As filed with the Securities and Exchange Commission on June 30, 1999

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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 20-F
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(Mark One)

/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934

/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998

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

COMMISSION FILE NUMBER 0-29526

GENSET
(Exact name of Registrant as specified in its charter)

FRANCE
(Jurisdiction of incorporation or organization)

24, RUE ROYALE
75008 PARIS, FRANCE
+33 1 55 04 59 00
(Address of principal executive offices)

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF EACH CLASS TO BE SO REGISTERED NAME OF EACH EXCHANGE ON
WHICH EACH CLASS IS TO BE REGISTERED

American Depositary Shares, each representing
one-third of one Ordinary Share NASDAQ National Market

Ordinary Shares, nominal value euro 3 per share NASDAQ National Market*

* APPROVED FOR LISTING (NOT FOR TRADING), BUT ONLY IN CONNECTION
WITH THE REGISTRATION OF AMERICAN DEPOSITARY SHARES, PURSUANT TO
THE REQUIREMENTS OF THE NASDAQ NATIONAL MARKET.

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT: None

INDICATE THE NUMBER OF OUTSTANDING ORDINARY SHARES OF EACH OF THE ISSUER'S
CLASSES OF CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE
ANNUAL REPORT:

Ordinary Shares, nominal value euro 3 per share: 7,419,706

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

Indicate by check mark which financial statement item the Registrant has elected
to follow:
Item 17 / / Item 18 /x/

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TABLE OF CONTENTS

Introduction................................................................................................ 3
Exchange Rate Information................................................................................... 3
Forward-Looking Statements.................................................................................. 4

PART I

ITEM 1: Description of Business.................................................................... 4
ITEM 2: Description of Property................................................................... 34
ITEM 3: Legal Proceedings......................................................................... 34
ITEM 4: Control of Registrant......................................................................34
ITEM 5: Nature of Trading Market.................................................................. 35
ITEM 6: Exchange Controls and Other Limitations Affecting Security Holders........................ 39
ITEM 7: Taxation.................................................................................. 41
ITEM 8: Selected Consolidated Financial Data...................................................... 48
ITEM 9: Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 49
ITEM 10: Directors and Officers of the Registrant.................................................. 55
ITEM 11: Compensation of Directors and Officers.................................................... 63
ITEM 12: Options to Purchase Securities from Registrant or Subsidiaries............................ 63
ITEM 13: Interest of Management in Certain Transactions............................................ 64

PART II

ITEM 14: Description of Securities to be Registered................................................ 64

PART III

ITEM 15: Defaults upon Senior Securities........................................................... 65
ITEM 16: Changes in Securities and Changes in Security for Registered Securities
and Use of Proceeds....................................................................... 65

PART IV

ITEM 17: Financial Statements...................................................................... 66
ITEM 18: Financial Statements...................................................................... 66
ITEM 19: Index to Financial Statements and Exhibits and Signature.................................. 67

INTRODUCTION

Genset's consolidated financial statements that form part of this
Annual Report on Form 20-F (the "Annual Report") are presented in French francs
and prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP").

Solely for the convenience of the reader, this Annual Report contains
translations of certain French franc amounts into U.S. dollars at specified
rates. These translations should not be construed as representations that French
franc amounts represent such U.S. dollar amounts or could be converted into U.S.
dollars at the rates indicated or at any other rate. Unless otherwise stated,
the translations of French francs into U.S. dollars have been made at the rate
of FF 5.5870 to $1.00, or 17.90 cents to FF 1.00, the noon buying rate in New
York City for cable transfers in French francs as certified for customs purposes
by the Federal Reserve Bank of New York (the "Noon Buying Rate") on December 31,
1998.

On December 31, 1998, France and ten other countries of the fifteen
countries of the European Union established fixed conversion rates between their
existing sovereign currencies and the euro. Following introduction of the euro
on January 1, 1999, all capital markets of these eleven countries converted to
euros and the share prices of all companies listed on these markets have been
officially quoted in euros. Effective January 1, 1999, the Company converted its
accounts from French francs into euros using the official exchange rate fixed on
December 31, 1998 (euro 1 = FF 6.55957 or FF 1 = euro 0.152449).

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

All references herein to "United States" are to the United States of
America, references to "U.S. dollars," "U.S. $," "$" or "cents" are to the
currency of the United States, references to "France" are to the Republic of
France, references to "French francs," "francs" or "FF" are to the currency
of France, and references to "euro" or "euros" are to the common currency of
the eleven countries of the European Union.

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

Genset is a SOCIETE ANONYME organized under the laws of France (the
"Company"). Its principal executive offices are located at 24, rue Royale, 75008
Paris, France and its telephone number is +33 1 55 04 59 00.

EXCHANGE RATE INFORMATION

For a discussion of the impact of currency fluctuations on the
Company's financial condition and results of operations, see "Item 9:
Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Results of Operations -- Impact of Currency Fluctuations."

The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between French francs and U.S. dollars
based on the Noon Buying Rate (expressed as French francs per U.S. dollar). Such
rates are provided solely for the convenience of the reader and are not
necessarily the rates used by the Company in the preparation of its consolidated
financial statements included elsewhere in this Annual Report.

YEAR PERIOD-END RATE AVERAGE RATE(1) HIGH LOW
- ---- --------------- ------------ ---- ---

1994........................ 5.34 5.51 5.98 5.11
1995........................ 4.90 4.96 5.39 4.78
1996........................ 5.19 5.12 5.29 4.90
1997........................ 6.02 5.85 6.35 5.19
1998........................ 5.59 5.90 6.21 5.41

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(1) The average of the Noon Buying Rates on the last business day of each month
during the relevant period

The following table sets forth, for the period indicated, certain
information concerning the exchange rate between euros and U.S. dollars based on
the Noon Buying Rate (expressed as euros per U.S. dollar). Such rates are
provided solely for the convenience of the reader and are not necessarily the
rates used by the Company in the preparation of its consolidated financial
statements included elsewhere in this Annual Report.

