (CAT), Morphosys AG, and Crucell , all of which
have licenses to our base technology, compete with us, both to develop
therapeutics and to offer research services to larger pharmaceutical and
biotechnology companies. Biosite Diagnostics has partnered with Medarex, Inc. to
combine phage display technology with the transgenic mouse technology, to create
antibody libraries derived from the RNA of immunized mice. Others are attempting
to develop new antibody engineering technology. These include Phylos which is
developing ribosomal display technology and antibody mimics, Diversys, which is
developing combinatorial arrays for large-scale screening of antibodies, and
Novagen, which is developing cDNA display technology.

SEPARATION PRODUCTS. Chromatography is only one of several methods of
separation, including centrifugation and filtration, used in the manufacture of
biopharmaceutical products. Biotage faces active competition from other
suppliers of separations products. The principal competitors in Biotage's
existing product markets include Nova Sep, Isco, Inc. and Gilson, Inc. In
addition, many pharmaceutical companies have historically assembled their own
chromatography systems and

16

hand-packed their own cartridges. Biotage's principal competitor in the
prepacked disposable cartridge market for its FLASH cartridges is Isco, which
has started selling non-interchangeable cartridges. In addition others may be
able to use conventional or combinatorial chemistry approaches, or develop new
technology, to identify binding molecules for use in separating and purifying
products.

PATENTS AND PROPRIETARY RIGHTS

Our success is significantly dependent upon our ability to obtain patent
protection for our products and technologies, to defend and enforce our issued
patents, including patents related to phage display, and to avoid the
infringement of patents issued to others. Our policy generally is to file for
patent protection on methods and technology useful for the display of binding
molecules, on biopharmaceutical, diagnostic and separation product candidates,
and on chromatography product improvements and applications.

Our proprietary position in the field of phage display is based upon patent
rights, technology, proprietary information, trade secrets and know-how. Our
patents and patent applications for phage display include U.S. Patent Nos.
5,837,500, which expires June 29, 2010, 5,571,698, which expires June 29, 2010,
5,403,484, which expires April 4, 2012, and 5,223,409, which expires June 29,
2010, European Patent No. 436,597, which expires September 1, 2009, issued
patents in Canada and Israel, and pending patent applications in the United
States and other countries. These phage display patent rights contain claims
covering inventions in the field of the surface display of proteins and certain
other peptides, including surface display on bacteriophage.

For our therapeutic product candidates, we file for patent protection on
groups of peptides, proteins and antibody compounds that we identify using phage
display. These patent rights now include U.S. Patent No. 5,666,143, which
expires September 2, 2014, claiming sequences of peptides that have neutrophil
elastase inhibitory activity, including the sequence for DX-890; and U.S. Patent
Nos. 5,994,125, which expires January 11, 2014, 5,795,865, which expires
August 18, 2015, 6,057,287, which expires August 18, 2015, and 6,333,402, which
expires January 11, 2014 claiming sequences of peptides that have human
kallikrein inhibitory activity, including the sequence for DX-88, and
polynucleotide sequences encoding these peptides.

For our affinity separation technology our patent rights include U.S. Patent
No. 6,326,155, which expires March 20, 2016. The patent rights cover methods for
identifying affinity ligands to purify biological molecules. The patented method
can be used in combination with our proprietary phage display technology, making
it a powerful tool for biological purification, discovery and development.

To protect our chromatography separations products, we rely primarily upon
trade secrets and know-how, as well as the experience and skill of our technical
personnel. We also have several patents and patent applications claiming
specific inventions relating to our proprietary chromatography systems and
cartridges. For example, on September 25, 2001, we obtained U.S. Patent
No. 6,294,087 which expires August 20, 2018. This patent relates to our
chromatography cartridge product line and covers our current Quad-TM- and Flash
12+-TM-, 25+-TM- and 40+-TM- cartridges.

There are no legal challenges to our phage display patent rights or our
other patent rights now pending in the United States. However, we cannot assure
that a challenge will not be brought in the future. We plan to protect our
patent rights in a manner consistent with our product development and business
strategies. If we bring legal action against an alleged infringer of any of our
patents, we expect the alleged infringer to claim that our patent is invalid,
not infringed, or not enforceable for one or more reasons, thus subjecting that
patent to a judicial determination of infringement, validity and enforceability.
In addition, in certain situations, an alleged infringer could seek a
declaratory judgment of non-infringement, invalidity or unenforceability of one
or more of our patents. We cannot be sure that we will have sufficient resources
to enforce or defend our patents against any such challenges or that a challenge
will not result in an adverse judgment against us or the loss of one or more of
our

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patents. Uncertainties resulting from the initiation and continuation of any
patent or related litigation, including those involving our patent rights, could
have a material adverse effect on our ability to maintain and expand our
licensing program and collaborations, and to compete in the marketplace.

Our first phage display patent in Europe, European Patent No. 436,597, was
opposed by two parties in late 1997. The oppositions primarily relate to whether
the written description of the inventions in this patent is sufficient under
European patent law. A hearing on these oppositions was held on April 6, 2000
and our patent was revoked. We have appealed this decision to the Technical
Board of Appeal. This appeal suspends the Opposition Division's decision and
reinstates our patent pending the decision of the Technical Board of Appeals.
Although we will be able to enforce this patent during the appeal, any
infringement action we file will likely be stayed pending the results of the
appeal. Oral proceedings are scheduled before the Technical Board in our appeal
on July 2, 2002. The decision of the Technical Board will be final. We also have
two other patent applications related to the phage display technology pending in
the European Patent Office. During the continued prosecution of these
applications, the Examining Division will consider the grounds on which the
Opposition Division revoked our first patent taken together with the Technical
Board's decision on our appeal. We cannot assure you that we will prevail in the
appeal proceedings or during prosecution of our two European patent applications
or in any other opposition or litigation contesting the validity or scope of our
European patents. We will not be able to prevent other parties from using our
phage display technology in Europe if we are not successful in the reinstatement
of our first European patent or if the European Patent Office does not grant us
another patent that we can maintain after any opposition.

Our phage display patent rights are central to our non-exclusive patent
licensing program. We offer non-exclusive licenses under our phage display
patent rights to companies and non-profit institutions in the fields of
therapeutics and IN VITRO diagnostics. In jurisdictions where we have not
applied for, obtained, or maintained patent rights, we will be unable to prevent
others from developing or selling products or technologies derived using phage
display. In addition, in jurisdictions where we have phage display patent
rights, we cannot assure that we will be able to prevent others from selling or
importing products or technologies derived using phage display.

Presently, we are engaged in a United States court proceeding relating to
patents owned by a third party. George Pieczenik and I.C. Technologies
America, Inc. sued us in New York for patent infringement of United States
patents 5,866,363, 4,528,266 and 4,359,535. The complaint was dismissed for lack
of jurisdiction and the decision of the District Court was upheld by the Court
of Appeals for the Federal Circuit. Dr. Pieczenik has petitioned the United
States Supreme Court for permission to appeal the Federal Circuit's decision. We
intend to oppose that petition. Grant of the petition would not overrule the
dismissal of the New York action. Rather, it would merely give Dr. Pieczenik the
right to appeal the dismissal. On July 12, 2000, the plaintiffs filed the
complaint against us in the United States District Court in Massachusetts
alleging infringement of the same three patents that were at issue in the New
York case. A claim construction hearing was held on December 13, 2001. We are
awaiting a decision. After the court construes the claims asserted against us by
Dr. Pieczenik, the court will determine whether or not our activities infringe
these claims and if these claims are valid and enforceable. Although we cannot
predict the outcome of this litigation, we believe that the lawsuit is unlikely
to have a material adverse effect on our business.

We are aware that other parties have patents and pending applications to
various products and processes relating to phage display technology. Through
licensing our phage display patent rights, we have secured a limited ability to
practice under some of the third party patent rights relating to phage display
technology. These rights are a result of our standard license agreement, which
contains a covenant by the licensee that it will not sue us under the licensee's
phage display improvement patents. In addition, we may seek affirmative rights
of license or ownership under patent rights relating to phage display technology
owned by other parties. If we are unable to obtain and maintain such covenants
and licenses on reasonable terms it could have a material adverse effect on our
business.

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We have filed and in the future we may file more, oppositions or other
challenges to patents issued to others. To date, we have filed oppositions
against two European patents relating to the phage display field. In the first
of these oppositions, the Opposition Division revoked a patent issued to Acambis
Research Limited. An appeal of this decision is pending. In the second
opposition, the Opposition Division maintained a patent issued to CAT. We intend
to appeal that decision. We do not believe these European patents cover any of
our present activities, but we cannot predict whether the claims in these
patents may, in their current or future form, cover our future activities. If
any of these patents do cover any of our activities, then our activities in
Europe may be affected unless licenses to them are available on reasonable
terms.

Patent positions are complex in the fields of biotechnology,
biopharmaceutical and diagnostic products and separation processes and products.
There are several companies that have patents relating to phage display,
including for example, Applied Molecular Evolution, Biosite, Xoma, Morphosys,
CAT and Genentech. Third party patent owners may contend that we need a license
or other rights under their patents in order for us to commercialize a process
or product. The issues relating to the validity, enforceability and possible
infringement of such patents present complex factual and legal issues that we
periodically reevaluate. In order for us to commercialize a process or product,
we may need to license the patent rights of other parties. We are aware of
certain patents for which we may need to obtain licenses to commercialize some
of our products and technologies. While we believe that we will be able to
obtain any needed licenses, we cannot assure that these licenses, or licenses to
other patent rights that we identify as necessary in the future, will be
available on reasonable terms, if at all. If we decide not to seek a license, or
if licenses are not available on reasonable terms, we may become subject to
infringement claims or other legal proceedings, which could result in
substantial legal expenses. If we are unsuccessful in these actions, adverse
decisions may prevent us from commercializing the affected process or products.

In all of our activities, we substantially rely on proprietary materials and
information, trade secrets and know-how to conduct research and development
activities and to attract and retain collaborative partners, licensees and
customers. Although we take steps to protect these materials and information,
including the use of confidentiality and other agreements with our employees and
consultants in both academic and commercial relationships, we cannot assure you
that these steps will be adequate, that these agreements will not be violated,
or that there will be an available or sufficient remedy for any such violation,
or that others will not also develop similar proprietary information.

GOVERNMENT REGULATION

The production and marketing of any of our future biopharmaceutical or
diagnostic products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and
in other countries where we intend to sell the products. In addition, our
research and development activities in the United States are subject to various
health and safety, employment and other laws and regulations.

UNITED STATES FDA APPROVAL

In the United States, the U.S. Food & Drug Administration subjects products
intended for diagnostic or therapeutic use in humans to rigorous regulation. In
addition, products intended for use in the manufacturing of these products, such
as separations media and equipment, are subject to certain FDA manufacture and
quality standards.

