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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

75 Sidney Street, Cambridge, Massachusetts 02139
(Address of principal executive offices) (zip code)

(617)  679-7000
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes |X| No |_|

Number of shares of the registrant's Common Stock, $0.001 par value, outstanding on November 10, 2003: 301,289,794

MILLENNIUM PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

The following Millennium trademarks are used in this Quarterly Report on Form 10-Q: Millennium®, the Millennium “M” logo and design (registered), Millennium Pharmaceuticals™, VELCADE™ (bortezomib) for Injection, and INTEGRILIN® (eptifibatide) Injection. All are covered by registrations or pending applications for registration in the U.S. Patent and Trademark Office and many other countries. CAMPATH® is a registered trademark of ILEX Pharmaceuticals, L.P., ReoPro® is a trademark of Eli Lilly and Company, Aggrastat® is a trademark of Merck & Co., Inc. and Thalomid® (thalidomide) is a registered trademark of Celgene Corporation. Other trademarks used in this Quarterly Report on Form 10-Q are the property of their respective owners.

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PART I     FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

Millennium Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets

See notes to condensed consolidated financial statements.

3

Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(unaudited)

See notes to condensed consolidated financial statements.

4

Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

See notes to condensed consolidated financial statements.

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements

1.    Basis of Presentation

        The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed consolidated financial statements have been included. Interim results for the three and nine month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, which was filed with the Securities and Exchange Commission (“SEC”) on March 7, 2003.

2.    Summary of Significant Accounting Policies

(a)  Cash Equivalents and Marketable Securities

        Cash equivalents consist principally of money market funds and corporate bonds with maturities of three months or less at the date of purchase. Marketable securities consist primarily of investment-grade corporate bonds, asset-backed debt securities and U.S. government agency debt securities.

        Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable securities at September 30, 2003 and December 31, 2002 are classified as “available-for-sale.” Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of stockholders’ equity. The cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities and other investments are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

        During the three months ended September 30, 2003 and 2002, the Company recorded realized gains on marketable securities of $3.0 million and $3.8 million, respectively, and realized losses on marketable securities and other investments of $0.9 million and $3.3 million, respectively. During the nine months ended September 30, 2003 and 2002, the Company recorded realized gains on marketable securities of $6.1 million and $15.9 million, respectively, and realized losses on marketable securities and other investments of $3.1 million and $20.4 million, respectively.

(b)  Inventory

        Inventories are stated at the lower of cost (first in, first out) or market. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical.

        Inventory consists of the following (in thousands):

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

(c)  Goodwill and Intangible Assets

        Intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired not allocated to specific intangible assets. Intangible assets consist of the following (in thousands):

        Amortization of intangibles is computed using the straight-line method over the useful lives of the respective assets as follows:

        As required by Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives and reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable. The Company tests for goodwill impairment annually, on October 1 and whenever events or changes in circumstances suggest that the carrying amount may not be recoverable.

(d)  Reclassification

        In connection with the launch of VELCADE™ (bortezomib) for Injection in May 2003 and the recognition of related costs of sales, the Company reclassified certain INTEGRILIN^® (eptifibatide) Injection related manufacturing expenses to cost of goods sold so that cost of goods sold now includes manufacturing-related expenses associated with the sales of INTEGRILIN and VELCADE. These reclassified manufacturing-related

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

expenses were previously included in cost of co-promotion revenue and certain INTEGRILIN^® (eptifibatide) Injection related advertising and promotional expenses that were previously included in cost of co-promotion revenue have been reclassified to selling, general and administrative expenses.

        Prior period amounts have been adjusted to conform to the current year presentation. There was no impact on net loss in any period.

(e)  Revenue Recognition

        Net product sales

        The Company records product sales of VELCADE™ (bortezomib) for Injection when delivery has occurred and title passes to the customer, collection is reasonably assured and the Company has no further obligations. Allowances are recorded as a reduction to product sales for estimated returns and discounts at the time of sale.

        Co-promotion revenue

        Co-promotion revenue includes the Company’s share of profits from the sale of INTEGRILIN in co-promotion territories by Schering-Plough Ltd. and Schering Corporation (collectively “SGP”). Also included in co-promotion revenue are reimbursements from SGP of the Company’s manufacturing-related costs, advertising and promotional expenses associated with the sale of INTEGRILIN within co-promotion territories and royalties from SGP on sales of INTEGRILIN outside the co-promotion territory. The Company recognizes revenue when SGP ships INTEGRILIN to wholesalers and records it net of allowances, if any. The Company defers certain manufacturing-related expenses until the time SGP ships related product to its customers inside and outside co-promotion territories. Deferred revenue also includes cash advances from SGP to the Company for the Company’s prepayments to its manufacturers of INTEGRILIN.

        Revenue under strategic alliances

        The Company recognizes revenue from non-refundable license payments and certain milestone payments not specifically tied to a separate earnings process, ratably over the term of the research contract. When payments are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation associated with the payment is completed. Performance obligations typically consist of significant milestones in the development life cycle of the related technology, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by regulatory agencies. In addition, when appropriate, the Company recognizes revenue from certain research payments based upon the level of research services performed during the period of the research contract.

(f)  Net Loss Per Common Share

        Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is typically computed using the weighted average number of common and dilutive common equivalent shares from stock options, warrants and convertible debt using the treasury stock method. However, for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of common stock issuable upon the exercise of stock options, warrants and convertible debt would be antidilutive.

(g)  Comprehensive Loss

        Comprehensive loss was $94.7 million and $82.2 million for the three months ended September 30, 2003 and 2002, respectively and $330.7 million and $495.5 million for the nine months ended September 30, 2003 and 2002, respectively. Comprehensive loss is composed of net loss, unrealized gains and losses on marketable securities and cumulative foreign currency translation adjustments. Unrealized gains and losses on marketable securities includes the reclassification to investment income, net for the nine months ended September 30, 2002 of unrealized losses of $14.6 million due to declines in market value of investments in marketable securities that were

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

deemed to be other than temporary. Accumulated other comprehensive income at September 30, 2003 included $8.5 million of unrealized gains on marketable securities and $2.2 million of cumulative foreign currency translation adjustments. Accumulated other comprehensive income at December 31, 2002 included $2.4 million of unrealized gains on marketable securities and $1.7 million of cumulative foreign currency translation adjustments.

(h)  Stock-Based Compensation

        The Company follows Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under APB 25, when the exercise price of options granted equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. In accordance with Emerging Issues Task Force (“EITF”) 96-18, the Company records compensation expense equal to the fair value of options granted to non-employees over the vesting period, which is generally the period of service.

        The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share amounts):

        The weighted-average per share fair value of options granted during the three months ended September 30, 2003 and 2002 was $9.64 and $7.93, respectively, and during the nine months ended September 30, 2003 and 2002 was $7.23 and $13.16, respectively.

        The fair value of stock options and common shares issued pursuant to the stock option and stock purchase plans at the date of grant were estimated using the Black-Scholes model with the following weighted-average assumptions:

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

        The Company has never declared cash dividends on any of its capital stock and does not expect to do so in the foreseeable future.

(i)  Segment Information

        SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”), establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers.

        The Company operates in one business segment, which primarily focuses on the discovery, development and commercialization of proprietary therapeutic products. All of the Company’s product sales are currently related to sales of VELCADE™ (bortezomib) for Injection. All of the Company’s co-promotion revenue is currently related to sales of INTEGRILIN® (eptifibatide) Injection.

        Revenues from Ortho Biotech Products, L.P. (“Ortho Biotech”) accounted for approximately 26.9% and 11.2% of total revenues for the three and nine months ended September 30, 2003, respectively. Revenues from Bayer AG (“Bayer”) accounted for approximately 12.0% and 19.6% of total revenues for the three months ended September 30, 2003 and 2002, respectively and 14.9% and 21.5% of total revenues for the nine months ended September 30, 2003 and 2002. Revenues from Aventis Pharmaceuticals, Inc. (“Aventis”) accounted for approximately 8.8% and 10.4% of total revenues for the three months ended September 30, 2003 and 2002, respectively and approximately 18.3% and 11.9% of total revenues for the nine months ended September 30, 2003 and 2002. Revenues from Monsanto Company (“Monsanto”) accounted for approximately 11.3% and 12.7% of total revenues for the three and nine months ended September 30, 2002, respectively.

(j)  Information Concerning Market and Source of Supply Concentration

        Millennium and SGP co-promote INTEGRILIN in the United States and share any profits and losses. SGP books and reports INTEGRILIN sales. INTEGRILIN has received regulatory approval in the European Union and a number of other countries for various indications. The Company has exclusively licensed to SGP rights to market INTEGRILIN outside the United States, and SGP pays the Company royalties based on these sales of INTEGRILIN. The Company has long-term supply arrangements with two suppliers for the bulk product and with another two suppliers, one of which is SGP, for the filling and final packaging of INTEGRILIN.

(k)  Accounting Pronouncements

        In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred, except for one-time termination benefits that meet certain requirements. The Company was required to adopt SFAS No. 146 for activities that were initiated after December 31, 2002, with early application encouraged. The Company adopted SFAS No. 146 as of December 1, 2002 in association with the discontinuation of certain discovery efforts in December 2002 (See Note 3).

        In November 2002, the EITF of the FASB issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” (“EITF 00-21”) which addressed certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate accounting units if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of accounting. EITF 00-21 is effective for revenue arrangements entered into after June 30, 2003.

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure” (“SFAS No. 148”). SFAS 148 provides two additional transition methods for entities that adopt the fair value method of accounting for stock based compensation. Further, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. SFAS 148 is effective for fiscal periods ending after December 15, 2002. The Company has provided the new disclosures in Stock-Based Compensation in Note 2.

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”). FIN 46 provides a new consolidation model which determines control and consolidation based on potential variability in gains and losses. The provisions of FIN 46 are effective for enterprises with variable interests in variable interest entities created after January 31, 2003. For public companies with variable interest in variable interest entities created before February 1, 2003 the provisions of FIN 46 were to be applied no later than July 1, 2003. As of September 30, 2003, the Company has not invested in any variable interest entities after January 31, 2003.

        In October 2003, the FASB issued Staff Position No. FIN 46-6, “Effective Date of FASB FIN 46, Consolidation of Variable Interest Entities.” This FASB Staff Position deferred the effective date for applying the provisions of Interpretation 46 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003. A public entity need not apply the provisions of FIN 46 to an interest held in a variable interest entity or potential variable interest entity until the end of the first interim or annual period ending after December 15, 2003 if both of the following apply:

        The Company will implement the provisions of FIN 46 for its financial statements for the year ending December 31, 2003 for any variable interest entities created before February 1, 2003. The Company is currently evaluating what impact, if any, FIN 46 will have on the financial position or results of operations of the Company.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company.