YEAR PERIOD-END RATE AVERAGE RATE(1) HIGH LOW
- ---- --------------- --------------- ---- ---

1999 (through May 31, 1999). 0.9595 0.9241 0.9595 0.8466

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(1) The average of the Noon Buying Rates on the last business day of each month
during the relevant period

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F contains certain forward-looking
statements that involve risks and uncertainties relating to the future financial
and technological performance of the Company. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. In evaluating such statements,
readers should specifically consider factors which could affect expected
results, including, but not limited to, those highlighted in the relevant
sections hereof and principally: (i) the inability to maintain or initiate
third-party arrangements which generate revenues, in the form of license fees,
research and development support, royalties and other payments, in return for
rights in technology or products under development by the Company; and (ii)
delays or difficulties in developing or acquiring genomics technologies and
technical and managerial personnel to fulfill gene discovery programs at
reasonable costs. Readers are cautioned not to place undue reliance on such
statements, which speak only as of the date hereof. The Company undertakes no
obligation to release publicly any revisions to forward-looking statements to
reflect any changes in events, conditions or circumstances on which such
statements are based.

PART I

ITEM 1: DESCRIPTION OF BUSINESS

GENERAL

Genset is a global genomics company whose mission is to provide
pharmaceutical companies with patented genomics information relevant for the
discovery, development and marketing of drugs. In order to optimize its search
for genes of medical relevance and therapeutic value, the Company has developed
an original gene discovery approach using association studies and linkage
disequilibrium mapping combined with expertise in genetic epidemiology and
biostatistics and access to tailored clinical collections with
well-characterized phenotypes. The Company has a unique high-throughput
industrial-scale genomics technology platform that integrates a variety of
proprietary technologies and allows it to perform comprehensive high-speed
analysis of the human genome. The Company has built its gene discovery
capability around its original approach, its technology platform, its team
of research experts and its state-of-the-art facilities.

The Company considers that its approach to the study of the human
genome is comprehensive and sets it apart from other genomics companies,
providing it with an unparalleled ability to find medically relevant genes.
The Company's approach results in a significant competitive advantage to its
partners that is characterized by:

- the statistical association of discovered genes and
polymorphisms with important common diseases or drug response
traits validates the potential usefulness of these genes and
polymorphisms in the drug discovery and development process;

- the genetic diversity of sample populations used in association
studies ensures the relevance of gene discoveries for the
general population;

- a systematic gene discovery approach that allows the Company to
provide a comprehensive inventory of potential genes involved
in a disease pathway;

- the ability to find genes rapidly and cost effectively at
industrial-scale;

- patent filings with early priority dates providing access to
major genes and allowing rapid exploitation of these
discoveries; and

- broad patent claims for applications in drug discovery and
development.

An example of the medical relevance of the Company's gene discovery
approach is its gene discovery program with Synthelabo (now
Sanofi-Synthelabo), pursuant to which the Company has delivered three
prostate cancer associated genes to its partner in less than three years.
Approximately one-third of prostate cancer cases can be attributed to the
three genes the Company has discovered thus far, making this program one of
the most advanced genetic analyses conducted to date of any major disease.
With achievement of this milestone in less than three years, the Company has
demonstrated its ability to find genes rapidly and systematically and
validated its gene discovery approach. In addition, Synthelabo decided to
begin high-throughput screening with one of these genes, validating the
relevance of such genes to the drug discovery process.

The Company's strategy is to build complementary areas of commercial
applications in genomics that take advantage of the synergies in the Company's
proprietary technology platform. This strategy permits the Company to capitalize
on its broad platform of genomics technologies by diversifying its business
opportunities and generating multiple revenue streams leading to sustained
revenue growth. This strategy has led the Company to focus its research and
development activities in three principle areas: disease gene discovery,
pharmacogenomics, which is the application of genomics technologies to the
analysis and identification of genes involved in drug response, and gene
libraries. Such activities are based primarily on strategic partnership
agreements with pharmaceutical companies, pursuant to which the Company conducts
research in exchange for research fees and research milestone payments, clinical
milestone payments, and eventually royalties on sales of pharmaceutical products
that have been developed, or whose use has been modified, based on research
information developed by the Company. To date, the Company has entered into a
number of such strategic agreements:

- In the field of disease gene discovery, with (i) the French
pharmaceutical company Synthelabo (now Sanofi-Synthelabo), to
discover genes associated with prostate cancer; and (ii) Janssen
Pharmaceutica, N.V., a subsidiary of the U.S. pharmaceutical
company Johnson & Johnson, to discover genes related to
schizophrenia;

- In the field of pharmacogenomics, with (i) Abbott Laboratories
to discover markers and genes associated with drug response and
side effects of existing drugs, including an initial program on
an Abbott drug for the treatment of asthma, Zyflo(R)
(zileuton), and to jointly develop and market diagnostic
products based on these discoveries; and (ii) Pharmacia &
Upjohn to discover markers and genes involved in response to a
Pharmacia & Upjohn therapeutic compound;

- In the field of gene libraries, with Genetics Institute ("GI"),
a subsidiary of American Home Products, for the inclusion of
the Company's SignalTag(TM) sequence database and full-length
gene clones for secreted proteins in GI's DiscoverEase(R)
program, whose subscribers include Bayer, Chiron, Chugai,
Genentech, Immunex, Kirin, Ontogeny, Rhone-Poulenc Rorer,
Sankyo and Scios.

multiple genes (multigenic diseases), such as central nervous system ("CNS")
disorders, cardiovascular diseases, cancers, metabolic diseases and aging
diseases. The programs selected by the Company offer potentially significant
commercial opportunities and are particularly suited to the technology of the
Company as compared to its competitors. The Company licenses the results of its
internally-funded programs, once they are sufficiently advanced, to
pharmaceutical companies for the development of related drugs and other
pharmaceutical products. To date, the Company has signed one licensing agreement
with Wyeth-Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, a
division of American Home Products, for the development of vaccine applications
of CHLAMYDIA PNEUMONIAE and CHLAMYDIA TRACHOMATIS L2 strain genomic sequence
data generated by the Company. In addition, the Company is currently in
discussions with third parties for the licensing of obesity-related genes
discovered and developed by the Company.

