AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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SCRIPTGEN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 2834 22-3193172
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

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200 BOSTON AVENUE
MEDFORD, MA 02155
(781) 393-8000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------

MARK T. WEEDON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SCRIPTGEN PHARMACEUTICALS, INC.
200 BOSTON AVENUE
MEDFORD, MA 02155
(781) 393-8000

(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------

with copies to:

CARL E. KAPLAN, ESQ. RICHARD R. PLUMRIDGE, ESQ.
FULBRIGHT & JAWORSKI L.L.P. LUCI STALLER ALTMAN, ESQ.
666 FIFTH AVENUE BROBECK, PHLEGER & HARRISON LLP
NEW YORK, NEW YORK 10103 1633 BROADWAY, 47TH FLOOR
(212) 318-3000 NEW YORK, NEW YORK 10019
(212) 581-1600

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/

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CALCULATION OF REGISTRATION FEE

TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE AGGREGATE OFFERING AMOUNT OF
REGISTERED PRICE (1) REGISTRATION FEE

Common Stock, $0.01 par
value per share....................................................................... $44,850,000 $13,591

(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.

PROSPECTUS Subject to Completion, Dated November 20, 1997
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[LOGO]
SCRIPTGEN PHARMACEUTICALS, INC.

Common Stock
------------------------------------------------------------

All of the shares of Common Stock offered hereby (the "Offering") are
being offered by Scriptgen Pharmaceuticals, Inc. ("Scriptgen" or the "Company").
Prior to the Offering, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for the factors to be considered
in determining the initial public offering price.

Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "SCRP."

Concurrent with the Offering, Hoechst Marion Roussel has agreed to purchase
shares of Common Stock directly from the Company (assuming an initial
public offering price of $ ), for an aggregate purchase price of
$3,000,000, pursuant to an existing agreement with the Company (the "Private
Placement"). See "Business--Collaborative Arrangements."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 8-18.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Price to Underwriting Discounts Proceeds to
Public and Commission(1) Company(2)

- -----------------------------------------------------------------------------------------------------
Per Common Share $ $ $
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Total(3) $ $ $
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(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."

(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY ESTIMATED
TO BE $ .

(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
ADDITIONAL SHARES OF COMMON STOCK ON THE SAME TERMS PER SHARE SOLELY
TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE
TOTAL PRICE TO PUBLIC WILL BE $ , THE TOTAL UNDERWRITING DISCOUNTS
AND COMMISSIONS WILL BE $ AND THE TOTAL PROCEEDS TO COMPANY WILL BE
$ . SEE "UNDERWRITING."

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of SBC Warburg Dillon Read Inc., New York,
New York, on or about , 1998. The Underwriters include:

SBC WARBURG DILLON READ INC. VOLPE BROWN WHELAN & COMPANY

SCRIPTGEN PHARMACEUTICALS, INC.

Graphical depiction of the application of Scriptgen's platform of drug discovery
technologies.

Scriptgen's drug discovery process begins in the cell as DNA is transcribed
to a folded protein or a structural RNA. GATE measures the effects of transient
gene inactivation after this conversion to identify and validate novel gene
products for use as targets. ATLAS and SCAN are used to rapidly screen the
target folded proteins and target folded RNA against compounds from the
Company's 250,000 compound library or the compound libraries of its
collaborators. These high throughput assay systems identify and measure the
affinity of ligands (compounds that bind to the target). These ligands may then
be tested to identify drug candidates.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS INDICATED OTHERWISE, ALL INFORMATION IN THIS PROSPECTUS (I)
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, (II)
GIVES RETROACTIVE EFFECT TO THE CONVERSION OF THE COMPANY'S SERIES A PREFERRED
STOCK, SERIES B PREFERRED STOCK AND SERIES C PREFERRED STOCK TO COMMON STOCK,
PAR VALUE $0.01 PER SHARE (THE "COMMON STOCK") UPON THE CONSUMMATION OF THE
OFFERING, (III) GIVES EFFECT TO THE FILING OF AN AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION CREATING A CLASS OF UNDESIGNATED PREFERRED
STOCK AND (IV) GIVES RETROACTIVE EFFECT TO A SUBSEQUENT 1-FOR-3.07459 REVERSE
SPLIT OF THE SHARES OF COMMON STOCK, TO BE EFFECTED BEFORE THE COMPLETION OF THE
OFFERING. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THOSE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN OF THE FACTORS SET FORTH IN THIS PROSPECTUS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS."

THE COMPANY

Scriptgen Pharmaceuticals, Inc. ("Scriptgen" or the "Company") utilizes its
proprietary high throughput technologies to enable and accelerate the discovery
of innovative small molecule drugs. Scriptgen's technology platform allows the
Company and its collaborators to exploit the opportunities afforded by advances
in genomics and combinatorial chemistry, and opens new avenues of drug
discovery. The Company's technology platform identifies and validates novel gene
targets for therapeutic intervention, and then uses novel assay systems to
rapidly screen compounds against those targets, even before the gene target's
characteristics or functions are well understood. The Company believes that the
application of its technologies addresses many of the limitations associated
with traditional drug discovery and provides substantial cost savings
opportunities. The Company commercializes its technology platform through (i)
collaborations with pharmaceutical and technology companies and (ii) the
Company's internal development program.

The Company's core technologies include GATE (Genetics Assisted Target
Evaluation), a family of high throughput target identification and validation
systems, and ATLAS (Any Target Ligand Affinity Screen) and SCAN (Screen for
Compounds with Affinity for Nucleic Acids), the high speed, solution based,
assay systems which identify compounds that bind to virtually any protein or
structured RNA, respectively. GATE measures the effects of transiently removing
a specific gene from a cell, and by reproducing conditions that closely resemble
drug mechanism of action, generates data more predictive of target behavior than
traditional methods. ATLAS and SCAN rapidly measure the affinity (strength) of
compounds that bind to targets even before the gene functions are well
understood, enabling the Company to work with targets that are unsuitable for
traditional high throughput screens. The Company believes ATLAS and SCAN
increase dramatically the number of targets and compounds that may be screened
in a given time period, and reduce to weeks what often requires months or years
of assay development time when using traditional high throughput functional
assays. The Company has used GATE to identify and validate novel infectious
disease targets, and has used ATLAS and SCAN to identify lead compounds, two of
which have progressed to pre-clinical development. ATLAS and SCAN are broadly
applicable to research in multiple therapeutic areas, and have demonstrated
utility in the areas of anti-infectives, oncology, cardiovascular, and
respiratory and immunologic disorders.

HOECHST MARION ROUSSEL. The Company is using its technology platform
to seek to identify new fungal targets and antifungal drug candidates in
a collaboration with Hoechst Marion Roussel ("HMR"). The Company expects
to have received an aggregate of $9 million from HMR under the
collaboration by the completion of the Offering, of which $6 million
will be technology

access fees and $3 million will be proceeds from the sale of Common
Stock to HMR concurrent with the Offering. The Company will also receive
research and development payments, and will receive payments when and if
certain milestones are achieved and royalties on the sales of any new
drug resulting from the collaboration.

ELI LILLY AND COMPANY. Scriptgen is using ATLAS to identify novel
drug candidates active against two targets selected by Eli Lilly and
Company ("Eli Lilly"). Two additional targets may be selected by Eli
Lilly for high throughput screening in 1998, assuming certain milestones
are met. In October 1997, Eli Lilly and the Company expanded the scope
of the collaboration to screen additional compounds from the Company's
compound library. Under the agreement with Eli Lilly, Scriptgen receives
research and development payments and will receive payments when and if
certain milestones are achieved and royalties on the sales of any new
drug resulting from the collaboration.

HOFFMANN-LA ROCHE INC. The Company is using ATLAS to identify drug
candidates against a cancer-related target identified by Hoffmann-La
Roche Inc. ("Roche"). Under the agreement with Roche, Scriptgen receives
research and development payments and will receive payments when and if
certain milestones are achieved and royalties on the sales of any new
drug resulting from the collaboration.

MONSANTO COMPANY. Scriptgen is using its technology platform in a
collaboration with Monsanto Company ("Monsanto") to identify and
validate novel fungal targets from plant pathogens and to identify novel
antifungal agents. Under the agreement with Monsanto, Scriptgen receives
research and development payments and will receive payments when and if
certain milestones are achieved and royalties on the sales of any
product developed by Monsanto for IN PLANTA applications.

Scriptgen's internal development efforts have initially focused on
anti-infectives, where it has identified novel cidal (kills the pathogen)
targets and lead compounds in the fungal, bacterial and viral areas. The Company
has also completed feasibility studies on novel targets in a number of other
areas, including oncology and immunologic disorders, and in several cases has
identified drug candidates. The Company believes that the anti-infective market
is attractive as an initial field of focus because of the large market
potential, the particular suitability of the Company's proprietary technology
and the relatively low technical and regulatory hurdles for this class of
diseases. Scriptgen has progressed rapidly in the anti-infective area and has
four lead compounds in development as well as a number of other potential drug
candidates under review. Scriptgen has identified two small molecule lead
compounds which demonstrate oral activity in animal models against a broad
spectrum of fungal pathogens, including certain strains resistant to current
drugs. The Company has also identified a small molecule lead compound which
shows broad spectrum antibacterial efficacy against drug resistant strains and
is currently in animal studies and one lead compound that has shown strong
antiviral activity IN VITRO against Hepatitis B virus. The Company is evaluating
a number of other potential development candidates.

The Company has also applied its drug discovery technologies to develop
novel coalescent compounds, which are small molecules connected by a molecular
tether that bind to both active and neutral sites. Scriptgen believes such
compounds may lead to more specific and potent therapeutics and allow for the
discovery of small molecule mimics of therapeutic proteins.

Scriptgen Pharmaceuticals, Inc. was incorporated in Delaware on September
17, 1992. The Company maintains its principal executive offices at 200 Boston
Avenue, Medford, Massachusetts 02155. The Company's telephone number is (781)
393-8000.
------------------------

"SCRIPTGEN" AND THE SCRIPTGEN LOGO AS IT APPEARS ON THE COVER PAGE OF THIS
PROSPECTUS ARE TRADEMARKS OF THE COMPANY FOR WHICH REGISTRATION APPLICATIONS
HAVE BEEN FILED WITH THE UNITED STATES PATENT AND TRADEMARK OFFICE. ALL OTHER
TRADEMARKS AND TRADENAMES REFERENCED IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE OWNERS.

THE OFFERING

Common Stock offered by the Company......................... shares
Common Stock to be outstanding after the Offering........... share
Use of proceeds............................................. To fund research and
development and for general
corporate purposes, including
working capital.
Proposed Nasdaq National Market Symbol...................... SCRP

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(1) Includes an aggregate of shares of Common Stock (based on an assumed
initial public offering price of $ per share) to be issued to HMR in
the Private Placement. Excludes: (i) 701,508 shares of Common Stock issuable
upon exercise of outstanding options at a weighted average exercise price of
$0.34 per share, (ii) 49,763 shares of Common Stock issuable upon exercise
of warrants outstanding at an exercise price of $3.07 per share and 32,525
shares of Common Stock issuable upon exercise of warrants outstanding at an
exercise price of $5.53 per share and (iii) shares of Common Stock
reserved for issuance upon exercise of options or in connection with other
awards that may be granted in the future under the Company's proposed 1997
Equity Incentive Plan (the "1997 Plan"). See "Management--Employment
Agreements" and "--Stock Options," "Employee Benefit Plans--1997 Equity
Incentive Plan" and "--1994 Stock Option Plan," "Description of Capital
Stock-- Warrants" and Notes 6 and 8 of Notes to Financial Statements.

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 17, 1992 DECEMBER 31, SEPTEMBER 30,
TO ------------------------------------------ ------------------------
DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
------------------- --------- --------- --------- --------- ----------- -----------
(UNAUDITED)

STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements............ -- -- -- -- $ 975 $ 975 $ 467
SBIR grants......................... -- -- -- $ 260 232 222 138
----- --------- --------- --------- --------- ----------- -----------
-- -- -- 260 1,207 1,197 605
----- --------- --------- --------- --------- ----------- -----------
Cost of revenue:
Collaborative agreements............ -- -- -- -- 174 174 124
SBIR grants......................... -- -- -- 260 232 222 138
----- --------- --------- --------- --------- ----------- -----------
-- -- -- 260 406 396 261
----- --------- --------- --------- --------- ----------- -----------
Gross profit........................ -- -- -- -- 801 801 344
Operating expenses:
Research and development............ $ 455 $ 1,833 $ 3,157 3,152 3,958 2,757 4,273
General and administrative.......... 94 652 998 1,299 906 669 831
----- --------- --------- --------- --------- ----------- -----------
549 2,485 4,155 4,451 4,865 3,427 5,104
----- --------- --------- --------- --------- ----------- -----------
Loss from operations................ (549) (2,485) (4,155) (4,451) (4,064) (2,626) (4,761)
Other income (expense), net 1 (62) (146) (128) 19 12 (15)
----- --------- --------- --------- --------- ----------- -----------
Net loss............................ $ (549) $ (2,547) $ (4,301) $ (4,579) $ (4,044) $ (2,614) $ (4,775)
----- --------- --------- --------- --------- ----------- -----------
----- --------- --------- --------- --------- ----------- -----------
Pro forma net loss per share
(unaudited) (1)..................... $ (0.59) $ (0.64)
--------- -----------
--------- -----------
Pro forma weighted average common and
common equivalent shares outstanding
(unaudited) (1)..................... 6,897 7,435
--------- -----------
--------- -----------

SEPTEMBER 30, 1997
--------------------------

ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 197 $
Working capital....................................................................... (1,200)
Total assets.......................................................................... 2,478
Noncurrent portion of capital lease obligations....................................... 501
Redeemable convertible preferred stock................................................ 20,279
Accumulated deficit................................................................... (21,169)
Total stockholders' deficit........................................................... (20,744)

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(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per share and shares used in computing net loss per
share.

(2) Adjusted to give effect to: (i) the sale of shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price
of $ per share) and the application of the net proceeds therefrom and
(ii) the sale of shares of Common Stock (at an assumed offering price
of $ per share) to HMR in the Private Placement and the application of
the net proceeds therefrom. See "Use of Proceeds."

RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMPANY. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE FACTORS SET FORTH IN
THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.

HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY

At September 30, 1997, the Company had incurred an accumulated deficit of
approximately $21.2 million. Losses have resulted principally from costs
incurred in research and development activities related to the Company's efforts
to develop and commercialize its proprietary technology and to develop drug
candidates and from the associated administrative costs. The Company expects to
incur significant additional operating losses over the next several years and
expects cumulative losses to increase substantially due to expanded research and
development efforts, pre-clinical and clinical trials and the possible
development of manufacturing, marketing and sales capabilities. For the
foreseeable future, the Company expects that its revenues will be limited to
payments received under its drug development collaborations that it has
established or will establish (net of royalties required to be paid by the
Company with respect to such payments) and small business innovation research
("SBIR") grants. There can be no assurance, however, that the Company will be
able to establish any additional collaborative relationships on terms acceptable
to the Company or maintain in effect its current collaborative agreements. The
Company's ability to achieve significant revenue or become profitable is
dependent on the success of its collaborative arrangements and its ability to
continue to commercialize its technology platform and gain industry acceptance
of its services and technologies, to enter into additional collaborations for
the development of drugs, to identify lead compounds and successfully develop
drug candidates resulting from its own internal development programs, to obtain
patent protection for its technology and drug candidates, to obtain regulatory
approvals for drug candidates and to arrange for the manufacture and
commercialization of any drugs resulting from its operations. The Company will
not receive revenues or royalties from commercial drug sales for a significant
number of years, if at all. Failure to receive significant revenues or achieve
profitable operations would impair the Company's ability to sustain operations.
There can be no assurance that the Company will ever successfully identify,
develop, commercialize, patent, manufacture or arrange for the manufacture of,
or market or arrange for the marketing of, any products, obtain required
regulatory approvals or achieve profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DEPENDENCE UPON PRESENT AND FUTURE COLLABORATIVE ARRANGEMENTS

The Company's strategy for the development and commercialization of its
technology platform and drug candidates requires the Company to enter into
various collaborative arrangements. To date, substantially all revenues received
by the Company have been from its drug discovery collaborations and the Company
expects that substantially all revenues for the foreseeable future will be
limited to payments received under such collaborations and any future
collaborations the Company may enter into. Because pharmaceutical and
biotechnology companies engaged in drug discovery activities have historically
conducted drug discovery activities, including target identification and
validation and compound screening, through their own internal research
departments, these companies must be convinced that the Company's technologies
justify entering into collaborative agreements with the Company. The Company's
ability to succeed will be dependent, in part, upon the willingness of potential
collaborators to incorporate the Company's technologies into their own drug
discovery programs. There can be no assurance that the Company will be able to
negotiate additional collaborative agreements in the future on acceptable terms,
if at all, that such current or future collaborative agreements will be
successful and provide the Company

with expected benefits, or that current or future collaborators will not pursue
or develop alternative technologies either on their own or in collaboration with
others, including the Company's competitors, as a means for identifying lead
compounds or targets. To the extent the Company chooses not to or is unable to
enter into such agreements, or to the extent the Company is unable to maintain
in effect its current collaborative agreements, it will require substantially
greater capital to undertake the research, development and commercialization of
its technologies and drug development program at its own expense. In the absence
of such collaborative agreements, the Company may be required to curtail its
research and development activities and operations to a significant extent. In
November 1996, one of the Company's collaborative partners elected not to
continue developing a program which was the subject of a collaborative agreement
with the Company, which election the Company believes was unrelated to the
Company's performance of its obligations under such arrangement.

Under the Company's current collaborative agreements, the Company has the
opportunity to receive payments upon the achievement by its collaborators of
certain drug development milestones and royalties on sales of drugs covered
under such arrangements. As a result, the Company's receipt of revenues (whether
in the form of milestone payments or royalties on sales) under the collaborative
agreements is for the most part dependent upon the decisions made by, and the
manufacturing and marketing resources of, its collaborative partners. The
Company's collaborative partners are not obligated to develop or commercialize
any drug resulting from the collaborative agreements. Development and
commercialization of drug candidates will therefore depend not only on the
achievement of research objectives by the Company and its collaborators, which
cannot be assured, but also on each collaborator's own financial, competitive,
marketing and strategic considerations, all of which are outside the Company's
control. Such strategic considerations may include the relative advantages of
alternative drugs being marketed or developed by others, including relevant
patent and proprietary positions. There can be no assurance that the interests
and motivations of the Company's collaborators are, or will remain, aligned with
those of the Company, that current or future collaborators will not pursue
alternative technology in preference to that of the Company either on their own
or in collaboration with others, including the Company's competitors, or that
such collaborators will successfully perform their development, regulatory,
compliance, manufacturing or marketing functions. In addition, there can be no
assurance that any product will be developed and commercialized as a result of
such collaborations, that any such development or commercialization would be
successful or that disputes will not arise over the application of payment
provisions for drug candidates. Failure to successfully manage existing and
future collaborative relationships, maintain confidentiality among such
relationships or prevent the occurrence of such conflicts could lead to disputes
that result in, among other things, a significant strain on management
resources, legal claims involving significant time and expense and loss of
reputation, a loss of capital or a loss of collaborators, any of which could
have a material adverse effect on the Company's business, operating results and
financial condition.

EARLY STAGE OF DRUG DEVELOPMENT; ABSENCE OF DEVELOPED PRODUCTS

Since inception, the Company has received no revenues from drug sales. The
Company's internal drug development programs and the programs on which it is
working with its collaborative partners are at an early stage, and the Company
does not expect that any drugs resulting from its internal development efforts,
or from the joint efforts of the Company and its collaborative partners, will be
commercially available for a significant number of years, if at all. The
Company's present drug candidates, and any future drug candidates developed by
the Company or developed jointly by the Company and its collaborative partners
will require significant additional research and development efforts to
establish safety and efficacy, including extensive pre-clinical (animal and IN
VITRO data) and clinical testing and regulatory approval, prior to commercial
sale. None of the Company's drug candidates have advanced to any phase of
clinical trials, and only two of the Company's drug candidates have advanced to
pre-clinical development. There can be no assurance that the approaches of the
Company or its collaborative partners to drug discovery will be effective or
will result in the development of any drug. The Company's present and potential
drug candidates or other drug candidates resulting from the joint efforts of the
Company and its

collaborative partners, will be subject to the risks of failure inherent in the
development of pharmaceutical products based on new technologies. These risks
include the possibilities that any or all of the Company's drug candidates or
such other drug candidates will be found to be unsafe, ineffective or toxic or
otherwise fail to meet applicable regulatory standards or receive necessary
regulatory clearances, that these drug candidates, if safe and effective, will
be difficult to develop into commercially viable drugs or to manufacture on a
large scale or will be uneconomical to market, that proprietary rights of third
parties will preclude the Company or its collaborative partners from marketing
such drugs, or that third parties will market superior or equivalent drugs. The
failure to develop safe, commercially viable drugs would have a material adverse
effect on the Company's business, operating results and financial condition.

NEW AND UNCERTAIN TECHNOLOGY

The Company's drug discovery technology platform and ongoing research and
development programs incorporate new and rapidly evolving approaches to the
identification and validation of novel targets and
the identification of lead compounds. Elements of the Company's technology
platform are utilized by the Company in all of its collaborative arrangements as
well as in its own internal development program. As the Company's technology
platform is used, it is possible that previously unanticipated limitations or
defects may emerge. There can be no assurance that unforseen complications will
not arise as the Company's technologies are utilized in the drug discovery
process that could materially delay or limit their use in connection with the
drug development programs of the Company or its collaborative partners, result
in the termination of the collaborative agreements, or prevent the technologies
from being utilized at the quality and capacity levels required for success. In
addition, there can be no assurance that expenditures for research and
development will lead to the development of useful technologies. Development of
new drugs is highly uncertain, and no assurance can be given that the Company's
drug discovery technologies will be used successfully in the development of drug
candidates or result in any commercially successful drug.

COMPETITION AND THE RISK OF OBSOLESCENCE OF TECHNOLOGY

Competition among drug discovery companies, and pharmaceutical and
biotechnology companies which are involved in drug discovery, is intense.
Because the Company's technology platform incorporates a number of different
technologies, the Company competes in many areas, including target
identification and validation, assay development and high throughput screening.
The Company competes directly against other drug discovery companies, the
research departments of pharmaceutical and biotechnology companies and other
commercial enterprises, government agencies, and numerous academic and research
institutions. Such companies and other entities are conducting research in
various areas which constitute portions of the Company's technology platform,
either on their own or in collaboration with others. There can be no assurance
that drug discovery companies which currently compete with the Company in
specific areas will not merge or enter into joint ventures or other alliances
with one or more other such companies and become substantial multi-point
competitors or that the Company's collaborators will not assemble their own
competing drug discovery technologies. Genomics and combinatorial chemistry
companies, among others, may also expand their business to include compound
screening or screen development, either alone or pursuant to alliances with
others. The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies, including
more sophisticated information technologies, become available. The Company's
drug discovery technologies, in particular GATE, ATLAS and SCAN, may be rendered
obsolete or uneconomical by advances in existing technological approaches or the
development of different approaches by one or more of the Company's current or
future competitors. In particular, the Company's technology faces competition
from companies engaged in gene sequencing, functional genomics and differential
gene expression technology in the area of target validation, and companies
engaged in high throughput screening. Many of the Company's competitors have
greater financial and personnel resources, and more experience in research and
development, than the Company. There can be no assurance that the Company's
competitors will not succeed in

developing technologies and drugs that are more effective or less costly than
any which are being developed by the Company or which would render the Company's
technology and any future drugs obsolete and noncompetitive.

In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining U.S.
Food and Drug Administration ("FDA") and other regulatory approvals.
Accordingly, the Company's competitors may succeed in obtaining FDA or other
regulatory approvals for competing drug candidates more rapidly than the
Company. Companies that complete clinical trials, obtain required regulatory
agency approvals and commence commercial sale of their drugs, before their
competitors, may achieve a significant competitive advantage, including certain
patent and FDA marketing exclusivity rights that would delay the Company's
ability to market certain products. There can be no assurance that drugs, if
any, resulting from the Company's internal development efforts or the joint
efforts of the Company and its collaborators will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.

ADDITIONAL FINANCING REQUIREMENTS; UNCERTAINTY OF AVAILABLE FUNDING

The Company will require substantial additional funds for the further
development of its drug discovery technologies, its internal development
programs, for operating expenses, for pursuing regulatory approvals, for the
possible development of manufacturing, marketing and sales capabilities and for
prosecuting and defending its intellectual property rights before it can expect
to realize significant revenues from commercial sales, if any. The Company
believes that the net proceeds of the Offering, together with revenues from its
collaborative agreements, its existing capital resources, SBIR grants and
interest income will be sufficient to fund its operating expenses and capital
requirements as currently planned through the end of 2000. However, there can be
no assurance that such funds will be sufficient to fund its operating expenses
and capital requirements during such period. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the ability of the Company to enter into additional
collaborative arrangements, the achievement of milestones under the Company's
collaborative arrangements on a timely basis or at all, changes in the Company's
existing collaborative arrangements, the results of the Company's internal
development programs, the timing and results of pre-clinical and clinical
trials, the timing and costs of obtaining regulatory approvals, the timing and
level of the expansion of the Company's facilities, the level of resources, if
any, that the Company commits to the development of manufacturing, marketing and
sales capabilities, the technological advances and activities of competitors and
other factors. Thereafter, the Company will need to raise substantial additional
capital to fund its operations. The Company intends to seek such additional
funding through public or private financing or collaborative or other
arrangements with collaborative partners. If additional funds are raised by
issuing equity securities, further dilution to existing stockholders may result
and future investors may be granted rights superior to those of existing
stockholders. There can be no assurance, however, that additional financing will
be available from any of these sources or, if available, will be available on
acceptable or affordable terms. If adequate funds are not available, the Company
may be required to delay, reduce the scope of or eliminate one or more of its
research and development programs or to obtain funds by entering into
arrangements with collaborative partners or others that require the Company to
issue additional equity securities or to relinquish rights to certain
technologies or drug candidates that the Company would not otherwise issue or
relinquish in order to continue independent operations. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH

The Company has recently experienced, and expects to continue to experience,
significant growth in the number of its employees and the scope of its
operations. This growth has placed, and may continue to

place, a significant strain on the Company's management, operations and systems.
The Company's ability to manage such growth effectively will depend upon
attracting, hiring and retaining skilled employees. In addition, in order to
increase capacity to remain competitive and satisfy the needs of current and
future collaborative partners, the Company will be required in the near future
to obtain additional office and laboratory space, capital equipment and
resources. There can be no assurance that the Company will be able to manage its
growth, and the Company's inability to manage growth effectively could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business-- Employees" and "--Properties."

UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend in part on its ability to obtain U.S. and
foreign patent protection for its drug candidates and the components of its
technology platform, preserve its trade secrets and operate without infringing
the proprietary rights of third parties. Because of the length of time and
expense associated with bringing new drug candidates through the development and
regulatory approval process to the marketplace, drug discovery companies have
traditionally placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products and processes. The
Company's policy is to make diligent efforts to protect its screening
technologies, targets, compounds, and certain other technology by, among other
things, filing, or causing to be filed on its behalf, patent applications in the
United States Patent and Trademark Office ("USPTO"), and elsewhere where the
Company deems appropriate and cost effective. There can be no assurance that
patents will be granted with respect to any of the Company's or its licensors'
patent applications which are pending or may be filed in the future. Further,
there can be no assurance that any rights the Company may have under issued
patents will provide the Company with significant protection against competitive
products or otherwise be commercially viable. Legal standards relating to the
validity of patents covering pharmaceutical and biotechnological inventions and
the scope of claims made under such patents are still developing, and thus there
is no consistent policy in this regard. The patent position of a drug discovery
company such as Scriptgen is highly uncertain and involves complex legal and
factual questions. There can be no assurance that any existing or future patents
issued to, or licensed by, the Company will not subsequently be challenged,
infringed upon, invalidated or circumvented by others. In addition, patents may
have been granted, or may be granted, covering processes or products that are
necessary or useful to the development of the Company's technologies, targets
and compounds. If any of the Company's technologies, targets or compounds are
found to infringe upon the patents or other intellectual property of others, the
Company's ability to develop and commercialize its technologies, targets and
compounds could be severely restricted or prohibited. In such event, the Company
may be required to obtain licenses from third parties to utilize their patents
or other proprietary rights. There can be no assurance that the Company will be
able to obtain such licenses on acceptable terms, or at all. There is
significant litigation in the pharmaceutical and biotechnology industry
regarding patents and other proprietary rights. If the Company becomes involved
in litigation regarding its proprietary rights or the proprietary rights of
others, the Company could incur substantial costs in defending infringement
claims, obtaining licenses, engaging in interference and opposition proceedings
or other challenges to its patent rights or proprietary rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. The Company's inability to obtain necessary licenses or its
involvement in proceedings concerning patent rights could have a material
adverse effect on the business, operating results and financial condition of the
Company.

In addition to patent protection, the Company relies on trade secrets,
know-how and technological advances which it seeks to protect, in part, by
confidentiality agreements with its collaborative partners, employees, advisors
and consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, know-how and technological advances
will not otherwise become known or be independently discovered by others. See
"Business--Patents and Proprietary Technology."

DEPENDENCE UPON ACCESS TO CERTAIN MATERIALS AND INFORMATION

The Company obtains compounds and other test material, related clinical and
other biological information and animal models through collaboration with
commercial organizations and academic institutions. Use of the Company's
technology platform in connection with its collaborative arrangements and
internal development programs requires access to such materials and information
and there is substantial competition for such materials and information. There
can be no assurance that the Company will continue to be able to obtain access
to such materials and information upon terms acceptable to the Company, if at
all. Any material lack of availability of such materials and information could
have a material adverse effect on the Company's ability to perform its
obligations under one or more of its collaborative agreements, which in turn
would have a material adverse effect on the Company's business, operating
results and financial condition.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent upon the efforts of the members of its
management team, scientific advisory board and scientific staff. The loss of the
services of one or more of these individuals might impede the Company's
development of its technology and the achievement of its business objectives.
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific and technical personnel. There is intense competition among drug
discovery companies, pharmaceutical companies, biotechnology companies and
universities and other research institutions for qualified personnel in the
areas of the Company's activities. There can be no assurance that the Company
will be able to continue to attract and retain the qualified personnel necessary
for the development of its business. Loss of the services of, or failure to
recruit, key scientific and technical personnel could adversely affect the
Company's business, operating results and financial condition. See
"Business--Employees" and "Management--Executive Officers, Directors and Key
Employees."

SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS

To date, a majority of all revenue earned by the Company has been from its
collaborative agreements, and the Company expects that substantially all revenue
for the foreseeable future will result from such collaborations and any future
collaborations the Company may enter into. The timing of any fees or milestone
or other payments under such collaborations is expected to vary greatly from
quarter to quarter, depending on numerous factors. Operating results may
therefore vary substantially from quarter to quarter and will not necessarily be
indicative of results in subsequent periods. In addition, over the next several
years, the Company expects to incur non-cash compensation charges each quarter
resulting from the amortization of approximately $2.7 million in unearned
compensation recorded on the Company's balance sheet as of September 30, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 6 of Notes to Financial Statements.

LACK OF MANUFACTURING, MARKETING AND SALES CAPABILITY AND EXPERIENCE

The Company has not invested in the development of manufacturing, marketing
or sales capabilities. The Company has no experience in, and currently lacks the
facilities and personnel to engage in, the manufacture of products in accordance
with Good Manufacturing Practices ("GMP") as prescribed by the

FDA or to produce an adequate supply of compounds to meet future requirements
for clinical trials. If the Company is unable to contract for or develop
manufacturing capabilities on acceptable terms, the Company's ability to conduct
pre-clinical and clinical trials with the Company's drug candidates, will be
adversely affected, resulting in delays in the submission of drug candidates for
regulatory approvals and in the initiation of new development programs, which in
turn could materially impair the Company's competitive position and the
possibility of achieving profitability.

The Company has no experience in marketing drugs. The Company will likely
seek to collaborate with a third party to market any drugs the Company may
develop, although in certain cases it may seek to market and sell such drugs
directly. If the Company seeks to collaborate with a third party, there can be
no assurance that a collaborative arrangement would be reached on acceptable
terms, if at all. If the Company seeks to market and sell such drugs directly,
the Company will need to hire additional personnel skilled in marketing and
sales if it develops any drug with commercial potential. There can be no
assurance that the Company will be able to obtain candidates, or establish
third-party relationships to provide, any or all of these capabilities.

UNCERTAINTY ASSOCIATED WITH PRE-CLINICAL AND CLINICAL TESTING

Before obtaining regulatory approvals for the commercial sale of any of the
Company's potential drugs, the drug candidates will be subject to extensive
pre-clinical and clinical trials to demonstrate their safety and efficacy in
humans. The Company will likely be dependent on third parties to conduct
clinical trials for its internally developed drug candidates. In the event that
the Company is unable or otherwise determines not to enter into collaborative
arrangements with a third party to conduct clinical trials for its drug
candidates, the Company would need to recruit and retain the proper personnel to
manage such process. The Company has limited experience in pre-clinical
development and no experience in clinical trials, and no clinical trials have
been commenced with respect to any of the Company's potential drug candidates.
Furthermore, there can be no assurance that pre-clinical or clinical trials of
any present or future drug candidates will demonstrate the safety and efficacy
of such drug candidates at all or to the extent necessary to obtain regulatory
approvals. Companies in the biotechnology industry have suffered significant
setbacks in advanced clinical trials, even after demonstrating promising results
in earlier trials. The failure to adequately demonstrate the safety and efficacy
of a drug candidate under development could delay or prevent regulatory approval
of the drug candidate and could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Government
Regulation."

IMPACT OF EXTENSIVE GOVERNMENT REGULATION

The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of pharmaceutical products through lengthy
and detailed pre-clinical, laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures to establish their
safety and efficacy. All of the Company's current and future drug candidates and
any drug candidates that result from the Company's collaborations will require
governmental approvals for commercialization, none of which have been obtained.
Pre-clinical and clinical trials and manufacturing of the Company's drug
candidates will be subject to the rigorous testing and approval processes of the
FDA and corresponding foreign regulatory authorities. Satisfaction of these
requirements typically takes a significant number of years and can vary
substantially based upon the type, complexity and novelty of the product. There
can be no assurance as to when the Company, independently or with its
collaborative partners, might first submit an investigational new drug
application for FDA or other regulatory review. Government regulation also
affects the manufacturing and marketing of pharmaceutical products.

The effect of government regulation may be to delay marketing of the
Company's potential drugs for a considerable or indefinite period of time,
impose costly procedural requirements upon the Company's activities and furnish
a competitive advantage to larger companies or companies more experienced in

regulatory affairs. Delays in obtaining governmental regulatory approval could
adversely affect the Company's marketing as well as the Company's ability to
generate significant revenues from commercial sales. There can be no assurance
that FDA or other regulatory approvals for any drug candidates developed by the
Company will be granted on a timely basis or at all. Moreover, if regulatory
approval of a drug candidate is granted, such approval will impose limitations
on the indicated use(s) for which such drug may be marketed. Even if initial
regulatory approvals for the Company's drug candidates are obtained, the
Company, its drugs and its manufacturing facilities, if any, would be subject to
continual review and periodic inspection, and later discovery of previously
unknown problems with a drug, manufacturer or facility may result in
restrictions on such drug or manufacturer, including withdrawal of the drug from
the market. In addition, the Company would be required to comply with FDA
requirements for labeling, advertising, record keeping, and reporting of adverse
experiences and other information. The regulatory standards are applied
stringently by the FDA and other regulatory authorities and failure to comply
can, among other things, result in fines, injunctions, denial or withdrawal of
regulatory approvals, product recalls or seizures, operating restrictions and
criminal prosecution.

As with many biotechnology and pharmaceutical companies, the Company is
subject to numerous environmental and safety laws and regulations. Any violation
of, and the cost of compliance with, these regulations could materially
adversely affect the Company's business, operating results and financial
condition. The Company is subject to periodic inspections and has not received
notice of any material violations of any environmental or safety law or
regulation. See "Business--Government Regulation."

HAZARDOUS MATERIALS

The research and development processes of the Company involve the controlled
use of hazardous materials, chemicals and various radioactive compounds,
including microbial organisms and other biological materials. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. The risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company. There can be no assurance that the Company
will not be required to incur significant costs to comply with environmental
laws and regulations in the future.

REIMBURSEMENT AND DRUG PRICING UNCERTAINTY

The successful commercialization of, and the interest of potential
collaborative partners to invest in, the Company's technology platform or drug
candidates will depend substantially on reimbursement of the costs of the
resulting drugs and related treatments at acceptable levels from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). There can be no assurance that reimbursement
in the United States or elsewhere will be available for any drugs the Company or
its collaborative partners may develop or, if available, will not be decreased
in the future, or that reimbursement amounts will not reduce the demand for, or
the price of, such drugs, thereby adversely affecting the Company's business. If
reimbursement is not available or is available only to limited levels, there can
be no assurance that the Company will be able to obtain collaborative partners
to manufacture and commercialize any future drugs, or would be able to obtain a
sufficient financial return on its own manufacture and commercialization of any
future drugs.

Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which can
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reform health care or reduce
government insurance programs, may result in lower prices for pharmaceutical
products. The cost containment measures that health care providers are
instituting, including practice protocols and guidelines and clinical pathways,
and the effect of any health care reform, could materially adversely affect the
Company's ability to sell its drugs, if any.

Moreover, the Company is unable to predict what additional legislation or
regulation, if any, relating to the health care industry or third-party coverage
and reimbursement may be enacted in the future or what effect such legislation
or regulation would have on the Company's business, operating results or
financial condition.

POTENTIAL PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE

The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
The use of the Company's drug candidates in clinical trials may expose the
Company to product liability claims and possible adverse publicity. These risks
will expand with respect to the Company's drug candidates, if any, that receive
regulatory approval for commercial sale. Product liability insurance for the
biotechnology industry is generally expensive, if available at all. The Company
does not have product liability insurance but intends to obtain such coverage if
and when its drug candidates are tested in clinical trials. However, such
coverage is becoming increasingly expensive and there can be no assurance that
the Company will be able to obtain insurance coverage at acceptable costs or in
a sufficient amount, if at all, or that a product liability claim would not
adversely affect the Company's business, operating results or financial
condition.

BROAD DISCRETION IN APPLICATION OF NET PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses. The Company intends to use the net proceeds from the Offering
principally for research and development, working capital and general corporate
purposes. The Company's management and Board of Directors will have broad
discretion with respect to the application of such proceeds, and the amounts
actually expended by the Company for working capital purposes may vary
significantly depending on a number of factors. See "Use of Proceeds."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price per share of the Common Stock will be
determined by negotiations between management of the Company and the managing
underwriters of the Offering. Application has been made for the Common Stock to
be quoted on the Nasdaq National Market; however, there can be no assurance that
an active trading market will develop and be sustained subsequent to the
Offering. The market price of the Common Stock may fluctuate substantially
because of a variety of factors, including announcements concerning existing or
future collaborative arrangements, announcements of technological innovations or
new products by the Company, its collaborators or its competitors, disclosure of
results of clinical testing or regulatory proceedings, developments in patents
or other proprietary rights, quarterly fluctuations in results of operations,
changes in earnings estimates by analysts, sales of Common Stock by existing
holders, loss of key personnel and other factors. In addition, the stock market
in general, and the market for biotechnology and pharmaceutical stocks, has
historically been subject to extreme price and volume fluctuations. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of volatility in the market
price of a company's securities, class action securities litigation has often
been instituted against such a company. Any such litigation instigated against
the Company could result in substantial costs and diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and operating results. See
"Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price per share of Common Stock is substantially
higher than the net tangible book value per share of the Common Stock.
Purchasers of shares of Common Stock in the Offering will experience immediate
and substantial dilution of $ in the pro forma net tangible book value
per share of Common Stock. To the extent outstanding warrants and options to
purchase Common Stock are exercised, there will be further dilution. See
"Dilution."

CONTROL BY CERTAIN PRINCIPAL STOCKHOLDERS

Following completion of the Offering, the Company's executive officers and
directors and their affiliated entities as a group will beneficially own
approximately % of the outstanding Common Stock. As a result, Scriptgen's
executive officers and directors as a group will have a significant influence
over, the outcome of all matters submitted to a vote of the Company's
stockholders, including the election of directors and significant corporate
transactions. The shares beneficially owned by the Company's executive officers,
directors and affiliates, combined with the ability of the Board of Directors to
issue shares of preferred stock without further vote or action by the
stockholders, may have the effect of delaying, deferring or preventing a change
in control of the Company without further action by the stockholders. See
"Management" and "Principal Stockholders."

AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE; ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation, as it is proposed to be
amended and restated (the "Restated Certificate"), authorizes the Board of
Directors of the Company, without stockholder approval, to issue additional
shares of Common Stock and to fix the rights, preferences and privileges of and
issue up to 4,000,000 shares of preferred stock with voting, conversion,
dividend and other rights and preferences that could adversely affect the voting
power or other rights of the holders of Common Stock. The issuance of preferred
stock, rights to purchase preferred stock or additional shares of Common Stock
may have the effect of delaying or preventing a change in control of the
Company. In addition, the possible issuance of preferred stock or additional
shares of Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Common Stock or limit the price that
investors might be willing to pay for shares of the Common Stock. Further, the
Restated Certificate provides that any action required or permitted to be taken
by stockholders of the Company must be effected at a duly called annual or
special meeting of stockholders and may not be effected by any consent in
writing. Special meetings of the stockholders of the Company may be called only
by the Chairman of the Board of Directors, the President of the Company, or by a
majority of the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors. These and other provisions
contained in the Restated Certificate and the Company's By-Laws, as well as
certain provisions of the Delaware General Corporation Law, could delay or make
more difficult certain types of transactions involving an actual or potential
change in control of the Company or its management (including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices) and may limit the ability of stockholders to remove
current management of the Company or approve transactions that stockholders may
deem to be in their best interests and, therefore, could adversely affect the
price of the Common Stock. See "Description of Capital Stock--Preferred Stock"
and "--Delaware Anti-Takeover Law and Certain Charter Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of such shares in the public market or the
availability of such shares for future sale could adversely affect the market
price of these shares of Common Stock and the Company's ability to raise
additional capital at a price favorable to the Company. Upon completion of the
Offering and the Private Placement, the Company will have shares of Common
Stock outstanding (assuming no exercise of outstanding options or warrants). Of
these shares, the shares sold pursuant to the

Offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except
those shares acquired by "affiliates" of the Company within the meaning of the
Securities Act which will be subject to the resale limitations of Rule 144
promulgated thereunder. The remaining shares (the "Restricted Shares")
(including the shares of Common Stock, based on an assumed initial public
offering price of $ per share, sold in the Private Placement) will be
restricted securities within the meaning of Rule 144 and may be sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as Rule 144. The Company, its executive
officers and directors and substantially all of its stockholders have agreed not
to offer, sell, contract to sell, grant any option to sell, or otherwise dispose
of, directly or indirectly, any Common Stock or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase Common
Stock owned by them, subject to certain limited exceptions, during the 180 days
after the date of this Prospectus (the "Lock-Up Period"), without the prior
consent of SBC Warburg Dillon Read Inc. However, SBC Warburg Dillon Read Inc.
may, in its sole discretion, and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. Commencing at the end
of the Lock-Up Period shares will be eligible for sale in the public
market, subject to compliance with Rule 144. Of such shares, will be
eligible for sale, without limitation, pursuant to Rule 144(k). The remaining
shares of Common Stock held by existing stockholders will become eligible
for sale at various times over a period of two years. The Company has granted to
certain security holders demand and piggyback registration rights covering an
aggregate of shares of Common Stock. The Company expects to file a
Registration Statement on Form S-8 registering shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1997 Plan and
1994 Stock Option Plan following completion of the Offering. See "Shares
Eligible for Future Sale" and "Underwriting."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby, at an assumed initial public offering price
of $ per share, and after deducting underwriting discounts and
commissions and other estimated offering expenses, are estimated to be
approximately $ ($ if the Underwriters' over-allotment option is
exercised in full). The gross proceeds to the Company from the sale of shares of
Common Stock pursuant to the Private Placement are expected to be $3,000,000.

The Company intends to use the net proceeds from the Offering and the
Private Placement primarily to fund its research and development activities and
for general corporate purposes, including working capital. The amounts actually
expended by the Company for working capital purposes will vary significantly
depending upon a number of factors, including the progress of the Company's
collaborations and its internal development efforts, the timing of the Company's
leasing of additional laboratory and office space, future revenue growth, if
any, and the amount of cash, if any, generated by the Company's operations. The
Company's management will retain broad discretion in the allocation of the net
proceeds of the Offering and the Private Placement. See "Risk Factors--Broad
Discretion in Application of Net Proceeds."

Pending such uses, the Company intends to invest the net proceeds in
short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that any future earnings will be
retained by the Company for the development and operations of its business.
Accordingly, the Company does not anticipate paying cash dividends on the Common
Stock in the foreseeable future.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect (i) the sale by the Company of the
shares of Common Stock offered hereby and offered pursuant to the Private
Placement (assuming an initial public offering price of $ per share) and the
application of estimated net proceeds therefrom, as described in "Use of
Proceeds" and (ii) the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock into shares of Common Stock and the
amendment of the Company's Restated Certificate of Incorporation. See
"Description of Capital Stock." The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus.

AS OF SEPTEMBER 30, 1997
--------------------------

ACTUAL AS ADJUSTED(2)
---------- --------------
(IN THOUSANDS)
Capital lease obligations, less current portion (1)................................... $ 501 $ 501
Redeemable convertible preferred stock, $0.01 par value; 21,500,000 shares authorized
and 17,036,265 shares issued and outstanding, actual; none authorized or issued and
outstanding, as adjusted............................................................ 20,279 --
---------- --------------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, no shares authorized or issued and outstanding,
actual; 4,000,000 shares authorized and no shares issued and outstanding, as
adjusted..........................................................................
Common stock, $0.01 par value, 30,000,000 shares authorized and 1,373,378 shares
issued and 1,014,630 outstanding, actual; shares issued and shares
outstanding, as adjusted.......................................................... 14
Additional paid-in capital.......................................................... 3,126
Accumulated deficit................................................................. (21,169) (21,169)
Unearned compensation............................................................... (2,660) (2,660)
Treasury stock, at cost (358,748 shares at actual and as adjusted).................. (55) (55)
---------- --------------
Total stockholders' equity (deficit).............................................. (20,744)
---------- --------------
Total capitalization............................................................ $ 36 $
---------- --------------
---------- --------------

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

(1) See Note 8 of Notes to Financial Statements for a description of the
Company's capital lease obligations.

(2) Excludes: (i) 701,508 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $0.34 per share,
(ii) 49,763 shares of Common Stock issuable upon exercise of warrants
outstanding at an exercise price of $3.07 per share and 32,525 shares of
Common Stock issuable upon exercise of warrants outstanding at an exercise
price of $5.53 per share and (iii) shares of Common Stock reserved for
issuance upon exercise of options or in connection with other awards that
may be granted in the future under the proposed 1997 Plan. See "Management--
Employment Agreements" and "--Stock Options," "Employee Benefit Plans--1997
Equity Incentive Plan" and "--1994 Stock Option Plan," "Description of
Capital Stock--Warrants" and Notes 6 and 8 of Notes to Financial Statements.

DILUTION

As of September 30, 1997, the pro forma net tangible book value of the
Company was approximately $(465,000), or $(0.07) per share. Pro forma net
tangible book value per share represents the amount of tangible net assets of
the Company, less total liabilities, divided by the pro forma number of shares
of Common Stock outstanding as of September 30, 1997. After giving effect to the
sale by the Company of the shares of Common Stock offered hereby and offered
pursuant to the Private Placement (assuming an initial public offering price of
$ per share) and the application of the net proceeds therefrom, the pro
forma net tangible adjusted book value of the Company at September 30, 1997
would have been approximately $ million, or $ per share. This
amount represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to purchasers of Common Stock in the
Offering. The following table illustrates this per share dilution, without
giving effect to any exercise of the Underwriters' over-allotment option:

Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share as of September 30,
1997.............................................................. $ (0.07)
Increase per share attributable to new investors(1).................
---------
Pro forma net tangible book value per share after the Offering and the
Private Placement...................................................
---------
Dilution per share to new investors................................... $
---------
---------

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

(1) Includes increase attributable to the sale of shares in the Offering and
the Private Placement.

The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by existing
stockholders of the Company and by new investors purchasing shares from the
Company in the Offering and the Private Placement, at an assumed initial public
offering price of $ per share, before deducting underwriting discounts
and commissions and the estimated offering expenses payable by the Company:

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------------- ---------------------------- PRICE
NUMBER PERCENT(1) AMOUNT PERCENT PER SHARE
---------- --------------- ------------- ------------- -----------

Existing stockholders........................ 6,914,366 % $ 23,417,000 % $ 3.40
New investors................................
-- --
---------- -------------
Total........................................ % $ %
-- --
-- --
---------- -------------
---------- -------------

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

(1) If exercised, the Underwriters' over-allotment option to purchase
additional shares will further reduce the percentage held by existing
stockholders to % and increase the percentage held by new investors to
%.

The foregoing tables exclude as of November 15, 1997: (i) 701,508 shares of
Common Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $0.34 per share, (ii) 49,763 shares of Common Stock issuable
upon exercise of warrants outstanding at an exercise price of $3.07 per share
and 32,525 shares of Common Stock issuable upon exercise of warrants outstanding
at an exercise price of $5.53 per share and (iii) shares of Common Stock
reserved for issuance upon exercise of options or in connection with other
awards that may be granted in the future and otherwise under the proposed 1997
Plan. See "Management--Employment Agreements" and "--Stock Options," "Employee
Benefit Plans--1997 Equity Incentive Plan" and "--1994 Stock Option Plan,"
"Description of Capital Stock" and Notes 6 and 8 of Notes to Financial
Statements.

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data set forth below as of December 31, 1995 and 1996
and for the years ended December 31, 1994, 1995 and 1996 have been derived from
the Company's financial statements, which have been audited by Price Waterhouse
LLP, independent accountants, and are included elsewhere herein. The selected
financial data as set forth below as of December 31, 1992, 1993 and 1994 and for
the period from September 17, 1992 ("Inception") to December 31, 1992 and for
the year ended December 31, 1993 have been derived from the Company's audited
financial statements not included herein. The selected financial data as set
forth below as of September 30, 1997, and for the nine months ended September
30, 1996 and 1997 have been derived from the Company's unaudited financial
statements which are included elsewhere herein. The unaudited financial
statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and, in the opinion of management,
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Company's results of operations and
financial condition for such periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1997. The selected financial
data set forth below should be read in conjunction with the Financial Statements
and related Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere
herein.