The steps required before a new pharmaceutical or IN VIVO diagnostic product
can be sold in the United States include:

- preclinical tests;

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- submission of an Investigational New Drug Application to the FDA which
must become effective before initial human clinical testing can begin;

- human clinical trials to establish safety and effectiveness of the
product, which normally occurs in three phases each monitored by the FDA;

- submission and approval by the FDA of a New Drug or Biologics License
Application; and

- compliance with the FDA's Good Manufacturing Practices regulations and
facility and equipment validations and inspection.

The requirements for testing and approval for IN VITRO diagnostic products
may be somewhat less onerous than for pharmaceutical products, but similar steps
are required. All our biopharmaceutical or diagnostic product leads, including
our neutrophil elastase inhibitor, DX-890, our plasma kallikrein inhibitor,
DX-88, and the pharmaceutical and diagnostic products of our collaborators and
licensees, will need to complete successfully the FDA-required testing and
approvals before they can be marketed. There is no assurance that we or our
collaborators can gain the necessary approvals. Failure to do so would have a
negative adverse effect on our future business.

FOREIGN REGULATORY APPROVAL

In many countries outside the United States, governmental regulatory
authorities similar to the FDA must approve the investigational program and/or
marketing application for pharmaceutical and diagnostic products. The
investigational documentation requirements vary from country to country and
certain countries may require additional testing. Following the conclusion of
the clinical evaluation of a medicinal product, a single marketing authorization
can be prepared and submitted to European Union member states for biotechnology
products like those we are currently developing. If approved, the marketing
authorization is valid in all member states. However, the national laws of each
member state govern manufacturing requirements, advertising and promotion, and
pricing and reimbursement. Therefore, the time to market can vary widely among
member states. For non-European Union member states, marketing authorizations
must generally be sought on a country-by-country basis. In addition, the export
to foreign countries for testing, approval and /or marketing of medicinal
products that have been manufactured in the US but not approved for marketing by
the FDA is subject to US law as well as the laws of the importing country and
may require FDA approval. There is no assurance that we will be able to gain the
necessary approvals in a timely fashion or at all. Failure to do so will have a
negative adverse effect on our future business.

ENVIRONMENTAL, HEALTH, SAFETY AND OTHER REGULATIONS

In addition to the laws and regulations that apply to the development,
manufacture and sale of our products, our operations are subject to numerous
foreign, federal, state and local laws and regulations. Our research and
development activities involve the use, storage, handling and disposal of
hazardous materials, chemicals and radioactive compounds and, as a result, we
are required to comply with regulations and standards of the Occupational Safety
and Health Act, Nuclear Regulatory Commission and other safety and environmental
laws. Although we believe that our activities currently comply with all
applicable laws and regulations, the risk of accidental contamination or injury
cannot be completely eliminated. In the event of such an accident, we could be
held liable for any damages that result, which could have a material adverse
effect on our business, financial condition and results of operations.

MANUFACTURING

THERAPEUTIC PRODUCTS. We currently rely on contract manufacturers for the
production of our therapeutic recombinant proteins for preclinical and clinical
studies, including the manufacture of both the bulk drug substance and the final
pharmaceutical product. The testing of the resultant products is

20

the responsibility of the contract manufacturer and/or an independent testing
laboratory. These materials must be manufactured and tested according to strict
regulatory standards established for pharmaceutical products. Despite our close
oversight of these activities, there is no assurance that the technology can be
readily transferred from our facility to that of the contractors, that the
process can be scaled up adequately to support clinical trials or that the
required quality standards can be achieved. To date we have identified only a
few facilities that are capable of performing these activities and willing to
contract their services. There is no assurance that the supply of clinical
materials can be maintained during the clinical development of our product
candidates.

It is our current intent to rely on contract manufacturers for the
production and testing of marketed pharmaceuticals following the approval of one
or more of our products. The quality standards for marketed pharmaceuticals are
even greater than for investigational products. The inability of these
contractors to meet the required standards and/or to provide an adequate and
constant supply of the pharmaceutical product would have a material adverse
effect on our business.

SEPARATION PRODUCTS. We manufacture and sell chromatography systems and
cartridges through our Biotage subsidiary. Subcontractors manufacture components
for chromatography systems to our specifications. We purchase commercial media
for certain prepacked cartridges, which we repack and sell in disposable
cartridges. A small number of components of our chromatography systems are
currently purchased from single sources. However, we believe that alternative
sources for these components are readily available, if necessary, and that we
will be able to enter into acceptable agreements to obtain these components from
such alternate sources at similar costs with only a temporary disruption or
delay in production.

The affinity separations products which we are developing for use in a
customer's or collaborative partner's clinical or commercial manufacturing
processes, need to be manufactured under highly controlled conditions. We
currently contract for the production of affinity ligands from manufacturers who
have appropriate facilities; however, should this situation change, our
inability to obtain these components could have a material adverse effect on our
business, financial condition or results of operations.

SALES AND MARKETING

THERAPEUTIC PRODUCTS. We do not currently have any therapeutic products
approved for sale. For any products that are approved in the future for diseases
where patients are treated primarily by limited numbers of physicians, we intend
in most cases to conduct sales and marketing activities ourselves in North
America and, possibly, in Europe. For any product that we intend to market and
sell ourselves, we do not expect to establish direct sales capability until
shortly before the products are approved for commercial sale, but we will begin
product management and market education activities earlier during clinical
trials. For markets outside of North America, including possibly European
markets, we will seek to establish arrangements where our products are sold by
pharmaceutical companies which are already well established in these regions.
For products that are indicated for conditions where patients may be treated by
large numbers of internists, general surgeons, or family practitioners, we will
seek to establish arrangements under which our products will be sold and
marketed by large pharmaceutical organizations with thousands of sales
representatives. These arrangements will generally be world-wide on a
product-by-product basis.

BIOTAGE PRODUCTS. Our Biotage separations business has a sales and
marketing group of 37 people in the United States, Europe and Japan. In selected
countries we sell Biotage products through independent distributors. As new
products are introduced and the market for our Biotage products grows, we
anticipate increasing our direct marketing and sales capacity.

21

OTHER PRODUCT AREAS. For areas other than therapeutic products and Biotage
products, we will generally seek to establish arrangements with leading
companies in particular business areas under which those companies develop the
products based on Dyax technology and conduct sales and marketing activities
through their established channels.

EMPLOYEES

As of December 31, 2001, we had 239 employees, including 56 with Ph.Ds and 3
with M.D.s. Approximately 110 of our employees are in research and development,
44 in manufacturing, 44 in sales and marketing and 41 in administration. Our
workforce is non-unionized, and we believe that our relations with employees are
good.

ITEM 2. PROPERTIES

We currently lease and occupy 25,326 square feet of laboratory and office
space in Cambridge, Massachusetts for the research and development of
therapeutic and diagnostic products. This space is covered by two leases, which
expire on April 30, 2002 and June 30, 2002. On June 13, 2001, we signed a
ten-year lease with the Massachusetts Institute of Technology. The leased
property is located in Cambridge and serves as our corporate headquarters and
main research facility. Under the terms of the lease, we will initially lease
67,197 square feet. We currently occupy this space for corporate and
administrative purposes and anticipate that we will occupy the research facility
portion of the property in the second quarter of 2002. We are obligated to lease
an additional 24,122 square feet by the sixty-fifth month from the initial
occupancy date. We have the option to extend the lease for two additional
five-year terms. We have provided the lessor with a Letter of Credit in the
amount of $4,279,000, which may be reduced after the fifth year of the lease
term. We maintain 10,000 square feet of laboratory and office space in Liege,
Belgium through our Belgium subsidiary to support our research efforts.

We also lease 28,200 square feet of manufacturing, office and storage space
in Charlottesville, VA to support our separations business. The lease for the
Charlottesville facility expires January 31, 2003. Biotage, Inc. has purchased
approximately 7 acres of land in Charlottesville, VA on which it will build a
51,000 square foot facility to support all of Biotage's activities in
Charlottesville. We plan to occupy the facility by late 2002 or early 2003.
Biotage also leases approximately 4,000 square feet of office space in the
United Kingdom and a small facility in Japan to support marketing efforts for
the Biotage products. We believe that our current space plans are adequate for
our foreseeable needs and that we will be able to obtain additional space, as
needed, on commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

Except for the proceedings described in Item 1, "Business--Patents and
Proprietary Rights", which is incorporated into this item by this reference, we
are not a party to any material legal proceedings.

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

During the quarter ended December 31, 2001, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.

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PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

Our common stock is traded on The Nasdaq National Market under the symbol
DYAX. At March 27, 2002, there were 19,594,844 shares of our common stock
outstanding, which were held by approximately 323 common stockholders of record,
and consist of approximately 2,100 beneficial owners.

The following table sets forth, for the periods indicated, the high and low
selling prices for our common stock as reported on the Nasdaq National Market:

We have never declared or paid cash dividends on our capital stock. We
currently intend to retain our future earnings, if any, for use in our business
and therefore do not anticipate paying cash dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our Board of
Directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion.

On August 14, 2000 the Securities and Exchange Commission declared effective
our Registration Statement on Form S-1 (File No. 333-37394) in connection with
the initial public offering of our common stock. J.P. Morgan & Co., Lehman
Brothers and Pacific Growth Equities, Inc. served as managing underwriters of
the offering.

On August 18, 2000, we sold 4,600,000 shares of our common stock (including
600,000 shares pursuant to the exercise by the underwriters of their
over-allotment option) at a price of $15.00 per share to the underwriters. The
offering terminated with the sale of all of the securities that were registered.
We received proceeds in the initial public offering of approximately
$62.4 million, net of underwriter commissions of approximately $4.8 million and
other offering costs of approximately $1.8 million. No expenses were paid or
payments made to our directors, officers or affiliates or 10% owners of any
class of our equity securities. From August 18, 2000 through December 31, 2001,
we used approximately $16.4 million to fund operating activities, $11.3 million
for the purchase of fixed assets and we hold the remaining proceeds in cash and
cash equivalents.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's consolidated
financial statements and related notes included elsewhere in this Form 10-K.

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

THE DISCUSSION IN THIS ITEM AND ELSEWHERE IN THIS REPORT CONTAINS
FORWARD-LOOKING STATEMENTS INVOLVING RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DESCRIBED UNDER
"IMPORTANT FACTORS THAT MAY AFFECT FUTURE OPERATIONS AND RESULTS" BELOW.

OVERVIEW

We are a biopharmaceutical company principally focused on the discovery,
development and commercialization of therapeutic products. Two of our product
candidates are in early stage clinical trials and we are preparing to begin
clinical trials for one of these candidates in a second indication. We use a
proprietary, patented method, known as phage display, to identify a broad range
of compounds with the potential for the treatment of various diseases. We are
using phage display technology to build a broad portfolio of product candidates
that we plan to develop and commercialize either ourselves or with others. On
behalf of collaborators, we also use phage display technology to identify
compounds that can be used in therapeutics, diagnostic imaging, the development
of research reagents, and in purifying and manufacturing biopharmaceuticals and
chemicals. We are further leveraging our phage display technology through
collaborations and licenses that are structured to generate revenues through
research funding, license fees, technical and clinical milestone payments, and
royalties.