3.    Restructuring

        In December 2002, the Company announced the first in a series of steps to realign the Company’s resources to become a commercially-focused biopharmaceutical company. The Company discontinued certain discovery research efforts, reduced headcount in its discovery group and began reallocating other resources to enhance its commercial capabilities. These actions resulted in the recognition of restructuring charges in the fourth quarter of 2002 and first quarter of 2003.

        In June 2003, the Company announced a broad, accelerated restructuring plan to focus the Company’s resources on development and commercialization.  The plan includes consolidation of research and development facilities, overall headcount reduction from approximately 2,300 employees to approximately 1,700 employees by the end of 2004 and streamlining of the number of discovery and development projects.  Certain of these actions resulted in the recognition of restructuring charges in the second and third quarters of 2003, including the termination of 711 employees and the vacating of several of the Company’s facilities.

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

        These costs are included in restructuring charges in the statements of operations and accrued expenses on the balance sheet at September 30, 2003. The following table displays the restructuring activity and liability balance included in accrued expenses (in thousands):

        Costs of termination benefits relate to severance packages, out-placement services and career counseling for employees affected by the initiative. Charges related to facilities include estimated remaining rental obligations, net of estimated sublease income, for facilities that the Company no longer occupies. The Company’s decisions to vacate certain facilities and abandon the related leasehold improvements as well as terminate certain research programs were deemed to be impairment indicators under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result of performing the impairment evaluations, asset impairment charges were recorded to adjust the carrying value of the related long-lived assets to their net realizable values. The fair values of the assets were estimated based upon anticipated future cash flows, discounted at a rate commensurate with the risk involved.  

4.    COR Therapeutics, Inc. Acquisition

        On February 12, 2002, the Company acquired COR Therapeutics, Inc. (“COR”) for an aggregate purchase price of $1.8 billion primarily consisting of 55.1 million shares of Millennium common stock pursuant to the merger agreement between the Company and COR. The transaction was recorded as a purchase for accounting purposes and the Company’s consolidated financial statements include COR’s operating results from the date of the acquisition. The purchase price was allocated to the assets purchased and the liabilities assumed based upon their respective fair values, with the excess of the purchase price over the estimated fair value of net tangible assets allocated to specific intangible assets, including developed technology and trademark, and goodwill. Developed technology is being amortized over the remaining patent life, or thirteen years. At the date of the acquisition, the Company recorded a one-time, non-cash charge to operations during the nine months ended September 30, 2002 of $242.0 million for acquired in-process research and development. The valuation of acquired in-process research and development represents the estimated fair value related to incomplete projects that, at the date of the acquisition, had no alternative future use and for which technological feasibility had not been established.

5.    Revenues and Strategic Alliances

        Historically, the Company has formed strategic alliances with major participants in marketplaces where its discovery expertise and technology platform are applicable. These agreements include alliances based on the transfer of technology platforms, alliances which combine technology transfer with a focus on a specific disease or therapeutic approach, and disease-focused programs under which the Company conducts research funded by its partners. The Company’s disease-based alliances and alliances which combine technology transfer with a disease focus are generally structured as research collaborations. Under these arrangements, the Company performs research in a specific disease area aimed at discoveries leading to novel pharmaceutical (small molecule) products. These alliances generally provide research funding over an initial period, with renewal provisions, varying by agreement. Under these agreements, the Company’s partners may make up-front payments, additional payments upon the achievement of specific research and product development milestones, ongoing research funding and/or pay

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

royalties to or in some cases share profits with the Company based upon any product sales resulting from the collaboration. In certain alliances, the Company also may receive equity investments from its collaborators.

Strategic Alliances

        New strategic alliance:

        On June 30, 2003, the Company entered into an agreement with Ortho Biotech, a wholly owned subsidiary of Johnson & Johnson, to collaborate on the commercialization and continued clinical development of VELCADE™ (bortezomib) for Injection. Under the terms of the agreement, the Company retains all commercialization rights to and profits from VELCADE in the U.S. Subject to obtaining regulatory approvals of VELCADE outside the U.S., Ortho Biotech and its affiliate, Janssen-Cilag, will commercialize VELCADE outside of the U.S. The Company is entitled to royalties from Ortho Biotech and its affiliate Janssen-Cilag on sales, if any, of VELCADE outside of the U.S. The Company also retains an option to co-promote VELCADE at a future date in certain European countries.

        The Company and Ortho Biotech and its research affiliate, Johnson & Johnson Pharmaceutical Research & Development, L.L.C., will jointly engage in an extensive global program for further clinical development of VELCADE with the purpose of maximizing the clinical and commercial potential of VELCADE. This program will investigate the potential of VELCADE to treat multiple forms of solid and hematological cancers, including continued clinical development of VELCADE for multiple myeloma. Ortho Biotech will be responsible for 40 percent of the joint development costs through 2005 and for 45 percent of such costs thereafter.

        During the three months ended September 30, 2003, the Company recognized a $30.0 million milestone payment as revenue under this alliance upon the achievement of target enrollment of the 612th patient in the Company’s Phase III APEX trial for VELCADE in patients with multiple myeloma. In addition, the Company may receive payments for achieving clinical development milestones, for achieving regulatory milestones outside of the U.S. and for achieving agreed-upon sales levels of VELCADE.

        Modifications to existing strategic alliances:

        On October 31, 2003, the research phase of the Company’s strategic alliance with Bayer ended. On October 10, 2003, Bayer and Millennium amended the agreement to provide both parties access to the balance of identified targets for a period of seven years. If Bayer successfully develops and commercializes any of these targets discovered in the alliance, Bayer will make success and royalty payments to Millennium on the sale of products generated from the alliance.

        Revenues recognized under the research phase of the Bayer alliance were approximately $13.2 million and $15.0 million for the three months ended September 30, 2003 and 2002, respectively and approximately $41.2 million and $45.1 million for the nine months ended September 30, 2003 and 2002, respectively. The Company recognized the research funding portion of the alliance on a percentage-of-completion basis. The percentage-of-completion is determined at each measurement date based upon the actual full-time equivalents to date as compared to management’s estimate of the total full-time equivalents needed to complete the deliverables required by the alliance. In September 2001, the Company revised the estimate of total full-time equivalents required to complete the project downward as a result of productivity improvements made at the Company and changes to the program requirements made by Bayer. During each subsequent reporting period, the Company continued to monitor the full-time equivalent estimate necessary to complete the deliverables and compared the estimate to the actual effort put forth. No further adjustments have been necessary and the accounting estimates used approximated actual efforts from September 2001 to the end of the research phase of the agreement, October 31, 2003.

        On August 8, 2003, the Company and Abbott Laboratories (“Abbott”) agreed to terminate their alliance covering joint discovery, development and commercialization of certain metabolic disease products in connection with the Company’s June 2003 restructuring plan. Included in restructuring charges for the three months ended September 30, 2003 are restructuring charges specifically related to the discontinuation of metabolic research and development, which include termination benefits and costs associated with the Abbott separation agreement. In the nine months ended September 30, 2003 Abbott invested the final $28.6 million of a $250.0 million commitment in Millennium common stock pursuant to the March 2001 Investment Agreement between the Company and Abbott.

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Millennium Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (continued)

        On April 22, 2003, Aventis exercised its option to terminate the Technology Transfer Agreement between the Company and Aventis effective on the third anniversary of the Agreement, July 21, 2003. Pursuant to the terms of the Agreement, upon providing this notice to the Company, Aventis paid the Company $40.0 million in consideration for future use of certain Millennium technology transferred to Aventis. Approximately $9.3 million and $40.0 million of this termination fee are included in revenue under strategic alliances for the three and nine months, respectively ended September 30, 2003.

6.    Commitments

Lease Commitments

        On August 4, 2000, the Company entered into lease agreements, relating to two buildings for laboratory and office space in Cambridge, Massachusetts. The rent obligation for the first of these buildings began in July 2002 and the rent obligation on the second building began in July 2003. The Company was responsible for a portion of the construction costs for both buildings and was deemed to be the owner during the construction period of each building under EITF 97-10, “The Effect of Lessee Involvement in Asset Construction.” In July 2002 and July 2003, upon completion of the construction period of the buildings, respectively, the Company recorded the leases as capital leases.

7.    Convertible Debt

        The Company currently had the following convertible notes outstanding at September 30, 2003:

        Under the terms of these notes, the Company is required to make semi-annual interest payments on the outstanding principal balance of the 5.0% notes on March 1 and September 1 of each year, of the 4.5% notes on June 15 and December 15 of each year and of the 5.5% notes on January 15 and July 15 of each year. All required interest payments to date have been made.

        In April 2002, the Company amended the 4.5% notes and 5.0% notes to add put options permitting noteholders to require the Company on April 29, 2003, to repurchase the 4.5% notes for cash at a price of $1,095 per $1,000 of principal amount and the 5.0% notes for cash at a price of $1,085 per $1,000 of principal amount, resulting in a maximum aggregate payment obligation of $654.0 million. These put options on the notes were derivative instruments. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” requires derivative instruments to be recorded in the balance sheet at fair value. The fair value of this derivative, or $54.0 million at March 31, 2003 was recorded in the balance sheet.

        On April 29, 2003, the Company completed the repurchase of $577.8 million of aggregate principal amount of the outstanding 4.5% notes and 5.0% notes for an aggregate payment of approximately $637.1 million, including principal, accrued interest and put premium. Approximately $22.1 million of aggregate principal amount of these notes were not tendered in the offer and remain outstanding as of September 30, 2003. As a result of the repurchase, the Company recorded a charge of approximately $10.5 million which represents the write-off of approximately $12.4 million of unamortized original debt issuance costs associated with the 4.5% notes and 5.0% notes, offset by $1.9 million relating to the expired put premium on the untendered notes.

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

        Our management’s discussion and analysis of our financial condition and results of our operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See “Risk Factors That May Affect Results.”

Overview

        We are a leading biopharmaceutical company focused on developing and commercializing products in multiple disease areas. We currently have a cancer product and a cardiovascular disease product on the market. We also have other potential products in various stages of preclinical and clinical development in both of those areas and in the inflammatory disease area.

        Our strategy is to advance multiple products in several focus areas through clinical trials and regulatory approvals and to be involved in the marketing and sale of many of these products. A key element of our strategy in the disease areas on which we are focused is to build a sustainable pipeline of innovative new treatments based on our understanding of how particular molecular pathways that are involved in specific disease areas affect the instigation and progression of specific diseases.