NINE MONTHS ENDED
YEAR ENDED
PERIOD FROM DECEMBER 31, SEPTEMBER 30,
INCEPTION TO ------------------------------------------ --------------------
DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
----------------- --------- --------- --------- --------- --------- ---------

STATEMENT OF OPERATIONS DATA: (UNAUDITED)
Revenue:
Collaborative agreements................. -- -- -- -- $ 975 $ 975 $ 467
SBIR grants.............................. -- -- -- $ 260 232 222 138
----- --------- --------- --------- --------- --------- ---------
-- -- -- 260 1,207 1,197 605
----- --------- --------- --------- --------- --------- ---------
Cost of revenue:
Collaborative agreements................. -- -- -- -- 174 174 124
SBIR grants.............................. -- -- -- 260 232 222 138
----- --------- --------- --------- --------- --------- ---------
-- -- -- 260 406 396 261
----- --------- --------- --------- --------- --------- ---------
Gross profit............................. -- -- -- -- 801 801 344
Operating expenses:
Research and development................. $ 455 $ 1,833 $ 3,157 3,152 3,958 2,757 4,273
General and administrative............... 94 652 998 1,299 906 669 831
----- --------- --------- --------- --------- --------- ---------
549 2,485 4,155 4,451 4,865 3,427 5,104
----- --------- --------- --------- --------- --------- ---------
Loss from operations..................... (549) (2,485) (4,155) (4,451) (4,064) (2,626) (4,761)
----- --------- --------- --------- --------- --------- ---------
Other income (expense), net................ 1 (62) (146) (128) 19 12 (15)
----- --------- --------- --------- --------- --------- ---------
Net loss................................. $ (549) $ (2,547) $ (4,301) $ (4,579) $ (4,044) $ (2,614) $ (4,775)
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share
(unaudited)(1)........................... $ (0.59) $ (0.64)
--------- ---------
--------- ---------
Pro forma weighted average common and
common equivalent shares outstanding
(unaudited)(1)........................... 6,897 7,435
--------- ---------
--------- ---------

DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------

BALANCE SHEET DATA:
Cash and cash equivalents.................................... -- $ 1,418 $ 922 $ 241 $ 1,314
Working capital.............................................. (573) 2,274 (1,939) 92 3,350
Total assets................................................. 25 3,726 2,760 2,689 5,747
Noncurrent portion of capital lease obligations.............. -- 345 926 636 424
Redeemable convertible preferred stock....................... -- 6,203 6,403 12,982 20,279
Accumulated deficit.......................................... (549) (3,256) (7,685) (12,309) (16,394)
Total stockholders' deficit.................................. (549) (3,230) (7,494) (12,123) (16,126)

SEPTEMBER 30,
1997
---------------

BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 197
Working capital.............................................. (1,200)
Total assets................................................. 2,478
Noncurrent portion of capital lease obligations.............. 501
Redeemable convertible preferred stock....................... 20,279
Accumulated deficit.......................................... (21,169)
Total stockholders' deficit.................................. (20,744)

- --------------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per share and shares used in computing net loss per
share.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND RELATED NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF THE FACTORS SET FORTH
IN THIS PROSPECTUS.

OVERVIEW

Since its incorporation and commencement of operations in September 1992,
the Company has been developing its drug discovery technologies, and has used
such technologies in its collaborations and for its internal development
programs. As of November 15, 1997, the Company has received approximately $25.4
million in funding through the sale of preferred stock and from payments under
the Company's collaborative agreements. Additionally, the Company has received
several SBIR grants from the National Institutes of Health. The Company has a
limited history of operations and has experienced significant operating losses
since Inception. The Company expects to incur significant additional operating
losses over the next several years and expects cumulative losses to increase
substantially due primarily to expanded research and development efforts,
pre-clinical and clinical trials.

To date, a majority of all revenue earned by the Company has been from its
collaborative agreements, and the Company expects that substantially all revenue
for the foreseeable future will result from such collaborations and any future
collaborations the Company may enter into. The timing of any fees or milestone
or other payments under such collaborations is expected to vary greatly from
quarter to quarter, depending on numerous factors. Operating results may
therefore vary substantially from quarter to quarter and will not necessarily be
indicative of results in subsequent periods. See "Risk Factors--Dependence Upon
Present and Future Collaborative Agreements" and "--Significant Fluctuations in
Quarterly Results."

Revenue derived under the Company's collaborative agreements is recognized
as drug discovery activities are performed. Cash received in advance of
activities performed is recorded as deferred revenue. Certain agreements also
provide for payments to the Company upon the achievement of certain milestones
as well as royalties on the net sales of any products developed resulting from
the collaborations, as defined in the respective agreements. Any revenue related
to milestones will be recognized as the milestones are achieved and any revenue
related to royalties will be recognized as earned.

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

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

REVENUE. Total revenue in the nine months ended September 30, 1997 was
$604,784 compared to $1,196,585 in the nine months ended September 30, 1996. The
Company recognized $467,000 of revenue in the nine months ended September 30,
1997 under its collaborative agreement with Eli Lilly and $975,000

of revenue in the nine months ended September 30, 1996 under a collaborative
agreement which was concluded in 1996. In addition, the Company recognized
$137,784 and $221,585 of revenue related to SBIR grants in the nine months ended
September 30, 1997 and 1996, respectively.

COST OF REVENUE. Cost of revenue reflects certain direct and overhead
expenses associated with collaborations in progress in addition to eligible
expenses incurred related to SBIR grants. Cost of revenue was $261,299 in the
nine months ended September 30, 1997 compared to $395,750 in the nine months
ended September 30, 1996.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
were $4,273,149 in the nine months ended September 30, 1997 compared to
$2,757,439 in the nine months ended September 30, 1996, an increase of
$1,515,710 or 55.0%. The increase was largely due to increased costs related to
additional personnel and, to a lesser extent, increases in depreciation,
amortization and patent expenses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $830,908 in the nine months ended September 30, 1997 compared to $669,108
in the nine months ended September 30, 1996, an increase of $161,800 or 24.2%.
The increase was primarily due to amortization of unearned compensation and an
increase in costs associated with additional personnel, public relations and
other administrative expenses offset by a decrease in the use of consultants.

OTHER INCOME AND EXPENSE, NET. Other income and expense, net was $(14,884)
in the nine months ended September 30, 1997 compared to $12,204 in the nine
months ended September 30, 1996, a decrease of $27,088 or 222.0%. The decrease
was primarily due to a decrease in interest income as a result of a decrease in
the average cash balance during the nine months ended September 30, 1997. In
addition, interest expense increased due to an increase in the average balance
of outstanding capital lease obligations.

YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUE. Total revenue in 1996 was $1,206,620 compared to $260,415 in 1995.
The Company recognized $975,000 of revenue in 1996 under a collaborative
agreement which was concluded in 1996. No collaborative agreements were in
progress in 1995. In addition, the Company recognized $231,620 and $260,415 of
revenue under SBIR grants in 1996 and 1995, respectively.

COST OF REVENUE. Cost of revenue was $405,785 in 1996 compared to $260,415
in 1995.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
were $3,958,201 in 1996 compared to $3,152,494 in 1995, an increase of $805,707
or 25.6%. The increase was largely due to increased costs related to additional
personnel, laboratory materials and supplies, patent costs and depreciation and
amortization expenses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $906,452 in 1996 compared to $1,298,684 in 1995, a decrease of $392,232 or
30.2%. The decrease was primarily due to expenses incurred in 1995 under a
separation agreement with a former chief executive officer of the Company.

OTHER INCOME AND EXPENSE, NET. Other income and expense, net was $19,799 in
1996 compared to $(127,749) in 1995, an increase of $147,548, or 115.5%. This
increase was due to an increase in interest income as a result of an increase in
the average cash balance in 1996. This increase was offset by a decrease in
interest expense as a result of the decrease in the average balance of
outstanding capital lease obligations and the conversion of convertible debt
during 1995.

YEARS ENDED DECEMBER 31, 1995 AND 1994

REVENUE. Total revenue in 1995 was $260,415, consisting only of revenue
recognized under SBIR grants. No revenue was recognized in 1994.

COST OF REVENUE. Cost of revenue related to SBIR grants was $260,415 for
1995. No such grants were in place during 1994.

RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
were $3,152,494 in 1995 compared to $3,156,734 in 1994.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $1,298,684 in 1995 compared to $998,194 in 1994, an increase of $300,490 or
30.1%. The increase was primarily due to increased executive and administrative
staffing and consultant expenses used to support the growth of the Company's
research and development.

OTHER INCOME AND EXPENSE, NET. Other income and expense, net was $(127,749)
in 1995 compared to $(146,046) in 1994, a decrease of $18,297 or 12.5%. This
decrease was due to an increase in interest income as a result of an increase in
the average cash balance offset by an increase in interest expense as a result
of an increase in outstanding capital lease obligations and the issuance of
convertible debt.

INCOME TAXES

The Company has generated taxable losses from operations since Inception
and, accordingly, has no taxable income available to offset the carryback of net
operating losses. Based upon the weight of all available evidence, the Company
has provided a full valuation allowance for its deferred tax assets since, in
the opinion of management, realization of these future benefits is not
sufficiently assured (defined as a likelihood of slightly more than 50 percent).

LIQUIDITY AND CAPITAL RESOURCES

Since Inception, the Company has financed its operations through the sale of
preferred stock, payments received under the Company's collaborative
arrangements, equipment financing, SBIR grants and interest earned on invested
capital. The Company's total cash, cash equivalents and investments balance at
September 30, 1997 was $1,064,157 compared to $4,338,237 at December 31, 1996.
The Company received approximately $1,405,000 under its collaborative agreements
and $137,784 in SBIR grants during the nine months ended September 30, 1997. In
October 1997, the Company entered into a collaborative arrangement with HMR. The
Company expects that the total amounts it will have received from HMR under its
collaborative agreement from October 1997 through February 1998 will approximate
$12,000,000, of which $6,000,000 will be technology access fees, $3,000,000 will
be research and development payments and $3,000,000 will be proceeds from the
Private Placement. There can be no assurance that the Company will receive any
additional payments under its present or any future collaborative agreements.
See "Risk Factors--Dependence Upon Present and Future Collaborative
Arrangements" and "Business--Collaborative Arrangements."

Net cash used in operating activities for the nine months ended September
30, 1997 was $2,737,087 compared to $2,555,823 for the nine months ended
September 30, 1996. Net cash used in operating activities was $3,568,031 in 1996
compared to $3,744,478 and $3,876,939 in 1995 and 1994, respectively. The cash
used in operations was primarily to fund research and development and for
general and administrative expenses.

As of September 30, 1997, the Company had invested $3,018,000 in property
and equipment, primarily in facility renovations and laboratory equipment. These
acquisitions were funded by capital lease financings which have an aggregate
outstanding principal balance of $984,627 at September 30, 1997 due at various
dates through the year 2000 with interest rates ranging between 8%-8.5% and 15%
for equipment

and facility renovations, respectively. The Company expects substantially all of
its capital expenditures in 1997 to be funded through capital lease equipment
financing. In connection with these capital leases, the Company has issued
warrants for 253,000 shares of its redeemable convertible preferred stock
through November 1997.

Pursuant to several license and sponsored research agreements, the Company
has paid to date an aggregate of approximately $1,300,000 in the form of license
and research and development fees. Under existing sponsored research agreements,
the Company remains obligated to pay approximately $100,000 in additional
research payments. Under such agreements and other agreements, the Company is
required to make payments upon the achievement of certain milestones, to pay
royalties on certain drug sales, if any, and to pay other amounts in connection
with sublicenses, if any (collectively, "Contingent Payments"). To date, the
Company has not become obligated to make any Contingent Payments under such
agreements and does not anticipate becoming obligated to make any such payments
in the near future.

The Company believes that the net proceeds of the Offering, together with
revenue from its collaborative agreements, the Private Placement, its existing
capital resources, SBIR grants and interest income will be sufficient to fund
its operating expenses and capital requirements as currently planned through the
end of 2000. The Company's actual cash requirements may vary materially from
those now planned and will depend upon numerous factors, including the ability
of the Company to enter into additional collaborative arrangements, the
achievement of milestones under the Company's collaborative arrangements on a
timely basis or at all, changes in the Company's existing collaborative
arrangements, the results of the Company's internal development programs, the
timing and results of pre-clinical and clinical trials, the timing and costs of
obtaining regulatory approvals, the timing and level of the expansion of the
Company's facilities, the level of resources, if any, that the Company commits
to the development of manufacturing, marketing and sales capabilities, the
technological advances and activities of competitors and other factors. There
can be no assurance that the net proceeds of the Offering, together with the
Company's revenue from collaborative agreements, the Private Placement, its
existing capital resources, SBIR grants and interest income will be sufficient
to fund the Company's operating expenses and capital requirements during such
period. Thereafter, the Company will need to raise substantial additional
capital to fund its operations. The Company intends to seek such additional
funding through public or private financing, collaborations or other
arrangements. See "Use of Proceeds" and "Risk Factors--Additional Financing
Requirements; Uncertainty of Available Funding."

BUSINESS

OVERVIEW

Scriptgen utilizes its proprietary high throughput technologies to enable
and accelerate the discovery of innovative small molecule drugs. Scriptgen's
technology platform allows the Company and its collaborators to exploit the
opportunities afforded by advances in genomics and combinatorial chemistry, and
opens new avenues of drug discovery. The Company's technology platform
identifies and validates novel gene targets for therapeutic intervention, and
then uses novel assay systems to rapidly screen compounds against those targets,
even before the gene target's characteristics or functions are well understood.
The Company believes that the application of its technologies addresses many of
the limitations associated with traditional drug discovery and provides
substantial cost savings opportunities. The Company commercializes its
technology platform through (i) collaborations with pharmaceutical and
technology companies and (ii) the Company's internal development program.

The Company's core systems include GATE (Genetics Assisted Target
Evaluation), a family of high throughput target identification and validation
systems, and ATLAS (Any Target Ligand Affinity Screen) and SCAN (Screen for
Compounds with Affinity for Nucleic Acids), the high speed, solution based,
assay systems which identify compounds that bind to virtually any protein or
structured RNA, respectively. GATE measures the effects of transiently removing
a specific gene from a cell, and by reproducing conditions that closely resemble
drug mechanism of action, generates data more predictive of target behavior than
traditional methods. ATLAS and SCAN rapidly measure the affinity of compounds
that bind to targets even before the gene functions are well understood,
enabling the Company to work with targets that are unsuitable for traditional
high throughput screens. The Company believes ATLAS and SCAN increase
dramatically the number of targets and compounds that may be screened in a given
time period, and reduce to weeks what often requires months or years of assay
development time when using traditional high throughput functional assays. The
Company has used GATE to identify and validate novel infectious disease targets,
and has used ATLAS and SCAN to identify lead compounds, two of which have
progressed to pre-clinical development. ATLAS and SCAN are broadly applicable to
research in multiple therapeutic areas, and have demonstrated utility in
anti-infectives, oncology, cardiovascular, and respiratory and immunologic
disorders.

The Company's strategy is to maximize the commercial opportunities presented
by its technology platform and pipeline of drug candidates by entering into
multiple collaborations and retaining rights to independently develop certain
products. Scriptgen has collaborative agreements with pharmaceutical and
technology companies, and routinely evaluates opportunities to enter into
collaborations with other potential partners. The Company currently has
collaborations with HMR, Eli Lilly, Roche, Monsanto and ArQule, Inc. Scriptgen's
internal development efforts have initially focused on anti-infectives, where it
has identified novel cidal targets and lead compounds in the fungal, bacterial
and viral areas.

DRUG DISCOVERY TECHNOLOGIES

Drug discovery and development is a complex process which averages 15 years
from inception to FDA approval at a cost of more than $500 million. According to
an industry source, only five in 5,000 compounds that enter pre-clinical testing
advance to clinical testing, and only one of those five is approved as a drug.
Consequently, technologies and methods which may make the drug discovery process
faster, less costly, and more effective are in great demand.

The Company's technology platform is complementary to emerging drug
discovery approaches, including gene sequencing, functional genomics and
differential gene expression. The chart following outlines the drug discovery
process, and indicates the steps in that process where the Company's and these
complementary technologies apply.

[CHART]

Advances in genomics and related technologies are dramatically increasing
the number of potential drug targets available and have created a bottleneck in
the target validation phase of drug discovery. It has been estimated that there
are only approximately 400 human drug discovery targets for which drugs have
been developed. Although genomics and related technologies have the potential to
identify thousands of additional targets per year, these targets may not be
therapeutically relevant. For example, differential gene expression compares
gene transcription patterns in normal and diseased tissues, typically
identifying several hundred genes which are up or down regulated in diseased
cells relative to normal cells, but whose relevance to the cause of the
underlying disease is not apparent. Consequently, many of these targets will
require validation, a process that can consume two or more years with
conventional approaches. Further, existing gene-based technologies are limited
in screening potential because: (i) they can be used only to identify compounds
that affect transcription (the process by which DNA is transcribed into RNA),
(ii) they generally have very low throughput, (iii) they identify gene targets
which have unknown function and (iv) they do not accommodate the complexity of
gene interactions in the disease process.

SCRIPTGEN'S DRUG DISCOVERY APPROACH

Scriptgen's drug discovery technology platform enables the Company and its
collaborators to exploit the opportunities afforded by advances in genomics and
combinatorial chemistry, and opens new avenues of drug discovery. Scriptgen's
primary drug discovery technologies are GATE, a family of high throughput target
identification and validation systems, and ATLAS and SCAN, the high speed,
solution based assay systems, which identify compounds that bind to virtually
any protein or structured RNA, respectively. The Company also possesses a
diverse 250,000 compound library consisting of defined small molecule chemical
entities, including 15,000 natural product extracts, and has access to validated
IN VIVO animal models of infectious diseases through the Company's collaboration
with Boston Medical Center.

Scriptgen's drug discovery technology platform is unique because it
identifies and validates multiple gene targets, and rapidly measures the
affinity of compounds that bind to such gene targets even before the gene
functions are well understood. This approach enables the Company and its
collaborators to work with targets that are unsuitable for traditional high
throughput screens and greatly increases the number of targets and compounds
that may be screened in a given time period.

TARGET DISCOVERY AND VALIDATION SYSTEMS (GATE)

GATE consists of a family of high throughput target identification and
validation technologies which the Company has successfully applied in fungi,
bacteria and viruses. GATE's regulated gene knockout technology measures the
effects of transient gene inactivation. It reproduces conditions that more
closely resemble drug mechanism of action than conventional gene inactivation
methods, which the Company believes makes GATE more predictive of target
behavior and hence more informative as a target validation technique. An
analogous technology for mammalian cells, CellGATE, is under development.

GATE has been applied by the Company to infectious diseases where the
desired result of drug treatment is to kill the invading pathogen without severe
side effects to the patient. GATE determines whether the pathogen dies as a
result of a specific inactivation of a gene product, how quickly it dies and how
much of the target must be modified to kill the pathogen. Because GATE focuses
on cidal targets, the Company is able to focus its efforts on identifying
compounds which the Company believes may have a high probability of being
effective against the disease with low toxicity and side effects.

HIGH THROUGHPUT ASSAY SYSTEMS (ATLAS AND SCAN)

ATLAS and SCAN are high throughput affinity assay systems that allow drug
discovery to focus rapidly on ligands, those rare compounds that bind to a
target, and therefore have the potential to become valid therapeutics. ATLAS and
SCAN are based on the thermodynamic principle that protein and RNA have
measurable stability, as well as the fact that all drugs act by binding to and
further stabilizing a specific target. Thus, ATLAS and SCAN may be applied to
virtually any identified target, even before its characteristics or functions
are well understood. These technologies are able to identify and distinguish
among ligands that bind to active and neutral sites, and measure the affinity of
binding, which indicates the potential of drug potency.

In contrast, conventional high throughput drug discovery technologies
measure the effect of test compounds only on the function of a target. Before
such a functional screening approach may be initiated, the biochemical function
of the target must be well understood. This detailed characterization often
requires extensive time and effort before a target can be screened, if at all.

ATLAS and SCAN have shown the ability to overcome many of the limitations of
high throughput drug screening and allow access to targets of unknown function,
thereby offering the following advantages:

- TARGET FLEXIBILITY. ATLAS and SCAN require essentially no pre-existing
biochemical understanding of the target molecule and are compatible with
virtually any target protein or structured RNA. Using ATLAS and SCAN,
screening can begin earlier than with conventional high throughput
methods.

- COMPOUND DIVERSITY. ATLAS and SCAN work in solution phase, and are used to
search for drug candidates from a wide diversity of chemical sources
including combinatorial, small molecule, peptide and natural product
compound libraries.

- RAPID ASSAY DEVELOPMENT. Many functional assays using biochemical, cell or
animal based methods take months or years to develop. ATLAS and SCAN can
be applied in a matter of weeks because they measure only the universal
principle of drug binding and are independent of protein and nucleic acid
function.

- EFFICIENT, HIGH THROUGHPUT MODE. ATLAS and SCAN are compatible with modern
robotic and automated equipment, operate in high throughput mode and can
test thousands of compounds each week using minute compound amounts and
very little target protein or RNA.

- RAPID ELIMINATION OF NON-CANDIDATE COMPOUNDS. Used in a pre-screening
mode, ATLAS and SCAN rapidly eliminate compounds that are not ligands and
allow a focused and efficient development effort to be concentrated only
on those compounds with the greatest potential for therapeutic benefit. In
a typical high throughput assay using ATLAS, 99.9% of the screened
compounds are eliminated as potential drug candidates.

- QUANTITATIVE MEASURE OF DRUG BINDING. ATLAS and SCAN, unlike many drug
discovery technologies, are sensitive assay systems which identify even
weakly binding ligands, and provide a quantitative measure of how tightly
a potential drug binds to its target.

- EXPANDS DRUG DISCOVERY BEYOND REGULATION OF GENE TRANSCRIPTION. While
traditional gene expression methods are limited to measuring initial gene
transcripts, ATLAS and SCAN measure the binding to final gene products,
thereby enhancing the ability to identify promising lead compounds.

COALESCENT DRUG DESIGN. For many target proteins, it is very difficult to
develop a single molecule with both inhibitory activity and sufficient
specificity for pharmaceutical applications. This difficulty is often a
consequence of the fact that proteins with similar functions have similar active
sites. In contrast, the neutral site surfaces of related proteins are
dissimilar, and thus compounds that also bind outside of the active site can
have specificity for the target protein. The Company has applied ATLAS to
develop novel coalescent compounds, which are small molecules connected by a
molecular tether that bind to both active and neutral sites. The binding
energies of the functional groups are nearly exponentially additive, allowing
for highly specific coalescent drug candidates to be forged even from weakly
binding compounds. Coalescent drug candidates have the potential to address a
broad spectrum of heretofore intractable protein targets.

The Company is exploring the development of small molecule coalescent
compounds to mimic the action of protein drugs such as human growth hormone and
erythropoietin. The receptors for these proteins typically comprise two subunits
that span the cell membrane. The therapeutic protein binds to two distinct sites
on the extracellular portion of its receptor, one on each subunit, thereby
causing the subunits to pull together (dimerization). The dimerization of the
intracellular portions of the receptor subunits initiates a signaling pathway
which results in the intended therapeutic effect. Scientists have struggled to
design small molecule analogs of therapeutic proteins because small molecules
are unable to span the distance between the extracellular parts of the receptor
subunits. While the internal arms of the protein are much closer together, they
are not the active sites and thus have not been available as targets using
conventional assay technologies. ATLAS allows for the identification of ligands
that bind to the internal arms of these receptor subunits, making it possible to
construct small molecule coalescent compounds capable of causing dimerization of
the subunits and, hence, initiating a therapeutic response.

ADDITIONAL DRUG DISCOVERY TOOLS

COMPOUND LIBRARY. Scriptgen has a library of approximately 250,000
compounds including 15,000 mixtures of natural product extracts. These compounds
have been obtained from a variety of sources, and were selected from a larger
catalog of compounds based on their diversity and pharmacological profiles.
Through analogs of the compounds in the library, and the use of combinatorial
chemistry techniques, Scriptgen has access to more than 1,000,000 compounds. The
Company uses these compounds for high throughput screening in its internal
development program as well as in its collaborative arrangements. While the
compound library is used to identify therapeutic candidates against specific
targets, the lead compounds anticipated to be developed by Scriptgen will be
unique patented analogs, specifically designed using medicinal chemistry
techniques to optimize their efficacy.

ANIMAL MODELS. The Company's collaboration with Boston Medical Center to
test potential antibacterial and antifungal drug candidates gives the Company
access to a number of validated and predictive animal models of infectious
diseases to evaluate the efficacy and safety of the Company's lead compounds.

STRATEGY

Scriptgen's strategy is to maximize the commercial opportunities presented
by its technology platform and pipeline of drug candidates. To implement this
strategy the Company will continue to:

ESTABLISH COLLABORATIVE RELATIONSHIPS. The Company enters into
collaborations with pharmaceutical and technology companies: (i) to perform high
throughput target identification and validation, assay development and lead
compound identification for its collaborators' drug discovery programs to
generate near-term revenue, (ii) to jointly discover and develop new drugs in
targeted areas, under agreements that provide the Company with near-term revenue
and the opportunity to receive substantial milestone payments and royalties and
(iii) to develop or commercialize selected drug candidates from the Company's
internal pipeline at such time as a collaboration is determined to represent the
best opportunity to maximize the commercial value of a particular candidate. The
Company currently has collaborations with HMR, Eli Lilly, Roche and Monsanto,
and routinely evaluates opportunities to enter into collaborations with other
potential partners.

DEVELOP INTERNALLY A PIPELINE OF DRUG DEVELOPMENT CANDIDATES. Recognizing
that many promising drug candidates fail in subsequent stages of development,
the Company believes that it is essential to have a pipeline of new drug
candidates from which to choose. Scriptgen is developing a pipeline by using its
high throughput technologies to identify multiple lead candidates, initially
focusing in the antifungal, antibacterial and antiviral areas. The Company
develops drug candidates either alone or in conjunction with partners depending
on such factors as estimated development costs and potential regulatory approval
time and hurdles.

EXPAND PROPRIETARY DRUG DISCOVERY TECHNOLOGY PLATFORM. Scriptgen has an
ongoing research program aimed at expanding the capabilities and potential
applications for the Company's technologies, while simultaneously attempting to
increase their efficiency. In addition, the Company strives to identify, develop
and acquire other technologies, and to collaborate to obtain technologies that
can substantially enhance the drug discovery process. For example, the Company
has enhanced and expanded its core drug discovery technologies to include
technologies that allow ligands to be sorted rapidly according to the active and
neutral sites on the target. These technology enhancements have been
instrumental in the Company's obtaining SBIR funding for its coalescent drug
design program.

MAINTAIN AND ENHANCE STRONG PROPRIETARY POSITION. Scriptgen pursues an
aggressive strategy to protect its proprietary drug discovery technologies,
including certain targets, assays, lead compounds and certain other
technologies, through patents, trade secret law and confidentiality agreements.

COLLABORATIVE ARRANGEMENTS

The Company has entered into collaborative arrangements with pharmaceutical
and technology companies.