The Company's objective for these internal programs is to rapidly drive
toward the discovery of major genes involved in important common diseases and
drug response in order to build a major market share of important, medically
relevant genes over the next few years. Such gene discoveries, their
characterization and related research information form the basis of the
Company's intellectual property portfolio of state-of-the-art patent
applications incorporating broad claims for use of these genomic discoveries in
drug discovery and development. The Company expects to license these portfolios
to pharmaceutical companies to generate licensing fees and royalties on future
pharmaceutical products. See " -- The Company's Technological Strategy", " --
The Company's Commercial Strategy", " -- The Company's Gene Discovery Programs"
" -- The Company's Pharmacogenomics Programs" and " -- The Company's Gene
Libraries Programs."

In addition to revenues generated from its strategic alliances in the
field of disease gene discovery, pharmacogenomics and gene libraries, the
Company received revenues from agreements signed with the U.S. agricultural
biotechnology company Ceres for applications of the Company's genomics
technology platform in agricultural genetics. Pursuant to these agreements,
signed in December 1997, Genset also received an equity stake in Ceres.

The Company's technology platform is based on a variety of integrated
proprietary technologies, including: high-resolution mapping; high-throughput
sequencing; high-throughput genotyping; functional polymorphism scanning
("FPS"); high-throughput oligonucleotide synthesis; 5 prime sequence and
regulatory region identification; BioIntelligence analysis software;
biostatistics algorithms and software; and NetGene(TM) and SignalTag(TM) gene
databases. The Company believes this integrated array of technologies
accelerates the identification of disease-related and drug response genes.

A unique asset of the Company is its Oligonucleotides Division ("Genset
Oligos") that produces large quantities of high-quality synthetic DNA required
for the Company's genomics activities. The Company believes Genset Oligos is the
largest manufacturer in the world of synthetic DNA. At present, the Company uses
up to one-half of its synthetic DNA production output for its internal research
programs and the remaining is sold worldwide to third parties. The Company has
adapted many of the industrial production and quality control techniques
developed in its synthetic DNA business to its mapping, sequencing and
genotyping operations and has applied these techniques to its disease gene
discovery, pharmacogenomics and gene libraries programs. See " -- Manufacturing
and Marketing -- Production of Synthetic DNA."

In the field of disease gene discovery, the Company has developed an
original approach based on association studies and linkage disequilibrium
mapping combined with expertise in genetic epidemiology and biostatistics. Key
elements of this approach include access to tailored clinical collections with
well-characterized phenotypes and the development of specialized gene hunting
tools. In particular, the Company's proprietary, high-density SNP ("single
nucleotide polymorphism") marker map enables it to conduct studies throughout
the genome in unrelated individuals and thereby overcome the limitations of
conventional familial studies. In this way, the map optimizes the Company's gene
discovery efforts by allowing it to rapidly, comprehensively, and
cost-effectively home in on the multiple genes associated with many common
diseases. See " -- The Company's Technology -- Mapping."

In pharmacogenomics, the use by the Company of its industrial-scale
mapping, sequencing, genotyping and biostatistics technologies enables the
Company to isolate the genes involved in drug response pathways using routine
clinical samples of unrelated patients with specific clinical traits. The
Company believes that this approach permits it to be in a leading position in
the development of genomics information crucial for the analysis and prognosis
of drug response and side effects. See " -- The Company's Pharmacogenomics
Programs."

The Company's activities in the field of gene discovery necessitate the
collection of DNA samples from a large number of sources. As a result, the
company has developed a worldwide network of academic and clinical
collaborations to assist in the collection of such DNA samples for targeted
disease gene discovery programs. These collaborations provide access to
well-characterized phenotypic samples from patients affected with common
diseases and unaffected controls. The Company's collaborations include, among
others, specific programs with Algene, a Canadian biotechnology company,
relating to Alzheimer's disease; with the Johns Hopkins University Medical
School relating to schizophrenia; with the Royal College of Surgeons in Ireland
("RCSI") relating to cardiovascular diseases; and with the Technion Research and
Development Foundation in Israel relating to osteoporosis and prostate cancer.
See " -- The Company's Gene Discovery Programs."

OVERVIEW OF SCIENCE

THE GENOME

The genome is the total DNA content of an organism. DNA is composed of
four constituent compounds, known as bases or nucleotides: adenine (A), thymine
(T), guanine (G) and cytosine (C). The sequence or order of these bases is the
code that determines the structure and function of all organisms. The human
genome is arranged into 46 separate pieces known as chromosomes that are present
in identical form in the nucleus of each cell of an organism. Chromosomal DNA is
in the form of a double helix. The base adenine in one strand is always found
opposite the base thymine in the other strand, and the base guanine is always
opposite the base cytosine. A and T are therefore said to be complementary, as
are G and C. The human genome consists of approximately three billion bases.

Certain DNA sequences on these chromosomes are coding regions, called
genes. A single gene will exist in different forms, known as alleles. The
beginning sequence of the gene is called 5 prime (5') and the end is called 3
prime (3'). The human genome is estimated to contain at least 100,000 genes that
make up roughly 5% of humankind's total DNA. The other 95% of DNA is designated
as non-coding. Each cell of any given organ or tissue uses only a subset of its
genes. Some of the non-coding DNA sequences, generally located immediately
before the 5 prime sequences, turn on or off the genes in the different tissues.
These are referred to as regulatory regions. The function of the rest of the
genome is still unknown.