        We plan to develop and commercialize many of our products on our own, but will seek development and commercial partners when we believe that doing so will maximize product value. For example, we have entered into sales and marketing alliances with major pharmaceutical companies for VELCADE outside of the United States and INTEGRILIN and plan to do so in the future for products in disease areas that require large sales forces or to address markets outside the United States.

VELCADE™ (bortezomib) for Injection

        VELCADE was approved for marketing in the United States in May 2003 as a treatment for patients with multiple myeloma who have received at least two prior therapies and demonstrated disease progression on the last therapy. We commercially launched VELCADE in the United States shortly after receiving marketing approval. We have recruited an oncology sales force which is currently marketing VELCADE in the United States. In February 2003, we submitted a complete Marketing Authorization Application to the European Agency for the Evaluation of Medicinal Products for the approval of VELCADE.

        On June 30, 2003, we entered into an agreement with Ortho Biotech Products, L.P., or Ortho Biotech, a wholly owned subsidiary of Johnson & Johnson, to collaborate on the commercialization and continued clinical development of VELCADE. Under the terms of the agreement, we retain all commercialization rights to and profits from VELCADE in the United States. Subject to obtaining regulatory approvals of VELCADE outside the United States, Ortho Biotech and its affiliate, Janssen-Cilag, will commercialize VELCADE outside of the United States. We are entitled to royalties from Ortho Biotech and its affiliate Janssen-Cilag on sales of VELCADE outside of the United States. We also retain an option to co-promote VELCADE at a future date in certain European countries.

INTEGRILIN® (eptifibatide) Injection

        Our market-leading cardiovascular product, INTEGRILIN, has been marketed in the United States since 1998 and outside the United States since 1999. In the United States, we co-promote INTEGRILIN with Schering-Plough Ltd. and Schering-Plough Corporation, together referred to as SGP, and share profits and losses. Outside the United States, SGP sells INTEGRILIN pursuant to a royalty-bearing license.

Revenues

        Historically, we have derived our revenue from payments from our strategic alliances with major pharmaceutical companies. With the February 2002 acquisition of COR Therapeutics, Inc., or COR, we began generating co-promotion revenue based on sales of INTEGRILIN. In May 2003, we began recording product sales from VELCADE. We expect that our revenue mix will continue to shift to product-based revenue as we develop

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our product pipeline, commercialize additional products and enter into new commercial alliances, and our discovery-focused alliances conclude.

        VELCADE™ (bortezomib) for Injection Revenue

        We record sales of VELCADE in the U.S., net of estimated product returns and discounts, as net product sales. We will record royalty and milestone payments, if any, when earned as royalty revenue and revenue under strategic alliances, respectively. We will record reimbursement of development costs by Ortho Biotech as revenue under strategic alliances in the period in which the related costs are incurred.

        INTEGRILIN® (eptifibatide) Injection Revenue

        In the first quarter of 2002, we began recognizing co-promotion revenue that principally relates to our share of the profits from the sale of INTEGRILIN by SGP in co-promotion territories under our collaboration agreement with SGP to jointly develop and commercialize INTEGRILIN on a worldwide basis. Co-promotion revenues also include recognition of reimbursement from SGP of our manufacturing-related costs, advertising and promotional expenses associated with the sale of INTEGRILIN within co-promotion territories and royalties from SGP on sales of INTEGRILIN outside the co-promotion territory.

        Revenue under Strategic Alliances

        We have entered into research, development, technology transfer and commercialization arrangements with major pharmaceutical and biotechnology companies relating to a broad range of therapeutic products. These alliances provide us with the opportunity to receive various combinations of equity investments, license fees and research funding, and may provide certain additional payments contingent upon our achievement of research and regulatory milestones and royalties and/or share profits if our collaborations are successful in developing and commercializing products.

        These alliances are usually established for a fixed term, typically five years. Upon expiration of the initial term, unless renewed or earlier terminated, revenue funding under these agreements ceases. We expect revenues from our discovery-focused alliances to continue to decline as our existing alliances expire.

        In addition to our collaboration agreements with SGP and Ortho Biotech, our major alliances from which we have or may recognize revenues include:

        In April 2003, Aventis exercised its option effective July 21, 2003 to terminate a technology transfer agreement with us. Upon exercising this option, Aventis paid us $40.0 million in consideration for future use of certain technology transferred to Aventis prior to the termination date. Termination of the technology transfer agreement has no effect on the existing five-year joint development and commercialization agreement in

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inflammation. We expect the joint development and commercialization agreement with Aventis in the field of inflammatory disease to continue through 2005.

        In October 2003, the research phase of our five-year alliance with Bayer ended. Bayer and Millennium amended the agreement to provide both parties access to the balance of identified targets for a period of seven years. If Bayer successfully develops and commercializes any of these targets discovered in the alliance, Bayer will owe us success and royalty payments on the sale of products generated from the alliance.

        We have also entered into a number of arrangements for the commercialization of products under which we share the costs for the development and eventual commercialization of specified compounds and may receive or be obligated to make product revenue, royalty, milestone or other payments. In addition to operating expenses we incur as a result of our alliances, we have also made commitments to purchase debt and equity securities of our alliance partners under certain of these arrangements. These arrangements include:

Acquisitions

        As part of our business strategy, we consider merger and acquisition opportunities that may provide us with products on the market, products in later stage development or capabilities to accelerate our downstream drug discovery efforts.

        COR

        On February 12, 2002, we acquired COR for an aggregate purchase price of $1.8 billion through the issuance of approximately 55.1 million shares of our common stock. We recorded the transaction as a purchase for accounting purposes and our consolidated financial statements include COR’s operating results from the date of the acquisition. The purchase price was allocated, based upon an independent valuation, to the assets purchased and liabilities assumed based upon their respective fair values, with the excess of the purchase price over the estimated fair market value of net tangible assets acquired allocated to in-process research and development, developed technology, trademark and goodwill. The charge to earnings in the nine months ended September 30, 2002 for acquired in-process research and development was $242.0 million. Through the merger, we acquired INTEGRILIN® (eptifibatide) Injection and substantial research capabilities in the areas of cardiovascular disease and oncology.

Disposition of Investment in Joint Venture

        Through our acquisition of LeukoSite, Inc., or LeukoSite, we became a party to a joint venture partnership, Millennium and ILEX Partners, L.P., or M&I, for development of CAMPATH® (alemtuzumab) humanized monoclonal antibody. We accounted for our investment in the joint venture under the equity method of accounting. On December 31, 2001, ILEX acquired our equity interest in M&I, which owns the CAMPATH product. In exchange for our equity interest in M&I, ILEX paid us $20.0 million on December 31, 2001 plus additional consideration contingent upon future sales of CAMPATH. We earned $40.0 million of such consideration in the second quarter of 2002. We earned an additional $40.0 million in the second quarter of 2003, $20.0 million of which ILEX paid to us, in the form of cash and stock, in the third quarter of 2003 and the remaining $20.0 million of which we expect ILEX to pay us, in cash, by December 31, 2003. These milestone payments are included in other income. We are entitled to an additional payment of $40.0 million in 2004, a portion of which ILEX may pay to us in the form of their stock, if sales of CAMPATH in the U.S. meet a specified threshold. In addition, we are entitled to additional payments from ILEX if U.S. sales of CAMPATH after 2004 exceed specified annual thresholds.

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Financial Resources

        We have completed several financings in the past several years. The actual and planned uses of proceeds include:

        On April 29, 2003, we completed the repurchase of $577.8 million aggregate principal amount of the outstanding 5.0% convertible subordinated notes due March 1, 2007, that are convertible into our common stock at any time prior to maturity at a price equal to $34.21 per share (the “5.0% notes”) and 4.5% convertible senior notes due June 15, 2006, that are convertible into our common stock at any time prior to maturity at a price equal to $40.61 per share (the “4.5% notes”) for an aggregate payment of approximately $637.1 million, including principal, accrued interest and put premium. Approximately $22.1 million of the 5.0% notes and 4.5% notes in the aggregate were not tendered in the offer and remain outstanding as of September 30, 2003. As a result of the repurchase, we recorded a net charge of approximately $10.5 million which represents the write-off of approximately $12.4 million of unamortized original debt issuance costs associated with the 5.0% notes and 4.5% notes, offset by $1.9 million relating to the expired put premium on the untendered notes.

        During the nine months ended September 30, 2003 we received $28.6 million from Abbott Laboratories, or Abbott, for the final purchase of approximately 3.7 million shares of our common stock under our equity investment agreement with Abbott. During the nine months ended September 30, 2002, we received $85.8 million from Abbott for the purchase of approximately 5.1 million shares of our common stock under this agreement.

        As of September 30, 2003, we had approximately $919.7 million in cash, cash equivalents and marketable securities. We primarily invest in investment-grade corporate bonds, asset-backed debt securities and U.S. government agency debt securities. Our investment objectives are to preserve principal, maintain a high degree of liquidity to meet operating needs and obtain competitive returns subject to prevailing market conditions. We expect that income from these investments will decline as our cash and marketable securities balances decline and will fluctuate based upon market conditions.

        We are expanding our commercial operations through internal growth and by utilizing the capabilities of our alliance partners. As our discovery-focused alliances expire, we are increasingly focusing our efforts on entering into commercial alliances. We expect to conserve financial resources through workforce planning, facilities consolidation and product portfolio management.

        We expect to incur increasing expenses and are likely to incur substantial operating losses for at least the next several years, primarily due to our efforts to advance acquired products or our own development programs into commercialization. In particular, we anticipate significant expenditures related to the continued development, launch and commercialization of VELCADE™ (bortezomib) for Injection and increasing our development capabilities for our clinical and preclinical product candidates.

        We expect to continue to pursue additional alliances and to consider joint development, merger, or acquisition opportunities that may provide us with access to products on the market or in later stages of commercial development. Our results of operations for any period may not be indicative of future results as our revenues and expenses may fluctuate from period to period or year to year.

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Reclassifications

        In connection with the launch of VELCADE™ (bortezomib) for Injection in May 2003 and the recognition of the related costs of sales, we reclassified certain INTEGRILIN^® (eptifibatide) Injection related manufacturing expenses to cost of goods sold so that cost of goods sold now includes manufacturing-related expenses associated with the sales of INTEGRILIN and VELCADE. These reclassified manufacturing-related expenses were previously included in cost of co-promotion revenue and certain INTEGRILIN related advertising and promotional expenses that were previously included in cost of co-promotion revenue have been reclassified to selling, general and administrative expenses.

        Prior period amounts have been adjusted to conform to the current year presentation. There was no impact on net loss in any period.

Critical Accounting Policies and Significant Judgments and Estimates

        Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, intangible assets and goodwill. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Form 10-K filed with the SEC on March 7, 2003, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.