HOECHST MARION ROUSSEL. In October 1997, the Company entered into a
collaboration with HMR pursuant to which the Company will seek to identify new
fungal targets and antifungal drug candidates. In each year of the
collaboration, Scriptgen will use GATE to identify and validate fungal targets,
some of which will be screened against compounds from Scriptgen's and HMR's
compound libraries utilizing ATLAS, SCAN and other technologies. HMR will
determine whether to proceed with the development of any lead compounds
discovered, and will receive an exclusive, worldwide license to develop and
commercialize any resulting drug candidate. Under the terms of the collaboration
agreement, Scriptgen has

received initial cash payments, and HMR is required to fund Scriptgen's research
and development activities in connection with the collaboration up to a
specified amount for a period of three years. The Company expects to have
received an aggregate of $9 million from HMR under the collaboration by the
completion of the Offering, of which $6 million will be technology access fees
and $3 million will be proceeds from the sale of Common Stock to HMR
concurrently with the Offering. The Company will also receive research and
development payments and will receive payments when and if certain milestones
are achieved and royalties on the sales of any new drug resulting from the
collaboration. HMR may terminate the collaboration by giving the Company six
months' prior written notice at any time after the end of the second year of the
collaboration.

ELI LILLY. In May 1997, the Company entered into a collaboration with Eli
Lilly under which Scriptgen is using ATLAS to identify novel drug candidates
against two targets selected by Eli Lilly. Two additional targets may be
selected by Eli Lilly for high throughput screening in 1998, assuming certain
milestones are met. In October 1997, Eli Lilly and the Company expanded the
scope of the collaboration to screen additional compounds from the Company's
compound library. Under the agreement with Eli Lilly, Scriptgen receives
research and development payments and will receive payments when and if certain
milestones are achieved and royalties on the sales of any new drug resulting
from the collaboration.

ROCHE. In September 1995, the Company entered into a collaboration with
Roche pursuant to which the Company is using ATLAS to identify novel drug
candidates against a cancer-related target identified by Roche. Under the
agreement with Roche, Scriptgen receives research and development payments and
will receive payments when and if certain milestones are achieved and royalties
on the sales of any new drug resulting from the collaboration.

MONSANTO. In November 1997, the Company entered into a collaboration with
Monsanto under which Scriptgen is using its technology platform to identify and
validate novel fungal targets from plant and human pathogens and to identify
novel agents and drugs against such targets. The agreement provides Scriptgen
with 68,000 small molecule compounds from Monsanto's library for use by the
Company. The Company will pay Monsanto royalties and milestones on any human
anti-infective drug developed and commercialized as a result of the
collaboration. Scriptgen receives research and development payments and will
receive payments when and if certain milestones are achieved and royalties on
the sales of any product developed by Monsanto for IN PLANTA applications.

ARQULE, INC. The Company has entered into a collaboration with ArQule, Inc.
("ArQule") pursuant to which the Company incorporates compounds owned by ArQule
into the Company's library. The Company is screening certain of the ArQule
compounds against the Company's fungal, bacterial and viral targets. In the
event that active compounds are identified and selected for development,
Scriptgen and ArQule may enter into an agreement to share the costs of
development and the proceeds of any resulting commercial product.

There can be no assurance that any drug candidates will be identified during
the Company's present collaborations or that, if identified, the Company's
collaborative partners will elect to proceed with the development of any drug
candidates. The Company's collaborative partners are not obligated to develop or
commercialize any drug candidates resulting from the collaborative agreements.
As a result, there can be no assurance that any of the milestone or royalty
payments contemplated by such collaborations will be made. See "Risk
Factors--Dependence Upon Present and Future Collaborative Arrangements."

SCRIPTGEN'S INTERNAL DEVELOPMENT PROGRAM

OVERVIEW

Scriptgen's internal development efforts have initially focused on
anti-infectives, where it has identified novel cidal targets and lead compounds
in the fungal, bacterial and viral areas. Scriptgen has

progressed rapidly in the anti-infective area and has four lead compounds in
development as well as a number of other potential drug candidates under review.
The Company has also completed feasibility studies on novel targets in a number
of other areas, including oncology and immunologic disorders, and in several
cases has identified drug candidates. The Company believes that the
anti-infective market is attractive as an initial field of focus because of the
following:

- LARGE MARKET. Infectious diseases are the leading cause of death
worldwide. According to 1996 sales data compiled by IMS International,
anti-infective drugs generated approximately $30 billion in worldwide
sales and constituted the fourth largest pharmaceutical market worldwide.

- SCRIPTGEN TECHNOLOGY UNIQUELY SUITED FOR ANTI-INFECTIVES. The clinical
efficacy of certain anti-infective drugs is being threatened by emerging
strains of drug resistant pathogens and opportunistic infections arising
from the growing number of immunosuppressed patients. In addition,
scientists have recognized that newly identified pathogens are causing
outbreaks of disease. GATE allows a determination of whether the pathogen
dies as a result of a specific inactivation of a gene product, how quickly
it dies and how much of the target must be modified to produce the desired
effect. ATLAS and SCAN are used to quickly identify potential drug
candidates for these validated targets. These technologies allow the
Company to focus its efforts on identifying compounds with a high
probability of being effective against the disease with low toxicity and
side effects.

- FEWER TECHNICAL AND REGULATORY HURDLES TO OVERCOME. Anti-infective drug
development faces fewer technical hurdles in large part because invading
pathogens are distinct organisms that can be identified and targeted
separately from human host cells. In addition, because animal models for
anti-infectives are considered to be fairly predictive of the therapeutic
response in patients, and pharmacokinetic and pharmacodynamic parameters
can be modeled in animals, there are fewer technical and regulatory
hurdles. Initial human clinical studies to determine safety and efficacy
of new anti-infective drugs can be conducted in short-term studies.
Additionally, measures of drug efficacy are well established.

TARGET IDENTIFICATION AND VALIDATION AND HIGH THROUGHPUT SCREENING

Scriptgen focuses on the identification and validation of targets essential
for the survival of the pathogen. Scriptgen uses GATE in its structured target
selection process to focus on targets which are predictive of the following
desirable therapeutic objectives: microbicidal, fast-acting, low toxicity, broad
spectrum activity and low resistance. Scriptgen has validated more than 45 cidal
fungal, bacterial and viral targets and is validating a number of others.

Validated targets meeting the selection criteria are screened against the
Company's compound library in a high throughput mode. Depending upon the nature
of the individual target, functional assays may be used directly, or after
pre-screening with ATLAS or SCAN. Compounds that demonstrate specific anti-
infective activity are carefully scrutinized for their suitability as drug
candidates before being advanced into preliminary development. Criteria used for
selecting development candidates include: low molecular weight, chemical
feasibility and manufacturing cost, potential toxicity, cellular uptake,
metabolic stability and specificity. Compounds selected are then subjected to
preliminary modifications using medicinal as well as directed combinatorial
chemistry techniques, and a variety of analogs are produced for testing in
animal models.

DRUG CANDIDATES IN DEVELOPMENT

Scriptgen's internal development program has made rapid progress in the
anti-infective area. The Company currently has four lead compounds in
development as well as a number of other compounds under review, even though it
has not yet screened all of its compounds against all of its targets.

ANTIFUNGALS. Scriptgen's program has identified three families of compounds
that show broad spectrum antifungal activity, including effectiveness against
drug resistant strains of CANDIDA ALBICANS, the most widespread cause of life
threatening fungal infections. Two low molecular weight compounds, ST61219 and
ST61769, have been chosen for further development. In animal studies, these
compounds have cured mice infected with CANDIDA ALBICANS, including a strain
resistant to a marketed antifungal, flucanazole, at oral doses that produced no
overt side effects.

Initial pre-clinical data, including animal studies, on ST61219 and ST61769
indicate that these compounds may have several advantages over Diflucan
(flucanazole) and Sporanox (itraconazole), the current market leaders in the
antifungal area with worldwide sales in excess of $1.0 billion in 1996. These
advantages include:

- CIDALITY. ST61219 and ST61769 kill the pathogen rather than simply inhibit
its growth temporarily (static). Cidality eliminates the need for chronic
application of static compounds which has the potential of adverse side
effects and may give rise to drug resistance. Cidality is particularly
important for that large segment of the patient population suffering from
opportunistic infections because of impaired immune systems.

- RAPID ACTIVITY. ST61219 and ST61769 act much more rapidly, which may allow
for reduced dosing over a shorter time period. This faster cidality may
result in a lower probability for the development of resistance.

- BROAD SPECTRUM. ST61219 and ST61769 are effective against a broad range of
pathogens, as well as specific strains that have developed resistance to
the current drugs.

ANTIBACTERIALS. Scriptgen's program has identified a family of compounds
which shows broad spectrum antibacterial activity, and is efficacious against
drug resistant strains of STAPHYLOCOCCUS AUREUS, a major cause of bacterial
infections. From this family, one low molecular weight compound, ST41590, has
been selected for further development. ST41590 is a natural product extract and
is amenable to an efficient chemical synthesis.

Initial pre-clinical data on ST41590 indicate that it may have a significant
therapeutic advantage over available antibiotics because of its broad spectrum
activity, rapid cidality and efficacy against pathogenic strains resistant to
current drugs.

ANTIVIRALS. High throughput functional screening has traditionally been
unavailable to antiviral drug discovery because the small genomes of viruses
produce few potential targets for therapeutic intervention. Furthermore, most of
the targets that have been identified are not fully characterized and are
difficult to incorporate into high throughput assays. ATLAS and SCAN overcome
these difficulties and enable Scriptgen to screen compounds against novel
targets in Hepatitis B virus and Hepatitis C virus. The Company has identified
four families of compounds that have shown antiviral activity against Hepatitis
B virus. One low molecular weight compound, ST135647, has been selected for
further development. The remaining compounds are being analyzed for their
suitability as drug candidates.

Initial pre-clinical data on ST135647 indicate that it may have several
advantages over drug candidates known by the Company to be in development
("Known Drug Candidates"), including the following:

- NOVEL TARGET. ST135647 acts on a novel target of the Hepatitis B virus
that is critical for replication. The Company believes that ST135647 will
overcome problems of resistance that have already emerged with some of the
Known Drug Candidates that act on different viral targets.

- EFFICACIOUS. ST135647 has been shown in preliminary tests to be a potent
inhibitor of viral replication at concentrations that have shown minimal
toxic effects to the human liver cells in which the virus replicates. Some
of the Known Drug Candidates have shown limited efficacy or undesirable
side effects.

- POTENTIAL FOR COMBINATION THERAPY. ST135647 may act beneficially in
combination with some of Known Drug Candidates because of its novel site
of action. Many experts agree that multi-drug therapy represents the most
effective approach for treatment of Hepatitis B virus.

PATENTS AND PROPRIETARY TECHNOLOGY

Patent protection for the Company's technologies, targets and compounds is
important to its business. The Company has filed certain U.S. and foreign patent
applications and has certain issued U.S. patents and allowed U.S. patent
applications. To date, no foreign patents have been issued and no foreign patent
applications have been allowed.

Two of the Company's U.S. patents and one of its allowed U.S. patent
applications claim aspects of the Company's ATLAS screening technology. The two
issued U.S. patents and the allowed U.S. patent application in the ATLAS field
claim certain methods whereby a target protein is incubated in the presence and
absence of several test ligands, and evaluated based on the extent to which the
target protein is folded, unfolded, or intermediately folded in the absence or
presence of the test ligands. The Company also has a notice of allowance for a
patent application that claims a certain fungal target protein complex, known as
TAF, which is important in certain gene transcription events in the model yeast
S. CEREVISIAE. This fungal protein complex may be relevant to the Company's
research because it may be used as a target protein in the Company's screening
technologies in order to identify compounds that interfere with the fungal life
cycle, and to confirm the biological activity of such compounds. The Company's
issued patents expire in 2013.

The Company's success will depend in part on its ability to obtain U.S. and
foreign patent protection for its drug candidates and the components of its
technology platform, preserve its trade secrets and operate without infringing
the proprietary rights of third parties. Because of the length of time and
expense associated with bringing new drug candidates through the development and
regulatory approval process to the marketplace, drug discovery companies have
traditionally placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products and processes. The
Company's policy is to make diligent efforts to protect its screening
technologies, targets, compounds, and certain other technology by, among other
things, filing, or causing to be filed on its behalf, patent applications in the
USPTO, and elsewhere where the Company deems appropriate and cost effective.
There can be no assurance that patents will be granted with respect to any of
the Company's or its licensors' patent applications which are pending or may be
filed in the future. Further, there can be no assurance that any rights the
Company may have under issued patents will provide the Company with significant
protection against competitive products or otherwise be commercially viable.
Legal standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing, and thus there is no consistent policy in this regard. The
patent position of a drug discovery company such as Scriptgen is highly
uncertain and involves complex legal and factual questions. There can be no
assurance that any existing or future patents issued to, or licensed by, the
Company will not subsequently be challenged, infringed upon, invalidated or
circumvented by others. In addition, patents may have been granted, or may be
granted, covering processes or products that are necessary or useful to the
development of the Company's technologies, targets and compounds. If any of the
Company's technologies, targets or compounds are found to infringe upon the
patents or other intellectual property of others, the Company's ability to
develop and commercialize its technologies, targets and compounds could be
severely restricted or prohibited. In such event, the Company may be required to
obtain licenses from third parties to utilize their patents or other proprietary
rights. There can be no assurance that the Company will be able to obtain such
licenses on acceptable terms, or at all. There is significant litigation in the
pharmaceutical and biotechnology industry regarding patents and other
proprietary rights. If the Company becomes involved in litigation regarding its
proprietary rights or the rights of others, the Company could incur substantial
costs in defending infringement proprietary claims, obtaining licenses, engaging
in interference and opposition proceedings or other

challenges to its patent rights or other proprietary rights, or in bringing such
proceedings or enforcing any proprietary rights against third parties. The
Company's inability to obtain necessary licenses or its involvement in
proceedings concerning proprietary rights could have a material adverse effect
on the business, operating results and financial condition of the Company.

The Company has filed a provisional patent application claiming certain
aspects of its GATE technology. The Company is aware that another party has
applied for a patent for certain technologies which may overlap with or dominate
parts of the Company's GATE technology. The Company is in negotiations with such
party to acquire a license of such party's rights covered by its patent
application. If the Company determines to seek to obtain such license, there can
be no assurance that the Company will be able to obtain such a license on terms
favorable to the Company, if at all. Further, if the claims in the two
aforementioned patent applications are found to be sufficiently similar, the
USPTO may declare an interference proceeding which may result in the Company's
patent application being rejected. Even if the interference proceeding is
decided favorably to the Company, participation in the proceeding would likely
be costly to the Company. Whether or not an interference proceeding is declared,
the other party may be issued a patent which claims all or part of the Company's
GATE technology. If the Company determines to pursue such license and is
unsuccessful in this regard, the Company could be severely restricted or
prohibited from using, manufacturing and selling products resulting from the
Company's GATE technology. Such restriction or prohibition, or the failure to
obtain such license could have a material adverse effect on the Company's
business, operating results and financial condition.

The Company and Boston University are joint owners of the patent covering
improvements to the synthesis of ST41590. The Company is negotiating the terms
of an exclusive license of Boston University's rights under such patent, but
until an agreement is negotiated and executed, both parties will continue to be
able to develop and commercialize such compound. There can be no assurance that
the Company will be able to obtain such a license.

The Company acquired certain rights in its ATLAS screening technology
pursuant to an Assignment Agreement with the two inventors of ATLAS (the
"Assignors"), one of whom, Andrew A. Pakula, is now the Company's Head of Drug
Discovery Technologies. Pursuant to the terms of the Assignment Agreement, as
amended, the Company is obligated to pay to the Assignors certain royalties on
amounts received by the Company from (i) net sales of products developed using
ATLAS, (ii) royalties from licenses granting third parties the right to make,
use or sell products developed using ATLAS and (iii) royalties from licenses
granting third parties the right to use ATLAS.

GOVERNMENT REGULATION

OVERVIEW

Regulations imposed by United States federal, state and local authorities,
as well as their counterparts in other countries, are a significant factor in
the conduct of the research, development, manufacturing and marketing activities
for the Company's potential drug candidates.

The development, manufacture and marketing of drugs developed by the Company
or its collaborative partners are subject to regulation by numerous governmental
agencies in the United States, principally the FDA, by state and local
governments, and in some instances by foreign governments. Pursuant to the
Federal Food, Drug, and Cosmetic Act and the regulations promulgated thereunder
(the "FDC Act"), the

FDA regulates the pre-clinical and clinical trials, safety, effectiveness,
manufacture, labeling, storage, distribution and promotion of drugs.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, recall or seizure of products, total or partial suspension
of production, refusals to permit products to be imported into or exported out
of the United States, failure of the government to grant approval for new drugs
or antibiotic products, withdrawal of marketing approvals, denial or suspension
of government contracts and criminal prosecution.

Product development and approval within the FDA regulatory framework usually
take a significant number of years, involve the expenditure of substantial
capital resources and are uncertain. Moreover, there is no assurance that the
current regulatory framework will not change or that additional regulatory
standards will not be promulgated at any stage of the Company's or its
collaborative partners' product development that may adversely affect approval,
delay the submission or review of an application or require additional
expenditures by the Company.

U.S. REGULATORY PROCESS

New drugs must be found safe and effective by the FDA through the approval
of a new drug application ("NDA") pursuant to section 505 of the FDC Act prior
to marketing in interstate commerce. Prior to this, the pre-clinical data
(animal and IN VITRO laboratory data) and clinical data (human data) are
regulated by the FDA pursuant to regulations and the issuance and continuing FDA
oversight of an investigational new drug application ("IND"). Post-NDA approval,
the FDA maintains continuing regulatory control over the marketing of approved
drugs, regulating most closely manufacturing, promotional activities and the
appropriate submission of adverse reaction information. Any material changes to
the indication for use, other labeling or manufacturing, require FDA approval of
a supplement to the NDA prior to any such change being made.

Before testing in the United States of any compounds with potential
therapeutic value in human test subjects may begin, stringent government
requirements for pre-clinical data must be satisfied. Pre-clinical testing
includes both IN VITRO and IN VIVO laboratory evaluation and characterization of
the safety and efficacy of a drug and its formulation. Laboratories involved in
pre-clinical testing must comply with FDA regulations regarding Good Laboratory
Practices. Pre-clinical testing results obtained from studies in several animal
species, as well as from IN VITRO studies, are submitted to the FDA as part of
the IND and are reviewed by the FDA prior to the commencement of human clinical
trials. These pre-clinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initial (Phase I) studies
in human volunteers. Unless the FDA objects to an IND, the IND becomes effective
30 days following its receipt by the FDA. There can be no assurance that
submission of an IND will result in the commencement of human clinical trials.
Moreover, once trials have commenced, the FDA may stop the trials by placing
them on "clinical hold" because of concerns about, for example, the safety of
the product being tested. Such clinical holds either before the clinical studies
commence or after commencement may result in either a temporary halt to the
study or abandonment of any further work whatsoever.

Clinical trials, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials must be
conducted in accordance with the FDA's Good Clinical Practices, under protocols
that detail the objectives of the study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an independent Institutional Review Board (the
"IRB") at the institution where the study will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects,
informed consent requirements and the possible liability of the institution.
Compounds must be formulated according to the FDA's current Good Manufacturing
Practice regulations ("cGMP").

Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or to a group of
selected patients with the targeted disease or disorder. The goal of Phase I
clinical trials is typically to test for safety (adverse effects), dose
tolerance, absorption, biodistribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding efficacy.

Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range and
to gather additional information relating to safety and potential adverse
effects.

Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to confirm the further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for product
labeling. The Phase III clinical development program consists of expanded,
large-scale studies of patients with the target disease or disorder to obtain
definitive statistical evidence of the efficacy and safety of the proposed
product and dosage regimen. These studies may include investigation of the
effects in subpopulations of patients, such as the elderly, children, etc. All
of the phases of clinical studies must be conducted in conformance with the
FDA's investigational new drug and bioresearch monitoring regulations (such as
IRB, informed consent and sponsor monitoring requirements).

All data obtained from a comprehensive development program including
research and product development, manufacturing, pre-clinical and clinical
trials and related information are submitted in an NDA to the FDA and the
corresponding agencies in other countries for review and approval. In addition
to reports of the trials conducted under the IND application, the NDA includes
information pertaining to the preparation of the new drug, analytical methods,
details of the manufacture of finished products and proposed product packaging
and labeling. Although the FDC Act requires the FDA to review NDAs within 180
days of their filing, in practice longer times are usually required. The FDA
also frequently requests that additional information be submitted, requiring
significant additional review time. As a result of the Prescription Drug User
Fee Act, the FDA has made commitments to speed the review of NDAs and NDA
Supplements. While implementation of this by the FDA has sped up certain
decision-making by the FDA, it has not, with regard to many drugs, sped up the
overall development and approval time. Any proposed product of the Company
likely would be subject to demanding and time-consuming NDA approval procedures
in virtually all countries where marketing of the products is intended. These
regulations define not only the form and content of safety and efficacy data
regarding the proposed product but also impose specific requirements regarding
manufacture of the product, quality assurance, packaging, storage, documentation
and record keeping, labeling, advertising and marketing procedures.

Timetables for the various phases of clinical trials and NDA approval cannot
be predicted with any certainty. The Company, its collaborative partners or the
FDA may suspend clinical trials at any time if it is believed that individuals
participating in such trials are being exposed to unacceptable health risks.
Even assuming that clinical trials are completed and that an NDA is submitted to
the FDA, there can be no assurance that the NDA will be reviewed by the FDA in a
timely manner or that once reviewed, the NDA will be approved. The approval
process is affected by a number of factors, including the severity of the
targeted indications, the availability of alternative treatments and the risks
and benefits demonstrated in clinical trials. The Company's ability to market
its products successfully is further dependent on the patent and marketing
exclusivity rights of a competitor's products.

Among the other requirements for drug product approval is the requirement
that the manufacturer conform to the FDA's cGMP regulations. Manufacturers also
must continue to expend time, money and effort in product, record keeping and
quality control to assure that the product meets applicable specifications and
other requirements. The manufacturer also has obligations to report post
marketing

adverse drug experiences to the FDA. The FDA periodically inspects manufacturing
facilities in the United States to assure compliance with applicable cGMP and
other regulatory requirements. Failure of the Company (or manufacturer of a
Company product) to comply with cGMP regulations or other FDA regulatory
requirements could have a material adverse effect on the Company and result in
one or more regulatory actions affecting either the product, the Company and its
officials, or both.

Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and can consume a long period
of time. Delay or failure in obtaining the required approvals or clearances by
the Company, its collaborative partners or its licensees would have an adverse
effect on the ability of the Company to generate sales or royalty revenue. In
addition, the impact of new or changed laws or regulations cannot be predicted.

There can be no assurance that the regulatory framework described above will
not change or that additional regulations will not arise that may affect
approval of or delay an IND or an NDA. In addition, there can be no assurance
that there will not be a change in currently accepted scientific standards that
may affect the ultimate approval of such products. Moreover, because the
Company's present collaborative partners are, and it is expected that the
Company's future collaborative partners may be, primarily responsible for
pre-clinical and clinical trials, regulatory approvals, manufacturing and
commercialization of drugs, the ability to obtain and the timing of regulatory
approvals are not within the control of the Company. Should the collaborative
partners develop regulatory problems, for example, cGMP violations, such
problems may adversely impact upon the Company's resources.

Prior to the commencement of marketing a product in other countries,
approval by the regulatory agencies in such countries is required, whether or
not FDA approval has been obtained for such product. The requirements governing
the conduct of clinical trials and product approvals vary widely from country to
country, and the time required for approval may be longer or shorter than the
time required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general, each country has its own
procedures and requirements.

The Company is also subject to regulation under other federal laws and
regulation under state and local laws, including laws relating to occupational
safety, laboratory practices, controlled substances, the use, handling and
disposition of radioactive materials, environmental protection and hazardous
materials. Although the Company believes that its safety procedures for handling
and disposing of radioactive compounds and other hazardous materials used in its
research and development activities comply with the standards prescribed by
federal, state and local regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of any
such accident, the Company could be held liable for any damages that result and
any such liability could exceed the resources of the Company.

COMPETITION

Competition among drug discovery companies and pharmaceutical and
biotechnology companies which are involved in drug discovery is intense. Because
the Company's technology platform incorporates a number of different
technologies, the Company competes in many areas, including target
identification and validation, assay development and high throughput screening.
The Company competes directly against other drug discovery companies, the
research departments of pharmaceutical and biotechnology companies, other
commercial enterprises, government agencies and numerous academic and research
institutions. Such companies and other entities are conducting research in
various areas which constitute portions of the Company's technology platform,
either on their own or in collaboration with others. There can be no assurance
that drug discovery companies which currently compete with the Company in
specific areas will not merge or enter into joint ventures or other alliances
with one or more other such companies and become substantial multi-point
competitors or that the Company's collaborators will not assemble their own
competing drug discovery technologies. Genomics and combinatorial chemistry
companies, among

others, may also expand their business to include compound screening or screen
development, either alone or pursuant to alliances with others. The Company
anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies, including more
sophisticated information technologies, become available. The Company's drug
discovery techologies, in particular GATE, ATLAS and SCAN, may be rendered
obsolete or uneconomical by advances in existing technological approaches or the
development of different approaches by one or more of the Company's current or
future competitors. In particular, the Company's technology faces intense
competition from drug discovery companies engaged in gene sequencing, functional
genomics, and differential gene expression technology in the area of target
validation, and companies engaged in high throughput screening. Many of the
Company's competitors have greater financial and personnel resources, and more
experience in research and development, than the Company. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and drugs that are more effective or less costly than any which are
being developed by the Company or which would render the Company's technology
and any future drugs obsolete and noncompetitive.

In addition, some of the Company's competitors have greater experience than
the Company in conducting pre-clinical and clinical trials and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA or other regulatory approvals for competing drug candidates
more rapidly than the Company. Companies that complete clinical trials, obtain
required regulatory agency approvals and commence commercial sale of their
drugs, before their competitors may achieve a significant competitive advantage,
including certain patent and FDA marketing exclusivity rights that would delay
the Company's ability to market certain products. There can be no assurance that
drugs, if any, resulting from the Company's internal development efforts or the
joint efforts of the Company and its collaborators will be able to compete
successfully with competitors' existing products or products under development
or that they will obtain regulatory approval in the United States or elsewhere.

EMPLOYEES

As of November 1, 1997, the Company had 46 full time employees, 39 of whom
were engaged in research and development and seven of whom were engaged in
management, administration and finance. Doctorates are held by approximately 35%
of the Company's full time employees. In addition, the Company employs
individuals on a rotating, full time basis to fill a variety of research
positions. The Company's policy is to have each of its directors, officers,
employees and advisors sign an agreement which prohibits the disclosure of
confidential information to anyone outside the Company and requires disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by the employee.