We also develop, manufacture and sell chromatography separations systems and
products through our Biotage subsidiary. We are a leading developer,
manufacturer and supplier of chromatography separations systems that use
disposable cartridges to separate and purify pharmaceuticals being produced for
research and clinical development.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 AND 2000

Total revenues for 2001 were $33.0 million, compared with $25.2 million in
2000, an increase of $7.8 million or 31%. Product revenues and product
development and license revenues accounted for 57% and 43% respectively, of
total revenues in 2001, as compared with 63% and 37% in 2000. Product revenues
increased to $18.8 million in 2001 from $15.8 million in 2000, an increase of
$3.0 million or 19%. The increase in product revenues is due to increased unit
sales in Biotage's drug discovery purification systems and consumable business.
Product development and license fee revenues increased to $14.2 million in 2001
from $9.4 million in 2000, an increase of $4.8 million or 51%. The increase in
product development and license fee revenues is primarily due to a full year of
amortization associated with the upfront payments on several large funded
collaborative arrangements, which were entered into during 2000, as well as the
continued expansion of our phage display licensing program, including the
recognition of a perpetual patent license in 2001. As a result of amortization
of upfront fees for collaborations signed in 2000, our deferred revenues
decreased to $9.4 million from $11.3 million as of December 31, 2001 and 2000,
respectively. These product development and license fees are amortized over the
expected term of each agreement, ranging from one to six years.

Cost of products sold in 2001 was $8.8 million compared to $7.5 million in
2000, an increase of $1.3 million or 17%. The cost of products sold as a
percentage of product revenues remained constant at 47%.

Research and development expenses for 2001 were $19.4 million, compared with
$15.5 million in 2000, an increase of $4.0 million or 26%. The increase resulted
primarily from increased compound manufacturing and related expenditures for
clinical trials, salaries and fringe expenses, and expenditures on new
collaborative arrangements. These increases were partially offset by a decrease
in non-cash compensation because deferred compensation in 2000 included the
acceleration of vesting of certain restricted stock related to the completion of
our initial public offering.

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As of December 31, 2001, we had two product candidates in Phase II clinical
trials, DX-88 for hereditary angiodema and DX-890 for cystic fibrosis. We expect
both product candidates to complete Phase II trials during 2002 but the length
of time needed to complete clinical trials can vary substantially. An estimation
of product completion dates and completion costs can vary significantly and are
difficult to predict. We expect that we will incur the most significant clinical
development costs of these product candidates during Phase III trials. Research
and development expenses are comprised of costs incurred in performing research
and development activities including salaries and benefits, clinical trial and
related costs, contract manufacturing and other outside costs, and overhead
costs. Research and development costs are expensed as incurred.

Selling, general and administrative expenses increased to $24.1 million in
2001 from $19.4 million in 2000, an increase of $4.7 million or 24%. The
increase is primarily due to increased salaries and fringe expenses in business
development and corporate administrative functions, professional fees related to
expanding and protecting our intellectual property and meeting the reporting
requirements of a public company, and selling and marketing expenses at Biotage
as we continue to expand our sales capabilities including opening a Japanese
sales subsidiary. These increases were partially offset by a decrease in
non-cash compensation because deferred compensation in 2000 included the
acceleration of vesting of certain restricted stock related to the completion of
our initial public offering.

Net other income increased to $2.2 million in 2001 from $2.0 million in
2000, due to an increase in interest income earned from a higher average
invested cash balance.

Net loss in 2001 was $17.2 million compared to $15.2 million in 2000.

YEAR ENDED DECEMBER 31, 2000 AND 1999

Total revenues for 2000 were $25.2 million, compared with $16.8 million in
1999, an increase of $8.4 million or 50%. Product revenues and product
development and license revenues accounted for 63% and 37% respectively, of
total revenues in 2000, as compared with 75% and 25% in 1999. Product revenues
increased to $15.8 million in 2000 from $12.6 million in 1999, an increase of
$3.2 million or 25%. The increase in product revenues is primarily due to
increased unit sales in Biotage's drug discovery purification consumable
business. Product development and license fee revenues increased to
$9.4 million in 2000 from $4.2 million in 1999, an increase of $5.2 million or
123%. The increase in product development and license fee revenues is due to
several large funded collaborative arrangements which were entered into during
2000, as well as the continued expansion of our phage display licensing program.
As a result of new collaborations in 2000, our deferred revenues increased to
$11.3 million from $2.9 million as of December 31, 2000 and 1999, respectively.
These product development and license fees are amortized over the expected term
of each agreement, ranging from one to six years.

Cost of products sold in 2000 was $7.5 million compared to $5.5 million in
1999, an increase of $2.0 million or 36%. The cost of products sold as a
percentage of product revenues increased to 47% in 2000 from 44% in 1999. The
increase is primarily due to inventory obsolescence, related to bulk media and
component piece parts for older systems, and foreign exchange rate fluctuations,
resulting from pounds sterling denominated product sales.

Research and development expenses for 2000 were $15.5 million, compared with
$11.0 million in 1999, an increase of $4.4 million or 40%. The increase resulted
primarily from expenditures on new collaborative arrangements, compound
manufacturing expenditures for Phase I clinical trials of DX-88, which began in
April 2000 and increased internal efforts to develop biopharmaceutical,
separations and diagnostic products and industrial enzymes. Non-cash
compensation increased due to the acceleration of vesting of certain restricted
stock related to the completion of our initial public offering and a larger
spread between the fair market value of the common stock and option exercise
prices.

26

Selling, general and administrative expenses increased to $19.4 million in
2000 from $14.6 million in 1999, an increase of $4.8 million or 33%. The
increase is primarily due to increased personnel in sales and marketing
functions at Biotage in connection with the growth in product revenues and in
legal, finance and human resources to support corporate administrative functions
for our increased research efforts. There were also increases of approximately
$375,000 of costs for discontinued merger and acquisition activities and
$691,000 of additional patent and related legal expenses. Non-cash compensation
increased due to the acceleration of vesting of certain restricted stock related
to the completion of our initial public offering and a larger spread between the
fair market value of the common stock and option exercise prices.

Net other income increased to $2.0 million in 2000, from $1.1 million in
1999, due to a higher average balance available for investment as a result of
the proceeds from our initial public offering in August 2000.

Our net loss in 2000 was $15.2 million compared to $13.2 million in 1999.

LIQUIDITY AND CAPITAL RESOURCES

Through December 31, 2001, we have funded our operations principally through
the sale of equity securities, which have provided aggregate net cash proceeds
since inception of approximately $131.7 million, including net proceeds of
$62.4 million from our August 2000 initial public offering. We have also
generated funds from product revenues, product development and license fee
revenues, interest income and other sources. As of December 31, 2001, we had
cash and cash equivalents of approximately $51.0 million, a decrease of
$23.2 million from December 31, 2000. Our excess funds are currently invested in
U.S. Treasury obligations.

Our operating activities used cash of $13.9 million and $4.1 million for the
years ended December 31, 2001 and 2000, respectively. The use of cash in both
years resulted primarily from our losses from operations and changes in our
working capital accounts, net of depreciation, amortization and non-cash
compensation expense. Cash used for operating activities increased for the year
ended December 31, 2001 primarily due to a reduction in cash received from large
funded collaborative arrangements included in deferred revenue.

Our investing activities used cash of $10.4 million and $2.4 million for the
years ended December 31, 2001 and 2000, respectively. Our investing activities
consisted of purchases of fixed assets. We estimate that we will invest an
additional $6.0 million in 2002 for leasehold improvements to satisfy our
facilities requirements for our research activities. Additionally, our Biotage
subsidiary will continue construction on a 51,000 square foot facility in
Charlottesville, Virginia at a cost of approximately $4.0 million to
$6.0 million, which we plan to finance partially through debt. We have been
approved for a loan of up to $4.25 million to fund the construction of this
facility, subject to the execution and delivery to the bank of related legal
documents. We are required to advance the first $1.25 million of construction
costs prior to drawing down on the loan. The loan cannot exceed the lower of 70%
of the completed appraised value or 70% of actual construction costs. Interest
is payable monthly on the amount outstanding until completion of the
construction, limited to a maximum of 16 months. Upon completion of the
construction or 16 months, the loan will be converted to a term loan and will be
repaid over twenty years with interest between 5.83% and 7.00%. The interest
rate will be adjusted every five years but may be adjusted earlier if we do not
maintain an average non-interest bearing compensating balance of $750,000 at the
lender. As of December 31, 2001, there was no amount outstanding.

Our financing activities provided $842,000 and $64.0 million for the years
ended December 31, 2001 and 2000, respectively. Our 2001 financing activities
consisted primarily of proceeds from the exercise of stock options and from the
employee stock purchase plan, and proceeds from long-term obligations, offset by
repayments of long-term obligations.

27

We have historically financed fixed asset purchases through capital lease
arrangements. At December 31, 2001, there is an open facility with a lender, but
the lender has no obligation to fund any further amounts. The capital lease
obligations are collateralized by the assets sold to the lessor. The leasehold
improvement obligations are currently collateralized by a stand-by letter of
credit for the amount financed. If at the end of any quarter, our unrestricted
cash is less than the greater of $25.0 million or annualized cash needs, we must
provide to the lender an irrevocable letter of credit in the amount equal to the
amount of leasehold improvements financed, which was $2.9 million at
December 31, 2001. Annualized cash needs are determined by multiplying the cash
used in operations on a consolidated basis for the most recently ended quarter
by four. We believe that we will be able to obtain funding for our future fixed
asset purchases through our existing or alternative lenders. If we cannot obtain
additional funding we will have to use our existing cash and cash equivalents to
fund future fixed asset purchases.

We currently have a $3.0 million loan facility available from Genzyme
Corporation that was established as part of the collaboration to bring DX-88 to
market. Interest on any outstanding balance accrues at a rate equal to one
percent over the prime rate. There is currently no amount outstanding under this
facility.

OUTLOOK

In 2002, we anticipate total revenues will increase by approximately 18% to
22%. Product revenues should continue to grow at approximately the same rate as
2001. Product development and license revenues should grow at a more moderate
pace, as we focus more on internal research programs rather than on funded
collaborative programs. We expect cost of products sold as a percentage of
product revenues to decline, driven primarily by our program of leveraging
suppliers and growth in quantity buying. Also, in late 2001, we implemented new
Oracle Material Resource Planning capabilities, which should improve factory
productivity and material planning. Research and development expenses are
expected to rise approximately 75% to 100% in 2002. The increase is expected to
come from a significant expansion of our laboratory facilities, continued
progress of our lead compounds through clinical trials, commencement of clinical
trials for additional indications for our lead compounds and expanded
development of our preclinical pipeline. Growth in selling, general and
administrative expenses is expected to slow to approximately 10% to 15%.