HOW GENES ARE EXPRESSED

The function of genes is to direct the production of proteins. Proteins
are large molecules that control all biological processes. They are composed of
constituent compounds known as amino acids. The order of the bases in DNA
determines the order of amino acids in a protein. In order for a gene to direct
the production of a protein, an enzyme known as RNA polymerase reads a strand of
a gene and makes a strand of RNA (a molecule similar to DNA) that consists of a
string of bases complementary to that of the DNA of the gene. This process is
known as transcription and results in the production of messenger RNA (mRNA).
Messenger RNA directs the assembly of amino acids in a sequence that corresponds
to the order of the bases of the mRNA. When amino acids are linked together, a
protein results and the gene is said to be expressed. In other words, the
expression of a gene is the production of the specific protein that corresponds
to the DNA code of that gene. The structure and function of the protein are
determined by the order of its constituent amino acids and thus indirectly by
the order of the bases of the gene from which it is derived.

THE ROLE OF GENES IN DISEASE

Each human genome has approximately three billion bases arranged in a
unique order. Bases that vary within DNA sequences from one individual to
another are known as polymorphisms. Polymorphisms result from changes in
specific DNA bases known as mutations. Functionally identical genes generally
have slightly different DNA sequences from one individual to another. Many of
these DNA sequence variations are largely medically irrelevant. However, some
sequence variations either cause a disease, or create an increased
susceptibility to a disease, or are involved in drug response and drug side
effects. Since protein structure is ultimately determined by the sequence of
bases in a gene, mutations can (but do not always) affect the functioning of a
gene and thereby either enhance or diminish the effectiveness of a protein. If a
mutation or mutations result in the improper functioning of a protein, a
disease, or an increased susceptibility to a disease, can result.

The different forms that exist of any given gene are known as alleles.
Disease causing alleles can be of high penetrance or low penetrance. A highly
penetrant allele will lead to a hereditary genetic disease, which will have an
early onset independent of environmental conditions. Highly penetrant disease
alleles will most often appear in related individuals, but remain rare in the
population. Low penetrance disease alleles, however, are more frequent in the
population, and lead to common diseases with a later onset that are dependent on
a combination of precipitating conditions.

A low penetrance allele will cause an individual to be predisposed to a
common disease but not necessarily manifest it. In fact, the actual number of
individuals who show symptoms of the disease will be a small sub-population of
the total number of individuals carrying the disease allele. This is because the
polymorphism cannot independently cause the condition without the influence of
environmental and other factors which, in combination, will lead to
precipitation of the disease. Age is a common precipitating factor. Many common
diseases occur more often in the elderly, for example, Alzheimer's disease.
Environmental influences may also lead to the precipitation of the disease. For
example, ultraviolet light may lead to the onset of cancer or stress may lead to
the onset of CNS disorders. The presence of another interacting disease allele
may also lead to the development of disease.

Since diseases caused by low penetrance alleles are manifested by only
a small percentage of persons carrying the allele, such a disease will rarely
occur with an identifiable hereditary pattern in which several members of the
same family are affected by the disease. Patients manifesting such a disease
therefore appear as sporadic cases. Samples will typically only be available
from unrelated individuals. This is why it is almost impossible to discover low
penetrance disease causing genes using familial analysis, which is more suitable
for high penetrance gene discovery. This is critical as about 90% of patients
affected with a given common disease, such as Alzheimer's disease, depression,
schizophrenia or hypertension, carry high frequency, low penetrance alleles. The
Company believes that the most efficient way to discover low penetrance disease
alleles in unrelated individuals is by applying association studies to DNA
samples from unrelated affected cases and unaffected controls.

OVERVIEW OF GENOMICS TECHNOLOGY

GENOMICS AND DRUG DISCOVERY

Genomics is the systematic analysis of the structure and function of
the genome. Genomics enables scientists to establish the order or sequence of
DNA bases and to identify disease-related genes. It is believed that once these
genes are identified, scientists will be able to determine the molecular
mechanisms that cause the disease and that these steps will furnish new targets
for drug screening. Drugs developed in this way are potentially more efficacious
than current drugs since they treat the cause of a disease rather than the
symptoms and, because they are developed based on

the molecular mechanisms specifically related to a disease, may have fewer side
effects. To date, no drug has been developed based on genomics research.

PHARMACOGENOMICS

Pharmacogenomics is the application of genomics technologies to the
analysis and identification of genes involved in drug response pathways, such as
drug metabolism and side effects. It encompasses the discipline of
pharmacogenetics, which is the study of genes specifically related to drug
metabolism. Pharmacogenomics emerged as a new discipline during 1997 with the
advent of high-resolution mapping tools that first made it possible to apply
genomics analysis to clinical trial data.

Drug efficacy and toxicity may be considered as multifactorial traits
that involve pathways of interacting proteins in much the same way as complex
diseases. Just as genetic variations may lead to disease they may also determine
why individuals have a different response to a particular drug. There may be
several reasons why individuals respond differently to a drug or are
non-responders. It is known that several independent alleles can cause the same
disease in different individuals. In general, a given drug targets only one
allele and hence it will only be efficient in the patients carrying the target
allele. Therefore, patients who either do not carry the targeted allele, or have
a polymorphism in this allele, will not respond to the drug. Individual
variations in genes that code for proteins in a metabolic pathway can affect the
metabolism of a drug and thus its efficacy and potential toxicity. A side effect
can be regarded as a disease pathway in itself, which has been triggered by an
artificial factor, the drug. Interaction of the drug with proteins that resemble
the target may induce alternative pathways, which could potentially cause side
effects.