        Revenue

        In connection with our strategic alliances, we recognize revenue from non-refundable license payments and certain milestone payments not specifically tied to a separate earnings process, ratably over the term of the research contract. When the period of deferral cannot be specifically identified from the contract, management estimates the period based upon other critical factors contained within the contract. We continually review these estimates which could result in a change in the deferral period and might impact the timing and the amount of revenue recognized. When payments are specifically tied to a separate earnings process, revenue is recognized when the specific performance obligation associated with the payment is completed. Performance obligations typically consist of significant milestones in the development life cycle of the related technology, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by regulatory agencies. In addition, when appropriate, we recognize revenue from certain research payments based upon the level of research services performed during the period of the research contract.

        On October 31, 2003 the research phase of our alliance with Bayer ended. We recognize the research funding portion of our Bayer alliance on a percentage-of-completion basis. The percentage-of-completion is determined based upon the actual level of work performed during the period as compared to our estimate of the total work to be performed under the alliance. We continually review these estimates and adjust as necessary, as experience develops or new information becomes known. In September 2001, we revised the estimate of the total work to be performed downward as a result of productivity improvements. No further adjustments were necessary and the accounting estimates used approximate actual efforts from September 2001 to the end of the research phase of the agreement.

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        We recognize co-promotion revenue when SGP ships INTEGRILIN^® (eptifibatide) Injection to wholesalers. Co-promotion revenue includes our share of the profits from the sales of INTEGRILIN, reimbursements of our manufacturing-related costs, advertising and promotional expenses and royalties from SGP on sales of INTEGRILIN outside the co-promotion territory. We communicate with SGP to calculate our share of the profits from the sales of INTEGRILIN on a monthly basis. The calculation includes estimates of the amount of advertising and promotional expenses and other costs incurred on a monthly basis. We also communicate with SGP to estimate royalties earned on sales outside the co-promotion territory. Adjustments to our estimates are based upon actual information that we receive subsequent to our reporting deadlines. Our estimates are adjusted on a monthly basis and historically have not been significant due to periodic communication with our partner. Significant adjustments in future reporting periods could impact the timing and the amount of revenue to be recognized.

        We recognize revenue from the sales of VELCADE™ (bortezomib) for Injection in the U.S. when delivery has occurred and title has transferred to the wholesalers. Allowances are recorded as a reduction to product sales for product returns and discounts at the time of sale. The allowances are based primarily on historical trends in the pharmaceutical industry for similar products and discounts included in our agreements with wholesalers. As we continue to develop company specific experience, our estimates will be continually reviewed. If actual future results vary, we may need to adjust our estimates, which could have an impact on the timing and amount of revenue to be recognized.

        Inventory

        Inventory consists of currently marketed products and from time to time product candidates awaiting regulatory approval which were capitalized based upon management’s judgment of probable near term commercialization. Inventory primarily represents raw materials used in production, work in process and finished goods inventory on hand, valued at cost. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical. Our current sales projections provide for full utilization of the inventory balance. If product sales levels differ from projections or a launch of a new product is delayed, inventory may not be fully utilized and could be subject to impairment, at which point we would record a reserve to adjust inventory to its net realizable value.

        At September 30, 2003 and December 31, 2002, inventory does not include any amounts for products that have not yet been approved for sale.

        Intangible Assets

        We have acquired significant intangible assets that we value and record. Those assets which do not yet have regulatory approval and for which there are no alternative uses are expensed as acquired in-process research and development, and those that are specifically identified and have alternative future uses are capitalized. We use a discounted cash flow model to value intangible assets acquired. The discounted cash flow model requires assumptions about the timing and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. We engage independent valuation experts who review our critical assumptions for significant acquisitions of intangibles. We review intangible assets for impairment on a periodic basis using an undiscounted net cash flows approach. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, the intangible asset is written down to the discounted cash flow value. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable.

        Goodwill

        We adopted the Financial Accounting Standards Board (“FASB”) SFAS No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002 and reclassified amounts to goodwill, which were previously allocated to assembled workforce. Upon adoption, we ceased the amortization of goodwill. We completed our transitional assessment of goodwill in the first quarter of 2002 and no impairment loss was recognized. We test for goodwill impairment annually, on October 1.

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        On October 1, 2003, we performed our annual goodwill impairment test and determined that no impairment existed on that date. However, since the date of acquisition of COR, which generated a significant amount of goodwill, we have experienced a significant decline in market capitalization due to a decline in stock price. We continually monitor business and market conditions to assess whether an impairment indicator exists. If we were to determine that an impairment indicator exists, we would be required to perform an impairment test which could result in a material impairment charge to our statement of operations.

        Accounting Pronouncements

        In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred, except for one-time termination benefits that meet certain requirements. We adopted SFAS No. 146 as of December 1, 2002 in association with the discontinuation of certain discovery efforts in December 2002.

        In November 2002, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” (“EITF 00-21”) which addressed certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate accounting units if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of accounting. EITF 00-21 is effective for revenue arrangements entered into after June 30, 2003.

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure” (“SFAS No. 148”). SFAS 148 provides two additional transition methods for entities that adopt the fair value method of accounting for stock based compensation. Further, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. SFAS 148 is effective for fiscal periods ending after December 15, 2002. We have provided the new disclosures in Stock-Based Compensation in Note 2 to our condensed consolidated financial statements.

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”). FIN 46 provides a new consolidation model which determines control and consolidation based on potential variability in gains and losses. We are required to apply the provisions of FIN 46 for variable interests in variable interest entities created after January 31, 2003 immediately. We are required to apply the provisions of FIN 46 no later than the first interim period ending after December 15, 2003 for variable interests in variable interest entities created before February 1, 2003. As of September 30, 2003, we have not invested in any variable interest entities after January 31, 2003.

        In October 2003, the FASB issued Staff Position No. FIN 46-6, “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities.” This FASB Staff Position deferred the effective date for applying the provisions of FIN 46 for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003. A public entity need not apply the provisions of FIN 46 to an interest held in a variable interest entity or potential variable interest entity until the end of the first interim or annual period ending after December 15, 2003 if both of the following apply:

        We will implement the provisions of FIN 46 for our financial statements for the year ending December 31, 2003 for any variable interest entities created before February 1, 2003. We are currently evaluating what impact, if any, FIN 46 will have on our financial position or results of operations.

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        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 and the adoption did not have a material impact on our financial position or results of operations.

Results of Operations

Quarters Ended September 30, 2003 and September 30, 2002

        For the three months ended September 30, 2003 (the “2003 Quarterly Period”), we reported a net loss of $92.3 million, or $0.31 per basic and diluted share, compared to a net loss of $98.9 million, or $0.35 per basic and diluted share for the three months ended September 30, 2002 (the “2002 Quarterly Period”).

        Revenue increased to $144.8 million for the 2003 Quarterly Period from $95.8 million for the 2002 Quarterly Period. Net product sales of VELCADE™ (bortezomib) for Injection, launched in May 2003, were $23.0 million in the 2003 Quarterly Period. Co-promotion revenue, based on worldwide sales of INTEGRILIN® (eptifibatide) Injection, was $47.9 million for the 2003 Quarterly Period compared to $45.0 million for the 2002 Quarterly Period. Worldwide sales of INTEGRILIN in the 2003 Quarterly Period, as provided to us by SGP, were $79.2 million, a 3% percent increase over sales for the 2002 Quarterly Period driven by increased volume and higher average selling prices. Revenue under strategic alliances increased to $73.9 million in the 2003 Quarterly Period from $50.7 million in the 2002 Quarterly Period. The increase in strategic alliance revenue primarily relates to the $30.0 million clinical milestone earned under our Ortho Biotech alliance upon the achievement of target enrollment in our Phase III APEX VELCADE clinical trial in patients with multiple myeloma and $9.3 million of revenue recognized upon the April 2003 termination of the Aventis technology transfer agreement. This increase in strategic alliance revenue is partially offset by the decrease in revenue recognized under our research alliance and technology transfer agreement with Monsanto Company, or Monsanto, which expired in 2002 at the end of its original five-year term. In the fourth quarter of 2003, we expect strategic alliance revenue to be lower than it was in previous quarters due to the conclusion of the research phase of the Bayer alliance and the Aventis technology transfer agreement. In addition, we do not expect to earn any additional significant milestones in the fourth quarter of 2003.

        Included in 2003 Quarterly Period revenue is $2.5 million of revenue that was recognized in prior years relating to the adoption of SAB 101. Included in 2002 Quarterly Period revenue is $8.4 million of revenue that was recognized in prior years relating to the adoption of SAB 101.

        Cost of goods sold includes manufacturing-related expenses associated with the sale of INTEGRILIN and VELCADE.

        Research and development expenses decreased to $119.7 million for the 2003 Quarterly Period from $140.5 million for the 2002 Quarterly Period. During the 2002 Quarterly Period, we made significant investments to support our lead oncology program, VELCADE as well as certain one-time investments in development infrastructure, which were not necessary in the 2003 Quarterly Period. In addition, the decrease in research and development expenses for the 2003 Quarterly Period reflects the financial benefits of our restructuring efforts, including reduced personnel and personnel-related costs.

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        In addition to our ongoing clinical trials of INTEGRILIN^® (eptifibatide) Injection and VELCADE™ (bortezomib) for Injection, we have eight drug candidates in clinical development. The following chart summarizes the INTEGRILIN and VELCADE clinical trials as well as the clinical trials of these eight drug candidates, the applicable disease indication and the current trial status of the program.

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        Completion of clinical trials may take several years or more and the length of time can vary substantially according to the type, complexity, novelty and intended use of a product candidate. The types of cost incurred during a clinical trial vary depending upon the type of product candidate and the nature of the study.

        CMR International, an independent pharmaceutical data collection agency, estimates that clinical trials in our areas of focus are typically completed over the following timelines:

        Upon successful completion of phase III clinical trials of a product candidate, we intend to submit the results to the FDA to support regulatory approval. However, we cannot be certain that any of our product candidates will prove to be safe or effective, will receive regulatory approvals, or will be successfully commercialized. Our clinical trials might prove that our product candidates may not be effective in treating the disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that require us to cease further development of the product candidate. The cost to take a product candidate through clinical trials is dependent upon, among other things, the disease indications, the timing, the size and dosing schedule of each clinical trial, the number of patients enrolled in each trial and the speed at which patients are enrolled and treated. We could incur increased product development costs if we experience delays in trial enrollment, the evaluation of clinical trial results or regulatory approvals.