The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced an employment-related work stoppage
and considers its employee relations to be good.

PROPERTIES

The Company's headquarters and research and development facilities are
located in a 15,440 square foot facility in Medford, Massachusetts. The Company
has leased the premises through October 30, 1998. The Company plans to lease at
least 15,000 square feet of additional office and laboratory space within the
next twelve months to support expansion of its programs.

LEGAL PROCEEDINGS

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

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following sets forth the name, ages and positions of the executive
officers, directors and key employees of the Company:

NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS:
Mark T. Weedon....................................... 46 President, Chief Executive Officer and Director
Michael G. Palfreyman, M.R.
Pharm. S., Ph.D., D.Sc............................. 52 Vice President of Research and Development
Karen A. Hamlin...................................... 38 Senior Director of Operations, Secretary and
Treasurer
Barry Weinberg....................................... 59 Chairman of the Board
David Baltimore, Ph.D................................ 59 Director
Allan R. Ferguson.................................... 55 Director
Jason S. Fisherman, M.D.............................. 41 Director

KEY EMPLOYEES:
Jacob J. Clement, Ph.D............................... 53 Senior Director of Technology Development
Yibin Xiang, Ph.D.................................... 47 Director of Chemistry
Andrew A. Pakula, Ph.D............................... 39 Head of Drug Discovery Technologies
C. Richard Wobbe, Ph.D............................... 40 Head of Infectious Disease Programs

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

MARK T. WEEDON has been President, Chief Executive Officer and director of
the Company since August 1997. From 1987 to August 1997, Mr. Weedon held various
positions with Glaxo-Wellcome plc, a pharmaceutical company, including Global
General Manager of OTC Operations (1995-August 1997), Director of Group
Licensing for Burroughs Wellcome Foundation plc (1993-1995) and President of
Burroughs Wellcome Inc. (Canada) (1990-1993). Mr. Weedon received a B.A. from
the University of Toronto and an M.B.A. from the University of Western Ontario.

MICHAEL G. PALFREYMAN, M.R. PHARM. S., PH.D., D.SC. joined the Company in
October 1994 as Vice President of Research and Development. From 1976 until
October 1994, Dr. Palfreyman held various positions with Marion Merrell Dow Inc.
and its predecessor, the Merrell Dow Research Institute, including Vice
President of Marion Merrell Dow Research North America (1992 to October 1994),
Vice President of Global Biological and Scientific Affairs (1991-1992) and
Director of Pharmacological Sciences (1987-1991). Dr. Palfreyman received his
undergraduate, Ph.D. and D.Sc. degrees from the University of Nottingham,
England, from which he also holds an advanced degree in Pharmacy.

KAREN A. HAMLIN joined the Company in December 1992 and serves as Senior
Director of Operations, Secretary and Treasurer. From December 1988 until
December 1992, Ms. Hamlin was Director of Operations at Transkaryotic Therapies,
Inc., a biotechnology company. From January 1987 to December 1988, Ms. Hamlin
was responsible for Laboratory Operations and Regulatory Compliance at Cambridge
Research Laboratory, a division of Ortho-Clinical Diagnostics, an affiliate of
Johnson & Johnson. Ms. Hamlin received a B.S. in Biology from St. Anselm College
and an M.S. in Biological Sciences from Rutgers University.

BARRY WEINBERG has served as Chairman of the Board of Directors of the
Company since September 1993. Mr. Weinberg was also the Company's President and
Chief Executive Officer from December 1995 until August 1997. Mr. Weinberg was a
co-founder and is currently President of CW Group, a venture capital firm
specializing in the health-care industry. Mr. Weinberg holds a B.S. in
Electrical Engineering from the Massachusetts Institute of Technology and an
M.B.A. from New York University.

DAVID BALTIMORE, PH.D. has served as a director of the Company since August
1994. Since July 1994, Dr. Baltimore was the Ivan R. Cottrell Professor of
Molecular Biology at the Massachusetts Institute of Technology until October
1997 when he became President of California Institute of Technology. From 1990
until July 1994, Dr. Baltimore was a professor at Rockefeller University and
served as its president from 1990 until 1991. Dr. Baltimore founded the
Whitehead Institute at the Massachusetts Institute of Technology in 1982 and
served as its Director from 1982 until 1990. Dr. Baltimore received the Nobel
Prize in 1975 for his discovery of reverse transcriptase. Dr. Baltimore holds a
B.S. in Chemistry from Swarthmore College, and a Ph.D. from Rockefeller
University.

ALLAN R. FERGUSON has served as a director of the Company since September
1993. Since 1993, Mr. Ferguson has been a general partner of Atlas Venture, a
venture capital firm, and since 1991 he has served as the Managing General
Partner of the venture capital firm of Aspen Ventures. From 1986 to 1991 he
served as President of 3i Ventures, another venture capital firm. Mr. Ferguson
currently serves as a director of ArQule, Inc. and Autoimmune Inc. He received a
B.S. in Chemical Engineering from the University of Delaware.

JASON S. FISHERMAN, M.D. has served as a director of the Company since April
1995. Dr. Fisherman is a partner at Advent International Corporation, a venture
capital firm where he specializes in biotechnology and health-care companies.
From 1991 to 1994, Dr. Fisherman was Senior Director of Medical Research at
Enzon, Inc., a biopharmaceutical company. He currently serves as a director of
ILEX Oncology, Inc. and several private health-care companies. Dr. Fisherman
received a B.A. in Molecular Biophysics and Biochemistry from Yale University,
an M.D. from the University of Pennsylvania and an M.B.A. from the Wharton
School at the University of Pennsylvania.

JACOB J. CLEMENT, PH.D. joined the Company in March 1997 and serves as
Senior Director of Technology Development. From 1988 until March 1997, Dr.
Clement held various positions with Abbott Laboratories, including Director, New
Lead Discovery Area (1993-March 1997), Head, Antitumor Development Venture
(1992-1993) and Senior Project Leader, Anti-infectives Area (1991-1993). Dr.
Clement received a B.A. in Biology from St. Mary's University and an M.S. in
Microbiology from Roosevelt University and a Ph.D. and an M.S.P.H. from the
University of North Carolina. Dr. Clement conducted research and taught at the
University of Minnesota.

YIBIN XIANG, PH.D. joined the Company in October 1997 as Director of
Chemistry. From May 1993 until October 1997, Dr. Xiang held various positions
with Genetics Institute, including Senior Scientist and Head of Medicinal
Chemistry (October 1996-October 1997) and Principal Scientist and Head of
Medicinal Chemistry (1993-October 1996) in the Small Molecule Drug Discovery
department. From 1988 until 1993 Dr. Xiang worked in the Medicinal Chemistry
Department at Merck-Frosst in Canada as Research Fellow. Dr. Xiang received a
B.A. in Chemistry from Shanghai Medical University and a Ph.D. in Chemistry from
the Swiss Federal Polytechnic Institute. Dr. Xiang conducted postdoctoral
studies with Professor E.J. Corey at Harvard University.

ANDREW A. PAKULA, PH.D. joined the Company in February 1993 and serves as
Head of Drug Discovery Technologies. Dr. Pakula received a B.S. in Biology and
Chemistry from Tufts University and a Ph.D. in Biology from the Massachusetts
Institute of Technology. From 1989 until the end of 1992 Dr. Pakula conducted
postdoctoral studies in the laboratory of Dr. Melvin Simon at the California
Institute of Technology, where he was a Senior Postdoctoral Fellow.

C. RICHARD WOBBE, PH.D. joined the Company in August 1994 and serves as Head
of Infectious Disease Programs. From July 1991 until August 1994, Dr. Wobbe was
with Merck Research Laboratories, where he developed assays for analyzing the
regulation of viral gene transcription. Dr. Wobbe received a B.S. in
Biochemistry from Centre College and a Ph.D. in Biochemistry from the University
of Tennessee. Dr. Wobbe conducted postdoctoral studies at Sloan-Kettering Cancer
Center and at Harvard University.

All directors hold office until the next meeting of the stockholders of the
Company and until their successors are elected and qualified. All directors were
elected to the Board of Directors pursuant to a

stockholders' agreement, which will terminate upon consummation of the Offering.
Officers are appointed to serve, at the discretion of the Board of Directors,
until their successors are appointed.

Prior to the completion of the Offering, the Board of Directors will
establish an Audit Committee and a Compensation Committee. The Audit Committee
will be charged with reviewing the Company's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls and
financial management practices. The Compensation Committee will recommend to the
Board of Directors the compensation for the Company's key employees.

SCIENTIFIC ADVISORY BOARD

The Company has established a Scientific Advisory Board consisting of twelve
members with experience in fungal, bacterial and viral gene expression,
structural biology, pharmacology and drug design. Its members work closely with
the Company's management and scientists, assess the scientific and medical
direction of the Company, review research and development progress, and evaluate
new technologies that relate to the Company's development. The Scientific
Advisory Board meets as a group two times per year and members are available
individually on an ongoing basis. The co-chairmen of the Scientific Advisory
Board are the two founding scientists of the Company, Michael R. Green, M.D.,
Ph.D., and Peter S. Kim, Ph.D.

All of the Company's Scientific Advisory Board members have signed
consulting agreements with the Company and have either purchased shares of
Common Stock or been granted options to purchase Common Stock.

The members of Scriptgen's Scientific Advisory Board are:

MICHAEL R. GREEN, M.D., PH.D. is a Professor of Biochemistry and Molecular
Biology at the University of Massachusetts Medical Center and an Investigator at
the Howard Hughes Medical Institute. Dr. Green's expertise is in the
transcriptional control of viral, fungal and human gene expression. He is a
recipient of the Presidential Young Investigator Award, the Searle Scholar Award
and the McKnight Award in Neurosciences. Dr. Green consults with the Company on
its antifungal and antiviral programs with specific emphasis on transcription
and its role in gene expression. Dr. Green received his B.S. in Biochemistry
from the University of Wisconsin, Madison and his M.D. and Ph.D. in Biochemistry
from Washington University in St. Louis.

PETER S. KIM, PH.D. is a Member of the Whitehead Institute, a Professor of
Biology at the Massachusetts Institute of Technology and an Associate
Investigator at the Howard Hughes Medical Institute. Dr. Kim is also a member of
the National Academy of Sciences. Dr. Kim's expertise is in macromolecular
recognition, including the interaction between transcription factors, and in
protein design, protein folding and viral membrane fusion. He has received the
1994 Eli Lilly Award in Biological Chemistry from the American Chemical Society,
the 1994 DuPont Merck Award of the Protein Society and the 1993 National Academy
of Sciences Award in Molecular Biology. Dr. Kim consults with the Company on its
drug discovery programs focusing on structural biology and protein chemistry.
Dr. Kim received his A.B. in Chemistry from Cornell University and his Ph.D. in
Biochemistry from Stanford University.

THOMAS C. ALBER, PH.D. is a Professor of Molecular and Cell Biology at the
University of California, Berkeley. Dr. Alber is an expert in X-ray
crystallography and protein structure. He consults with the Company on its
affinity programs utilizing his expertise in protein structure/function
relationships. Dr. Alber received his B.A. in Chemistry from the University of
California, Santa Cruz and his Ph.D. in Biology from the Massachusetts Institute
of Technology.

STEPHEN K. BURLEY, M.D., D. PHIL. is an investigator at the Howard Hughes
Medical Institute. Dr. Burley is an expert in structural biology. He consults
with the Company on the biochemistry and molecular biology of fungal
transcription factors and in certain target areas. Dr. Burley received his B.S.
in Physics from the University of Western Ontario and his D. Phil. from Oxford
University and his M.D. from Harvard Medical School.

FRED E. COHEN, M.D., D. PHIL. is a Professor of Medicine and Pharmaceutical
Chemistry at the University of California, San Francisco. He is an expert in the
molecular modeling of low molecular weight drugs and their interactions with
macromolecules. Dr. Cohen consults with the Company on pharmaceutical drug
design and in molecular modeling. Dr. Cohen was a Rhodes Scholar and received
his B.S. in Molecular Biochemistry and Biophysics from Yale University, his M.D.
from Stanford University and his D. Phil. in Molecular Biophysics from Oxford
University.

DANIEL S. KEMP, PH.D. is a Professor of Chemistry at the Massachusetts
Institute of Technology. Dr. Kemp is an expert in the chemical synthesis of
peptides and proteins, protein structure and function and bio-organic chemistry.
He consults with the Company on organic and medicinal chemistry. Dr. Kemp
received his B.A. in Chemistry from Reed College and his Ph.D. in Organic
Chemistry from Harvard University.

DAVID M. LIVINGSTON, M.D. is a staff member at the Brigham and Women's
Hospital and the Dana-Farber Cancer Institute, where he was Director and
Physician-in-Chief from 1991 to 1995. Dr. Livingston also holds the Emil Frei
Professor of Medicine chair at Harvard Medical School. Dr. Livingston, an expert
in Oncology, specializes in tumor suppressor gene function and cell cycle
control. He consults with the Company on the clinical aspects of pharmaceutical
drug development. Dr. Livingston received his B.A. from Harvard University and
his M.D. from Tufts University of Medicine.

BERNARD MACH, M.D., PH.D. is a Professor of Genetics and Microbiology at the
University of Geneva Medical School in Geneva, Switzerland. Dr. Mach is a Member
of the French Academy. He is an expert in the molecular and genetic basis of
immune responses. Dr. Mach discovered and first reported cDNA cloning in 1975
and introduced and developed molecular genotyping of HLA in 1985. Dr. Mach
consults with the Company on its drug development programs with an emphasis on
gene expression and cellular immunology. Dr. Mach received his M.D. from the
University of Geneva and his Ph.D. from Rockefeller University.

CAROL PRIVES, PH.D. is a Professor at Columbia University. She is an expert
on p53 and other tumor suppressor proteins and their role in the regulation of
transcription. Dr. Prives consults with the Company on the selection of
transcription based targets and their role in the cause of disease. Dr. Prives
received her B.Sc. and Ph.D. degrees in Biochemistry from McGill University.

ROBERT T. SAUER, PH.D. is the Edwin C. Whitehead Professor of Biology and
the Associate Head of the Department of Biology at the Massachusetts Institute
of Technology. Dr. Sauer is also a member of the National Academy of Sciences.
He is an expert in protein structure determination through genetic selection
methodology. Dr. Sauer consults with the Company on ATLAS and SCAN, as well as
bacterial transcription and its role in genetic selection. Dr. Sauer received
his B.A. in Biophysics from Amherst College and his Ph.D. in Biochemistry from
Harvard University.

KEVIN STRUHL, PH.D. holds the David Wesley Gaiser Professorship in and is
the Acting Chairman of Biological Chemistry at the Harvard Medical School. Dr.
Struhl is an expert in transcriptional regulatory mechanisms in yeast and
functional relationships between yeast and human proteins. He developed early
methods for elucidating the relationships between protein structure and function
particularly as they relate to transcriptional regulation in yeast. Dr. Struhl
consults with the Company on its antifungal program with a focus on fungal
transcription and genetic selection. Dr. Struhl received his B.S. and M.S.
degrees in Biology from the Massachusetts Institute of Technology and his Ph.D.
in Biochemistry from Stanford University.

ALAN M. SUGAR, M.D. is a Professor of Medicine at Boston University School
of Medicine and the Director of the Clinical Center Laboratory at Boston Medical
Center. Dr. Sugar's expertise is in pre-clinical and clinical antifungal drug
development and the pathogenesis of fungal diseases. He consults with the
Company on its antifungal program, with an emphasis on microbiology, animal
modeling systems and clinical evaluation. Dr. Sugar received his M.D. from
Jefferson Medical College.

DIRECTOR COMPENSATION

David Baltimore receives $10,000 annually for being a director of the
Company. No other non-employee director receives any cash compensation. Barry
Weinberg, the Chairman of the Board of the Company, was granted stock options in
1996. See "--Stock Options."

EXECUTIVE COMPENSATION

The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Company's acting Chief
Executive Officer and the next most highly compensated executive officer for
services rendered to the Company during the fiscal year ended December 31, 1996
(the "Named Executive Officers"). No other executive officer of the Company
earned in excess of $100,000 during 1996.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
COMPEN- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION SALARY BONUS SATION SARS SATION
- -------------------------------------------------------- ---------- ----------- --------- ------------- ---------

Barry Weinberg.......................................... $ 0 $ 0 $ 0 48,787 $ 0
Acting President and Chief Executive
Officer and Chairman of the Board(1)
Michael G. Palfreyman................................... $ 175,000 $ 0 $ 15,000(2) 76,433 $ 0
Vice President of Research
and Development

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

(1) Mr. Weinberg acted as the Company's President and Chief Executive Officer
from December 1995 to August 1997. Mark T. Weedon became President and Chief
Executive Officer of the Company in August 1997. See "--Employment
Agreements."

(2) Represents a housing allowance of $15,000.

EMPLOYMENT AGREEMENTS

In June 1997, the Company entered into an employment agreement with Mark T.
Weedon, President and Chief Executive Officer of the Company, which may be
terminated by either party upon 30 days' notice. Pursuant to such agreement, Mr.
Weedon receives an annual base salary of $230,000, subject to a review at the
end of his first year of employment. Also pursuant to such agreement, Mr. Weedon
will receive a $25,000 bonus upon the closing of the Offering and a guaranteed
$25,000 bonus no later than the first anniversary of his employment with the
Company. The options are immediately exercisable, although the shares of Common
Stock issued upon exercise are restricted, and remain subject to repurchase by
the Company, until such time as the corresponding options vest. Pursuant to his
employment agreement, Mr. Weedon was awarded options to purchase 339,558 shares
of Common Stock at a price of $0.15 per share. Such options vest over the first
four years of his employment with the Company at the rate of 1/48th of such
shares each month, provided that all options will vest if the Company is sold
for a purchase price of at least $15.37 per share. Each vested option is
exercisable at any time after the date of vesting up until one year following
Mr. Weedon's termination of employment with the Company. Pursuant to his
employment agreement, Mr. Weedon was reimbursed for relocation and other
expenses incurred as a result of his commencement of employment with the Company
aggregating approximately $30,000. In the event that Mr. Weedon's employment is
terminated without cause during the first year of his employment with the
Company, he will continue to receive his then-current salary and benefits for
the shorter of nine months or the period during which he remains unemployed. In
the event that Mr. Weedon's employment is terminated without cause during the
second year of his employment with the Company, he will continue to

receive his then-current salary and benefits for the shorter of six months or
the period during which he remains unemployed. In the event that Mr. Weedon's
employment is terminated after his second year of employment with the Company,
he will continue to receive his then-current salary and benefits for the shorter
of four months or the period during which he remains unemployed.

In September 1994, the Company entered into an employment agreement with Dr.
Michael G. Palfreyman, Vice President of Research and Development for the
Company. Dr. Palfreyman's employment agreement provides for the payment of an
annual base salary of $175,000 and an annual performance bonus of up to 20% of
his annual salary as of January of such year. Pursuant to his employment
agreement, Dr. Palfreyman was awarded options to purchase 53,666 shares of
Common Stock at a price of $0.15 per share. Such options vest over the first
four years of his employment with the Company at the rate of 1/48th of such
shares each month. Pursuant to his employment agreement, Dr. Palfreyman was
reimbursed for relocation expenses aggregating approximately $37,000 and
temporary living expenses aggregating approximately $12,000. Dr. Palfreyman also
received housing allowances of $20,000 and $15,000 in 1995 and 1996,
respectively, and he is currently receiving in equal monthly installments a
$9,000 housing allowance for 1997. Dr. Palfreyman also received a one-time cash
payment of $30,000 as compensation for lost bonuses from his previous employer.
In the event that Dr. Palfreyman's employment is terminated without cause, he
will be entitled to severance payments equal to three times his then-current
monthly base salary.

In December 1992, the Company entered into an employment agreement with
Karen A. Hamlin, Senior Director of Operations, Secretary and Treasurer of the
Company. Ms. Hamlin's employment agreement provides for the payment of an annual
base salary of $75,000. Pursuant to her employment agreement, Ms. Hamlin was
awarded 11,384 shares of restricted Common Stock at a price of $0.03 per share.
Of such shares, 1,138 vested immediately and the remaining shares vest over the
four-year period commencing on the first anniversary of her employment with the
Company at the rate of 1/48th of such shares per month. In the event that Ms.
Hamlin's employment is terminated without cause at any time, she will be
entitled to severance payments equal to six times her then-current monthly base
salary.

STOCK OPTIONS

The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended December 31, 1996
to each of the Named Executive Officers.

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996

POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------------------
NAME GRANTED IN 1996(2) SHARE DATE 0% 5% 10%
- ------------------------------ ----------- ----------- ----------- ----------- --------- ---------- ----------

Barry Weinberg................ 48,787 31.9% $ 0.15 12/12/06 $ 82,450 $ 138,904 $ 225,517
Michael G. Palfreyman......... 27,646 18.1% $ 0.15 01/01/06 -- 2,608 6,609
48,787 31.9% $ 0.15 12/12/06 82,450 138,904 225,517

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

(1) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, on stock option exercises will depend on the future price of the
Common Stock and overall stock market conditions. There is no representation
that the rates of appreciation reflected in this table will be achieved.

(2) Based on an aggregate of options to purchase 152,964 shares of Common Stock
granted to employees in 1996, including options granted to the Named
Executive Officers.

The following table sets forth at December 31, 1996 the number of options
and the value of unexercised options held by each of the Named Executive
Officers:

AGGREGATED YEAR END OPTION VALUES

NUMBER OF SHARES SUBJECT TO VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT YEAR IN-THE-MONEY
END OPTIONS AT YEAR END(1)
----------------------------- -------------------------------

NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ------------ --------------- ------------- ----------------
Barry Weinberg............................... 48,787 --
Michael G. Palfreyman........................ 29,069 101,030

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

(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1996 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1996, the Company has
assumed that the fair market value of shares of Common Stock issuable upon
exercise of options was $ per share, the assumed initial public
offering price, since the Common Stock was not traded in an established
market prior to the Offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company intends to establish a Compensation Committee prior to the
Offering. All matters concerning executive officer compensation have
historically been addressed by the Board of Directors because the Company did
not have a Compensation Committee.

EMPLOYEE BENEFIT PLANS

1997 EQUITY INCENTIVE PLAN

The Company anticipates that a 1997 Equity Incentive Plan (the "1997 Plan")
will be adopted by the Company in November 1997 under which an aggregate of
shares of the Company's Common Stock will be reserved for issuance
pursuant to the exercise of stock awards granted to employees, directors,
consultants and advisers.

1994 STOCK OPTION PLAN

During 1994, the Company adopted its 1994 Stock Option Plan (the "1994
Plan"), which provides for the issuance of incentive stock options to officers
and other employees of the Company and nonstatutory stock options, awards of
stock, and direct stock purchase opportunities to directors, officers, employees
and consultants of the Company. At November 15, 1997, the total number of shares
which remain available for issuance under the Plan is 23,313. The options are
exercisable at various dates and will expire no more than ten years from the
date of grant or in the case of certain nonstatutory options, 15 years from the
date of grant. The exercise price of each option is determined by the Board of
Directors. In the case of incentive stock options, the exercise price may not be
less than 100% of the fair market value of the share at the time the option is
granted. For holders of more than 10% of the Company's total combined voting
power of all classes of stock, incentive stock options may not be granted at
less than 110% of the fair market value of the Company's Common Stock at the
date of grant and may not exceed a term of five years.

401(K) PLAN

The Company adopted a retirement savings plan (the "401(k) Plan") effective
in January 1995. Employees who have attained age 18 and have completed six
months of service with the Company may participate in the 401(k) Plan.
Participants in the 401(k) Plan may defer compensation in an amount not in
excess of 15% of the employee's total annual compensation from the Company, up
to the annual statutory limit ($9,500 in 1997). The Company may make matching
contributions in an amount determined by the Board of Directors. All
contributions are credited to separate accounts maintained in trust for each

participant and are invested, at the participant's direction, in one or more of
the investment funds made available under the 401(k) Plan. Matching
contributions become 20% vested after a participant's second year of service
with the Company and are subject to 20% annual vesting thereafter. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code so
that contributions to the 401(k) Plan, and income earned on plan contributions,
are not taxable to employees until withdrawn, and so that the contribution will
be deductible by the Company when made.

STOCK RESTRICTION AGREEMENTS

The Company has executed stock restriction agreements with certain common
stockholders. Each agreement gives the Company the right to repurchase a certain
number of shares, at the original issuance price, held by such stockholder if he
or she ceases to be a director, employee or consultant, as applicable, of the
Company. The purchase option rights lapse at various dates through July 1998. At
November 15, 1997, 28,963 shares of the Company's outstanding common stock were
subject to these repurchase options.

CERTAIN TRANSACTIONS

PRIVATE PLACEMENT OF SECURITIES

Since the Company's inception in September 1992 through September 1997, the
Company issued, in private placement transactions, the following shares of
Common Stock and Preferred Stock (including shares of Common Stock issued upon
the exercise of options and net of shares of Common Stock repurchased by the
Company): 933,317 shares of Common Stock at prices ranging between $0.03 and
$0.15 per share; 81,312 shares of Common Stock at a price of $0.15 in cash in
connection with loans in an aggregate of $2,500,000 to the Company (the "Bridge
Loan Transaction"); 6,403,325 shares of Series A Preferred Stock (convertible
into 2,082,660 shares of Common Stock) at a price of $1.00 per share; 6,579,086
shares of Series B Preferred Stock (convertible into 2,139,826 shares of Common
Stock) at a price of $1.00 per share and 4,053,854 shares of Series C Preferred
Stock (convertible into 1,318,502 shares of Common Stock) at a price of $1.80
per share.