PHYSICAL MAPPING

To analyze the human genome, scientists need to fragment DNA into small
stretches of a few hundred, typically 500, bases in length, the maximum size
that automated DNA sequencers can process. Physical mappers take the
approximately three billion bases of the human genome and cut them randomly into
thousands of overlapping fragments of 100,000 to one million bases. These large
DNA fragments are stored and replicated in either yeast or bacterial cells
through the construction of Yeast and Bacterial Artificial Chromosomes (YACs and
BACs). The yeast and bacterial cells replicate these artificial fragments of
human DNA along with their own DNA when they undergo cell division. YACs contain
fragments of up to one million bases of human DNA while BACs contain fragments
of approximately 100,000 bases of human DNA. BACs are, in turn, further
fragmented into stretches of a few hundred bases long that can be sequenced. YAC
and BAC libraries are key tools for physical mapping and the efficient
sequencing of DNA fragments because the overlapping fragments of human DNA
contained in YACs and BACs cover the entire region to be sequenced and can be
ordered and further fragmented into stretches of DNA small enough to be
sequenced.

GENETIC MAPPING

Genetic mapping is a technique enabling scientists to identify a region
or regions of the genome that are likely to contain a gene associated with a
particular disease or clinical trait. This technique requires a collection of
DNA samples from individuals affected by the disease or having a defined
clinical trait and utilizes a tool called a genetic map. A genetic map is an
ordered set of known stretches of DNA sequences or markers at polymorphic sites
spaced along the genome. Scientists test the DNA of both the affected and
non-affected individuals and through statistical analysis are able to identify
the region or regions of the genome which are likely to contain a gene related
to the disease or clinical trait.

ASSOCIATION STUDIES

An association study compares DNA samples from individuals with a given
trait with those of unaffected individuals to determine which alleles are
associated with the particular trait. An allele is said to be associated with a
disease when carriers of this allele are more frequent among patients than among
unaffected people. When candidate genes that are derived from biological studies
are available, they can be tested using association studies. Furthermore,
genome-wide association studies allowing the study of human genes throughout the
genome, even in the absence of A PRIORI knowledge about the disease pathway,
would be an ideal means to pinpoint the polymorphisms associated with a given
disease or drug response trait in unrelated individuals.

THE COMPANY'S TECHNOLOGICAL STRATEGY

The Company's technological strategy is to maximize the discovery of
genes through the application of large-scale, industrial techniques to the
systematic and comprehensive analysis of the human genome. The Company's
strategy specifically utilizes comprehensive association studies to
investigate multiple gene pathways and not just single candidate genes. This
original approach is made possible by the accuracy and high resolution of the
Company's biallelic (SNP) marker map. The map enables the Company to pinpoint
the polymorphisms associated with a clinical trait (disease or drug response)
through the comparison of unrelated individuals with and without the clinical
trait. Ultimately, a disease or drug response will often be determined by a
complicated pathway of interacting proteins. Using its association study
approach, the Company can analyze in parallel various regions throughout the
genome and obtain a comprehensive view of the multiple disease genes involved
in various interacting pathways rather than focusing on just one candidate
gene which is unlikely to give a complete picture. The Company expects its
strategy to enable it to more quickly identify and patent genes and
regulatory regions related to selected common diseases and drug response and
to provide more complete information about the genetic causes of diseases.
Each of the Company's technologies contributes to this strategy.

Speed and efficiency are key to the Company's technological strategy.
The Company's high-resolution mapping capabilities combined with its
large-scale, high-throughput genotyping and sequencing facilities are designed
to increase the speed with which it can sequence regions of the human genome.
Once the Company has sequenced these regions, its 5 Prime Technology and
NetGene(TM) and SignalTag(TM) databases and BioIntelligence analysis software
should enable it to identify genes and regulatory regions. The Company expects
that its FPS technology along with advanced biostatistical methodologies and
computational tools will enable it to identify in parallel multiple genes and
markers that are related to disease and to drug response. By decreasing its
reliance on family DNA samples, FPS technology should also enable the Company to
decrease the time and cost involved in obtaining patient DNA samples.

In addition to its focus on speed and efficiency, the Company has
undertaken a comprehensive approach to the analysis of the human genome because
it believes that possessing more complete information about the genetic causes
of diseases will increase the chance that effective drugs will be developed. The
Company expects its various technologies to provide it with information about
the multiple genes related to a disease.

THE COMPANY'S TECHNOLOGY

THE GENE DISCOVERY PROCESS

To optimize its search for medically relevant genes, the Company has
assembled a unique high-throughput, industrial-scale genomics technology
platform based on a variety of proprietary technologies described below. The
gene discovery process relies on the integration of these technologies with the
know-how and expertise of the Company's genomics research team.

MAPPING

The Company uses genetic and physical maps to locate which regions of
the genome may contain medically relevant genes. The Company uses genetic
mapping to identify a region or regions of the genome that is likely to contain
a gene associated with a particular disease or drug response, and physical
mapping to establish a set of ordered, overlapping DNA fragments in those
regions of the genome that may be of commercial interest. Genetic mapping
involves a statistical comparison of DNA samples from individuals affected by a
disease and non-affected individuals. The Company believes it has access to
suitable DNA collections to perform this statistical analysis for its current
programs. The Company uses physical mapping to generate genetic maps and to
sequence specific regions of DNA. Instrumental to the Company's mapping effort
is its proprietary BAC library containing 300,000 fragments of human genomic DNA
from which the Company has generated an ordered sub-library of 20,000 BACs that
constitutes a physical map covering the entire human genome. The Company uses a
fully automated fluorescence IN SITU hybridization ("FISH") hardware and
software system to confirm the chromosomal locations of all BACs of interest. To
the Company's knowledge, this is the first system in the world for FISH-based
automated quality control of high-resolution maps. It is the Company's intention
to develop additional industrial-scale FISH-based technologies to further
support its high-resolution mapping effort.