        Products that are likely to result from our research and development projects are based on new technologies and new therapeutic approaches that have not been extensively tested in humans. The regulatory requirements governing these types of products may be more rigorous than for conventional products. As a result, it is difficult to estimate the nature and length of the efforts to complete such products as we may experience a longer regulatory process in connection with any products that we develop based upon these new technologies or therapeutic approaches. In addition, ultimate approval for commercial manufacturing and marketing of our products is dependent on the FDA or applicable approval body in the country for which approval is being sought, adding further uncertainty to estimated costs and completion dates. Significant delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidates.

        Due to the variability in the length of time necessary to develop a product, the uncertainties related to the estimated cost of the projects and ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate cost to bring our product candidates to market are not available.

        We budget and monitor our research and development costs by type or category, rather than by project on a comprehensive or fully allocated basis. Significant categories of costs include personnel, clinical, third party research and development services and laboratory supplies. In addition, a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects or our technology platform. Consequently, fully loaded research and development cost summaries by project are not available.

        Given the uncertainties related to development, we are currently unable to reliably estimate when, if ever, our product candidates will generate revenue and cash flows. We do not expect to receive net cash inflows from any of our major research and development projects until a product candidate becomes a profitable commercial product.

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        Selling, general and administrative expenses increased to $43.0 million for the 2003 Quarterly Period from $41.8 million for the 2002 Quarterly Period. The increase reflects the net impact of increased selling and marketing expenses related to the launch of VELCADE™ (bortezomib) for Injection and the expansion of the Millennium-SGP sales force for INTEGRILIN® (eptifibatide) Injection offset by decreased consulting and legal expenses.

        In June 2003, we announced a broad, accelerated restructuring plan to focus our resources on development and commercialization. The plan includes consolidation of research and development facilities, overall headcount reduction and streamlining of discovery and development projects. As a result, we have recorded restructuring charges of $52.7 million in the 2003 Quarterly Period related to remaining rental obligations on facilities that we have vacated, contract termination, asset impairment and personnel costs. Charges related to facilities include the estimated remaining rental obligation, net of estimated sublease income, for facilities that we no longer occupy. Our decisions to vacate certain facilities and abandon the related leasehold improvements as well as terminate certain research programs were deemed to be impairment indicators under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or SFAS No. 144. As a result of performing the impairment evaluations, we recorded asset impairment charges to adjust the carrying value of the related long lived assets to fair value. Fair value of the assets was estimated based upon anticipated future cash flows, discounted at a rate commensurate with the risk involved. We anticipate additional restructuring charges in future periods as we continue to execute our restructuring plan. These charges will include additional facilities and personnel costs.

        Amortization of intangible assets in the 2003 Quarterly Period and 2002 Quarterly Period relates to specifically identified intangible assets from the COR acquisition as well as our acquisitions of LeukoSite in 1999 and Cambridge Discovery Chemistry Ltd., or CDC, in 2000.

        Investment income decreased to $8.5 million in the 2003 Quarterly Period from $22.2 million in the 2002 Quarterly Period. The decrease is primarily attributable to a lower average balance of invested funds in the 2003 Quarterly Period and less favorable market conditions resulting in lower yields.

        Interest expense decreased to $2.7 million in the 2003 Quarterly Period from $10.4 million in the 2002 Quarterly Period, reflecting the April 2003 repurchase of $577.8 million aggregate principal amount of the 5.0% notes and 4.5 % notes.

Nine Months Ended September 30, 2003 and September 30, 2002

        For the nine months ended September 30, 2003 (the “2003 Nine Month Period”), we reported a net loss of $337.3 million, or $1.14 per basic and diluted share, compared to a net loss of $510.5 million, or $1.86 per basic and diluted share for the nine months ended September 30, 2002 (the “2002 Nine Month Period”).

        Revenue increased to $348.3 million for the 2003 Nine Month Period from $256.2 million for the 2002 Nine Month Period. Net product sales of VELCADE™ (bortezomib) for Injection were $30.9 million in the 2003 Nine Month Period. Co-promotion revenue, based on worldwide sales of INTEGRILIN, was $151.9 million for the 2003 Nine Month Period compared to $112.1 million for the same period in 2002. Co-promotion revenue for the 2002 Nine Month Period is based upon worldwide sales of INTEGRILIN from the date of the COR acquisition, or February 12, 2002. Revenue under strategic alliances increased to $165.5 million in the 2003 Nine Month Period from $144.1 million in the 2002 Nine Month Period. The increase is primarily due to the $30.0 million clinical milestone earned under the Ortho Biotech alliance and the $40.0 million of revenue recognized from the Aventis termination payment. This increase is partially offset by the decrease in revenue recognized under our research alliance and technology transfer agreement with Monsanto, which expired in 2002 at the end of its original five-year term.

        Included in 2003 Nine Month Period revenue is $7.5 million of revenue that was recognized in prior years relating to the adoption of SAB 101. Included in 2002 Nine Month Period revenue is $30.5 million of revenue that was recognized in prior years relating to the adoption of SAB 101. The remaining amount of revenue to be recognized from the cumulative change is approximately $1.1 million, which will be recognized through December 2003.

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        Research and development expenses increased to $377.1 million for the 2003 Nine Month Period from $364.3 million for the 2002 Nine Month Period. The research and development expense categories with the most significant increases were personnel costs, followed by clinical trial costs and facilities expenses.

        Selling, general and administrative expenses decreased to $122.2 million for the 2003 Nine Month Period from $125.1 million for the 2002 Nine Month Period. The decrease was primarily attributable to decreased consulting expenses partially offset by the increase in sales and marketing activities for the launch of VELCADE™ (bortezomib) for Injection.

        We have recorded restructuring charges of $146.2 million in the 2003 Nine Month Period related to asset impairment, facilities, personnel costs and contract terminations. Charges related to facilities include the estimated remaining rental obligation, net of estimated sublease income, for facilities that we no longer occupy. Our decisions to vacate certain facilities and abandon the related leasehold improvements as well as terminate certain research programs were deemed to be impairment indicators under SFAS No. 144. As a result of performing the impairment evaluations, we recorded asset impairment charges to adjust the carrying value of the related long lived assets to fair value. Fair value of the assets was estimated based upon anticipated future cash flows, discounted at a rate commensurate with the risk involved. We anticipate additional restructuring charges in future periods as we continue to execute our restructuring plan. These charges will include additional facilities and personnel costs.

        We recorded a one-time, non-cash charge to operations in the 2002 Nine Month Period of $242.0 million for acquired in-process research and development in connection with the COR acquisition. The valuation of acquired in-process research and development represents the estimated fair value related to five incomplete research and development projects that, at the time of the COR acquisition, had no alternative future use and for which technological feasibility had not been established.

        Amortization of intangible assets in the 2003 Nine Month Period and 2002 Nine Month Period relates to specifically identified intangible assets from the COR, LeukoSite and CDC acquisitions. The increase in amortization expense is due to a full nine months of amortization in the 2003 Nine Month Period on the COR related intangible assets compared to amortization from the date of the COR acquisition in February 2002 through September 30, 2002 in the 2002 Nine Month Period.

        Investment income decreased to $26.8 million in the 2003 Nine Month Period from $65.3 million in the 2002 Nine Month Period. The decrease is primarily attributable to a lower average balance of invested funds in the 2003 Nine Month Period and less favorable market conditions resulting in lower yields.

        Interest expense decreased to $18.2 million in the 2003 Nine Month Period from $27.6 million in the 2002 Nine Month Period. Decreased interest is due to the April 2003 repurchase of $577.8 million aggregate principal amount of the 5.0% notes and the 4.5% notes.

        We sold our equity interest in M&I and in consideration for the sale, we received an initial payment of $20.0 million in December 2001. During each of the 2003 and 2002 Nine Month Periods, we recorded an additional gain of $40.0 million on our sale of this equity interest based upon the achievement of predetermined sales targets of CAMPATH® (alemtuzumab) humanized monoclonal antibody for 2003 and 2002 that entitled us to this additional consideration under the terms of our agreement with ILEX.

        During the 2003 Nine Month Period, we recorded a non-cash net charge of $10.5 million which represents the write-off of approximately $12.4 million of unamortized original debt issuance costs associated with the 5.0% notes and 4.5% notes assumed in the COR acquisition, offset by $1.9 million relating to the expired put premium on the untendered notes as of April 29, 2003.

        During the 2002 Nine Month Period, we recorded a non-cash charge of $54.0 million relating to the fair value of the put premium placed on the 5.0% notes and 4.5% notes.

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Liquidity and Capital Resources

        We require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments and to pay debt service, including principal and interest and capital lease payments. We have also made strategic commitments to purchase debt and equity securities from some of our alliance partners in accordance with our Board of Directors’ approved policies and our business needs. These investment commitments are generally in smaller companies. We may lose money in these investments and our ability to liquidate these investments is in some cases very limited. We may also owe our partners milestone payments and royalties. We have committed to fund development costs incurred by some of our partners.

        As described above under “Overview—Financial Resources,” we expect that our cash requirements for many of these uses will increase as the scale of our operations grows.

        Historically, we have funded our cash requirements primarily through the following:

        In the future, we expect to continue to fund our cash requirements from some of these external sources as well as the sales of VELCADE™ (bortezomib) for Injection, INTEGRILIN and other products. We are entitled to additional committed research and development funding under a number of our strategic alliances and expect to receive additional substantial payments from ILEX as a result of our sale of our joint venture interest in M&I. We believe that the key factors that could affect our internal and external sources of cash are:

        As of September 30, 2003, we had approximately $919.7 million in cash, cash equivalents and marketable securities. This excludes $21.2 million of interest-bearing marketable securities classified as restricted cash on our balance sheet as of September 30, 2003, which serve as collateral for letters of credit securing leased facilities.

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        Cash Flows

        We used $208.8 million of cash in operating activities in the 2003 Nine Month Period and $269.1 million in the 2002 Nine Month Period. The principal use of cash in operating activities in both 2003 and 2002 was to fund our net loss.

        We used $461.2 million of cash in investing activities in the 2003 Nine Month Period. Investing activities provided cash of $212.0 million in the 2002 Nine Month Period. The principal uses of funds in the 2003 Nine Month Period and 2002 Nine Month Period were purchases of marketable securities and property and equipment and other long term assets. The principal source of funds in the 2002 Nine Month Period is from the sale of marketable securities and the cash acquired in the COR acquisition.

        In the 2003 Nine Month period, we used $587.2 million of cash in financing activities. The primary use of cash was the repurchase of $577.8 million in principal of convertible notes and the related put premium of $52.1 million. Financing activities provided net cash of $82.5 million in the 2002 Nine Month Period. The principal sources of net cash from financing activities were the sales of common stock to Abbott and Millennium employees in the 2003 and 2002 Nine Month Periods.

        We believe that our existing cash and cash equivalents, internally generated funds and the anticipated cash payments from our current strategic alliances will be sufficient to support our expected operations, fund our debt service obligations and fund our capital commitments for at least the next several years.