Statements about our expectations of the period of time through which
financial resources will be adequate to support our operations are
forward-looking statements that involve risks and uncertainties. Actual results
could vary as a result of a number of factors. We believe that existing cash and
cash equivalents plus anticipated cash flow from product revenues and existing
collaborations will be sufficient to support our current operating plans through
2002. We expect to spend approximately $25.0 to $30.0 million in cash during
2002. If our existing resources are insufficient to satisfy our liquidity
requirements, we may need to sell additional equity or debt securities. The sale
of any equity or debt securities may result in additional dilution to our
stockholders, and we cannot be certain that additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain any required additional financing, we may be required to reduce the
scope of our planned research, development and commercialization activities,
which could harm our financial condition and operating results.

28

CONTRACTUAL OBLIGATIONS

We have long-term obligations for fixed asset purchases. Minimum future
payments under our long-term obligations as of December 31, 2001 are as follows:

2002........................................................ $ 2,460,000
2003........................................................ 2,350,000
2004........................................................ 1,907,000
2005........................................................ 202,000
2006 and thereafter......................................... --
------------
Total future minimum payments............................... 6,919,000
Less: amount representing interest.......................... (485,000)
------------
Present value of future minimum payments.................... 6,434,000
Less: current portion....................................... (2,194,000)
------------
Long-term obligations....................................... $ 4,240,000
------------

We have non-cancelable operating leases in the United States and Europe.
Minimum future lease payments under these leases as of December 31, 2001 are as
follows:

2002........................................................ $ 4,541,000
2003........................................................ 3,959,000
2004........................................................ 3,827,000
2005........................................................ 3,710,000
2006 and thereafter......................................... 30,670,000

CRITICAL ACCOUNTING POLICIES

The United States Securities and Exchange Commission ("SEC") recently issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.

Our accounting policies are described in Note 2 in the consolidated
financial statements. Since not all of these accounting policies require
management to make difficult, subjective or complex judgments or estimates, they
are not all considered critical accounting policies. However, the following
policies could be deemed to be critical within the SEC definition.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. If it is determined that cost is
less than market value, then cost is used for inventory valuation. If market
value is less than cost, then we write down the related inventory to market
value. If a write down to the current market value is necessary, the market
value cannot be greater than the net realizable value.

Inventories are continually reviewed for slow moving, obsolete and excess
items. Inventory items identified as slow-moving are evaluated to determine if
an adjustment is required. Additionally, our industry is characterized by
regular technological developments that could result in obsolete inventory. Our
estimates may prove to be inaccurate, in which case we may have understated or
overstated the valuation of the excess and obsolete inventory. If our inventory
is determined to be overvalued, we would recognize additional cost of goods sold
at the time of such determination. Therefore, although we make every effort to
ensure the accuracy of our estimates, any significant unanticipated changes in

29

demand or technological developments could have a significant impact on the
value of our inventory and our results of operations. At December 31, 2001 and
2000, our inventory balance was $3.3 million and $2.7 million, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We estimate the uncollectibility of our accounts receivable. When evaluating
the adequacy of our allowance for doubtful accounts, we analyze our accounts
receivable aging, historical bad debts, customer concentrations, customer
credit-worthiness and current economic trends. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. Our accounts receivable
balance net of allowances for doubtful accounts was $7.1 million and
$6.5 million at December 31, 2001 and 2000, respectively.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

We review long-lived assets, including goodwill, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of
assets may not be fully recoverable or that the useful lives of these assets are
no longer appropriate. Factors considered important which could trigger an
impairment review include the following:

- Significant change relative to historical or projected future operating
results;

- Significant changes in the use of the assets or the strategy for the
overall business;

- Significant industry or economic trends and developments.

Each impairment test is based on a comparison of the undiscounted cash flow
to the recorded value of the asset. When it is determined that the carrying
value of intangibles, long-lived assets and related goodwill may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, the asset is written down to its estimated fair value on a
discounted cash flow basis. No impairment losses have been recognized in any of
the periods presented herein.

REVENUE RECOGNITION

Product revenue is derived from sales of Biotage chromatography separations
systems and cartridges. Generally, product revenue is recognized upon shipment.
If an installation obligation exists, a portion of revenue equal to the fair
value of the installation service is deferred and recognized upon the completion
of the installation. For product revenue arrangements that require significant
installation services and contain customer acceptance criteria, all revenue is
recognized upon the completion of the installation and satisfaction of the
customer acceptance criteria.

We enter into product development agreements with collaborative partners for
the development of therapeutic, diagnostic and separations products. The terms
of the agreements typically include non-refundable signing fees, funding for
research and development, milestone payments and royalties on product sales
derived from collaborations. Non-refundable signing fees are recognized as
services are performed over the expected term of the collaboration. Funding for
research and development, where the amounts recorded are non-refundable if
research efforts are unsuccessful, is recognized as the related expenses are
incurred. Upon achievement of milestones, a portion of the milestone payment
equal to the percentage of the collaboration completed through that date is
recognized. The remainder is recognized as services are performed over the
remaining term of the collaboration. Royalties are recognized when earned.
Significant assumptions and estimates include expected term of the agreement,
total expected cost and total expected revenue. Our assumptions and estimates
may prove to be inaccurate. Therefore, although we make every effort to ensure
the accuracy of our estimates, any significant unanticipated changes in our
estimates could have a material impact on deferred revenue and our results of
operations. At December 31, 2001 and 2000, our deferred revenue related to
product development agreements was $4.8 million and $6.2 million, respectively.

30

LITIGATION CLAIMS

We are engaged in a United States court proceeding relating to patents owned
by a third party. Also, two parties have opposed our first phage display patent
in Europe. We make provisions for claims specifically identified for which we
believe the likelihood of an unfavorable outcome is probable and reasonably
estimable. We record at least the minimum estimated liability related to claims
where there is a range of loss and the loss is considered probable. Because of
the uncertainties related to the likelihood and amount of loss on any of our
pending claims, we are unable to make a reasonable estimate of the liability
that could result from an unfavorable outcome of those claims. As additional
information becomes available, we assess the potential liability related to our
pending claims and revise our estimates. Future revisions in our estimates of
the potential liability could materially impact our results of operation and
financial position. We maintain insurance coverage that limits the exposure for
any single claim as well as total amounts incurred per policy year, and we
believe our insurance coverage is adequate. We make every effort to use the best
information available to us in determining the level of liability reserves. As
of December 31, 2001, we have no reserves for litigation settlements.

RELATED PARTY TRANSACTIONS

Our President, Chief Executive Officer and Chairman of the Board also serves
as an outside director of and consultant to Genzyme Corporation ("Genzyme") and
as an outside director of Genzyme Transgenics Corporation, a company in which
Genzyme owns approximately 26%. At December 31, 2001, Genzyme owns approximately
2.8% of our common stock outstanding.

In October 1998, we entered into a joint development and commercialization
agreement with Genzyme for one of our proprietary therapeutic compounds for the
treatment of chronic inflammatory diseases, with initial development to be
focused on the treatment of hereditary angioedema. Under the agreement, we
funded the first $6.0 million dollars of development costs. We have agreed to
establish a limited liability company, in which we will own 50% and Genzyme will
own 50%, and fund equally all development and commercialization costs subsequent
to the first $6.0 million. Genzyme has extended to us a $3.0 million line of
credit, which accrues interest on any outstanding balance at the Prime Rate plus
1.0%. We may use the line of credit to fund a portion of such development costs
or for any of our other research and development programs. At December 31, 2001,
we had not utilized any of the available line of credit. In addition, we will be
entitled to receive significant milestone payments and up to 50% of the profits
from sales of products developed under this collaboration.

TAX LOSS CARRYFORWARDS

We have net operating loss carryforwards available to offset future federal
taxable income of approximately $70.6 million as of December 31, 2001, and
research credits of approximately $1.7 million available to offset future
federal tax. Included in the $70.6 million of net operating loss carryforwards
is $1.4 million of net operating loss carryforwards relating to the benefit from
the exercise of stock options, which will be credited to additional paid in
capital when realized. The net operating loss and credit carryforwards expire at
various dates from 2004 through 2021. As a result of certain acquisitions and
stock issued over the past five years, the availability of the net operating
loss carryforwards may be subject to annual limitation under section 382 of the
Internal Revenue Code. We also have net operating loss carryforwards for income
tax purposes related to our foreign subsidiaries of approximately $2.2 million
as of December 31, 2001, which expire over various periods.

RECENT PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that all business combinations be accounted for using the
purchase method only and that certain acquired intangible assets in a business
combination be

31

recognized as assets apart from goodwill. SFAS 142 requires that ratable
amortization of goodwill be replaced with periodic tests of the goodwill's
impairment and that intangible assets other than goodwill be amortized over
their useful lives. SFAS 141 is effective for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for by
the purchase method for which the date of acquisition is after June 30, 2001.
The provisions of SFAS 142 will be effective for fiscal years beginning after
December 15, 2001, and will thus be adopted by the Company, as required, in
fiscal year 2002. We do not expect the adoption of SFAS 141 and SFAS 142 to have
a material impact on our financial position or operating results.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" and provides a single accounting model for long-lived assets to be disposed
of. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and
will thus be adopted by the Company, as required, on January 1, 2002. We do not
expect the adoption of SFAS 144 to have a material impact on our financial
position or operating results.

IMPORTANT FACTORS THAT MAY AFFECT FUTURE OPERATIONS AND RESULTS

This Annual Report on Form 10-K contains forward-looking statements. These
forward-looking statements appear principally in the sections entitled
"Business" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations." Forward-looking statements may appear in other sections
of this report as well. Generally, the forward-looking statements in this report
use words like "expect," "believe," "continue," "anticipate," "estimate," "may,"
"will," "could," "opportunity," "future," "project," and similar expressions.

The forward-looking statements include statements about our:

- results of operations;

- research and development programs;

- clinical trials; and

- collaborations.

Statements that are not historical facts are based on our current
expectations, beliefs, assumptions, estimates, forecasts and projections for our
business and the industry and markets in which we compete. The forward-looking
statements contained in this report are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed in such forward-looking statements. We caution investors not to
place undue reliance on the forward-looking statements contained in this report.
These statements speak only as of the date of this report, and we do not
undertake any obligation to update or revise them, except as required by law.