In February 1996, Dr. Daniel Cohen, a co-founder and former Scientific
Director of both the CENTRE D'ETUDE DU POLYMORPHISME HUMAIN ("CEPH" or Center
for the Study of Human Polymorphism, France) and Genethon, joined the Company
and was followed in the spring of 1996 by the 25 member CEPH mapping team. Under
the terms of the Company's April 1996 agreement with CEPH, the Company received
copies of CEPH's libraries of YACs, BACs and certain oligonucleotides for
mapping, and all related research databases, including the database of YAC and
BAC screening results, as well as the mapping know-how of the members of the
mapping team. In 1993, CEPH and Genethon collaborated to produce the first
physical map and the most comprehensive genetic map of the entire human genome.
Both maps have been widely used by the genomics community and have served as the
basis for subsequent maps. In 1995, Genethon published a genetic map with over
5,000 markers. The Company believes that its team is one of the foremost mapping
groups in the world and that the expertise of its members enhance the Company's
ability to rapidly identify disease-related genes. The Company's extensive
mapping know-how enables it to produce its own high-resolution maps for specific
regions of interest of the genome.

The Company's industrial-scale mapping facility is housed in its
Genomics Research Center in Evry, France. This facility uses the Company's
proprietary high-resolution maps based on BACs with a five-fold increase in
scale relative to the previous CEPH operation. This unique facility is designed
to identify rapidly and precisely those genes associated with particular
diseases and drug response traits. See " -Sequencing", " -- Manufacturing and
Marketing"," -- Functional Polymorphisms Scanning ("FPS")", and " -- NetGene(TM)
and SignalTag(TM) Databases."

BIALLELIC (SNP) MARKER MAP

The Company is developing a completely new genetic map known as the
high-resolution biallelic marker map, which it believes will be a revolutionary
tool for gene discovery and pharmacogenomics. This high-resolution map is a
collection of single nucleotide polymorphisms ("SNPs"), known as biallelic
markers, that are evenly distributed throughout the human genome. The Company
believes that the detail and accuracy of this map gives it a major competitive
advantage by enabling rapid genome-wide searches for disease and drug response
genes. This task is made feasible through the association of the biallelic
markers with genes of clinical relevance and the consequent identification of
potential therapeutic sites of intervention in relevant molecular pathways.

Once a marker associated with a disease or drug response trait has been
identified, this ordered library can be used to locate the position of the
associated gene in the human genome. Biallelic markers, which are inherently
binary, can be readily incorporated in automated assays.

The Company's approach uses the phenomenon of linkage disequilibrium to
find genes in close vicinity to its biallelic markers. Linkage disequilibrium is
the tendency for alleles at nearby genomic sites to be found together in the
same individual. This is because the closer the alleles the less chance they
have of being separated during evolution.

The phenomenon of disequilibrium enables the Company to narrow down the
search for disease and drug response genes. Due to linkage disequilibrium, when
a marker at a given site is found at high frequency, one can expect that the
gene found in the vicinity of this marker occurs at high frequency as well. Once
a marker associated with a given disease or drug response has been identified,
the identification of the gene is greatly simplified as its position has already
been determined by mapping in the ordered BAC library. Therefore, the Company
will be able to easily locate the target gene from the known position of the BAC
fragment (to the nearest 50,000 to 100,000 bases). This is much more specific
than the familial approach, which can only estimate the location of a gene to
the nearest 5 million to 50 million bases. The Company can then effectively
sequence a relatively short piece of DNA to obtain the sequence of the target
gene and discover any functional polymorphisms in the gene sequence thought to
be associated with disease or drug response.

SEQUENCING

Sequencing technology is used by the Company to determine the order of
the bases or nucleotides that compose DNA. The Company believes that it has
established one of the largest high-throughput sequencing operations in the
world. This approximately 20,000 square foot facility is an integral part of the
Company's Genomics Research Center.

The Company's sequencing facility is organized as an industrial
production unit to maximize both efficiency and accuracy and is characterized by
automation of tasks, control and command workstations, quality control with
bar-code systems and high "just-in-time" throughput. Several proprietary
technologies are used for the preparation and separation of templates at various
steps of the sequencing process. The equipment consists of a range of automated
sequencers, sequencing reaction robots, preparation robots and thermocyclers.
The sequencing facility includes sophisticated robotics and the Company's
proprietary advanced process control and sequence verification software. The
Company's sequencing facility utilizes the most advanced sequencing technology
commercially available and serves as a pre-marketing test site for more advanced
equipment not yet on the market. During 1998, the Company increased its
sequencing capacity through the incorporation of advanced capillary
electrophoresis sequencing machines in its high-throughput production
laboratory. Current capacity is approximately ten million bases per day with
greater than 99.5% accuracy, an increase of more than two-fold compared to 1997.

Since genes are scattered throughout the genome, but make up only about
5% of the genome, special techniques must be used to find them. Once the Company
has sequenced a region, it uses several complementary techniques, including its
5 prime sequence identification technology ("The 5 Prime Technology") and its
NetGene(TM) and SignalTag(TM) databases and BioIntelligence analysis software,
to detect genes and regulatory regions.

FUNCTIONAL POLYMORPHISM SCANNING ("FPS")

FPS is the Company's automated and systematic technology to identify
genes and markers related to diseases and drug response by detecting and
analyzing the frequency of DNA sequence variations or polymorphisms in affected
populations. Functionally identical genes generally have slightly different DNA
sequences from one individual to another. Many of these DNA sequence variations
are largely medically irrelevant. However, some sequence variations either cause
a disease, or create an increased susceptibility to a disease, or are involved
in drug response and drug side effects. It is these polymorphisms that have
commercial potential and that the Company's FPS technology is designed to
identify.