        Contractual Obligations

        Our major outstanding contractual obligations relate to our facilities leases, convertible notes, capital leases from equipment financings and commitments to purchase debt and equity securities from certain partners.

        As of September 30, 2003, our convertible notes aggregated $105.5 million in principal amount outstanding. All three issues of notes require semi-annual interest payments through maturity. All required interest payments have been made to date. As of September 30, 2003, these notes consisted of:

        In February 2001, we entered into a lease agreement relating to a building for laboratory and office space in Cambridge, England. The lease has a term of 20 years and commenced in 2003. We were responsible for a portion of the construction costs, which we estimate to be approximately $21.0 million. Rent is expected to be approximately $2.8 million per year based upon foreign currency exchange rates at September 30, 2003 and is subject to market adjustments at the end of the 5^th, 10^th and 15^th years. In connection with our June 2003 restructuring plan, we no longer occupy this space and have abandoned the related leasehold improvements as part of consolidating our facilities. This decision was deemed to be an impairment indicator under SFAS No. 144 and asset impairment charges were recorded to restructuring to adjust the carrying value of the related long-lived assets to their net realizable values. Any rental expense, net of estimated sub-leasing income, will be recorded as a restructuring charge in the fourth quarter of 2003.

        We also have lease obligations relating to two new buildings for laboratory and office space in Cambridge, Massachusetts. The rent obligation for the first of these buildings began in July 2002 and the rent on the second building began in July 2003. Rent is calculated on an escalating scale ranging from approximately $7.6 million, per building per year, to approximately $9.7 million, per building per year. Each lease is for a term of seventeen years. We were responsible for a portion of the construction costs for both buildings and were deemed to be the owner during the construction period of each building under EITF 97-10, “The Effect of Lessee Involvement in Asset Construction.” As a result, during the 2003 Nine Month Period, we recorded approximately $6.7 million and during

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the 2002 Nine Month Period, we recorded approximately $27.6 million of additional non-cash construction costs under these leases.

        There have been no significant changes to our contractual obligations and commercial commitments included in our Form 10-K as of December 31, 2002.

RISK FACTORS THAT MAY AFFECT RESULTS

        This Quarterly Report on Form 10-Q and certain other communications made by us contain forward-looking statements, including statements about our growth and future operating results, discovery and development of products, potential acquisitions, strategic alliances and intellectual property. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words “believe,” “anticipate,” “plan,” “expect,” “intend” and similar expressions to help identify forward-looking statements.

        We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Regulatory Risks

Our business may be harmed if we do not obtain approval to market INTEGRILIN® (eptifibatide) Injection and VELCADE™ (bortezomib) for Injection for additional therapeutic uses.

        INTEGRILIN and VELCADE have been approved for specific therapeutic uses. Part of our strategy to grow our business is to market INTEGRILIN and VELCADE for additional indications. To do so, we will need to obtain the appropriate regulatory approvals. If we are unsuccessful in obtaining authorizations for expanded uses of INTEGRILIN or VELCADE, our revenues may not grow as expected and our business and operating results will be harmed.

We may not be able to obtain approval in additional jurisdictions to market VELCADE.

        We have filed a Marketing Authorization Application with the European Agency for the Evaluation of Medicinal Products, or EMEA, for approval to market VELCADE. The EMEA may not grant marketing approval for VELCADE within the time frame that we anticipate or at all. For example, we filed our application for the approval of VELCADE by the EMEA based on phase II clinical trial data. It is possible that the EMEA will not approve VELCADE for marketing prior to our completion of the ongoing phase III clinical trials of VELCADE and the filing of the results of such phase III trials with the EMEA.

        If we are not able to obtain approval to market VELCADE in additional jurisdictions, we will lose the opportunity to sell in those jurisdictions and will not be able to earn potential milestone payments under our agreement with Ortho Biotech.

We may not be able to obtain marketing approval for products or services resulting from our development efforts.

        The products that we are developing require research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales. This process is expensive and lengthy, and can often take a number of years. In some cases, the length of time that it takes for us to achieve various regulatory approval milestones affects the payments that we are eligible to receive under our strategic alliance agreements.

        We may need to successfully address a number of technological challenges in order to complete development of our products. Moreover, these products may not be effective in treating any disease or may prove to

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have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market.

        Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, is subject to continual review and periodic inspections by the Food and Drug Administration, or FDA, and other regulatory bodies. In particular, the marketing approval that we received from the FDA for VELCADE requires that we satisfactorily complete specified post-approval clinical trials of this product. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market or the imposition of civil or criminal penalties.

We have only limited experience in regulatory affairs, and some of our products may be based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.

        We have only limited experience in filing and prosecuting the applications necessary to gain regulatory approvals. Moreover, certain of the products that are likely to result from our research and development programs may be based on new technologies and new therapeutic approaches that have not been extensively tested in humans. The regulatory requirements governing these types of products may be more rigorous than for conventional products. As a result, we may experience a longer regulatory process in connection with any products that we develop based on these new technologies or new therapeutic approaches.

Risks Relating to Our Business, Strategy and Industry

Our revenues over the next several years will be materially dependent on the commercial success of INTEGRILIN® (eptifibatide) Injection and VELCADE™ (bortezomib) for Injection.

        Our revenues over the next several years will be materially dependent on the commercial success of INTEGRILIN, which has been on the market in the United States since June 1998, and VELCADE, which was approved by the FDA in May 2003 and commercially launched in the United States shortly after that date. Because of the recent introduction of VELCADE, we have very limited experience as to the sales levels of this product. Marketing of INTEGRILIN outside the United States commenced in mid-1999. Demand for GP IIb-IIIa inhibitors, such as INTEGRILIN, has been softening since the beginning of 2003. Our business plan contemplates our receiving marketing authorization to sell VELCADE outside the United States for the treatment of patients with multiple myeloma and both in the United States and abroad for other indications and we will be adversely affected if we do not receive such approvals. We will not achieve our business plan, and we may be forced to scale back our operations and research and development programs, if:

We face substantial competition, and others may discover, develop or commercialize products and services before or more successfully than we do.

        The fields of biotechnology and pharmaceuticals are highly competitive. Many of our competitors are substantially larger than we are, and these competitors have substantially greater capital resources, research and development staffs and facilities than we have. Furthermore, many of our competitors are more experienced than we are in drug discovery, development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. As a result, our competitors may discover, develop and commercialize pharmaceutical products or services before we do. In addition, our competitors may discover, develop and

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commercialize products or services that render non-competitive or obsolete the products or services that we or our collaborators have developed or are seeking to develop and commercialize.

        Due to the incidence and severity of cardiovascular diseases, the market for therapeutic products that address these diseases is large, and we expect the already intense competition in this field to increase. Our most significant competitors are major pharmaceutical companies and biotechnology companies. The two products that compete directly with INTEGRILIN® (eptifibatide) Injection in the GP IIb-IIIa market segment are ReoPro® (abciximab), which is produced by Johnson & Johnson and sold by Johnson & Johnson and Eli Lilly and Company, and Aggrastat® (tirofiban HCl), which is produced and sold by Merck & Co., Inc. outside of the United States and by Guilford Pharmaceuticals, Inc. in the United States. Other competitive factors that could negatively affect INTEGRILIN include:

        With respect to VELCADE™ (bortezomib) for Injection, we face competition from Celgene Corporation’s Thalomid® (thalidomide), a treatment for complications associated with leprosy, which is increasingly used for multiple myeloma based on data published in peer-reviewed publications. We also face competition for VELCADE from traditional chemotherapy treatments, and there are other potentially competitive therapies for VELCADE that are in late-stage clinical development for the treatment of multiple myeloma. In addition, multiple myeloma therapies in development may reduce the number of patients available for VELCADE treatment through enrollment of these patients in clinical trials of these potentially competing products.

Sales of INTEGRILIN and possibly VELCADE in particular reporting periods may be affected by fluctuations in buying patterns.

        A significant portion of INTEGRILIN domestic pharmaceutical sales is made to major drug wholesalers. These sales are affected by fluctuations in the buying patterns of these wholesalers and the corresponding changes in inventory levels maintained by them. These changes may not reflect underlying prescriber demand. Additionally, we expect that sales from INTEGRILIN will generally be lower in the summer months because fewer medical procedures are typically performed during these months. These fluctuations in sales of INTEGRILIN may have a material adverse effect on our results of operations for particular reporting periods. It is possible that sales of VELCADE will be similarly affected by fluctuations in buying patterns.

Because discovering drugs based upon genomics is new, it is possible that our discovery process will not result in commercial products or services.

        The process of discovering drugs based upon genomics is new and evolving rapidly. We focus a portion of our research on diseases that may be linked to several or many genes working in combination. Both we and the general scientific and medical communities have only a limited understanding of the role that genes play in these diseases. To date, we have not commercialized any products discovered through our genomics research, and we may not be successful in doing so in the future. In addition, relatively few products based on gene discoveries have been developed and commercialized by others. Rapid technological development by us or others may result in compounds, products or processes becoming obsolete before we recover our development expenses.

If our clinical trials are unsuccessful, or if they experience significant delays, our ability to commercialize products will be impaired.

        We must provide the FDA and foreign regulatory authorities with preclinical and clinical data demonstrating that our products are safe and effective before they can be approved for commercial sale. Clinical development, including preclinical testing, is a long, expensive and uncertain process. It may take us several years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical or clinical studies do

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not necessarily predict their final results, and acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to the FDA. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical trial or safety issues resulting from products of the same class of drug could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful. For example, in 2002, we discontinued the development of MLN977 for the treatment of chronic asthma, because three patients in a phase II clinical study experienced elevations in their liver enzymes that were likely related to the use of the product. This adverse event might substantially diminish the commercial viability of MLN977 as an oral drug for the treatment of chronic asthma.

        We may not complete our planned preclinical or clinical trials on schedule or at all. We may not be able to confirm the safety and efficacy of our potential drugs in long-term clinical trials, which may result in a delay or failure to commercialize our products. In addition, due to the substantial demand for clinical trial sites in the cardiovascular area, we may have difficulty obtaining a sufficient number of appropriate patients or clinician support to conduct our clinical trials as planned. As a result, we may have to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. Our product development costs will increase if we experience delays in testing or approvals. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or potential products.

We may not be able to obtain biological material, including human and animal DNA and RNA samples, required for our genetic studies, which could delay or impede our drug discovery efforts.