The following factors, among others, create risks and uncertainties that
could affect our future or other performance:

- our history of operating losses and our expectation that we will incur
significant additional operating losses;

- any inability to raise the capital that we will need to sustain our
operations;

- any inability to successfully and expeditiously complete the rigorous
clinical trials and regulatory approvals that any biopharmaceutical or
diagnostic product candidates that we develop must undergo, which could
substantially delay or prevent their development or marketing;

- our dependence on third parties to manufacture biopharmaceuticals, which
may adversely affect our ability to commercialize any biopharmaceuticals
we may develop;

32

- our lack of experience in conducting clinical trials, regulatory
processes, and conducting sales and marketing activities, any or all of
which may adversely impact our ability to commercialize any
biopharmaceuticals we may develop;

- our dependence on the expertise, effort, priorities and contractual
obligations of our collaborators, any changes in our collaborators'
business direction or priorities or defaults in their obligations may have
an adverse impact on our research revenues and ultimately our license
revenues and expenses;

- any failure by us or our collaborators to gain market acceptance of our
biopharmaceuticals;

- competition and technological change that may make our potential products
and technologies less attractive or obsolete;

- any inability to obtain and maintain intellectual property protection for
our products and technologies;

- time consuming and expensive proceedings to obtain, enforce or defend
patents and to defend against charges of infringement that may result in
unfavorable outcomes and could limit our patent rights and our activities;

- significant fluctuations in our revenues and operating results, which have
occurred in the past and which we expect to continue to fluctuate in the
future;

- any loss or inability to hire and retain qualified personnel;

- difficulties in managing our growth;

- our dependence on one supplier for a key component in our separations
products;

- risks associated with international sales and operations and
collaborations;

- failure to acquire technology and integrate complementary businesses;

- our common stock may continue to have a volatile public trading price and
low trading volume; and

- anti-takeover provisions in our governing documents and under Delaware law
and our shareholder rights plan that may make an acquisition of us more
difficult.

As a result of the foregoing and other factors, we may experience material
fluctuations in our future operating results, which could materially affect our
business, financial position, and stock price. These risks and uncertainties are
discussed in more detail in Exhibit 99.1 "Important Factors That May Affect
Future Operations and Results" to this Form 10-K, which is incorporated into
this item by this reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is confined to our cash and cash equivalents. We
place our investments in high-quality financial instruments, primarily U.S.
Treasury funds, which we believe are subject to limited credit risk. We
currently do not hedge interest rate exposure. As of December 31, 2001, we had
cash and cash equivalents of $51.0 million consisting of cash and highly liquid,
short-term investments. Our short-term investments will decline by an immaterial
amount if market interest rates increase, and therefore, our exposure to
interest rate changes is immaterial. Declines of interest rates over time will,
however, reduce our interest income from our short-term investments. Our
outstanding debt obligations are all at fixed interest rates and therefore have
minimal exposure to changes in interest rates.

Most of our transactions are conducted in U.S. dollars. We have
collaboration, technology license agreements and product sales with parties
located outside the United States. Transactions under certain other agreements
are conducted in the local foreign currency. If the exchange rate undergoes a
change of up to 10%, we do not believe that it would have a material impact on
our results of operations or cash flows.

33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

34

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Dyax Corp.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Dyax Corp. and its subsidiaries at December 31, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the accompanying financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 11, 2002

35

DYAX CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

36

DYAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

37

DYAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

38

DYAX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

39

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

Dyax Corp. ("Dyax" or the "Company") is a biopharmaceutical company
principally focused on the discovery, development and commercialization of
therapeutic products. The Company uses a proprietary, patented method, known as
phage display, to identify a broad range of compounds with the potential for the
treatment of various diseases. The Company is using phage display technology to
build a broad portfolio of product candidates that it plans to develop and
commercialize itself or with others. On behalf of collaborators, the Company
also uses phage display technology to identify compounds that can be used in
therapeutics, diagnostic imaging, the development of research reagents, and in
purifying and manufacturing biopharmaceuticals and chemicals. The Company is
further leveraging its phage display technology through collaborations and
licenses that are structured to generate revenues through research funding,
license fees, technical and clinical milestone payments, and royalties. The
Company, through its Biotage subsidiary, develops, manufactures and sells
chromatography separations systems and products.

The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA and other governmental regulations and approval
requirements.

2. ACCOUNTING POLICIES

BASIS OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries,
Biotage, Inc. including its foreign sales subsidiaries, and Target Quest BV and
Dyax s.a., European research subsidiaries. All intercompany accounts and
transactions have been eliminated.

RECLASSIFICATIONS: Certain reclassifications have been made to the prior
years financial statements to conform to current presentation.

USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
amounts of assets and liabilities reported and disclosure of contingent assets
and liabilities at the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. The significant
estimates and assumptions in these financial statements include revenue
recognition, receivable collectibility, inventory valuation, useful lives with
respect to long lived assets, valuation of common stock and related stock
options, accrued expenses and tax valuation reserves. Actual results could
differ from those estimates.

CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
cash, cash equivalents and trade accounts receivable. At December 31, 2001,
approximately 85% of the Company's cash and cash equivalents were invested in
U.S. Treasury funds held by one financial institution.

The Company provides most of its products to pharmaceutical and biomedical
companies worldwide. Concentrations of credit risk with respect to trade
receivable balances are limited due to the diverse number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers' financial conditions and maintains reserves for
potential credit loss. Activity for fiscal 2001, 2000 and 1999 included
provisions of $25,000, $1,000 and $0, respectively. Receivable write offs in
2001, 2000 and 1999 were nominal. One customer accounted for

40

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
approximately 13% of the Company's accounts receivable balance at December 31,
2000. A different customer accounted for approximately 24% of the Company's
accounts receivable balance at December 31, 2001.

CASH AND CASH EQUIVALENTS: All highly liquid investments purchased with an
original maturity of three months or less are considered to be cash equivalents.
Cash and cash equivalents consist principally of cash and U.S. Treasury funds.
The Company currently invests its excess cash in U.S. Treasury funds. The
Company maintains balances in various operating accounts in excess of federally
insured limits.

INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories are reviewed
for slow moving, obsolete and excess items on a quarterly basis and, if
necessary, a charge is recorded in the results of operations.

FIXED ASSETS: Property and equipment are recorded at cost and depreciated
over the estimated useful lives of the related assets using the straight-line
method. Laboratory and production equipment, and furniture and office equipment
are depreciated over a three to seven year period. Leasehold improvements are
stated at cost and are amortized over the lesser of the non-cancelable term of
the related lease or their estimated useful lives. Leased equipment is amortized
over the lesser of the life of the lease or their estimated useful lives.
Maintenance and repairs are charged to expense as incurred. When assets are
retired or otherwise disposed of, the cost of these assets and related
accumulated depreciation and amortization are eliminated from the balance sheet
and any resulting gains or losses are included in operations in the period of
disposal.

GOODWILL AND OTHER INTANGIBLES: Goodwill, which represents the excess
purchase price over the fair value of net assets acquired, was amortized on a
straight-line basis over its useful life, currently 2.5 to 15 years. The Company
will adopt Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", effective January 1, 2002. SFAS 142
requires that ratable amortization of goodwill be replaced with periodic tests
of the goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. As of December 31, 2001 and 2000, accumulated
amortization of goodwill and other intangibles was $2,470,000 and $1,527,000,
respectively. The Company does not expect the adoption of SFAS No. 142 to have a
material impact on its financial position or results of operations.

IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews long-lived assets,
including goodwill, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of assets may not be fully
recoverable or that the useful lives of these assets are no longer appropriate.
Each impairment test is based on a comparison of the undiscounted cash flow to
the recorded value of the asset. If an impairment is indicated, the asset is
written down to its estimated fair value on a discounted cash flow basis.

SOFTWARE DEVELOPMENT COSTS: The Company capitalizes software development
costs for software products in accordance with SFAS No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed".
Capitalized software costs are amortized to cost of sales over the estimated
useful lives of the related software products, currently 5 years. Capitalized
software costs included in other assets, net of accumulated amortization of
$10,000 and $0, were $131,000 and $0 at December 31, 2001 and 2000,
respectively.

41

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: The Company has utilized the guidance of Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements", for all
periods presented in these financial statements. Product revenue is derived from
sales of Biotage chromatography separations systems and cartridges. The Company
generally recognizes revenue on product sales arrangements based on product
shipment if no installation obligations exist. For product sale arrangements
that require installation services that are not considered essential to the
functionality of the product, revenue is recognized upon shipment and a portion
of revenue equal to the fair value of the installation service is deferred and
recognized upon the completion of the installation. For product sale
arrangements that require significant installation services and contain customer
acceptance criteria, all revenue is recognized upon the completion of the
installation and satisfaction of the customer acceptance criteria. One customer
accounted for approximately 12% of product revenues in 2001 and no customer
accounted for more than 10% of product revenues in 2000 or 1999.

The Company enters into product development agreements with collaborative
partners for the development of therapeutic, diagnostic and separations
products. The terms of the agreements may include non-refundable signing fees,
funding for research and development, milestone payments and royalties on any
product sales derived from collaborations. Non-refundable signing fees are
recognized as services are performed over the expected term of the
collaboration. Funding for research and development, where the amounts recorded
are non-refundable if research efforts are unsuccessful, is recognized as the
related expenses are incurred. Upon achievement of milestones, a portion of the
milestone payment equal to the percentage of the collaboration completed through
that date is recognized. The remainder is recognized as services are performed
over the remaining term of the collaboration. Royalties are recognized when
earned. The same customer accounted for approximately 26% and 38% of product
development and license fee revenues in 2001 and 2000, respectively. Two
additional customers accounted for approximately 23% and 11% of product
development and license fee revenues in 2001. No customer accounted for more
than 10% of product development and license fee revenues in 1999.

The Company evaluates all collaborative agreements on a quarterly basis to
determine the appropriate revenue recognition for that period. The evaluation
includes all of the potential revenue components from each specific
collaborative agreement. Revenue recorded on government grants are consistent
with guidelines issued by the governing body issuing the grant.

The Company licenses its patent rights covering phage display on a
non-exclusive basis in the fields of therapeutics, antibody-based IN VITRO
diagnostics and research products. Standard terms of the license agreements, for
which the Company has no future obligations, generally include non-refundable
signing fees, non-refundable annual maintenance fees, milestone payments and
royalties on product sales. Signing fees and annual maintenance fees are
recognized in equal monthly installments over the period to which the payment
applies. Perpetual patent licenses are recognized immediately if the Company has
no future obligations. Milestone payments under non-exclusive phage display
patent licenses are recognized when the milestone is achieved and royalties are
recognized when they are earned.

Revenue from National Institute of Standards and Technology grants to
conduct research and development is recognized as eligible costs are incurred,
up to the funding limit. Eligible grant related costs which have been incurred
in advance of cash receipts are recorded as receivables.

Payments received that have not met the appropriate criteria for revenue
recognition are recorded as deferred revenue.

42

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
SHIPPING AND HANDLING: Shipping and handling costs are included within cost
of products sold, with the related sales value included within product revenues.

PRODUCT WARRANTY: The Company provides customers with a twelve-month
warranty on its chromatography systems from the date of shipment. Estimated
warranty obligations, which are included in the results of operations as cost of
products sold, are evaluated and provided for at the time of sale.

RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.

ADVERTISING: Advertising costs are expensed as incurred. For the years
ending December 31, 2001, 2000, and 1999 advertising expense was $611,000,
$287,000 and $310,000, respectively.