In connection with the Bridge Loan Transaction, the Company became indebted
to the following parties in the following amounts from September 1994 through
February 1995: CW Ventures II, L.P. in the amount of $645,250; Atlas Venture
Fund II, L.P. in the amount of $524,250; New Enterprise Associates V in the
amount of $443,500; Accel IV L.P. in the amount of $371,210; Accel Investors '93
L.P. in the amount of $16,409; Accel Japan L.P. in the amount of $35,480; Accel
Keiretsu L.P. in the amount of $7,983; Ellmore C. Patterson Partners in the
amount of $9,757; Prosper Partners in the amount of $2,661 and Venrock
Associates in the amount of $443,500. All of such loans were evidenced by
promissory notes bearing an interest rate of 4.25% until December 31, 1994 and
9.50% from January 1, 1995 until April 15, 1995, when these notes, together with
accrued interest thereon, were converted into an aggregate of 2,579,086 shares
of Series B Preferred Stock (convertible into 838,839 shares of Common Stock).
Barry Weinberg and Allan R. Ferguson, directors of the Company, are affiliated
with CW Ventures II, L.P. and Atlas Venture Fund II, L.P., respectively. See
"Management."

In August 1997, the Company issued to Mark T. Weedon options to purchase
339,558 shares of Common Stock at an exercise price of $0.15 per share in
connection with his acceptance of employment with the Company. Mr. Weedon
subsequently exercised options to purchase 33,956 shares of Common Stock, which
shares are subject to certain restrictions. See "Management--Employment
Agreements."

In connection with certain equipment leasing agreements, the Company issued
warrants to purchase the following shares of Preferred Stock: 153,000 shares of
Series A Preferred Stock at an exercise price of $1.00 per share and 100,000
shares of Series C Preferred Stock at an exercise price of $1.80 per share. Such
warrants will be exercisable for an aggregate of 82,288 shares of Common Stock
following the Offering. See "Description of Capital Stock--Warrants."

Each outstanding share of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock will automatically convert into 0.32525 shares of
Common Stock upon the closing of the Offering.

The purchasers of the Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock described above include, among
others, the following officers, directors and beneficial owners of more than
five percent of the Company's voting securities:

SHARES OF PREFERRED STOCK, AS
CONVERTED (2)
COMMON ----------------------------------
PURCHASER (1) STOCK SERIES A SERIES B SERIES C
- --------------------------------------------------------------- ----------- ---------- ---------- ----------

CW Ventures II, L.P. (3)....................................... 61,507 520,814 342,424 75,387
Atlas Venture Fund II, L.P. (4)................................ 68,789 423,136 278,211 61,249
New Enterprise Associates V.................................... 27,038 357,887 235,358 51,809
Lombard Odier & Cie............................................ -- -- -- 903,535
Advent International Investors II Limited Partnership (5)...... -- -- 3,252 277
Advent Performance Materials Limited Partnership (5)........... -- -- -- 63,242
Golden Gate Development and Investment Limited Partnership
(5).......................................................... -- -- 78,059 6,655
Rovent II Limited Partnership (5).............................. -- -- 406,558 34,662
Accel IV L.P. (6).............................................. 23,678 392,256 196,995 43,364
Accel Investors '93 L.P........................................ 534 -- 8,708 1,917
Accel Japan L.P................................................ 2,163 28,631 18,829 4,145
Accel Keiretsu L.P............................................. 260 -- 4,237 932
Ellmore C. Patterson Partners.................................. 317 -- 5,178 1,140
Prosper Partners............................................... 87 -- 1,412 311
Venrock Associates (7)......................................... 27,038 357,887 235,358 32,121
Venrock Associates II, L.P..................................... -- -- -- 19,687
Mark T. Weedon................................................. 33,956 -- -- --
Barry Weinberg (8)............................................. 89,118 -- -- --
Andrew A. Pakula............................................... 11,384 -- -- --
Karen A. Hamlin................................................ 11,384 -- -- --

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

(1) Certain of the purchasers are entitled to registration rights. See
"Description of Capital Stock-- Registration Rights."

(2) The number of shares under each column reflects the number of shares of
Common Stock into which the shares of Series A, Series B and Series C
Preferred Stock are convertible, giving effect to the conversion of each
share of Preferred Stock into 0.32525 shares of Common Stock.

(3) Does not include 89,118 shares of Common Stock issued to Barry Weinberg,
Chairman of the Board of Directors of the Company. Mr. Weinberg is a general
partner of CW Partners III, L.P., which is the general partner of CW
Ventures II, L.P.

(4) Allan R. Ferguson, a director of the Company, is a general partner of Atlas
Venture Associates II, L.P., which is the general partner of Atlas Venture
Fund II, L.P.

(5) Jason S. Fisherman, a director of the Company, is Vice President of Advent
International Corporation, which is the general partner of Advent
International Investors II Limited Partnership and Advent International
Limited Partnership, which is the general partner of Advent Performance
Materials Limited Partnership, Golden Gate Development and Investment
Limited Partnership and Rovent II Limited Partnership.

(6) Includes an aggregate of 1,047 shares of Common Stock and 91,330 shares of
Series A Preferred Stock (convertible into 29,705 shares of Common Stock)
subsequently transferred by Accel IV L.P. to Accel Keiretsu L.P., Accel
Investors '93 L.P., Ellmore C. Patterson Partners and Prosper Partners.

(7) Includes 8,371 shares of Common Stock, 340,628 shares of Series A Preferred
Stock (convertible into 110,788 shares of Common Stock) and 224,008 shares
of Series B Preferred Stock (convertible into

72,858 shares of Common Stock) subsequently transferred by Venrock
Associates to Venrock Associates II, L.P.

(8) Does not include 61,508 shares of Common Stock, 1,601,289 shares of Series A
Preferred Stock (convertible into 520,814 shares of Common Stock), 1,052,812
shares of Series B Preferred Stock (convertible into 342,424 shares of
Common Stock) and 231,783 shares of Series C Preferred Stock (convertible
into 75,387 shares of Common Stock) issued to CW Ventures II, L.P. Mr.
Weinberg is a general partner of CW Partners III, L.P., which is the general
partner of CW Ventures II, L.P.

TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND ADVISORS

The Company has employment agreements with Mark T. Weedon, its President and
Chief Executive Officer and a director of the Company, Michael G. Palfreyman,
its Vice President of Research and Development and Karen A. Hamlin, its Senior
Director of Operations, Secretary and Treasurer. See "Management--Employment
Agreements."

David Baltimore receives $10,000 annually for being a director of the
Company and was granted non-statutory options to purchase 24,394, 40,656 and
8,132 shares of Common Stock in 1994, 1996 and 1997, respectively, at an
exercise price of $0.15 per share.

Under the terms of a sponsored research agreement, the Company paid the
University of Massachusetts Medical Center a total of $1,000,000 in 1992 through
1994 for research performed in Dr. Green's laboratory. The Company is not
obligated to make any additional payments for research under such agreement.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of November 1, 1997, after
giving effect to the Offering and the Private Placement, by: (i) each person
known to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers of the Company and (iv) all executive officers and directors as a
group. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.

PERCENTAGE OF SHARES
BENEFICIALLY OWNED
------------------------

SHARES
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING
- --------------------------------------------------------------------------------- ----------- ----------- -----------

CW Ventures II, L.P. (3)......................................................... 1,089,575 16.6%
c/o CW Group, Inc.
1041 Third Avenue
New York, NY 10021

Atlas Venture Fund II, L.P....................................................... 831,385 12.7%
c/o Atlas Venture
222 Berkeley Street, 19th Floor
Boston, MA 02166

New Enterprise Associates V...................................................... 672,092 10.3%
c/o New Enterprise Associates
1119 St. Paul Street
Baltimore, MD 21202

Lombard Odier & Cie.............................................................. 903,536 13.8%
11 rue de la Corraterie
Geneva Switzerland

Entities affiliated with Advent International Corporation (4).................... 592,709 9.0%
101 Federal Street
Boston, MA 02110

Entities affiliated with Accel Partners (5)...................................... 672,094 10.3%
428 University Avenue
Palo Alto, CA 94301

Venrock Associates and Venrock Associates II, L.P. (6)........................... 672,093 10.3%
30 Rockefeller Plaza
New York, NY 10112

Mark T. Weedon (7)............................................................... 339,558 4.9%

Michael G. Palfreyman (8)........................................................ 53,181 *

Karen A. Hamlin (9).............................................................. 12,431 *

Barry Weinberg (10).............................................................. 1,089,575 16.6%

David Baltimore (11)............................................................. 22,767 *

Allan R. Ferguson (12)........................................................... 831,385 12.7%

Jason S. Fisherman (13).......................................................... 592,709 9.0%

All directors and executive officers as a group (7 persons) (14)................. 2,941,606 42.4%

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

*Less than 1.0%

(1) Unless indicated otherwise, the address of the beneficial owners is: c/o
Scriptgen Pharmaceuticals, Inc., 200 Boston Avenue, Medford, Massachusetts
02155.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock issuable pursuant to
options, to the extent such options are currently exercisable or convertible
within 60 days of November 1, 1997, are treated as outstanding for computing the
percentage of the person holding such securities but are not treated as
outstanding for computing the percentage of any other person. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to shares, subject to community property laws where
applicable. Percentage of beneficial ownership is based on 6,555,641 shares of
Common Stock outstanding as of November 11, 1997 and shares of Common
Stock outstanding after completion of the Offering and the Private Placement
(assuming an initial public offering price of $ per share and in each
case after giving effect to the 1-for-3.07459 reverse split of the Common Stock
to be effected before the completion of the Offering and the conversion of all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock into Common Stock upon the closing of the Offering).

(3) Includes 89,443 shares held by Barry Weinberg, Chairman of the Board of
Directors.

(4) Includes the ownership by the following venture capital funds of which
Advent International Corporation is the general partner, or the general partner
of the general partner, of: 3,530 shares held by Advent International Investors
II Limited Partnership, 63,243 shares held by Advent Performance Materials
Limited Partnership, 84,715 shares held by Golden Gate Development and
Investment Limited Partnership and 441,221 shares held by Rovent II Limited
Partnership. In its capacity as general partner, Advent International
Corporation exercises sole voting and investment power with respect to all
shares held by these funds. Advent International Corporation exercises its
voting and investment power through a group of three persons: Douglas R. Brown,
President and Chief Executive Officer, Jason S. Fisherman, Vice President, and
Janet L. Hennessy, Vice President responsible for monitoring public securities,
none of whom may act independently and a majority of whom must act in concert to
exercise voting or investment power over the beneficial holdings of such entity.
Therefore, no individual in this group other than Advent International
Corporation is deemed to have sole voting or investment power. Advent
International Corporation may be deemed to beneficially own all 592,709 shares.

(5) Includes 562,541 shares held by Accel IV L.P., 53,767 shares held by
Accel Japan L.P., 12,098 shares held by Accel Keiretsu L.P., 24,868 shares held
by Accel Investors '93 L.P., 14,787 shares held by Ellmore C. Patterson Partners
and 4,033 shares held by Prosper Partners.

(6) Includes 460,389 shares held by Venrock Associates and 211,704 shares
held by Venrock Associates II, L.P.

(7) Includes 305,602 shares issuable upon the exercise of options.

(8) Includes 53,181 shares issuable upon the exercise of options.

(9) Includes 1,047 shares issuable upon the exercise of options.

(10) Includes 1,000,132 shares held by CW Ventures II, L.P.

(11) Includes 22,767 shares issuable upon the exercise of options.

(12) Includes 831,385 shares held by Atlas Venture Fund II, L.P. Mr. Ferguson
is a general partner of Atlas Venture Associates II, L.P., the general partner
of Atlas Venture Fund II, L.P. Mr. Ferguson disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein.

(13) Includes 3,530 shares held by Advent International Investors II Limited
Partnership, 63,243 shares held by Advent Performance Materials Limited
Partnership, 84,715 shares held by Golden Gate Development and Investment
Limited Partnership and 441,221 shares held by Rovent II Limited Partnership.
Dr. Fisherman is the Vice President of Advent International Corporation, which
is the general partner of Advent International Investors II Limited Partnership
and Advent International Limited Partnership, which is the general partner of
Advent Performance Materials Limited Partnership, Golden Gate Development and
Investment Limited Partnership and Rovent II Limited Partnership. Dr. Fisherman
disclaims beneficial ownership of all such shares.

(14) See notes 7 through 13 above.

DESCRIPTION OF CAPITAL STOCK

Upon the closing of the Offering and the filing of the amendment to the
Company's Restated Certificate of Incorporation referred to below, the
authorized capital stock of the Company will consist of 30,000,000 shares of
Common Stock, $0.01 par value, and 4,000,000 shares of Preferred Stock, $0.01
par value.

As of November 1, 1997, there were 1,014,629 shares of Common Stock
outstanding, which were held of record by 45 stockholders, 6,403,325 shares of
Series A Preferred Stock outstanding, which were held of record by 12
stockholders, 6,579,086 shares of Series B Preferred Stock outstanding, which
were held of record by 15 stockholders, and 4,053,854 shares of Series C
Preferred Stock outstanding, which were held of record by 17 stockholders. Upon
the closing of the Offering, and after giving effect to the issuance of
shares of Common Stock offered by the Company hereby, the issuance of
shares of Common Stock pursuant to the Private Placement (assuming an
initial public offering price of $ per share) and the conversion of each
share of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock into 5,540,988 shares of Common Stock, there will be
shares of Common Stock and no shares of Preferred Stock issued and
outstanding. See "--Preferred Stock."

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. The vote required for election to
the Board of Directors is a plurality of votes properly cast at any meeting of
the stockholders at which a quorum is present. For any other action by the
stockholders, the vote required is a majority of votes properly cast at any such
meeting, unless otherwise expressly provided by law or by the Company's Restated
Certificate of Incorporation or By-Laws. Subject to the rights and preferences
of any Preferred Stock which may be outstanding, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor and, subject to the
rights and preferences of any Preferred Stock which may be outstanding, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company upon the liquidation, dissolution or winding up of the Company after the
payment of all debts and other liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable. The
rights, privileges and preferences of holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that are currently outstanding or that the Company may designate
and issue in the future.

At present, there is no active trading market for the Common Stock.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "SCRP." See "Risk Factors--No Prior
Public Market; Possible Volatility of Stock Price."

PREFERRED STOCK

The Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock are entitled to various preferences and rights in the event of a
liquidation, dissolution or winding-up of the Company and upon a declaration by
the Board of Directors of the payment of dividends. Each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is
convertible into 0.32525 shares of Common Stock, and upon the closing of the
Offering, all of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock will be converted automatically
into an aggregate of 5,540,988 shares of Common Stock. The holders of Common
Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock have approved an amendment to the Company's Restated Certificate, which
will be filed with the Secretary of State of Delaware immediately following the
closing of the Offering. The Restated Certificate will, among other things,
increase the number of

authorized shares of Preferred Stock to 4,000,000, and will eliminate all
references to Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.

The Restated Certificate will give the Board of Directors the authority to
issue 4,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions, including dividend,
conversion, voting, redemption (including sinking fund provisions), and other
rights, liquidation preferences, and the number of shares constituting any
series and the designations of such series, without any further vote or action
by the stockholders of the Company. Following the closing of the Offering and
the filing of the Restated Certificate, Preferred Stock could be issued by the
Board of Directors with voting and conversion rights that could adversely affect
the voting power of the holders of the Common Stock. In addition, because the
terms of the Preferred Stock may be fixed by the Board of Directors of the
Company without stockholder action, the Preferred Stock could be issued quickly
with terms calculated to defeat or delay a proposed takeover of the Company, or
to make the removal of the management of the Company more difficult. Under
certain circumstances, this would have the effect of decreasing the market price
of the Common Stock. The Company has no present plans to issue any Preferred
Stock. See "Risk Factors--Availability of Preferred Stock for Issuance;
Anti-Takeover Provisions."

WARRANTS

As of November 1, 1997, there were outstanding warrants to purchase an
aggregate of 253,000 shares of Preferred Stock, which will be exercisable for an
aggregate of 82,288 shares of Common Stock following the Offering.

In connection with a Master Leasing Agreement dated as of November 22, 1993
between the Company and Comdisco, Inc. ("Comdisco"), the Company issued to
Comdisco warrants to purchase up to 153,000 shares of Series A Preferred Stock
(to purchase up to 49,763 shares of Common Stock following the Offering) at an
exercise price of $1.00 per share, which warrants will expire in January 2004.
In February 1996, the Company executed an amendment to the Master Leasing
Agreement with Comdisco under which Comdisco will provide additional equipment
financing to the Company. In connection with this agreement, as of November 1,
1997 the Company had issued to Comdisco warrants to purchase 100,000 shares of
Series C Preferred Stock (to purchase up to 32,525 shares of Common Stock
following the Offering) at an exercise price of $1.80 per share. The warrants to
purchase Series C Preferred Stock will expire in May 2006.

REGISTRATION RIGHTS

Pursuant to an agreement between the Company and certain of its securities
holders, 5,540,988 shares of Common Stock (the "Registrable Securities") will be
entitled to certain rights with respect to the registration of the Registrable
Securities under the Securities Act. If the Company receives from the holders of
at least 50% of the Registrable Securities a written request to effect a
registration with respect to all or a part of the Registrable Securities, the
Company must, as soon as practicable, use its best efforts to effect such
registration, for a maximum of two such registrations. Pursuant to this
provision, the holders of the Registrable Securities may choose to distribute
their securities by means of an underwriting, subject to the authority of the
underwriters to limit the number of shares to be underwritten due to marketing
factors. If such an underwriting is undertaken, a security holder's right to
registration is conditioned upon such security holder's participation in the
underwriting.

If the Company registers any of its securities for its own account or
pursuant to the demand of its security holders (other than certain types of
exempted registrations), the Company must include in such registration and any
underwriting relating thereto all the Registrable Securities specified by the
holders thereof for inclusion, subject to the authority of the underwriters to
limit the number of shares to be

underwritten due to marketing factors. If an underwriting is undertaken, a
security holder's right to registration is conditioned upon such security
holder's participation in the underwriting.

The Company has granted certain "piggyback" registration rights to HMR
beginning in April 1998 in connection with the shares of Common Stock
being purchased by HMR in the Private Placement.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by more
than 2,000 stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation or bylaws not to be governed by the Delaware anti-takeover law
(the Company has not made such an election), (ii) the business combination was
approved by the board of directors of the corporation before the other party to
the business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee stock plans in which the
employees do not have a right to determine confidentially whether to tender or
vote stock held by the plan) or (iv) the business combination was approved by
the board of directors of the corporation and ratified by two-thirds of the
voting stock which the interested stockholder did not own. The three-year
prohibition does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who becomes
beneficial owner of 15% or more of a Delaware corporation's voting stock.
Section 203 could have the effect of delaying, deferring or preventing a change
in control of the Company.

The Company's Restated Certificate provides that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, special meetings of the stockholders of the
Company may be called only by the Chairman of the Board, the President of the
Company, by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors. These and other provisions
contained in the Restated Certificate and the Company's By-Laws could delay or
make more difficult certain types of transactions involving an actual or
potential change in control of the Company or its management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management of the Company or approve transactions that
stockholders may deem to be in their best interests and, therefore, could
adversely affect the price of the Common Stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

from which the director derives an improper personal benefit. The provision does
not apply to claims against a director for violations of certain laws, including
federal securities laws. If the DGCL is amended to authorize the further
elimination or limitation of directors' liability, then the liability of
directors of the Company shall automatically be limited to the fullest extent
provided by law. The Company's Restated Certificate and By-Laws also contain
provisions requiring the Company to indemnify the directors, officers, employees
or other agents to the fullest extent permitted by the DGCL. In addition, the
Company will enter into indemnification agreements with its current directors
and executive officers. These provisions and agreements may have the practical
effect in certain cases of eliminating the ability of stockholders to collect
monetary damages from directors. The Company believes that these contractual
agreements and the provisions in its Restated Certificate and By-Laws are
necessary to attract and retain qualified persons as directors and officers.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer & Trust, Inc., Denver, Colorado.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise capital through a sale of its
securities.

The Company, its executive officers and directors and substantially all of
its stockholders have agreed not to offer, sell, contract to sell, grant any
option to sell, or otherwise dispose of, directly or indirectly, any Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock, subject to certain limited
exceptions, during the 180 days after the effective date of this Prospectus (the
"Lock-Up Period"), without the prior consent of SBC Warburg Dillon Read Inc.
Commencing at the end of the Lock-Up Period shares will be eligible for
sale in the public market, subject to compliance with Rule 144. Of such shares,
will be eligible for sale, without limitation, pursuant to Rule 144(k).
The remaining shares of Common Stock held by existing stockholders will
become eligible for sale at various times over a period of two years. The
Company has granted to certain security holders demand and piggyback
registration rights covering an aggregate of shares of Common Stock. The
Company expects to file a Registration Statement on Form S-8 registering shares
of Common Stock reserved for issuance upon exercise of options granted under the
Company's 1997 Plan and 1994 Stock Option Plan following completion of the
Offering.

In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 ("Restricted Securities")
for at least one year, and including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock on the National Association of Securities Dealers Automated
Quotation System during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least two years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or under
common control with, such issuer.

Rule 144A under the Securities Act as currently in effect generally permits
unlimited resales of certain Restricted Securities of any issuer provided that
the purchaser is a qualified institution that owns and invests on a
discretionary basis at least $100 million in securities (and in the case of a
bank or savings and loan association, has a net worth of at least $25 million)
or is a registered broker-dealer that owns and invests on a discretionary basis
at least $10 million in securities. Rule 144A allows certain existing
stockholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. There can be no assurance that the availability of such resale
exemption will not have an adverse effect on the trading price of the Common
Stock.

UNDERWRITING

The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth
opposite their names below:

UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------

SBC Warburg Dillon Read Inc................................................
Volpe Brown Whelan & Company, LLC..........................................
-----------------

Total...............................................................
-----------------
-----------------

The Managing Underwriters are SBC Warburg Dillon Read Inc. and Volpe Brown
Whelan & Company, LLC.

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters have agreed to purchase all of the shares of Common Stock being
sold pursuant to the Underwriting Agreement if any are purchased (excluding
shares covered by the over-allotment option).

The Underwriters propose to offer the Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus and
to selected dealers (who may include Underwriters) at such price less a
concession of not more than $ per share. Additionally, the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the Offering, the public
offering price and other selling terms may be changed by the Managing
Underwriters.

The Company has granted to the Underwriters an option for 30 days from the
date of this Prospectus to purchase up to additional shares of Common
Stock. The Underwriters may exercise such option only to cover over-allotments
of the Common Stock offered hereby, if any. To the extent that the Underwriters
exercise this option, each Underwriter will be obligated, subject to certain
conditions, to purchase the number of additional shares of Common Stock
proportionate to such Underwriter's initial commitment.

The offering of the shares is made for delivery, when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments the Underwriters may be required to make in respect thereof.

The executive officers and directors of the Company and substantially all
certain other stockholders, who in the aggregate own substantially all of shares
of Common Stock, have agreed that they will not, without the prior written
consent of SBC Warburg Dillon Read Inc., offer, sell, contract to sell, grant
any

option to sell or otherwise dispose of, directly or indirectly, any Common Stock
or securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock owned by them during the 180 day period
following the date of this Prospectus. The Company has agreed that it will not,
without the prior written consent of SBC Warburg Dillon Read Inc., offer, sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any Common Stock or warrants or other rights to purchase Common
Stock during the 180 days following the date of this Prospectus, except that the
Company may issue shares of Common Stock and options to purchase Common Stock
under its 1997 Plan and upon exercise of outstanding options and warrants.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined by negotiation between the Managing Underwriters and the Company.
Factors considered in determining such price were prevailing market conditions,
the state of the Company's development, the future prospects of the Company and
its industry, market valuations of securities of companies engaged in activities
deemed by the Managing Underwriters to be similar to those of the Company, and
other factors deemed relevant.

The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate-covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate-covering
transactions involve purchases of the Common Stock in the open market after
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate-covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate-covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions.

The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fulbright & Jaworski L.L.P., New York, New York. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.

EXPERTS

The financial statements of Scriptgen Pharmaceuticals, Inc. as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors--Uncertainty of Patents and
Proprietary Rights" and "Business--Patents and Proprietary Technology" have been
reviewed and approved by Darby & Darby P.C., New York, New York, patent counsel
for the Company, as experts in such matters and are included herein in reliance
upon that review and approval.

ADDITIONAL INFORMATION

The Company has filed with the Commission in Washington, D.C. a Registration
Statement, of which this Prospectus constitutes a part, on Form S-1 under the
Securities Act (herein, together with all

amendments and exhibits referred to herein as the "Registration Statement") with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement, as certain parts have been omitted in
accordance with rules and regulations of the Commission. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part of the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract, agreement or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit. A
copy of the Registration Statement, including exhibits and schedules thereto,
may be inspected without charge and obtained at prescribed rates at the Public
Reference Section of the Commission at its principal offices, located at 450
Fifth Street, N.W., Washington, D.C. 20549, and may be inspected without charge
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Registration Statement,
including the exhibits and schedules thereto, is also available at the
Commission's site on the World Wide Web at http://www.sec.gov.

The Company intends to furnish its stockholders annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial information.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants..................................................... F-2

Balance Sheet as of December 31, 1995 and 1996, September 30, 1997 (unaudited) and pro
forma September 30, 1997 (unaudited)................................................ F-3

Statement of Operations for the three years ended December 31, 1996 and for the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited).................... F-4

Statement of Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the
three years ended December 31, 1996 and for the nine months ended September 30, 1997
(unaudited) and pro forma September 30, 1997 (unaudited)............................ F-5

Statement of Cash Flows for the three years ended December 31, 1996 and for the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited).................... F-7

Notes to Financial Statements......................................................... F-8

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Scriptgen Pharmaceuticals, Inc.

The 1-for-3.07459 reverse stock split described in Note 5 to the financial
statements has not been consummated at September 30, 1997. When it has been
consummated, we will be in a position to furnish the following report:

"In our opinion, the accompanying balance sheet and the related statements
of operations, of redeemable preferred stock and stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Scriptgen Pharmaceuticals, Inc. at December 31, 1995
and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."

PRICE WATERHOUSE LLP
Boston, Massachusetts
October 31, 1997

F-2

SCRIPTGEN PHARMACEUTICALS, INC.