The Company uses its FPS technology to compare the DNA sequences of a
number of individuals with a given disease or drug response trait with those
individuals who do not have the trait. The polymorphisms that appear more
frequently in individuals who have a given trait are generally those that are
specifically associated with the trait. FPS can be performed efficiently using
DNA samples from unrelated individuals and from routine clinical trials, thus
reducing the time and cost involved in obtaining patient DNA samples. Since FPS
can be used on clinical trial samples, it can be used to support
pharmacogenomics analysis for drug response and side effects as well as for
disease gene discovery programs. Also, FPS can be carried out with the Company's
proprietary biallelic markers and can be used to identify multiple genes
implicated in a disease or drug response. FPS allows genome-wide scanning so
that several genomic regions can be analyzed in parallel and several genes can
be sought at the same time.

FPS relies on extensive know-how and trade secrets. In addition, FPS
requires a large amount of high quality synthetic DNA for which the Company is
one of the world's leading suppliers. See " -- Manufacturing and Marketing --
Production of Synthetic DNA."

HIGH-THROUGHPUT GENOTYPING

Genotyping is the determination of the polymorphism composition of an
individual's genome with respect to a specific set of markers. The Company has a
proprietary genotyping technology implemented in a fully automated
high-throughput facility.

High-throughput genotyping is the key technology to associate markers
with potential traits. High-throughput genotyping is required to analyze the
large numbers of clinical trial samples that make up a pharmacogenomics study or
to analyze large numbers of patient samples for numerous gene discovery programs
being conducted in parallel. The Company has developed a number of proprietary
systems to more rapidly and cost-effectively conduct genotype analyses at
high-throughput. The Company has a high-throughput genotyping laboratory
currently in operation with a capacity of tens of thousands of genotypes per day
and is developing a proprietary system based upon micro arrays to increase the
capacity and efficiency of these operations during 1999.

BIOSTATISTICS AND BIOINFORMATICS

In January 1999, the Company expanded its team to include a group
dedicated to the development and implementation of advanced biostatistical
methodologies and computational tools to analyze genotyping data. This group is
led by Dr. Nicholas Schork who has been instrumental in the development of ideas
to address several statistical issues of relevance to high-resolution mapping
efforts and population-based genetic studies. The Company believes that rapid
incorporation of these methodologies and tools is necessary to sustain its
competitive position and to analyze the large amounts of data generated in the
course of its comprehensive genomic association studies.

Bioinformatics is the application of computer technology to the
analysis of complex genomic data. The Company has enhanced its bioinformatics
capabilities with artificial intelligence tools. The resulting proprietary
BioIntelligence software analyzes the DNA sequence data in the NetGene(TM) and
SignalTag(TM) databases and develops rules for recognizing patterns
characteristic of secreted proteins, genes and regulatory regions. See " --
NetGene(TM) and SignalTag(TM) Databases." DNA sequences identified as secreted
proteins, genes or regulatory regions can then be fed into the Company's FPS
program to identify those related to disease. The secreted protein sequences in
the SignalTag(TM) database provide additional depth to the Company's portfolio
of genomics research products and represent an important advance for the
Company's BioIntelligence program. The Company also uses its BioIntelligence
analysis software to edit sequence data from public sources to remove the
redundancies and inaccuracies that can limit the utility of these databases, and
to conform the format of data from these numerous databases to that of its
NetGene(TM) and SignalTag(TM) databases. The capabilities of the BioIntelligence
program increase as more data becomes available from the Company's mapping and
sequencing activities and from public sources.

Computational needs in genomics analysis grow rapidly with the generation
of new data. In September 1998, the Company expanded its computational capacity
with the acquisition of a massively parallel super computer to support the
computational needs generated by the exponential growth of its sequencing,
mapping and genotyping data. In particular, this computational capacity is
expected to contribute significantly to the implementation of advanced
biostatistical methodologies and computational tools being developed to support
the Company's genomics programs.

PHYSIOLOGICAL GENOMICS

During the first quarter of 1999, the Company expanded its genomic
research activities at Genset Corporation in La Jolla, California to include a
dedicated team in physiological genomics. This group is led by Dr. Bernard
Bihain, a recognized expert in the field of the pathogenesis of metabolic
diseases pertaining to lipid transport and its complications such as obesity,
diabetes and atherosclerosis. The primary objective of this department is to
support gene discovery activities in obesity and metabolic disorders,
particularly for the study of the function of genes using animal and
physiological models.

IDENTIFICATION OF 5 PRIME SEQUENCES

The Company has developed a technique, for which it has filed two
patent applications, which enables it to rapidly isolate the 5 prime sequences
of genes. See " -- Patents and Proprietary Rights -- The Company's Patent
Portfolio and Strategy." 5 prime sequences are stretches of DNA that are located
at the beginnings of genes. Once these 5 prime sequences are isolated, the
Company sequences them at its high-throughput sequencing facility and inputs the
resulting data into its NetGene(TM) database. The Company has identified over
56,000 different 5 prime sequences. By scanning its database of sequenced
regions for these 5 prime sequences, the Company can locate both genes as well
as regulatory regions, which typically are located immediately prior to the 5
prime sequences of genes. In addition, using only its BioIntelligence analysis
software, the Company was able to compile SignalTag(TM), a specialized subset of
NetGene(TM), containing sequences which correspond to genes coding for secreted
proteins. See "-- NetGene(TM) and SignalTag(TM) Databases."

IDENTIFICATION OF REGULATORY REGIONS

Gene regulatory regions represent important therapeutic targets and may
also have potential utility in gene therapy. Regulatory regions are sequences of
DNA that serve as on/off switches for the genes under their control. Regulatory
regions are usually located immediately before the beginning of genes. From 1994
to 1997, the Company conducted a program dedicated to identifying, sequencing
and analyzing the regulatory regions of the human genome with Genethon. Pursuant
on the agreement with Genethon, the regulatory region data that resulted
specifically from this collaboration is the joint property of the Company and
Genethon. Each of the parties is granted the right to apply for patents and any
commercial rights on any applications it independently develops from this data.