INCOME TAXES: The Company utilizes the asset and liability method of
accounting for income taxes as set forth in SFAS No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under this method, deferred tax assets and liabilities
are recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities using
the current statutory tax rates.

TRANSLATION OF FOREIGN CURRENCIES: Assets and liabilities of the Company's
foreign subsidiaries are translated at period end exchange rates. Amounts
included in the statements of operations are translated at the average exchange
rate for the period. The resulting currency translation adjustments are made
directly to a separate component of stockholders' equity. For the year ending
December 31, 2001, 2000 and 1999, losses from transactions in foreign currencies
were $278,000, $372,000 and 0, respectively, and are included in selling,
general and administrative expenses.

COMPREHENSIVE INCOME (LOSS): The Company accounts for comprehensive income
(loss) under SFAS No. 130, "Reporting Comprehensive Income." The statement
established standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The statement
required that all components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.

NET LOSS PER SHARE: The Company accounts for and discloses earnings per
share ("EPS") under SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). This
statement specifies the computation, presentation and disclosure requirements of
EPS to simplify the existing computational guidelines and increased
comparability on an international basis.

Under SFAS No. 128, the Company is required to present two EPS amounts,
basic and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of common shares outstanding during
the reporting period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt, unless their inclusion would be antidilutive.

BUSINESS SEGMENTS: The Company discloses business segments under SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). The statement established standards for reporting information
about operating segments in annual financial statements of public enterprises
and in interim financial reports issued to shareholders. It also established
standards for related disclosures about products and services, geographic areas
and major customers.

43

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)

RECENT PRONOUNCEMENTS: In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that all business
combinations be accounted for using the purchase method only and that certain
acquired intangible assets in a business combination be recognized as assets
apart from goodwill. SFAS 142 requires that ratable amortization of goodwill be
replaced with periodic tests of the goodwill's impairment and that intangible
assets other than goodwill be amortized over their useful lives. SFAS 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The provisions of SFAS 142 will be
effective for fiscal years beginning after December 15, 2001, and will thus be
adopted by the Company, as required, in fiscal year 2002. The Company does not
expect the adoption of SFAS 141 and SFAS 142 to have a material impact on the
Company's financial position or operating results.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" and provides a single accounting model for long-lived assets to be disposed
of. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and
will thus be adopted by the Company, as required, on January 1, 2002. The
Company does not expect the adoption of SFAS 144 to have a material impact on
its financial position or operating results.

3. BUSINESS COMBINATIONS

On July 14, 1999, the Company acquired all of the capital stock of Target
Quest, B.V. in exchange for 412,500 shares of Dyax common stock. Management
determined that the fair value of these shares at the time of the acquisition
was $5.21 per share. The acquisition was accounted for as a pooling of
interests. Target Quest, B.V. is a research business specializing in the
development of human antibodies. Target Quest, B.V.'s revenues are derived from
collaborative agreements and government grants. It is reflected in the
Therapeutics/Diagnostics segment. The Company's historical consolidated
financial statements have been restated to reflect the combined financial
position and results of operations and cash flows of Dyax and Target Quest, B.V.
for all periods presented.

The results of operations for Dyax and Target Quest, B.V. and the combined
amounts presented for periods preceding the acquisition were as follows:

44

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. BUSINESS COMBINATIONS (CONTINUED)
For the six month period ended June 30, 1999, Target Quest, B.V. had
revenues of $490,000 and net income of $206,000, before elimination of
intercompany activity.

Also on July 14, 1999, the Company acquired the 33% share of Target Quest,
LLC, that was not owned by Target Quest, B.V., in exchange for 379,152 shares of
Dyax common stock. The acquisition of the remaining 33% interest of Target
Quest, LLC, together with the acquisition of Target Quest, B.V., which owned 67%
of Target Quest, LLC, gave the Company 100% ownership of Target Quest, LLC. The
acquisition was accounted for as a purchase and accordingly, the results of its
operations have been included in the consolidated financial statements
commencing on July 1, 1999, the effective accounting date of the acquisition.
The entire excess purchase price of approximately $2,078,000 was allocated to a
marketing agreement between Target Quest, LLC and Target Quest, B.V. This amount
has been amortized over the 2.5 years of the marketing rights on a straight line
basis and was included in goodwill and other intangibles on the accompanying
balance sheet. At December 31, 2001, the balance was fully amortized. Target
Quest, LLC was formed in late 1998, but did not commence operations until 1999.
For the six month period ended June 30, 1999, Target Quest, LLC had revenues of
$293,000 and a net loss of $310,000.

The following unaudited pro forma results of operations for the year ended
December 31, 1999, give effect to the Company's acquisition of Target Quest,
LLC, as if the transaction had occurred at the beginning of the year. The pro
forma results of operations do not purport to represent (i) what the Company's
results of operations actually would have been if the acquisition had occurred
at the beginning of the period or (ii) what such results will be for any future
periods.

4. INVENTORIES

Inventories consist of the following:

45

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. FIXED ASSETS

Fixed assets consist of the following:

There was $1,734,000 and $864,000 of accumulated amortization on leased
assets, which includes laboratory, production and office equipment, at
December 31, 2001 and 2000, respectively.

6. NOTES RECEIVABLE, EMPLOYEES

During 1998, in connection with the sale of 78,240 shares of restricted
common stock and the exercise of options to purchase 37,490 shares of common
stock, the Company agreed to loan to an officer an aggregate of $454,000 in a
non-cash transaction pursuant to promissory notes, of which $418,000 was used to
purchase the related common stock and was included as a reduction to
stockholders' equity. The remaining $36,000 balance of the loan, the proceeds of
which were to pay certain tax liabilities in connection with the exercise of the
options, was included in notes receivable, employees. For the years ended
December 31, 2000 and 1999, interest due was forgiven in the amount of $25,000
and $26,000, respectively. During 2001, these notes and the related interest
were paid in full (see Note 11).

In October 1998, the Company provided a mortgage loan and pledge agreement
in the amount of $1,300,000 to its President and Chief Executive Officer, who is
also Chairman of the Company's Board of Directors, to purchase a residence
within commuting distance of the Company's headquarters. The loan bears interest
at the Prime Rate less 1.5% (3.25% at December 31, 2001) and is collateralized
by the real estate acquired with the loan proceeds and shares of common stock
owned by this officer. The agreement as amended in 2001, requires that aggregate
collateral value of at least 150% of the outstanding loan principal be
maintained throughout the life of the loan. Payments in the amount of $8,220 are
due monthly to the Company which are applied to interest and then principal. All
remaining unpaid principal and accrued interest is payable on October 30, 2003,
provided, however that it may be accelerated at any time at the discretion of
the Board of Directors, including upon (i) termination of his service as
Chairman of the Company and Chief Executive Officer; provided, however that in
the case of death or disability payment shall not be due for at least twelve
months after termination; or (ii) at any time that the Company's cash and
marketable investments total less than $10,000,000. At December 31, 2001 and
2000, the balance outstanding on this note was $1,286,000 and $1,300,000,
respectively.

46

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. NOTES RECEIVABLE, EMPLOYEES (CONTINUED)
In June 1999, the Company provided a loan to an officer of the Company in
the amount of $100,000. The note, which bears interest at the Prime Rate plus
1.0% (5.75% at December 31, 2001) is payable in June 2004, subject to
acceleration, and becomes due immediately if the officer's employment is
terminated other than by the Company without cause. As long as the officer
remains employed by the Company, the Company will forgive $20,000 and all
accrued interest on June 14 annually. Upon the officer's death or permanent
disability, the remaining principal of the loan plus all accrued interest will
be forgiven. For the years ended December 31, 2001, 2000 and 1999 interest due
was forgiven in the amount of $8,000, $9,000 and $0, respectively. For the years
ended December 31, 2001, 2000 and 1999 principal was forgiven in the amount of
$20,000, $20,000 and $0, respectively. At December 31, 2001 and 2000, the
balance outstanding on this note was $60,000 and $80,000, respectively.

In connection with the acquisition of Target Quest, LLC, the Company made
loans to other employees that are due in less than one year. The loans are
collateralized by common shares of Dyax stock. At December 31, 2001 and 2000,
the balance outstanding on these notes were $159,000 and $412,000, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

8. LONG-TERM OBLIGATIONS

During 2001, the Company signed an agreement with a leasing company,
providing the Company with a credit facility to fund the purchase of leasehold
improvements, other building costs and software. In 2001, the Company borrowed
$2,930,000 on this facility, which is collateralized by an irrevocable stand-by
letter of credit. The lender has no obligation to fund any further amounts.
These obligations bear interest at a rate of 10.33% and are payable in
36 monthly installments beginning on January 1, 2002. If at the end of any
quarter, the Company's unrestricted cash is less than the greater of
$25.0 million or annualized cash needs, the Company shall provide to the lessor
an irrevocable letter of credit in the amount equal to the amount financed.
Annualized cash needs are determined by multiplying the cash used in operations
on a consolidated basis for the most recently ended quarter by four. If the
Company has never been in default, the letter of credit amount may decline
annually to an amount equal to the principle due.

During 2001, the Company signed a capital lease agreement, providing the
Company with a lease facility for qualified fixed assets. In 2001, the Company
sold to the lessor and leased back $1,789,000 of laboratory, production and
office equipment under this lease facility. The loans on the lease facility

47

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM OBLIGATIONS (CONTINUED)
bear interest at a rate of 10.14% and are payable in 42 monthly installments.
The lessor has no further obligation to fund any further amounts.

The Company had a capital lease agreement providing the Company with a
$2,000,000 lease facility for qualified fixed assets. The ability to draw on the
lease facility ceased in April 2001. In 2001 and 2000, the Company sold to the
lessor and leased back $291,000 and $900,000, respectively, of laboratory,
production and office equipment under this lease facility, for which no gain or
loss was recognized. The loans on the lease facility bear interest at a rate
between 6.3% and 12.0%, and are payable in 28 to 60 monthly installments.

The Company also has a lease facility in The Netherlands. In 2000, the
Company sold to the lessor and leased back $278,000 of laboratory equipment
under this facility.

In connection with the construction of a new facility in Charlottesville,
Virginia, the Company has been approved for a loan of up to $4.25 million,
subject to the execution and delivery to the bank of related legal documents.
The Company is required to advance the first $1.25 million of construction costs
prior to drawing down on the loan. The loan cannot exceed the lower of 70% of
the completed appraised value or 70% of actual construction costs. Interest is
payable monthly on the amount outstanding until completion of construction,
limited to a maximum of 16 months. Upon completion of the construction or
16 months, the loan will be converted to a term loan and will be repaid over
20 years with interest at between 5.83% and 7.00%. The interest rate will be
adjusted every five years but may be adjusted earlier if the Company doesn't
maintain an average non-interest bearing compensating balance of $750,000 at the
lender. As of December 31, 2001, there was no amount outstanding.