        Our drug discovery strategy uses genetic studies of families and populations prone to particular diseases. These studies require the collection of large numbers of DNA and RNA samples from affected individuals, their families and other suitable populations as well as animal models. The availability of DNA and RNA samples and other biological material is important to our ability to discover the genes responsible for human diseases through human genetic approaches and other studies. Competition for these resources is intense. Access to suitable populations, materials and samples could be limited by forces beyond our control, including governmental actions. Some of our competitors may have obtained access to significantly more family and population resources and biological materials than we have obtained. As a result, we may not be able to obtain access to DNA and RNA samples necessary to support our human discovery programs.

Because many of the products and services that we develop will be based on new technologies and therapeutic approaches, the market may not be receptive to these products and services upon their introduction.

        The commercial success of any of our products and services for which we may obtain marketing approval from the FDA or other regulatory authorities will depend upon their acceptance by the medical community and third party payors as clinically useful, cost-effective and safe. Many of the products and services that we are developing are based upon new technologies or therapeutic approaches. As a result, it may be more difficult for us to achieve market acceptance of our products and services, particularly the first products and services that we introduce to the market based on new technologies and therapeutic approaches. Our efforts to educate the medical community on these potentially unique approaches may require greater resources than would be typically required for products and services based on conventional technologies or therapeutic approaches. The safety, efficacy, convenience and cost-effectiveness of our products as compared to competitive products will also affect market acceptance.

Ethical, legal and social issues related to the use of genetic information and genetic testing may cause less demand for our products.

        Genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. This could lead to governmental authorities calling for limits on or regulation of the use of genetic testing or prohibiting testing for genetic predisposition to certain diseases. Any of these scenarios could hinder our ability to enroll patients in clinical trials which are necessary for us to gain regulatory approval of our products.

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Risks Relating to Our Financial Results and Need for Financing

We have incurred substantial losses and expect to continue to incur losses. We will not be successful unless we reverse this trend.

        We have incurred losses of $337.3 million for the nine months ended September 30, 2003 and losses of $590.2 million for the year ended December 31, 2002, $192.0 million for the year ended December 31, 2001 and $355.3 million for the year ended December 31, 2000. We expect to continue to incur substantial operating losses for at least the next several years. Prior to our acquisition of COR Therapeutics, Inc., substantially all of our revenues resulted from payments from collaborators, and not from the sale of products. In 2002, we recognized significant investment income from our investment portfolio. We expect that investment income will be lower in 2003 as a result of lower cash balances and lower returns on investments.

        We expect to continue to incur significant expenses in connection with our research and development programs and commercialization activities. As a result, we will need to generate significant revenues to pay these costs and achieve profitability. We cannot be certain whether or when we will become profitable because of the significant uncertainties with respect to our ability to generate revenues from the sale of products and services and from existing and potential future strategic alliances.

We may need additional financing, which may be difficult to obtain. Our failure to obtain necessary financing or doing so on unattractive terms could adversely affect our business and operations.

        We will require substantial funds to conduct research and development, including preclinical testing and clinical trials of our potential products. We will also require substantial funds to meet our obligations to our collaborators and maximize the prospective benefits to us from our alliances, manufacture and market products and services that are approved for commercial sale, including INTEGRILIN® (eptifibatide) Injection and VELCADE™ (bortezomib) for Injection, and meet our debt service obligations. Additional financing may not be available when we need it or may not be available on favorable terms.

        If we are unable to obtain adequate funding on a timely basis, we may have to delay or curtail our research and development programs or our product commercialization activities. We could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, product candidates or products which we would otherwise pursue on our own.

Our indebtedness and debt service obligations may adversely affect our cash flow and otherwise negatively affect our operations.

        At September 30, 2003, we had approximately $105.5 million of outstanding convertible debt. During each of the last five years, our earnings were insufficient to cover our fixed charges. We will be required to make interest payments on our outstanding convertible notes totaling approximately $16.8 million over the next three years, assuming our convertible debt remains outstanding until maturity.

        We may in the future incur additional indebtedness, including long-term debt, credit lines and property and equipment financings to finance capital expenditures. We intend to satisfy our current and future debt service obligations from cash generated by our operations, our existing cash and investments and, in the case of principal payments at maturity, funds from external sources. We may not have sufficient funds and we may be unable to arrange for additional financing to satisfy our principal or interest payment obligations when those obligations become due. Funds from external sources may not be available on acceptable terms, or at all.

        Our indebtedness could have significant additional negative consequences, including:

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We have sold our interest in CAMPATH® (alemtuzumab) humanized monoclonal antibody; our financial plan assumes we will receive future significant payments that are contingent on the achievement of sales thresholds for the product.

        On December 31, 2001, ILEX Oncology, Inc. acquired our equity interest in Millennium & ILEX Partners, L.P. or M&I, which owns the CAMPATH product. In exchange for our equity interest in M&I, ILEX paid us $20.0 million on December 31, 2001 plus additional consideration contingent upon future sales of CAMPATH. We earned $40.0 million of such consideration in the second quarter of 2002. We earned an additional $40.0 million in the second quarter of 2003, $20.0 million of which ILEX paid to us, in the form of cash and stock, in the third quarter of 2003 and the remaining $20.0 million of which we expect ILEX to pay us, in cash, by December 31, 2003. We are entitled to an additional payment of $40.0 million in 2004, a portion of which ILEX may pay to us in the form of their stock, if sales of CAMPATH in the U.S. meet a specified threshold. In addition, we will be entitled to additional payments from ILEX if United States sales of CAMPATH after 2004 exceed specified annual thresholds. If these thresholds are not achieved, we will not receive any future additional payments related to CAMPATH. We have no ability to influence the actions of the entity that owns CAMPATH. Therefore, we have no control over the financial success of CAMPATH or our ability to earn additional revenues from the product.

If we do not achieve the anticipated benefits of our recently announced restructuring, or if the costs of this restructuring exceed anticipated levels, our business could be harmed.

        On June 5, 2003, we announced a restructuring designed to focus our resources on development and commercialization of product opportunities and achieving our goal of becoming profitable in the future. We may not achieve the cost savings anticipated from the restructuring because such savings are difficult to predict and speculative in nature. In addition, during 2003, 2004 and 2005 we expect to record total charges relating to the restructuring of between $225.0 million and $250.0 million. While we believe this estimate to be reasonable, it is possible that the actual charges will exceed this range. For example, we may not be able to lease facilities that we plan to close in connection with the restructuring as quickly or on as favorable terms as we anticipate.

Risks Relating to Collaborators

We depend significantly on our collaborators to work with us to develop and commercialize products and services.

        We market and sell INTEGRILIN® (eptifibatide) Injection through an alliance with SGP and, following any regulatory approvals outside of the United States, will develop and commercialize VELCADE™ (bortezomib) for Injection outside of the United States through an alliance with Ortho Biotech Products, L.P., a wholly owned subsidiary of Johnson & Johnson. We conduct substantial discovery and development activities through strategic alliances. We expect to enter into additional alliances in the future, especially in connection with product commercialization. The success of our alliances depends heavily on the efforts and activities of our collaborators.

        Each of our collaborators has significant discretion in determining the efforts and resources that it will apply to the alliance. Our existing and any future alliances may not be scientifically or commercially successful.

        The risks that we face in connection with these alliances include the following:

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We may not be successful in establishing additional strategic alliances, which could adversely affect our ability to develop and commercialize products and services.

        An important element of our business strategy is entering into strategic alliances for the development and commercialization of products and services when we believe that doing so will maximize product value. In some instances, if we are unsuccessful in reaching an agreement with a suitable collaborator, we may fail to meet certain of our business objectives for the applicable product or program. We face significant competition in seeking appropriate collaborators. Moreover, these alliance arrangements are complex to negotiate and time-consuming to document. We may not be successful in our efforts to establish additional strategic alliances or other alternative arrangements. The terms of any additional strategic alliances or other arrangements that we establish may not be favorable to us. Moreover, such strategic alliances or other arrangements may not be successful.

Risks Relating to Intellectual Property

If we are unable to obtain patent protection for our discoveries, the value of our technology and products will be adversely affected. If we infringe patent or other intellectual property rights of third parties, we may not be able to develop and commercialize our products and services or the cost of doing so may increase.

        Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific and factual questions.

        Our ability to develop and commercialize products and services depends in significant part on our ability to:

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There is significant uncertainty about the validity and permissible scope of patents in our industry, which may make it difficult for us to obtain patent protection for our discoveries.

        The validity and permissible scope of patent claims in the pharmaceutical and biotechnology fields, including the genomics field, involve important unresolved legal principles and are the subject of public policy debate in the United States and abroad. For example, there is significant uncertainty both in the United States and abroad regarding the patentability of gene sequences in the absence of functional data and the scope of patent protection available for full-length genes and partial gene sequences. Moreover, some groups have made particular gene sequences available in publicly accessible databases. These and other disclosures may adversely affect our ability to obtain patent protection for gene sequences claimed by us in patent applications that we file subsequent to such disclosures. There is also some uncertainty as to whether human clinical data will be required for issuance of patents for human therapeutics. If such data are required, our ability to obtain patent protection could be delayed or otherwise adversely affected.

Third parties may own or control patents or patent applications and require us to seek licenses, which could increase our development and commercialization costs, or prevent us from developing or marketing our products or services.

        We may not have rights under some patents or patent applications related to some of our existing and proposed products, processes or services. Third parties may own or control these patents and patent applications in the United States and abroad. Therefore, in some cases, such as those described below, in order to develop, manufacture, sell or import some of our existing and proposed products, processes or services, we or our collaborators may choose to seek, or be required to seek, licenses under third-party patents issued in the United States and abroad or those that might issue from United States and foreign patent applications. In such event, we would be required to pay license fees or royalties or both to the licensor. If licenses are not available to us on acceptable terms, we or our collaborators may not be able to develop, manufacture, sell or import these products, processes or services.

        With respect to our product candidate MLN01, we are aware of third-party patents and patent applications which relate to anti-CD18 antibodies and their use in various methods of treatment, including methods of reperfusion therapy and methods of treating focal ischemic stroke. In addition, our MLN01 and MLN02 product candidates are humanized monoclonal antibodies. We are aware of third-party patents and patent applications that relate to humanized or modified antibodies, products useful for making humanized or modified antibodies and processes for making and using humanized or modified antibodies. We are also aware of third-party patents and patent applications relating to manufacturing processes for humanized or modified antibodies, products thereof and materials useful in such processes. With respect MLN591RL and MLN2704, we are also aware of third-party patent applications relating to anti-PSMA antibodies.

        With respect to VELCADE™ (bortezomib) for Injection and other proteasome inhibitors in the treatment of myocardial infarctions, we are aware of the existence of a potentially interfering patent application filed by a third party. In addition, on June 26, 2002, Ariad Pharmaceuticals, Inc. sent to us and approximately 50 other parties a letter offering a sublicense for the use of United States Patent No. 6,410,516, which is exclusively licensed to Ariad. If this patent is valid and Ariad successfully sues us for infringement, we would require a license from Ariad in order to manufacture and market VELCADE.