BALANCE SHEET

DECEMBER 31, PRO FORMA
------------------------ SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
----------- ----------- ------------- -------------

(NOTE 2)
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................. $ 241,352 $ 1,314,305 $ 196,638 $ 196,638
Short-term investments................................ 938,002 3,023,932 867,519 867,519
Accounts receivable................................... 74,559 136,715 144,547 144,547
Prepaid expenses and other current assets............. 33,064 45,203 34,209 34,209
----------- ----------- ------------- -------------
Total current assets.............................. 1,286,977 4,520,155 1,242,913 1,242,913

Property and equipment, net............................. 1,262,842 1,117,714 1,132,338 1,132,338
Other assets, net....................................... 139,348 108,842 102,835 102,835
----------- ----------- ------------- -------------
$ 2,689,167 $ 5,746,711 $ 2,478,086 $ 2,478,086
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations.......... $ 442,034 $ 559,173 $ 483,891 $ 483,891
Accounts payable...................................... 142,774 252,393 518,347 518,347
Accrued expenses...................................... 409,753 158,256 210,253 210,253
Deferred revenue...................................... 200,000 200,000 1,230,000 1,230,000
----------- ----------- ------------- -------------
Total current liabilities........................... 1,194,561 1,169,822 2,442,491 2,442,491
----------- ----------- ------------- -------------
Capital lease obligations............................... 635,539 423,895 500,736 500,736
----------- ----------- ------------- -------------
Redeemable convertible preferred stock, $.01 par value,
21,500,000 shares authorized; 12,982,411 shares issued
and outstanding at December 31, 1995 and 17,036,265
shares issued and outstanding at December 31, 1996 and
September 30, 1997 (unaudited); none issued and
outstanding on a pro forma basis at September 30, 1997
(unaudited) (liquidating preference of $20,279,348)... 12,982,411 20,279,348 20,279,348 --
----------- ----------- ------------- -------------
Stockholders' deficit:
Common stock, $.01 par value, 6,504,932 shares
authorized at December 31, 1995 and 30,000,000
shares authorized at December 31, 1996 and September
30, 1997 (unaudited); 1,112,330, 1,286,394,
1,373,378, and 6,914,366 issued at December 31, 1995
and 1996, September 30, 1997 (unaudited) and
September 30, 1997 on a pro forma basis (unaudited),
respectively; 814,485, 927,646, 1,014,630, and
6,555,618 shares outstanding at December 31, 1995
and 1996, September 30, 1997 (unaudited) and
September 30, 1997 on a pro forma basis (unaudited),
respectively........................................ 11,124 12,865 13,735 69,145
Additional paid-in capital............................ 219,852 403,208 3,126,457 23,350,395
Unearned compensation................................. -- (93,744) (2,660,542) (2,660,542)
Accumulated deficit................................... (12,308,533) (16,393,533) (21,168,989) (21,168,989)
----------- ----------- ------------- -------------
(12,077,557) (16,071,204) (20,689,339) (409,991)
Treasury stock, at cost, 297,845 shares at December 31,
1995 and 358,748 shares at December 31, 1996,
September 30, 1997 (unaudited) and September 30, 1997
on a pro forma basis (unaudited)...................... (45,787) (55,150) (55,150) (55,150)
----------- ----------- ------------- -------------
Total stockholders' deficit......................... (12,123,344) (16,126,354) (20,744,489) (465,141)
----------- ----------- ------------- -------------
Commitments and contingencies (Note 8)
$ 2,689,167 $ 5,746,711 $ 2,478,086 $ 2,478,086
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------

The accompanying notes are an integral part of these financial statements.

F-3

SCRIPTGEN PHARMACEUTICALS, INC.

STATEMENT OF OPERATIONS

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------

(UNAUDITED)
Revenue:
Collaborative agreements............ $ -- $ -- $ 975,000 $ 975,000 $ 467,000
SBIR grants......................... -- 260,415 231,620 221,585 137,784
------------- ------------- ------------- ------------- -------------
-- 260,415 1,206,620 1,196,585 604,784
------------- ------------- ------------- ------------- -------------

Cost of revenue:
Collaborative agreements............ -- -- 174,165 174,165 123,515
SBIR grants......................... -- 260,415 231,620 221,585 137,784
------------- ------------- ------------- ------------- -------------
-- 260,415 405,785 395,750 261,299
------------- ------------- ------------- ------------- -------------
Gross profit........................ -- -- 800,835 800,835 343,485
------------- ------------- ------------- ------------- -------------

Operating expenses:
Research and development............ 3,156,734 3,152,494 3,958,201 2,757,439 4,273,149
General and administrative.......... 998,194 1,298,684 906,452 669,108 830,908
------------- ------------- ------------- ------------- -------------
4,154,928 4,451,178 4,864,653 3,426,547 5,104,057
------------- ------------- ------------- ------------- -------------
Loss from operations................ (4,154,928) (4,451,178) (4,063,818) (2,625,712) (4,760,572)
------------- ------------- ------------- ------------- -------------

Other income (expense):
Interest income..................... 30,662 88,673 160,364 104,215 91,391
Interest expense.................... (174,434) (215,447) (138,878) (90,624) (103,514)
Other, net.......................... (2,274) (975) (1,687) (1,387) (2,761)
------------- ------------- ------------- ------------- -------------
(146,046) (127,749) 19,799 12,204 (14,884)
------------- ------------- ------------- ------------- -------------
Net loss............................ $ (4,300,974) $ (4,578,927) $ (4,044,019) $ (2,613,508) $ (4,775,456)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

Pro forma net loss per share
(unaudited)......................... $ (0.59) $ (0.64)
------------- -------------
------------- -------------
Pro forma weighted average common and
common equivalent shares outstanding
(unaudited)......................... 6,897,251 7,434,627
------------- -------------
------------- -------------

The accompanying notes are an integral part of these financial statements.

F-4

SCRIPTGEN PHARMACEUTICALS, INC.

STATEMENT OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

REDEEMABLE PREFERRED
STOCK
-----------------------
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE --------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ---------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ----------- --------- ----------- ---------- ------------ ------------
Balance at December 31, 1993............. 6,203,325 $ 6,203,325 170,755 $ 1,708 $ 24,542 $ -- $(3,376,234)

Issuance of warrant to purchase Series A
redeemable convertible prefererred
stock................................... 100,000
Issuance of common stock................. 928,310 9,283 93,426
Issuance of Series A redeemable
convertible preferred stock, issuance
costs of $7,764......................... 200,000 200,000 (7,764)
Net loss................................. (4,300,974)
---------- ----------- --------- ----------- ---------- ------------ ------------
Balance at December 31, 1994............. 6,403,325 6,403,325 1,099,065 10,991 217,968 -- (7,684,972)
Issuance of Series B redeemable
convertible preferred stock, issuance
costs of $44,634........................ 6,579,086 6,579,086 (44,634)
Issuance of common stock................. 13,265 133 1,884
Payment on note receivable from
stockholder.............................
Acquisition of treasury stock............
Net loss................................. (4,578,927)
---------- ----------- --------- ----------- ---------- ------------ ------------
Balance at December 31, 1995............. 12,982,411 $12,982,411 1,112,330 $ 11,124 $ 219,852 $ -- ($12,308,533)

NOTE TOTAL
RECEIVABLE STOCKHOLDERS'
FROM TREASURY EQUITY
STOCKHOLDER STOCK (DEFICIT)
----------- ----------- ------------
Balance at December 31, 1993............. $ -- $ -- $(3,349,984)

Issuance of warrant to purchase Series A
redeemable convertible prefererred
stock................................... 100,000
Issuance of common stock................. (37,500) 65,209
Issuance of Series A redeemable
convertible preferred stock, issuance
costs of $7,764......................... (7,764)
Net loss................................. (4,300,974)
----------- ----------- ------------
Balance at December 31, 1994............. (37,500) -- (7,493,513)
Issuance of Series B redeemable
convertible preferred stock, issuance
costs of $44,634........................ (44,634)
Issuance of common stock................. 2,017
Payment on note receivable from
stockholder............................. 9,375 9,375
Acquisition of treasury stock............ 28,125 (45,787) (17,662)
Net loss................................. (4,578,927)
----------- ----------- ------------
Balance at December 31, 1995............. $ -- $ (45,787) ($12,123,344)

The accompanying notes are an integral part of these financial statements.

F-5

SCRIPTGEN PHARMACEUTICALS, INC.

STATEMENT OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)(CONTINUED)

REDEEMABLE PREFERRED
STOCK
-----------------------
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE --------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ---------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ----------- --------- ----------- ---------- ------------ ------------
Issuance of Series C redeemable
convertible preferred stock, issuance
costs of $40,981........................ 4,053,854 $ 7,296,937 $ (40,981)

Issuance of common stock pursuant to
exercise of stock options............... 174,064 $ 1,741 $ 5,018
Acquisition of treasury stock............
Unearned compensation related to common
stock options granted................... 178,338 $ (178,338)
Amortization of unearned compensation.... 84,594
Net loss................................. (4,044,019)
---------- ----------- --------- ----------- ---------- ------------ ------------
Balance at December 31, 1996............. 17,036,265 20,279,348 1,286,394 12,865 403,208 (93,744) (16,393,533)
Issuance of common stock pursuant to
exercise of stock options (unaudited)... 86,984 870 8,499
Unearned compensation related to common
stock options granted (unaudited)....... 2,714,750 (2,714,750)
Amortization of unearned compensation
(unaudited)............................. 147,952
Net loss (unaudited)..................... (4,775,456)
---------- ----------- --------- ----------- ---------- ------------ ------------
Balance at September 30, 1997
(unaudited)............................. 17,036,265 20,279,348 1,373,378 13,735 3,126,457 (2,660,542) (21,168,989)
Pro forma effect of conversion of
redeemable preferred stock
(unaudited)............................. (17,036,265) (20,279,348) 5,540,988 55,410 20,223,938
---------- ----------- --------- ----------- ---------- ------------ ------------
-- $ -- 6,914,366 $ 69,145 $23,350,395 $(2,660,542) ($21,168,989)
---------- ----------- --------- ----------- ---------- ------------ ------------
---------- ----------- --------- ----------- ---------- ------------ ------------

NOTE TOTAL
RECEIVABLE STOCKHOLDERS'
FROM TREASURY EQUITY
STOCKHOLDER STOCK (DEFICIT)
----------- ----------- ------------
Issuance of Series C redeemable
convertible preferred stock, issuance
costs of $40,981........................ $ (40,981)

Issuance of common stock pursuant to
exercise of stock options............... 6,759
Acquisition of treasury stock............ $ (9,363) (9,363)
Unearned compensation related to common
stock options granted................... --
Amortization of unearned compensation.... 84,594
Net loss................................. (4,044,019)
----------- ----------- ------------
Balance at December 31, 1996............. -- (55,150) (16,126,354)
Issuance of common stock pursuant to
exercise of stock options (unaudited)... 9,369
Unearned compensation related to common
stock options granted (unaudited)....... --
Amortization of unearned compensation
(unaudited)............................. 147,952
Net loss (unaudited)..................... (4,775,456)
----------- ----------- ------------
Balance at September 30, 1997
(unaudited)............................. -- (55,150) (20,744,489)
Pro forma effect of conversion of
redeemable preferred stock
(unaudited)............................. 20,279,348
----------- ----------- ------------
$ -- $ (55,150) $ (465,141)
----------- ----------- ------------
----------- ----------- ------------

The accompanying notes are an integral part of these financial statements.

F-6

SCRIPTGEN PHARMACEUTICALS, INC.

STATEMENT OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------

(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................... $(4,300,974) $(4,578,927) $(4,044,019) $(2,613,508) $(4,775,456)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization.................... 319,045 509,214 586,049 423,910 547,877
Amortization of unearned compensation............ -- -- 84,594 -- 147,952
Accrued interest converted to preferred stock.... -- 60,112 -- -- --
Changes in operating assets and liabilities:
Accounts receivable............................ -- (74,559) (62,156) (227,126) (7,832)
Prepaid expenses and other current assets...... 70,563 40,072 (12,139) 40,683 10,994
Other assets................................... (93,789) 20,000 21,518 (7,239) (8,573)
Accounts payable............................... 127,898 (64,191) 109,619 33,991 265,954
Accrued expenses............................... 318 143,801 (251,497) (206,534) 51,997
Deferred revenue............................... -- 200,000 -- -- 1,030,000
---------- ---------- ---------- ---------- ----------
Net cash used for operating activities......... (3,876,939) (3,744,478) (3,568,031) (2,555,823) (2,737,087)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments................. (7,794,213) (1,512,583) (9,300,265) (6,199,133) (3,436,180)
Sale of short-term investments..................... 9,043,301 574,581 7,214,335 3,830,952 5,592,593
Purchase of property and equipment................. (132,657) (29,973) (56,369) (200,910) (65,053)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used for) investing
activities................................... 1,116,431 (967,975) (2,142,299) (2,569,091) 2,091,360
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt......... 2,100,000 400,000 -- -- --
Sale of common stock............................... 65,209 2,017 6,759 -- 9,369
Repurchase of common stock......................... -- -- (9,363) (9,363) --
Sale of preferred stock, net of issuance costs and
retirement of convertible debt................... 192,236 3,955,366 7,255,956 5,270,096 --
Sale of fixed assets............................... 129,528 38,078 -- -- --
Principal payments on capital lease obligations.... (222,650) (373,143) (470,069) (184,932) (481,309)
Payments from stockholder.......................... -- 9,375 -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities..................................... 2,264,323 4,031,693 6,783,283 5,075,801 (471,940)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents...................................... (496,185) (680,760) 1,072,953 (49,113) (1,117,667)
Cash and cash equivalents at beginning of period... 1,418,297 922,112 241,352 241,352 1,314,305
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period......... $ 922,112 $ 241,352 $1,314,305 $ 192,239 $ 196,638
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest........... $ 135,460 $ 135,334 $ 98,599 $ 90,624 $ 103,514
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Assets recorded under capital lease................ 971,455 164,919 375,564 169,304 482,868
Purchase of treasury stock in exchange for accounts
payable.......................................... -- 26,400 -- -- --
Issuance of warrants to lessor..................... 100,000 -- -- -- --
Issuance of common stock in exchange for note
receivable....................................... 37,500 -- -- -- --
Issuance of preferred stock to cancel notes payable
and accrued interest............................. -- 2,579,086 -- -- --

During 1995, the Company cancelled a note receivable from a stockholder of
$28,125 in exchange for treasury stock of $19,387 and a receivable from a
stockholder of $8,738 (Note 5).

The accompanying notes are an integral part of these financial statements.

F-7

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND ORGANIZATION

Scriptgen Pharmaceuticals, Inc. (the "Company") was incorporated in
September 1992. The Company utilizes its proprietary high throughput
technologies to enable and accelerate the discovery of innovative small molecule
drugs. The Company's technology platform identifies and validates novel gene
targets for therapeutic intervention, and then uses novel assay systems to
rapidly screen compounds against those targets. The Company commercializes its
technology through collaborations with pharmaceutical and technology companies
and the Company's internal development program.

Through 1995, the Company devoted substantially all of its efforts to
research and development, business planning and financings and was considered to
be in the development stage as defined in Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises."
The Company is no longer considered to be a development stage enterprise as
planned operations commenced in 1996.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual amounts could differ from those estimates.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. The Company invests its
excess cash primarily in short-term marketable securities. Accordingly, these
investments are subject to minimal credit and market risk.

The Company's cash equivalents at December 31, 1995 consisted of
approximately $82,000 in money market funds. The Company's cash equivalents at
December 31, 1996 consisted of approximately $16,000 in money market funds,
$260,000 in time deposits and $720,000 in commercial paper.

Short-term investments at December 31, 1995 consisted of approximately
$938,000 in U.S. Treasury Bills. Short-term investments at December 31, 1996
consisted of approximately $2,286,000 in U.S. Treasury Bills and $738,000 in
U.S. Agency Bonds. These securities are classified as available-for-sale and are
recorded at cost which approximates fair value. Any unrealized gains or losses
are recorded as a separate component of stockholders' equity. Gross unrealized
and realized gains and losses on sales of securities at December 31, 1995 and
1996 and for the years ended December 31, 1994, 1995 and 1996 were not
significant.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

The Company has entered into various collaborative agreements with
pharmaceutical and technology companies. Revenue derived from such collaborative
agreements is recognized as drug discovery activities are performed. Cash
received in advance of activities performed is recorded as deferred revenue.
Certain agreements also provide for payments to the Company upon the achievement
of certain milestones as well as royalties on the net sales of any products
developed resulting from the collaborations, as defined in the

F-8

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
respective agreements. Any revenue related to milestones will be recognized as
the milestones are achieved and revenue related to royalties will be recognized
as earned.

Revenue from Small Business Innovation Research ("SBIR") government grants
to conduct research and development is recognized as eligible costs are incurred
up to the funding limit. Eligible grant-related costs which have been incurred
in advance of cash receipts are recorded as receivables.

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. Management
believes its credit policies are prudent and reflect normal industry terms and
business risk. The Company does not anticipate non-performance by the
counterparties and, accordingly, does not require collateral.

For the years ended December 31, 1995 and 1996, certain customers accounted
for more than 10% of the Company's revenue. One customer accounted for 100% of
revenue in 1995. Two customers accounted for 81% and 19% of revenue,
respectively, in 1996. Two customers accounted for 77% and 23% of revenue,
respectively, in the nine months ended September 30, 1997.

PROPERTY AND EQUIPMENT

Equipment, furniture and fixtures are recorded at cost and are being
depreciated using the straight-line method over estimated useful lives of five
years. Leasehold improvements are stated at cost and are being amortized using
the straight-line method over the term of the lease, which is less than the
estimated useful life of the properties.

PATENT COSTS

Costs associated with patent applications have been expensed as incurred to
date primarily because recovery of these costs is uncertain. However, certain
costs associated with patent applications for products and processes where
recovery is probable will be capitalized and amortized over their estimated
economic life. Through December 31, 1996, capitalizable patent costs have not
been significant and no patent costs have been capitalized.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company periodically assesses whether any events or changes in
circumstances have occurred that would indicate that the carrying amount of a
long-lived asset may not be recoverable. When such an event or change in
circumstance occurs, the Company evaluates whether the carrying amount of such
asset is recoverable by comparing the net book value of the asset to estimated
future undiscounted cash flows, excluding interest charges, attributable to such
asset. If it is determined that the carrying amount is not recoverable, the
Company recognizes an impairment loss equal to the excess of the carrying amount
of the asset over the estimated fair value of such asset.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS 123, which is effective for the Company's 1996
financial statements, defines a fair value based method of accounting

F-9

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for stock-based awards to employees. The Company has elected to account for
stock-based awards to its employees using the intrinsic value based method as
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations and has adopted the provisions of SFAS 123 through
disclosure only (Note 6).

UNAUDITED PRO FORMA NET LOSS PER SHARE AND UNAUDITED PRO FORMA INFORMATION

Unaudited pro forma net loss per share is determined by dividing net loss by
the weighted average number of common shares and common share equivalents
outstanding during the period. Common share equivalents, comprised of common
stock options and warrants and convertible preferred stock, have been excluded
from the calculation as their effect is anti-dilutive, except that, pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
share equivalents issued and common stock sold at prices below the initial
public offering price in the twelve months preceding the initial filing of the
Company's Registration Statement and through the effective date of the initial
public offering have been included in the calculation as if outstanding for all
periods presented.

As described in Note 5, conversion of all redeemable convertible preferred
stock will occur upon the closing of a qualified public offering of the
Company's common stock. The unaudited pro forma net loss per share information
included in the accompanying statement of operations for the year ended December
31, 1996 and for the nine months ended September 30, 1997 reflects the impact on
unaudited pro forma net loss per share of such conversion as of the beginning of
each period or date of issuance, if later, using the if-converted method.

Historical net loss per share has not been presented on the basis that it is
irrelevant due to the significant change in the Company's capital structure and
resultant loss per share which will result upon conversion of the redeemable
convertible preferred stock.

The unaudited pro forma information at September 30, 1997 included in the
balance sheet and the statement of redeemable preferred stock and stockholders'
equity (deficit) reflects the automatic conversion of each share of the
redeemable convertible preferred stock into 0.32525 shares of common stock upon
the closing of the Company's anticipated initial public offering.

UNAUDITED INTERIM FINANCIAL DATA

The interim financial data as of September 30, 1997 and for the nine months
ended September 30, 1996 and 1997 are unaudited; however, in the opinion of
management, the interim financial data include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of operations for these interim periods. The interim financial data are
not necessarily indicative of the results of operations for a full year.

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." In
September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company will implement SFAS No. 128 as required in its 1997
fourth quarter and, at this time, the future adoption is not expected to have a
material effect on net loss per share. Had the Company computed pro forma net
loss per share for the periods ended December 31, 1996 and the nine months ended
September 30, 1997 in accordance with SFAS

F-10

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No. 128 the pro forma net loss per share would not have been different. The
Company will implement SFAS No. 130 and SFAS No. 131, which require the Company
to report and display certain information related to comprehensive income and
operating segments, respectively, as required in fiscal 1998. Adoption of SFAS
No. 130 and SFAS No. 131 will not impact the Company's financial position or
results of operations.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31,
--------------------------

1995 1996
------------ ------------
Furniture and fixtures............................................ $ 8,947 $ 8,947
Equipment......................................................... 1,350,895 1,782,828
Leasehold improvements............................................ 677,950 677,950
------------ ------------
2,037,792 2,469,725
Less: Accumulated depreciation and amortization................... 774,950 1,352,011
------------ ------------
$ 1,262,842 $ 1,117,714
------------ ------------
------------ ------------

Depreciation and amortization expense for the years ended December 31, 1994,
1995 and 1996 was $289,557, $498,175 and $577,061, respectively.

At December 31, 1995 and 1996, the costs of equipment and leasehold
improvements held under capital leases amounted to $1,943,932 and $2,319,496,
respectively, and accumulated depreciation relating to such equipment and
leasehold improvements amounted to $485,780 and $1,028,328, respectively.

4. CONVERTIBLE DEBT

In July 1994, the Company entered into a Loan and Stock Purchase Agreement
with certain preferred stockholders to provide bridge financing for the Company.
The agreement made available to the Company up to $2,500,000 in financing.
During 1994 and 1995, the Company issued notes in the aggregate amount of
$2,100,000 and $400,000, respectively, to these investors. The notes were
interest bearing at a rate of 4.25% until December 31, 1994 and 9.50% from
January 1, 1995 until April 19, 1995, when these notes, together with accrued
interest thereon, were converted into shares of Series B Preferred Stock at
$1.00 per share.

5. CAPITALIZATION

REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company has authorized 21,500,000 shares of redeemable convertible
preferred stock designated as follows: 5,100,000 shares of Series A redeemable
convertible preferred stock ("Series A Preferred Stock"); 9,700,000 shares of
Series B redeemable convertible preferred stock ("Series B Preferred Stock");
and 6,700,000 shares of Series C redeemable convertible preferred stock ("Series
C Preferred Stock") (collectively as the "Preferred Stock"). The Series A, B and
C Preferred Stock have the following characteristics:

F-11

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CAPITALIZATION (CONTINUED)
CONVERSION

Each share of Preferred Stock is convertible at any time at the option of
the holder into shares of common stock at a ratio of one share of common stock
for 3.07459 shares of Preferred Stock, subject to certain stock split, stock
dividend and other adjustments. All Preferred Stock will automatically convert
to common stock upon the earlier of i) the closing of a public offering of the
Company's common stock involving aggregate proceeds of at least $10,000,000 and
a per share price of not less than $7.00 or ii) the consent of the holders of at
least 85% of the then outstanding shares of Preferred Stock.

The Company has reserved 2,082,660, 2,139,826 and 1,318,502 shares of common
stock for issuance upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, respectively.

DIVIDENDS

Holders of Series C Preferred Stock are entitled to receive dividends when,
as and if declared by the Board of Directors.

Holders of Series B Preferred Stock are entitled to receive dividends when,
as and if declared by the Board of Directors, provided however that no dividends
shall be declared or paid on the Series B Preferred Stock unless the Company
shall simultaneously declare and pay an equal dividend on each outstanding share
of Series C Preferred Stock.

Holders of Series A Preferred Stock are entitled to receive dividends when,
as and if declared by the Board of Directors, provided however that no dividend
shall be declared or paid on the Series A Preferred Stock unless the Company
shall simultaneously declare and pay an equal dividend on each outstanding share
of Series B and Series C Preferred Stock. Through December 31, 1996, no
dividends have been declared or paid by the Company.

REDEMPTION

On January 15, 2004 and 2005, the Company shall redeem 50% of the then
outstanding shares of Preferred Stock at a per share price of $1.80 for each
share of Series C Preferred Stock and $1.00 for each share of Series A Preferred
Stock and Series B Preferred Stock, plus all declared but unpaid dividends,
unless such redemption is waived by holders of 75% of the then outstanding
shares of Preferred Stock.

At December 31, 1996, there are issued and outstanding 6,403,325 shares of
Series A Preferred Stock, 6,579,086 shares of Series B Preferred Stock and
4,053,854 shares of Series C Preferred Stock, which are recorded at redemption
values of $6,403,325, $6,579,086 and $7,296,937, respectively.

LIQUIDATION, DISSOLUTION OR WINDING-UP OF COMPANY

In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock will be entitled to receive, in preference to the holders of the
common stock, an amount per share equal to $1.00, $1.00 and $1.80, respectively,
plus any declared but unpaid dividends. If the remaining assets of the Company
are insufficient to pay the preferred stockholders the full amount to which they
are entitled, any distribution of the remaining assets will be in proportion to
the respective amounts which would otherwise be payable if

F-12

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CAPITALIZATION (CONTINUED)
all amounts payable were paid in full. Any assets remaining after the initial
distribution to the holders of the Preferred Stock shall be available for
distribution ratably among the Company's common stockholders.

VOTING RIGHTS

Each holder of the Preferred Stock is entitled to vote the number of shares
of common stock into which such holder's shares are convertible at the date such
vote is taken.

RIGHTS OF FIRST REFUSAL

The holders of the Preferred Stock have the right of first refusal on all
future issuances by the Company of any of its equity securities.

STOCK RESTRICTION AGREEMENTS

The Company has executed stock restriction agreements with certain common
stockholders. Each agreement gives the Company the right to repurchase a certain
number of shares, at the original issuance price, held by such stockholder if he
or she ceases to be a director, employee or consultant, as applicable, of the
Company. The purchase option rights lapse at various dates through July 1998. At
December 31, 1996 and September 30, 1997 (unaudited), 15,395 and 28,963,
respectively, shares of the Company's outstanding common stock were subject to
these repurchase options.