Minimum future payments under the Company's long-term obligations as of
December 31, 2001 are as follows:

2002........................................................ $2,460,000
2003........................................................ 2,350,000
2004........................................................ 1,907,000
2005........................................................ 202,000
2006 and thereafter......................................... --
Total future minimum payments............................... 6,919,000
Less: amount representing interest.......................... (485,000)
----------
Present value of future minimum payments.................... 6,434,000
Less: current portion....................................... (2,194,000)
----------
Long-term obligations....................................... $4,240,000
==========

48

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM OBLIGATIONS (CONTINUED)
Long-term obligations consist of the following:

9. OPERATING LEASES

In June 2001, the Company signed a ten-year lease with the Massachusetts
Institute of Technology. The leased property is located in Cambridge,
Massachusetts and will serve as the Company's corporate headquarters and main
research facility. Under the terms of the lease, the Company will initially
lease 67,197 square feet. The Company occupied the corporate headquarters space
in the first quarter of 2002 and expects to occupy the research facility portion
of the property in the second quarter of 2002. The Company is obligated to lease
an additional 24,122 square feet by the sixty-fifth month from the initial
occupancy date. The Company has the option to extend the lease for two
additional five-year terms. The Company was required to provide the lessor with
a letter of credit in the amount of $4,279,000, which may be reduced after the
fifth year of the lease term. This amount is included as restricted cash on the
balance sheet.

The Company has operating leases for 25,326 square feet of laboratory and
office space in Cambridge, Massachusetts under two leases, as well as two leases
covering 28,200 square feet of manufacturing, office and storage space in
Charlottesville, Virginia. The leases for the Cambridge facilities expire in
April 2002 and June 2002. The leases for the Charlottesville facilities were
extended to August 2002 and January 2003. The Charlottesville lease has a
renewal option with an escalation clause. The Company also leases approximately
4,000 square feet of office space in the United Kingdom under an operating lease
which permits the Company to renew after each five-year period; however, should
the Company elect not to renew, there is a termination fee equal to one year's
rent, which has been included in the following commitment schedule in 2006. The
Company also maintains 10,000 square feet of laboratory and office space in
Belgium, which expires in December 2004.

Minimum future lease payments under the Company's non-cancelable operating
leases as of December 31, 2001 are as follows:

2002........................................................ $ 4,541,000
2003........................................................ 3,959,000
2004........................................................ 3,827,000
2005........................................................ 3,710,000
2006 and thereafter......................................... 30,670,000

Rent expense for the years ended December 31, 2001, 2000 and 1999 was
approximately $1,885,000, $1,634,000 and $1,498,000, respectively.

49

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. LITIGATION

The Company's first phage display patent in Europe was opposed by two
parties in late 1997. The oppositions primarily relate to whether the written
description of the inventions in the Company's European patent is sufficient
under European patent law. A hearing on these oppositions was held on April 6,
2000 and the patent was revoked. The Company has appealed this decision to the
Technical Board of Appeals. This appeal suspends the Opposition Division's
decision and reinstates the Company's patent pending the decision of the
Technical Board of Appeals. Although the Company will be able to enforce this
patent during the appeal, any infringement action that the Company files will
likely be stayed pending the results of the appeal. Oral proceedings are
scheduled before the Technical Review Board in the appeal on July 2, 2002. The
decision of the Technical Board will be final. The Company also has two other
patent applications related to the Company's phage display technology pending in
the European Patent Office. During the continued prosecution of these
applications, the Examining Division will consider the grounds on which the
Opposition Division revoked the Company's first patent taken together with the
Technical Board's decision on the appeal. The Company cannot assure that it will
prevail in the appeal proceedings or during the prosecution of the two other
European patent applications or in any other opposition or litigation contesting
the validity or scope of our European patents. The Company will not be able to
prevent other parties from using our phage display technology in Europe if we
are not successful in the reinstatement of our first European patent or if the
European Patent Office does not grant us another patent that the Company can
maintain after any opposition.

The Company is engaged in a United States court proceeding relating to
patents owned by a third party. The third party sued the Company in New York for
patent infringement of three United States patents. The Federal District Court
in New York dismissed the complaint for lack of jurisdiction and the decision of
the Federal District Court was upheld by the Court of Appeals for the Federal
Circuit. Dr. Piecznik has petitioned the United States Supreme Court for
permission to appeal the Federal Circuit's decision. The Company intends to
oppose that petition. Grant of the petition would not overrule the dismissal of
the New York action. Rather it would merely give Dr. Piecznik the right to
appeal the dismissal. On July 12, 2000, the plaintiffs filed the complaint
against the Company in the United States District Court in Massachusetts
alleging infringement of the same three patents that were at issue in the New
York case. A claims construction hearing was held on December 12, 2001. The
Company is awaiting a decision. After the court construes the claims asserted
against the Company by Dr. Piecznik, the court will determine whether or not the
Company's activities infringe these claims and if these claims are valid and
enforceable. The amount of a loss, if any, is not expected to be material.

11. STOCKHOLDERS' EQUITY

PREFERRED STOCK: All of the shares of Class A Series 5 Preferred Stock were
converted to common stock coincident with the Company's initial public offering.
As of December 31, 2001, there were 1,000,000 shares of $0.01 par value
preferred stock authorized but undesignated.

COMMON STOCK: On August 18, 2000, the Company completed its initial public
offering of 4,600,000 shares of common stock at $15.00 per share, including
600,000 shares of common stock issued pursuant to the exercise by the
underwriters of their over-allotment option. The gross proceeds to the Company
from the offering, including the shares sold pursuant to the exercise of the
over-allotment option, were $69.0 million. The costs associated with the initial
public offering were $6,650,000. Coincident with the initial public offering,
14,696,987 shares of preferred stock automatically converted

50

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
into 11,585,454 shares of common stock. As of December 31, 2001, there were
50,000,000 shares authorized.

STOCK OPTIONS: The Company's 1995 Equity Incentive Plan (the "Plan") is an
equity plan under which equity awards, including awards of restricted stock and
incentive and nonqualified stock options to purchase shares of common stock to
employees and consultants of the Company may be granted by action of the
Compensation Committee of the Board of Directors. Although in certain
circumstances granted below fair market value, options are generally granted at
the current fair market value on the date of grant, generally vest ratably over
a 48 month period, and expire within ten years from date of grant. In
October 2001, the Board of Directors increased the common stock options
available for grant under the Plan to 5,500,000. At December 31, 2001, there
were 4,082,709 shares of common stock reserved for issuance under the Plan of
which 405,079 shares remained available for future grant. Since the Plan's
inception, 1,417,291 shares have been issued under the Plan.

Stock option activity for the 1995 Equity Incentive Plan is summarized as
follows:

51

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
Summarized information about stock options outstanding at December 31, 2001
is as follows:

The weighted average fair value of options granted under the Plan during
2001 and 2000, as determined under the Black-Scholes option pricing model was
$9.74 and $15.78, respectively. The weighted average fair value of options
granted under the Plan during 1999 as determined under the minimum value method
was $0.63. Total options exercisable at December 31, 2001, 2000 and 1999 were
1,459,937, 1,163,895 and 1,008,834, respectively.

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
requires that companies either recognize compensation expense for grants of
stock, stock options and other equity instruments to employees based on fair
value, or provide pro forma disclosure of net income in the notes to the
financial statements. The Company has adopted the disclosure provisions of SFAS
No. 123 and applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plan. If compensation costs for the
Company's employee and director stock-based compensation plan had been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS No. 123, the Company's net loss and net loss per share for
the years ended December 31, 2001, 2000 and 1999 would have increased to the pro
forma amounts shown below:

52

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of each stock option granted is estimated on the grant date
using the minimum value method with the following weighted average assumptions:

In 2001, 2000 and 1999, the Company recorded $0, $1,494,000 and $4,284,000,
respectively, of deferred compensation related to stock option grants to
employees. The deferred compensation represents differences between the
estimated fair value of common stock on the date of grant and the exercise
price. The deferred compensation is being amortized and charged to operations
over the vesting period of the related options. Total employee stock
option-related compensation expense for 2001, 2000 and 1999 was $1,554,000,
$2,421,000 and $939,000, respectively.

RESTRICTED STOCK: In March 1997, the Company issued 114,100 shares of
common stock at a purchase price of $0.77 per share to an officer under its 1995
Equity Incentive Plan, subject to a stock restriction agreement whereby the
Company had the right, but not the obligation, to repurchase the unvested
portion of the shares of common stock at the original purchase price per share
in the event of termination of the officer's employment with the Company. Shares
subject to this agreement vested monthly over a 48-month period. At
December 31, 2001, there were no unvested shares.

In February 1998, the Company issued 78,240 shares of its common stock at a
purchase price of $4.60 per share to an officer under its 1995 Equity Incentive
Plan, subject to a stock restriction agreement whereby the Company had the
right, but not the obligation, to repurchase the unvested portion of the shares
of common stock at the original purchase price per share upon termination of the
officer's employment with the Company. Shares subject to this agreement vested
monthly over a 24-month period, beginning in February 2000, except that unvested
shares vested in full upon the closing of the Company's initial public offering
of common stock in August 2000. The Company recorded $285,000 of deferred
compensation during 1998 in connection with the sale of shares of common stock
to the officer based upon an estimated fair value at the date of issuance of
$8.25 per share. The deferred compensation amount was charged to operations as
the restricted stock vested.

During the fourth quarter of 1999, the Company issued 47,500 shares of
common stock, under two separate agreements, at a purchase price of $2.00 per
share, to an officer under its 1995 Equity Incentive Plan, subject to stock
restriction agreements whereby the Company had the right of first refusal with
respect to these shares. The first agreement involved 25,000 shares, which
vested immediately. The second agreement involved 22,500 shares, which vested
monthly over a 24-month period with certain acceleration provisions, and were
subject to the Company's right to repurchase the unvested portion of the shares
of common stock at the original purchase price per share in the event of
termination of the officer's employment with the Company. The Company recorded
$248,000 of deferred compensation during 2000 in connection with the sale of
shares of common stock to the officer based upon an estimated fair value at the
date of issuance of $7.22 per share. The deferred compensation amount was
charged to operations over the vesting period and the remaining unvested

53

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. STOCKHOLDERS' EQUITY (CONTINUED)
shares were accelerated upon the closing of the initial public offering of the
Company's common stock in August 2000.

WARRANTS: At December 31, 1999, the Company had outstanding warrants to
purchase 27,022 shares of the Company's common stock at $3.97 per share, which
were exercised in August 2000. There were no outstanding warrants at
December 31, 2001 and 2000.