We may become involved in expensive patent litigation or other proceedings, which could result in our incurring substantial costs and expenses or substantial liability for damages or require us to stop our development and commercialization efforts.

        There has been substantial litigation and other proceedings regarding the patent and other intellectual property rights in the pharmaceutical and biotechnology industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights. For example, we believe that we hold patent applications that cover genes that are also claimed in patent applications filed by others. Interference proceedings before the United States Patent and Trademark Office may be necessary to establish which party was the first to invent these genes.

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        The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. If a patent litigation or other proceeding is resolved against us, we or our collaborators may be enjoined from developing, manufacturing, selling or importing our products, processes or services without a license from the other party and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms or at all.

        Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Risks Relating to Product Manufacturing, Marketing and Sales

Because we have limited sales, marketing and distribution experience and capabilities, we may be dependent on third parties to successfully perform these functions on our behalf, or we may be required to incur significant costs and devote significant efforts to augment our existing capabilities.

        We have limited sales, marketing and distribution experience and capabilities. These capabilities consist primarily of the specialty cardiovascular sales force that markets INTEGRILIN® (eptifibatide) Injection and a recently hired oncology-specific sales force that markets VELCADE™ (bortezomib) for Injection. We are marketing and selling VELCADE in the United States solely through our new oncology sales force and without a collaborator. Our success in selling VELCADE will depend heavily on the performance of this sales force.

        Depending on the nature of the products and services for which we obtain marketing approval, we may need to rely significantly on sales, marketing and distribution arrangements with our collaborators and other third parties. For example, some types of pharmaceutical products require a large sales force and extensive marketing capabilities for effective commercialization. If in the future we elect to perform sales, marketing and distribution functions for these types of products ourselves, we would face a number of additional risks, including the need to recruit a large number of additional experienced marketing and sales personnel.

Because we have limited manufacturing capabilities, we will be dependent on third-party manufacturers to manufacture products for us, or we will be required to incur significant costs and devote significant efforts to establish our own manufacturing facilities and capabilities.

        We have limited manufacturing experience and no commercial-scale manufacturing capabilities. In order to continue to develop products and services, apply for regulatory approvals and commercialize products and services, we will need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities. In particular, we are currently seeking to establish long-term supply relationships for the production of commercial supplies of VELCADE.

        We currently rely upon third parties to produce material for preclinical testing purposes and expect to continue to do so in the future. We also expect to rely upon other third parties, including our collaborators, to produce materials required for clinical trials and for the commercial production of certain of our products.

        There are a limited number of manufacturers that operate under the FDA’s good manufacturing practices regulations capable of manufacturing our products. As a result, we have experienced some difficulty finding manufacturers for our products with adequate capacity for our anticipated future needs. If we are unable to arrange for third-party manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to complete development of our products or market them.

        Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

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        We may in the future elect to manufacture certain of our products in our own manufacturing facilities. We would need to invest substantial additional funds and recruit qualified personnel in order to build or lease and operate any manufacturing facilities.

We face particular challenges in connection with the manufacture of INTEGRILIN® (eptifibatide) Injection; if we do not meet these challenges, our revenues and income will be adversely affected.

        With respect to INTEGRILIN, we have two manufacturers that produce bulk product and two manufacturers that perform fill/finish and packaging. If we do not have adequate supplies of INTEGRILIN to meet market demand, we may lose potential revenues, and the healthcare community may turn to competing products.

        We anticipate that by the end of 2003, SGP, one of the manufacturers that performs fill/finish and packaging of INTEGRILIN, will stop performing these services at its Manati facility in Puerto Rico. Currently SGP is executing a production plan at the Manati facility to build up inventory of 75 mg/ 100mL sized vials of INTEGRILIN for certain international markets. Based on SGP’s forecasts, this inventory buildup will provide supply for those markets through at least the end of 2004.

        SGP’s Heist facility in Belgium is currently approved to perform fill/finish services for 20mg/10mL sized vials of INTEGRILIN for sales in the European Union. We have identified alternative fill/finish and packaging suppliers to serve as future sources of supply for the United States and international markets. Although we believe that the fill/finish and packaging performed by our primary manufacturer is sufficient to meet our requirements for INTEGRILIN supply in the United States for the foreseeable future, the closure of the Manati facility could adversely affect the supply of INTEGRILIN and, thereby, harm our results of operations.

        We expect to improve or modify our existing process technologies and manufacturing capabilities for INTEGRILIN. We cannot quantify the time or expense that may ultimately be required to improve or modify our existing process technologies, but it is possible that such time or expense could be substantial. Moreover, we may not be able to implement any of these improvements or modifications successfully.

        Our manufacturing plans and commercialization strategy for INTEGRILIN include the addition of extra capacity for the manufacture of INTEGRILIN as described above. We are currently engaged in finalizing multiple third-party manufacturing arrangements on commercially reasonable terms. We may not be able to do so, and, even if such arrangements are established, they may not continue to be available to us on commercially reasonable terms. If we are unable to obtain contract manufacturing on commercially acceptable terms, we may not be able to produce INTEGRILIN in sufficient quantities to meet future market demand.

        We frequently carry significant amounts of INTEGRILIN in inventory. If for some reason we were unable to sell INTEGRILIN, our inventory could expire and we would be required to write-off the value of the expired inventory.

If we fail to obtain an adequate level of reimbursement for our products or services by third-party payors, there may be no commercially viable markets for our products or services.

        The availability and levels of reimbursement by governmental and other third-party payors affect the market for any pharmaceutical product or healthcare service. These third-party payors continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for medical products and services. In certain foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. We may not be able to sell our products and services profitably if reimbursement is unavailable or limited in scope or amount.

        In particular, third-party payors could lower the amount that they will reimburse hospitals to treat the conditions for which the FDA has approved INTEGRILIN® (eptifibatide) Injection or VELCADE™ (bortezomib) for Injection. If they do, pricing levels or sales volumes of INTEGRILIN or VELCADE may decrease. In addition, if we fail to comply with the rules applicable to the Medicaid and Medicare programs, we could be subject to the imposition of civil or criminal penalties or exclusion from these programs.

        In foreign markets, a number of different governmental and private entities determine the level at which hospitals will be reimbursed for administering INTEGRILIN and VELCADE to insured patients. If these levels are set, or reset, too low, it may not be possible to sell INTEGRILIN or VELCADE at a profit in these markets.

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        In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system. Further proposals are likely. The potential for adoption of these proposals affects or will affect our ability to raise capital, obtain additional collaborators and market our products.

        In addition, we believe that the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of our present and future products, which may adversely affect product sales. Further, when a new therapeutic product is approved, the availability of governmental or private reimbursement for that product is uncertain, as is the amount for which that product will be reimbursed. We cannot predict the availability or amount of reimbursement for our product candidates, and current reimbursement policies for INTEGRILIN® (eptifibatide) Injection or VELCADE™ (bortezomib) for Injection could change at any time.

We face a risk of product liability claims and may not be able to obtain insurance.

        Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing and marketing of human therapeutic products. In particular, INTEGRILIN and VELCADE are administered to patients with serious diseases who have a high incidence of mortality. Although we have product liability insurance that we believe is appropriate, this insurance is subject to deductibles, co-insurance requirements and coverage limitations and the market for such insurance is becoming more restrictive. We may not be able to obtain or maintain adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could prevent or interfere with our product commercialization efforts.

Guidelines and recommendations can affect the use of our products.

        Government agencies promulgate regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines that are followed by patients and health care providers could result in decreased use of our products.

Risks Relating to an Investment in Our Common Stock

The trading price of our securities could be subject to significant fluctuations.

        The trading price of our common stock has been volatile, and may be volatile in the future. Between January 1, 2003 and September 30, 2003, our common stock traded as high as $18.36 per share and as low as $6.24 per share. Factors such as announcements of our or our competitors’ operating results, changes in our prospects and market conditions for biotechnology stocks in general could have a significant impact on the future trading prices of our common stock.

        In particular, the trading price of the common stock of many biotechnology companies, including ours, has experienced extreme price and volume fluctuations, which have at times been unrelated to the operating performance of such companies whose stocks were affected. Some of the factors that may cause volatility in the price of our securities include:

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        The price of our securities may also be affected by the estimates and projections of the investment community, general economic and market conditions, and the cost of operations in our product markets. While we cannot predict the individual effect that these factors may have on the price of our securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time. There can be no assurance that these factors will not have an adverse effect on the trading price of our common stock.

We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stock.

        Provisions of our certificate of incorporation and bylaws and of Delaware law could have the effect of delaying, deferring or preventing an acquisition of our company. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may issue shares of our authorized “blank check” preferred stock and our stockholders are limited in their ability to call special stockholder meetings. In addition, we have issued preferred stock purchase rights that would adversely affect the economic and voting interests of a person or group that seeks to acquire us or a 15% or more interest in our common stock without negotiations with our board of directors.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        We manage our fixed income investment portfolio in accordance with our Policy for Securities Investments, or Investment Policy, that has been approved by our Board of Directors. The primary objectives of our Investment Policy are to preserve principal, maintain a high degree of liquidity to meet operating needs, and obtain competitive returns subject to prevailing market conditions. Investments are made primarily in high-grade corporate bonds with effective maturities of three years or less, asset-backed debt securities and U.S. government agency debt securities. These investments are subject to risk of default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical 100 basis point increase in interest rates would result in an approximate $13.9 million decrease in the fair value of our investments as of September 30, 2003. However, due to the conservative nature of our investments and relatively short effective maturities of debt instruments, interest rate risk is mitigated. Our Investment Policy specifies credit quality standards for our investments and limits the amount of exposure from any single issue, issuer or type of investment. We do not own derivative financial instruments in our investment portfolio.

        As of September 30, 2003, the fair value of our 4.5% notes, 5.0% notes and 5.5% notes approximates their carrying value. The interest rates on our convertible notes and capital lease obligations are fixed and therefore not subject to interest rate risk.

        Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments which would require disclosure under this item.

        As of September 30, 2003 we did not have any financing arrangements that were not reflected in our balance sheet.

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Item 4.    Controls and Procedures

        Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2003. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of September 30, 2003, our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our chief executive officer and chief financial officer by others, particularly during the period in which this report was prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

        No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II    OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K

         The following Current Reports on Form 8-K were filed or furnished by us during the three months ended September 30, 2003.

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SIGNATURES

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

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EXHIBIT INDEX

† Confidential treatment requested as to certain portions, which portions have been separately filed with the Securities and Exchange Commission.

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