REVERSE COMMON STOCK SPLIT

On , the Board of Directors authorized a 1-for-3.07459
reverse stock split of the Company's common stock which will become effective
prior to the date of the Offering. All shares of common stock, common stock
options and warrants, preferred stock conversion ratios and per share amounts
included in the accompanying financial statements have been adjusted to give
retroactive effect to the reverse stock split for all periods presented.

RELATED PARTY TRANSACTIONS

The Company entered into a stock agreement with an officer of the Company in
February 1994 whereby the Company issued 464,452 shares of common stock and
200,000 shares of Series A Preferred Stock to this individual in exchange for
cash and a promissory note totaling $271,400. Such promissory note was paid in
four quarterly equal installments commencing February 1, 1995.

The underlying stock agreement gave the Company repurchase rights to the
stock in certain increments at a price equal to the price per share paid by this
individual. Such repurchase rights lapsed at certain dates or upon the
occurrence of certain events, as defined in the agreement.

The Company entered into a separation agreement with this officer in
December 1995. Under the separation agreement, the Company was obligated to
extend the officer's salary, for a period of one year from the resignation date
or until the officer accepts full-time employment, whichever occurred first, as
well as other related costs. For the year ended December 31, 1995, the Company
recorded total compensation expense of approximately $275,000 in connection with
this agreement. The unpaid portion of the compensation expense of approximately
$265,000 was reflected in accrued expenses at December 31, 1995 and was paid in
full in 1996.

F-13

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CAPITALIZATION (CONTINUED)

Pursuant to the terms of the separation agreement, in 1995 the Company
exercised its repurchase rights to 297,845 shares of the Company's common stock
issued under the February 1994 stock agreement. The promissory note received in
conjunction with the stock agreement was cancelled. In 1996, the Company
exercised its repurchase rights to the remaining unvested 48,787 shares of the
Company's common stock issued under the February 1994 stock agreement.

6. STOCK PLAN

During 1994, the Company adopted its 1994 Stock Option Plan (the "Plan").
The Plan provides for the issuance of incentive stock options to officers and
other employees of the Company and non-qualified stock options, awards of stock
and direct stock purchase opportunities to directors, officers, employees and
consultants of the Company. The total number of shares which may be issued under
the Plan is 613,090. The options are exercisable at various dates and will
expire no more than ten years from their date of grant, or in the case of
certain non-qualified options, fifteen years from the date of grant. The
exercise price of each option shall be determined by the Board of Directors. In
the case of incentive stock options, the exercise price may not be less than
100% of the fair market value of the share at the time the option is granted.
For holders of more than 10% of the Company's total combined voting power of all
classes of stock, incentive stock options may not be granted at less than 110%
of the fair market value of the Company's common stock at the date of grant and
may not exceed a term of five years.

At December 31, 1996, the Company had one stock option plan, which is
described above. The Company applies APB Opinion No. 25 in accounting for awards
made under the Plan.

Had compensation cost for these awards been determined based on the fair
value of these options at their date of grant consistent with the method
prescribed by SFAS No. 123, the Company's net loss would have been as follows:

YEAR ENDED
DECEMBER 31,
----------------------------

1995 1996
------------- -------------
Net loss:
As reported................................................... $ (4,578,927) $ (4,044,019)
Pro forma..................................................... (4,578,933) (4,046,130)

Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31, 1996
and options vest over several years, the pro forma effects of applying the fair
value method may be material to reported net income or loss in future years.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model to apply the minimum value method with
the following weighted average assumptions:

1995 1996
--------- ---------

Expected options term (years)................................................ 5 5
Risk-free interest rate...................................................... 7.02% 6.14%
Dividend yield............................................................... 0.00% 0.00%

F-14

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. STOCK PLAN (CONTINUED)
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and changes during the three year period ended on that date is
presented below:

YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996
----------------------- ----------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ----------- -----------

Outstanding at beginning of year.......... -- $ -- 299,015 $ .15 308,155 $ .15
Granted................................... 299,503 .15 9,953 .15 210,207 .15
Exercised................................. (335) .15 (558) .15 (174,064) .15
Forfeited................................. (153) .15 (255) .15 (11,717) .15
---------- ---------- -----------
Outstanding at end of year................ 299,015 $ .15 308,155 $ .15 332,581 $ .15
---------- ---------- -----------
Options available for future grant........ 313,740 304,042 105,552
---------- ---------- -----------
Weighted-average fair value of options
granted whose exercise price of $.15
equals the market price................. $ .03 $ .03 $ .03
---------- ---------- -----------
---------- ---------- -----------
Weighted-average fair value of options
granted whose exercise price of $.15 is
less than the market price.............. $ -- $ -- $ 1.72
---------- ---------- -----------
---------- ---------- -----------

The following table summarizes information about fixed stock options
outstanding at December 31, 1996.

OPTIONS
OUTSTANDING
----------------------
WEIGHTED-
AVERAGE OPTIONS
REMAINING EXERCISABLE
CONTRACTUAL -----------
EXERCISE PRICE NUMBER LIFE NUMBER
- ---------------------------------------------------------- --------- ----------- -----------

$.15...................................................... 332,581 8.8 years 59,890

UNEARNED COMPENSATION

During October 1996 through December 1996, the Company granted stock options
to purchase 105,461 shares of its common stock at an exercise price of $.15 per
share. The Company recorded unearned compensation totaling $178,338,
representing the difference between the estimated fair market value of the
common stock on the date of grant and the exercise price. Unearned compensation
related to these options is recorded as an increase to stockholders' deficit and
is being amortized over the option vesting period.

F-15

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. STOCK PLAN (CONTINUED)
(Unaudited)

During the nine months ended September 30, 1997, the Company granted options
to purchase 407,859 shares of its common stock at exercise prices of $.15 and
$6.15 per share. The Company recorded unearned compensation totaling $2,714,750
for such options.

7. INCOME TAXES

Deferred tax assets and (liabilities) are comprised of the following:

DECEMBER 31,
--------------------------

1995 1996
------------ ------------
Net operating loss carryforwards.................................. $ 4,582,000 $ 6,210,000
Research and development credit carryforwards..................... 426,000 604,000
Property and equipment............................................ 194,000 268,000
Accrued expenses.................................................. 123,000 18,000
Deferred start-up expenses........................................ 34,000 17,000
------------ ------------
Deferred tax assets, net.......................................... 5,359,000 7,117,000
Valuation allowance............................................... (5,359,000) (7,117,000)
------------ ------------
$ -- $ --
------------ ------------
------------ ------------

The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of net
operating losses. In addition, although management's operating plans anticipate
taxable income in future periods, such plans provide for taxable losses over the
near term and make significant assumptions which cannot be reasonably assured,
including approval of the Company's products by the U.S. Food and Drug
Administration and market acceptance of the Company's products by customers.
Based upon the weight of all available evidence, the Company has provided a full
valuation allowance for its deferred tax assets since, in the opinion of
management, realization of these future benefits is not sufficiently assured
(defined as a likelihood of slightly more than 50 percent).

As of December 31, 1996, the Company has net operating loss carryforwards
and research and development credit carryforwards which may be used to offset
future federal and state taxable income and tax liabilities as follows:

RESEARCH AND
DEVELOPMENT TAX
CREDIT
NET OPERATING ----------------------
YEAR OF EXPIRATION LOSS FEDERAL STATE
- ------------------------------------------------------ ------------- ---------- ----------

2007.................................................. $ 338,000 $ 22,000 $ 12,000
2008.................................................. 2,708,000 74,000 37,000
2009.................................................. 4,076,000 124,000 62,000
2010.................................................. 4,250,000 66,000 101,000
2011.................................................. 4,085,000 121,000 87,000
------------- ---------- ----------
$ 15,457,000 $ 407,000 $ 299,000
------------- ---------- ----------
------------- ---------- ----------

F-16

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
As a result of the issuance of redeemable convertible preferred stock (Note
5), a change in ownership has occurred as defined by the Internal Revenue code
which may significantly restrict future annual utilization of the Company's
federal NOL carryforwards. Under the provisions of the Internal Revenue Code,
certain substantial changes in the Company's ownership may limit the amount of
the net operating loss and tax credit carryforwards which could be utilized
annually to offset future taxable income and taxes payable. The amount of the
annual limitation is determined based upon the Company's value prior to an
ownership change. Subsequent significant ownership changes could further affect
the limitation in future years.

8. COMMITMENTS AND CONTINGENCIES

In November 1993, the Company entered into a five-year operating lease for
office and research space. The lease requires the Company to pay a share of real
estate taxes and building operating expenses if such expenses exceed a base
level stipulated in the lease.

In January 1994, the Company entered into a leasing arrangement whereby a
third party will provide up to $1,700,000 in equipment financing. In connection
with this agreement, the Company granted to the lessor warrants to purchase
153,000 shares of Series A Preferred Stock at a price of $1.00 per share. The
warrants expire in January 2004 or five years from the closing of the sale and
issuance of shares of the Company's common stock in an initial public offering,
whichever is later. The Company ascribed a value of $100,000 to such warrants,
which is included in other assets and is being amortized over the life of the
lease financing.

In February 1996, the Company entered into a leasing arrangement with this
same third party who will provide up to $1,436,775 in additional equipment
financing. In connection with this agreement, the Company initially granted to
the lessor warrants to purchase 32,500 shares of Series C Preferred Stock at a
price of $1.80 per share. As of December 31, 1996, the Company is committed to
grant an additional 67,500 warrants upon commencement of certain phases of the
financing. The warrants expire in May 2006 or five years from the closing of the
sale and issuance of the Company's common stock in an initial public offering,
whichever is later. The value ascribed to the warrants granted was not
significant.

Future minimum lease payments required under operating and capital leases as
of December 31, 1996 are as follows:

OPERATING CAPITAL
LEASES LEASES
---------- ------------

1997................................................................ $ 105,308 $ 628,319
1998................................................................ 87,757 301,656
1999................................................................ -- 129,500
2000................................................................ -- 26,095
---------- ------------
Total minimum lease payments........................................ $ 193,065 1,085,570
----------
----------
Amount representing interest........................................ (102,502)
------------
Present value of minimum lease payments............................. $ 983,068
------------
------------

Rent expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $185,000, $108,000 and $128,000, respectively.

F-17

SCRIPTGEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Obligations under capital lease have interest rates which range from 8% to
15% at December 31, 1996.

Under certain licensing and other agreements, the Company is required to
make payments upon the achievement of certain milestones, to pay royalties on
certain drug sales, if any, and to pay other amounts in connection with
sublicenses, if any (collectively "Contingent Payments"). To date, the Company
has not become obligated to make any Contingent Payments under such agreements.
In addition, pursuant to several license and sponsored research agreements, the
Company is obligated to make certain payments through 1998 of up to $300,000.

9. SAVINGS PLAN

The Company has a retirement savings plan for all employees pursuant to
Section 401(k) of the Internal Revenue Code. Employees become eligible to
participate upon completion of six months of service to the Company. Employees
may contribute any whole percentage of their salary, up to a maximum annual
statutory limit. The Company is not required to contribute to this plan and has
made no contributions to date.

10. SUBSEQUENT EVENT

In October 1997, the Company entered into a collaboration agreement with a
pharmaceutical company to identify new fungal targets and antifungal drug
candidates. The agreement requires the pharmaceutical company to pay initial
technology access fees, payments for research and development and upon
attainment of certain milestones, plus royalties on sales of any new drug
resulting from the collaboration. As part of this agreement, the pharmaceutical
company has agreed to purchase shares of common stock having a value of
$3,000,000 (based on the initial public offering price) in a private placement
concurrently with the Company's initial public offering. The Company has granted
certain "piggyback" registration rights to this pharmaceutical company beginning
in April 1998 related to such shares.

F-18

No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

TABLE OF CONTENTS
------------------------------------------------

Prospectus Summary.................................................... 4
Risk Factors.......................................................... 8
Use of Proceeds....................................................... 19
Dividend Policy....................................................... 19
Capitalization........................................................ 20
Dilution.............................................................. 21
Selected Financial Data............................................... 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 23
Business.............................................................. 27
Management............................................................ 41
Certain Transactions.................................................. 49
Principal Stockholders................................................ 52
Description of Capital Stock.......................................... 54
Shares Eligible for Future Sale....................................... 58
Underwriting.......................................................... 59
Legal Matters......................................................... 60
Experts............................................................... 60
Additional Information................................................ 60
Index to Financial Statements......................................... F-1

Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in the distribution, may be required to deliver a Prospectus. This
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.

PROSPECTUS , 1998

[LOGO]

SCRIPTGEN
PHARMACEUTICALS, INC.

Common Stock

S B C W A R B U R G DILLON READ INC.

VOLPE BROWN WHELAN & COMPANY

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All the amounts shown
are estimated, except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.

SEC Registration Fee.............................................. $ 13,591
NASD Filing Fee................................................... 4,985
Nasdaq National Market Listing Fee................................
Printing Expenses.................................................
Legal Fees and Expenses...........................................
Accounting Fees and Expenses......................................
Blue Sky Expenses and Counsel Fees................................
Transfer Agent and Registrar Fees.................................
Miscellaneous.....................................................
---------
Total......................................................... $
---------
---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.

Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer,

II-1

employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
such Section 145.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.

The Company's Restated Certificate provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL),
relating to prohibited dividends or distribution or the repurchase or redemption
of stock, or (iv) for any transaction from which the director derives an
improper personal benefit. The provision does not apply to claims against a
director for violations of certain laws, including federal securities laws. If
the DGCL is amended to authorize the further elimination or limitation of
directors' liability, then the liability of directors of the Company shall
automatically be limited to the fullest extent provided by law. The Company's
Restated Certificate and By-Laws also contain provisions requiring the Company
to indemnify the directors, officers, employees or other agents to the fullest
extent permitted by the DGCL.

The Company intends to enter into indemnification agreements with its
current directors and executive officers. The Company intends to insure its
directors and officers against losses arising from any claim against them as
such for wrongful acts or omission, subject to certain limitations.

Under Section of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since November 1994, the Company has sold unregistered securities in the
amounts, at the times, and for the aggregate amounts of consideration listed as
follows:

In November 1994, the Company issued a total of 16,262 shares of Common
Stock to certain stockholders of the Company in connection with the Bridge Loan
Transaction at a price of $0.15 per share for total consideration of $2,500 in
cash.

In December 1994, the Company issued a total of 27,646 shares of Common
Stock to certain stockholders of the Company in connection with the Bridge Loan
Transaction at a price of $0.15 per share for total consideration of $4,250 in
cash.

In December 1994, the Company issued a total of 325,248 shares of Common
Stock to the co-chairmen of its Scientific Advisory Board at $0.03 per share for
total consideration of $10,000.

In February 1995, the Company issued a total of 13,010 shares of Common
Stock to certain stockholders of the Company in connection with the Bridge Loan
Transaction at a price of $0.15 per share for total consideration of $2,000 in
cash.

II-2

In April 1995, the Company issued a total of 6,579,086 shares of Series B
Preferred Stock (convertible into 2,139,826 shares of Common Stock) to certain
investors pursuant to a Series B Stock Purchase Agreement. For 2,579,086 of such
shares, the consideration paid per share was $1.00 of cancelled indebtedness of
the Company for total consideration of $2,579,086 of cancelled indebtedness. For
the remaining 4,000,000 shares, the consideration paid per share was $1.00 in
cash for total consideration of $4,000,000.

In April 1995, the Company issued 82 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $12.50.

In June 1995, the Company issued 175 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $26.75.

In March 1996, the Company issued 517 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $79.40.

In April 1996, the Company issued 320 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $49.15.

In May 1996, the Company issued a total of 2,942,521 shares of Series C
Preferred Stock (convertible into 957,045 shares of Common Stock) to certain
investors pursuant to a Series C Preferred Stock Purchase Agreement. The
consideration paid per share of was $1.80 in cash for total consideration of
$5,296,537.

In May 1996, the Company issued warrants to purchase up to 32,500 shares of
Series C Preferred Stock at an exercise price of $1.80 per share (to purchase up
to 10,571 shares of Common Stock at an exercise price of $5.53 per share
following the Offering) to Comdisco, Inc. ("Comdisco"), in consideration for
Comdisco (i) executing and delivering certain lease agreements and schedules
thereto and (ii) making available $686,775 of lease financing.

In June 1996, the Company issued 310 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $47.55.

In June 1996, the Company issued 216 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $33.20.

In June 1996, the Company issued 7,478 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $1,149.50.

In October 1996, the Company issued 2,602 shares of Common Stock to a
consultant upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $400.

In November 1996, the Company issued 1,111,333 shares of Series C Preferred
Stock (convertible into 361,457 shares of Common Stock) to Lombard, Odier & Cie
at $1.80 per share in cash for total consideration of $2,000,400.

In November 1996, the Company issued a total of 162,624 shares of Common
Stock to the co-chairmen of its Scientific Advisory Board upon the exercise of
options at the exercise price of $0.03 per share for total consideration of
$5,000.

In February 1997, the Company issued 48,787 shares of Common Stock to its
acting President and Chairman of the Board upon the exercise of options at the
exercise price of $0.15 per share for total consideration of $7,500.

In May 1997, the Company issued warrants to purchase up to 22,500 shares of
Series C Preferred Stock at an exercise price of $1.80 per share (to purchase up
to 7,318 shares of Common Stock at an exercise price of $5.53 per share
following the Offering) to Comdisco in consideration for Comdisco

II-3

(i) executing and delivering certain lease agreements and schedules thereto and
(ii) making available $250,000 of lease financing.

In May 1997, the Company issued 294 shares of Common Stock to a former
employee upon the exercise of options at the exercise price of $0.15 per share
for total consideration of $45.15.

In August 1997, the Company issued 33,956 shares of Common Stock to its
President and Chief Executive Officer upon the exercise of options at the
exercise price of $0.15 per share for total consideration of $5,220.

In October 1997, the Company issued warrants to purchase up to 45,000 shares
of Series C Preferred Stock at an exercise price of $1.80 per share (to purchase
up to 14,636 shares of Common Stock at an exercise price of $5.53 per share
following the Offering) to Comdisco in consideration for Comdisco (i) executing
and delivering certain lease agreements and schedules thereto and (ii) making
available $500,000 of lease financing.

As of November 15, 1997, the Company has outstanding options to purchase an
aggregate of 701,508 shares of Common Stock at exercise prices ranging from
$0.03 to $8.76.

No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of Common Stock and Preferred Stock were made in reliance
upon the exemption from registration set forth in Section 4(2) of the Securities
Act of 1933 and Rule 506 of Regulation D promulgated thereunder for transactions
not involving a public offering, and all purchasers were accredited investors as
such term is defined in Rule 501(a) of Regulation D. Issuances of options to the
Company's employees, directors, consultants and members of its Scientific
Advisory Board were made pursuant to Rule 701 promulgated under the Securities
Act of 1933.

II-4

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits.

NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------

1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation, as amended
3.2 Form of Amendment to Amended and Restated Certificate of Incorporation*
3.3 By-Laws
3.4 Form of Amended By-Laws*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Stock Purchase Agreement among the Company and the investors listed on the Schedule of Purchasers thereto
dated September 16, 1993
10.2 Loan and Stock Purchase Agreement among the Company and the purchasers listed on Schedule I thereto dated
July 13, 1994
10.3 Series B Stock Purchase Agreement among the Company, the investors listed on the Schedule of Purchasers
thereto, Thomas Bologna and Barry Weinberg dated April 19, 1995
10.4 Series C Stock Purchase Agreement among the Company, the investors listed on the Schedule of Purchasers
thereto, Thomas Bologna and Barry Weinberg dated May 17, 1996
10.5 Subsequent Series C Stock Purchase Agreement among the Company and Lombard, Odier & Cie dated November 15,
1996
10.6 Master Lease Agreement between the Company and Comdisco, Inc. dated November 22, 1993
10.7 Warrant Agreement between the Company and Comdisco, Inc. dated January 17, 1994, as amended
10.8 Warrant Agreement between the Company and Comdisco, Inc. dated May 18, 1996, as amended
10.9 Collaboration and License Agreement between the Company and Hoechst Marion Roussel dated October 24, 1997+
10.10 Stock Purchase Agreement between the Company and Hoechst Marion Roussel dated October 24, 1997
10.11 Registration Rights Agreement between the Company and Hoechst Marion Roussel dated October 24, 1997
10.12 Heads of Agreement between the Company and Hoffmann-La Roche Inc. dated September 22, 1995, as amended+
10.13 Collaboration Agreement between the Company and Eli Lilly and Company dated May 8, 1997+
10.14 Compound Testing and Development Agreement between the Company and Monsanto Company dated November 17,
1997+
10.15 Assignment Agreement between the Company, Andrew Pakula and James Bowie effective March 15, 1994, as
amended+
10.16 Employment Agreement between the Company and Mark T. Weedon dated June 24, 1997
10.17 Employment Agreement between the Company and Dr. Michael G. Palfreyman dated September 10, 1994
10.18 Employment Agreement between the Company and Karen A. Hamlin dated December 14, 1992
10.19 Consulting Agreement between the Company and Dr. Michael R. Green dated January 11, 1993, as amended*
10.20 Consulting Agreement between the Company and Dr. Peter S. Kim dated July 1, 1992, as amended*
10.21 1994 Employee Stock Option Plan

II-5

NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------------

10.22 Commercial Real Property Lease between the Company and Cummings Properties Management, Inc. dated November
2, 1993
11.1 Computation of Unaudited Pro Forma Net Loss Per Share
23.1 Consent of Price Waterhouse LLP, Independent Accountants
23.2 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1)*
23.3 Consent of Darby & Darby, P.C.
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule

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

* TO BE FILED BY AMENDMENT

+ PORTIONS HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

(b) Financial Statement Schedules. The following financial statement schedules
are filed herewith:

All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective. (2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Medford, State of
Massachusetts, on November 20, 1997.

SCRIPTGEN PHARMACEUTICALS, INC.

BY: /S/ MARK T. WEEDON
-----------------------------------------
Mark T. Weedon
PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below and on the following page constitutes and appoints each of Mark T. Weedon,
Barry Weinberg and Karen Hamlin as his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, including post-effective
amendments, and to file the same, with all exhibits thereto, and all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, and hereby ratifies and confirms all that any said attorney-in-fact
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

II-7

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

President, Chief Executive November 20, 1997
Officer and Director
(Principal Executive
Officer)
/s/ MARK T. WEEDON
- ------------------------------
Mark T. Weedon

Senior Director of November 20, 1997
Operations, Secretary
and Treasurer (Principal
Financial and Accounting
Officer)
/s/ KAREN A. HAMLIN
- ------------------------------
Karen A. Hamlin

/s/ BARRY WEINBERG Chairman of the Board November 20, 1997
- ------------------------------
Barry Weinberg

/s/ DAVID BALTIMORE, PH.D. Director November 20, 1997
- ------------------------------
David Baltimore, Ph.D.

/s/ ALLAN R. FERGUSON Director November 20, 1997
- ------------------------------
Allan R. Ferguson

/s/ JASON S. FISHERMAN, M.D. Director November 20, 1997
- ------------------------------
Jason S. Fisherman, M.D.

II-8

EXHIBIT INDEX

NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------------------------------- ---------

1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation, as amended
3.2 Form of Amendment to Amended and Restated Certificate of Incorporation*
3.3 By-Laws
3.4 Form of Amended By-Laws*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Stock Purchase Agreement among the Company and the investors listed on the Schedule of
Purchasers thereto dated September 16, 1993
10.2 Loan and Stock Purchase Agreement among the Company and the purchasers listed on Schedule I
thereto dated July 13, 1994
10.3 Series B Stock Purchase Agreement among the Company, the investors listed on the Schedule of
Purchasers thereto, Thomas Bologna and Barry Weinberg dated April 19, 1995
10.4 Series C Stock Purchase Agreement among the Company, the investors listed on the Schedule of
Purchasers thereto, Thomas Bologna and Barry Weinberg dated May 17, 1996
10.5 Subsequent Series C Stock Purchase Agreement among the Company and Lombard, Odier & Cie dated
November 15, 1996
10.6 Master Lease Agreement between the Company and Comdisco, Inc. dated November 22, 1993
10.7 Warrant Agreement between the Company and Comdisco, Inc. dated January 17, 1994, as amended
10.8 Warrant Agreement between the Company and Comdisco, Inc. dated May 18, 1996, as amended
10.9 Collaboration and License Agreement between the Company and Hoechst Marion Roussel dated
October 24, 1997+
10.10 Stock Purchase Agreement between the Company and Hoechst Marion Roussel dated October 24, 1997
10.11 Registration Rights Agreement between the Company and Hoechst Marion Roussel dated October 24,
1997
10.12 Heads of Agreement between the Company and Hoffmann-La Roche Inc. dated September 22, 1995, as
amended+
10.13 Collaboration Agreement between the Company and Eli Lilly and Company dated May 8, 1997+
10.14 Compound Testing and Development Agreement between the Company and Monsanto Company dated
November 17, 1997+
10.15 Assignment Agreement between the Company, Andrew Pakula and James Bowie effective March 15,
1994, as amended+
10.16 Employment Agreement between the Company and Mark T. Weedon dated June 24, 1997
10.17 Employment Agreement between the Company and Dr. Michael G. Palfreyman dated September 10,
1994
10.18 Employment Agreement between the Company and Karen A. Hamlin dated December 14, 1992
10.19 Consulting Agreement between the Company and Dr. Michael R. Green dated January 11, 1993, as
amended*
10.20 Consulting Agreement between the Company and Dr. Peter S. Kim dated July 1, 1992, as amended*
10.21 1994 Employee Stock Option Plan

NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------------------------------- ---------

10.22 Commercial Real Property Lease between the Company and Cummings Properties Management, Inc.
dated November 2, 1993
11.1 Computation of Unaudited Pro Forma Net Loss Per Share
23.1 Consent of Price Waterhouse LLP, Independent Accountants
23.2 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1)*
23.3 Consent of Darby & Darby, P.C.
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule

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

* TO BE FILED BY AMENDMENT

+ PORTIONS HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.