EMPLOYEE STOCK PURCHASE PLAN: The Company's 1998 Employee Stock Purchase
Plan (the "Purchase Plan"), allows employees to purchase shares of common stock
at a discount from fair market value. At the Purchase Plan's inception there
were 97,800 shares of common stock reserved for issuance under the Purchase
Plan. Rights to purchase common stock under the Purchase Plan are granted at the
discretion of the Compensation Committee, which determines the frequency and
duration of individual offerings under the Purchase Plan and the dates when
stock may be purchased. Eligible employees participate voluntarily and may
withdraw from any offering before the stock is purchased. The purchase price per
share of common stock in an offering is 85% of the lesser of its fair market
value at the beginning of the offering period or on the applicable exercise date
and may be paid through payroll deductions. As of December 31, 2001, 7,025
shares had been issued under the Purchase Plan.

12. EMPLOYEE SAVINGS AND RETIREMENT PLANS

The Company has an employee savings and retirement plan (the "Retirement
Plan"), qualified under section 401(k) of the Internal Revenue Code, covering
substantially all of the Company's U.S. employees. Employees may elect to
contribute a portion of their pretax compensation to the Retirement Plan up to
the annual maximum allowed under the Retirement Plan. In 2001, the Company began
matching 50% of employee contributions up to 6% of eligible pay. Employees are
100% vested in company matching contributions immediately. For the years ended
December 31, 2001, 2000 and 1999, the Company's contributions amounted to
$326,000, $0 and $0, respectively.

13. OTHER INCOME, NET

Other income, net consists of the following:

54

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. NET LOSS PER SHARE

Net loss per share is computed under SFAS No. 128. Basic net loss per share
is computed using the weighted average number of shares of common stock
outstanding. Diluted loss per share does not differ from basic loss per share
since potential common shares from the conversion of preferred stock and
exercise of stock options and warrants are antidilutive for all periods
presented and therefore are excluded from the calculation of diluted net loss
per share.

The following sets forth the computation of net loss per share:

The following potentially dilutive common shares were excluded because their
effect was antidiliutive:

15. INCOME TAXES

For the years ended December 31, 2001, 2000, and 1999, the Company had
income tax provisions of $0, $0 and $58,000, respectively.

Temporary differences that give rise to significant deferred tax assets as
of December 31, 2001 and 2000 are as follows:

55

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. INCOME TAXES (CONTINUED)
As of December 31, 2001, the Company had federal net operating loss ("NOL")
and research and experimentation credit carryforwards of approximately
$70.6 million and $1.7 million, respectively, which may be available to offset
future federal income tax liabilities and expire at various dates from 2004
through 2021. The Company has recorded a deferred tax asset of approximately
$1.4 million reflecting the benefit of deductions from the exercise of stock
options. This deferred asset has been fully reserved until it is more likely
than not that the benefit from the exercise of stock options will be realized.
The benefit from this $1.4 million deferred tax asset will be recorded as a
credit to additional paid-in capital when realized. As required by SFAS
No. 109, management of the Company has evaluated the positive and negative
evidence bearing upon the realizability of its deferred tax assets, which are
comprised principally of NOL and research and experimentation credit
carryforwards. Management has determined at this time that it is more likely
than not that the Company will not recognize the benefits of federal and state
deferred tax assets and, as a result, a valuation allowance of approximately
$33.5 million has been established at December 31, 2001.

Ownership changes, as defined in the Internal Revenue Code, may have limited
the amount of NOL carryforwards that can be utilized annually to offset future
taxable income. Subsequent ownership changes could further affect the limitation
in future years.

As of December 31, 2001, the Company's foreign subsidiaries had NOL
carryforwards of approximately $2.2 million, which expire over various periods,
for which a full valuation allowance has been provided.

16. RELATED PARTY TRANSACTIONS

The President, Chief Executive Officer and Chairman of the Board of the
Company also serves as an outside director of and consultant to Genzyme
Corporation ("Genzyme") and as an outside director of Genzyme Transgenics
Corporation, a company in which Genzyme owns approximately 26%. In 1996, the
Company entered into a sublease agreement with Genzyme for laboratory and office
facilities in Cambridge, Massachusetts, which was extended to April 2002. Rent
expense of $682,000, $615,000 and $615,000 was recorded in each year ended
December 31, 2001, 2000 and 1999, respectively. During 1996, the Company signed
two patent license agreements with Genzyme under the Company's standard license
terms. The Company recorded license revenues of $50,000, for each year ended
December 31, 2001, 2000 and 1999, in connection with the maintenance fees on
these two agreements. As of December 31, 2001 and 2000, the related accounts
receivable balance was $50,000 and $0, respectively.

In October 1998, the Company and Genzyme also entered into a joint
development and commercialization agreement for one of the Company's proprietary
therapeutic compounds for the treatment of chronic inflammatory diseases, with
initial development to be focused on the treatment of hereditary angioedema.
Under the agreement, the Company funded the first $6.0 million dollars of
development costs. The parties have agreed to establish a limited liability
company, in which the Company will own 50% and Genzyme will own 50%, and fund
equally all development and commercialization costs subsequent to the first
$6.0 million. Genzyme has extended to the Company a $3.0 million line of credit,
which accrues interest on any outstanding balance at the Prime Rate plus 1.0%.
The Company may use the line of credit to fund a portion of such development
costs or for any of the Company's other research and development programs. At
December 31, 2001, the Company had not utilized any of the available line of
credit. In addition, the Company will be entitled to receive significant
milestone payments and up to 50% of the profits from sales of products developed
under

56

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. RELATED PARTY TRANSACTIONS (CONTINUED)
this collaboration. In addition, in 1998 Genzyme purchased $3.0 million of the
Company's Class A Series 5 Preferred Stock at $5.45 per share, which was
subsequently converted into 550,458 common shares of the Company, as a result of
initial public offering in August 2000. Accordingly, at December 31, 2001,
Genzyme owns approximately 2.8% of the Company's common stock outstanding.

See also Note 6, Notes Receivable, Employees.

17. BUSINESS SEGMENTS

The Company discloses business segments under SFAS No. 131. Segment data
does not include allocation of corporate administrative costs to each of its
operating segments. The Company evaluates the performance of its segments and
allocates resources to them based on losses before corporate administrative
costs, interest and taxes.

The Company has two reportable segments: Separations and
Therapeutics/Diagnostics. The Separations segment develops, manufactures and
sells chromatography separations systems and products through the Company's
Biotage subsidiary. The Therapeutics/Diagnostics segment develops therapeutic
and diagnostic products using the Company's proprietary phage display
technology, licenses this proprietary technology to third parties and licenses
affinity ligands developed using the Company's phage display technology to third
parties.

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technologies and marketing strategies.

57

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. BUSINESS SEGMENTS (CONTINUED)

The following table presents certain segment financial information and the
reconciliation of segment financial information to consolidated totals as of:

58

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. BUSINESS SEGMENTS (CONTINUED)

The Company operates in the geographic segments of the United States
("U.S."), Europe and Asia as indicated in the table below. During 2001, the
Company began operations in Asia.

18. COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) is calculated as follows:

59

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. COLLABORATIVE AND LICENSE AGREEMENTS

In March 2000, the Company entered into a collaboration and license
agreement with Human Genome Sciences, Inc. ("HGSI"). Under this agreement the
Company and HGSI will use the Company's phage display technology to identify and
optimize product leads that bind to therapeutic targets selected by HGSI, and
also to develop new technologies for purifying targets. The Company granted HGSI
a non-exclusive license to our phage display technology and compound libraries
to create leads that may be used as peptide drugs, human monoclonal antibody
drugs and IN VITRO diagnostic products. With the exception of selected IN VITRO
imaging rights, HGSI will retain the rights to all products that result from
this collaboration. In exchange, HGSI was originally obligated to pay the
Company a minimum of $16.0 million in committed license fees and research
funding during the first three years of the five-year agreement, $6.0 million of
which was paid to the Company in March 2000. The Company would also be entitled
to receive milestone payments on therapeutic products and royalties on all
products developed by HGSI under the agreement and would share HGSI's revenues
on any of those products it out-licenses. The $6.0 million cash payment was
originally being recognized as revenue over the five-year collaboration term of
the agreement. The excess cash received over the revenue recognized is recorded
as deferred revenue in the accompanying balance sheet. In October 2001, the
Company's collaboration and license agreement with HGSI was modified effective
as of July 1, 2001. Under the modified agreement, which provides the Company
non-exclusive research access to up to 20 HGSI targets, the Company will fund
its own research in connection with such targets through June 2003 using
one-half of the research resources previously allocated to HGSI. This
modification reduces the overall funding commitment of HGSI by approximately
$4.0 million to $12.0 million. The Company has options to obtain exclusive
licenses to develop therapeutic product candidates for up to three of the
targets for which it funds the research, subject to achieving specified research
goals, and HGSI has options to assume development and commercialization of the
product candidates upon completion of the first Phase IIa clinical trials. The
modified agreement also adds technical milestones that may be payable to the
Company in connection with the portion of the research that continues to be
funded by HGSI until March 2003. The upfront license fees received in
March 2000 will be recognized as revenue over the term of the modified
agreement. The Company will receive milestones and royalties on all products
developed by HGSI under the collaboration and will share HGSI's revenues on any
of those products that it outlicenses and HGSI will receive milestones and
royalties on any therapeutic product developed by the Company. The agreement
will terminate upon the expiration of the last to expire of the parties' royalty
obligations under the agreement. The parties' royalty obligations will expire on
a country by country basis on the later of ten years after the first country
wide launch of a product or the expiration of the last to expire of the
applicable product patents. Either party may terminate this agreement upon the
failure to pay amounts due for thirty days upon any material breach if not cured
within sixty days. For the years ended December 31, 2001 and 2000, the Company
recognized $3.5 million and $3.1 million, respectively, under the collaboration
and license agreement.

60

DYAX CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. UNAUDITED QUARTERLY OPERATING RESULTS

The following is a summary of unaudited quarterly results of operations for
the two years ended December 31, 2001 and 2000:

61

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The response to this item is incorporated herein by reference from the
discussion responsive thereto under the captions "Election of Directors",
"Section 16(a) Beneficial Reporting Compliance" and "Executive Officers and Key
Employees" in the Company's Definitive Proxy Statement relating to the 2001
Annual Meeting of Stockholders (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

The response to this item is incorporated herein by reference from the
discussion responsive thereto under the following captions in the Proxy
Statement: "Election of Directors--Director Compensation," "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Share Ownership" in the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement.

PART IV

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

(A.) 1. FINANCIAL STATEMENTS

The financial statements are included under Part II, Item 8 of this Report.

62

2. FINANCIAL STATEMENT SCHEDULE

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 2001, 2000, AND 1999
(IN THOUSANDS)

3. EXHIBITS

The exhibits are listed below under Part IV, Item 14(c) of this Report.

(B.) REPORTS ON FORM 8-K

We did not file any Current Reports on Form 8-K during the quarter ended
December 31, 2001.

(C.) EXHIBITS

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

* Indicates a contract with management.

+ This Exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.

66

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 27th day of
March, 2002.

DYAX CORP.

By: /s/ HENRY E. BLAIR
-----------------------------------------
Henry E. Blair
PRESIDENT AND CHIEF EXECUTIVE OFFICER

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