NETGENE(TM) AND SIGNALTAG(TM) DATABASES

The Company has established a proprietary database of genomic
information known as NetGene(TM). This database contains extensive data on
genomic sequences, genes, 5 prime sequences, regulatory regions and tissue
expression patterns. NetGene(TM) contains over 56,000 different 5 prime cDNA
sequences, each corresponding to a different human gene. NetGene(TM) integrates
information discovered by the Company with data available from public sources.
The NetGene(TM) database is not available commercially.

The NetGene(TM) database was enhanced in early 1997 by SignalTag(TM), a
specialized database of secreted protein sequences. SignalTag(TM) is a subset of
NetGene(TM) that was electronically compiled by Genset using its proprietary
BioIntelligence analysis software. The SignalTag(TM) database contains over
3,000 cDNA sequences, of which the majority are new sequences (not characterized
in public databases) which correspond to unknown genes coding for new secreted
proteins. The Company's secreted protein sequences are located at the 5 prime
end of the

coding region. Each sequence, known as the signal sequence, codes for a specific
amino-acid region located at the N-terminal side of the protein, which is used
by the cell to direct the protein toward a secretory pathway. Application of
Genset's 5 Prime Technology is instrumental in the rapid and systematic
identification of these signal sequences. Therapeutic applications of
SignalTag(TM) are included in the Company's portfolio of exclusive licensing
opportunities offered to pharmaceutical collaborators. See " -- The Company's
Gene Libraries Programs -- Genetics Institute License and Distribution
Agreement."

THE COMPANY'S COMMERCIAL STRATEGY

The Company's commercial strategy is to focus its research activities
in three principle areas: disease gene discovery, pharmacogenomics, which is the
application of genomics technologies to the analysis and identification of genes
involved in drug response, and gene libraries. Such activities are based
primarily on partnership agreements with pharmaceutical companies in each such
business area, and pursuant to which the Company conducts research in exchange
for research fees and research milestone payments, clinical milestone payments,
and eventually royalties on sales of drugs which have been developed, or whose
use has been modified, based on research information developed by the Company.
Research licensing fees and research milestone payments from strategic
partnerships provide the Company with a source of revenue in the near term,
while clinical milestone payments and royalty payments on therapeutic sales
represent a stream of potential medium and long-term revenue. The Company
believes that this strategy will permit it to capitalize on its broad platform
of genomics technologies by diversifying its business opportunities and
generating multiple revenue streams. To date, the Company has entered into a
number of such agreements:

- Outside of its core research areas, the Company is party to
various agreements with the U.S. agricultural biotechnology
company Ceres for applications of the Company's genomics
technology platform in this field.

In addition to its targeted research and development activities on
behalf of pharmaceutical companies, the Company pursues internally-funded
disease gene discovery programs in respect of common diseases involving multiple
genes (multigenic diseases), such as central nervous system ("CNS") disorders,
cardiovascular diseases, cancers, metabolic diseases and aging diseases. The
programs selected by the Company offer potentially significant commercial
opportunities and are particularly suited to the technologies of the Company as
compared to its competitors. The Company licenses the results of its
internally-funded programs, once they are sufficiently advanced, to
pharmaceutical companies for the development of related drugs and other
pharmaceutical products. To date, the Company has signed one licensing agreement
with Wyeth-Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, a
division of American Home Products, for the development of vaccine applications
of CHLAMYDIA

PNEUMONIAE and CHLAMYDIA TRACHOMATIS L2 strain genomic sequence data generated
by the Company. In addition, the Company is currently in discussions with third
parties for the licensing of obesity-related genes developed by the Company.

The Company's focus on regulatory regions may provide another
opportunity, which could be useful for gene therapy as well as for the
development of small molecule drugs to modulate gene expression.

THE COMPANY'S GENE DISCOVERY PROGRAMS

The Company has focused its gene discovery efforts on common diseases
representing major markets for the pharmaceutical industry. The Company's unique
approach to association studies has allowed it to optimize its gene discovery
programs by enabling it to use DNA samples from unrelated individuals, including
samples collected by pharmaceutical companies or clinical research organizations
during clinical trials, and thus eliminating the time consuming collection of
familial samples. By comparing unrelated populations of individuals, the Company
is able to provide genomics information with increased statistical value. The
Company's comprehensive approach enables it to provide pharmaceutical companies
with multiple targets for drug discovery.

The Company chose its initial disease targets based on the potential
size of the therapeutic market, its access to DNA samples from related and
unrelated individuals affected with the disease, and the interest expressed by
potential strategic partners. The Company has initiated disease gene discovery
programs along two parallel tracks: (a) collaborative research programs with
strategic partners for the discovery and patenting of genes; and (b) internally
funded programs with the objective of out-licensing patented genes to strategic
partners.

The Company's programs are designed to identify the genes coding for
the proteins involved in disease pathways and drug targets. Payments by partners
for these programs include research fees and milestone payments, clinical
milestone payments and royalties on sales of therapeutics developed from
genomics information. In the case of genes discovered and patented as part of
its internal programs, the Company receives up-front licensing fees instead of
research fees and milestones. Generally, partners have an exclusive license to
use the gene discoveries for clinical development and marketing of a defined
category of products, such as small molecule therapeutics, vaccines or
diagnostics.

PROSTATE CANCER

On May 9, 1996, the Company entered into a research and development
collaboration agreement with the French pharmaceuticals company Synthelabo (the
"Synthelabo Agreement") to discover and sequence genes involved in or associated
with prostate cancer. Pursuant to the Synthelabo Agreement, Synthelabo agreed to
provide research funding and research, patent and development milestone payments
of up to an aggregate of euros 54 million (FF 355 million). In addition, the
Company will receive royalty payments on any future drug sales, which may result
from the use of certain of the Company's research conducted pursuant to the
terms of the Synthelabo Agreement. Also pursuant to the Synthelabo Agreement,
Synthelabo made an equity investment of approximately euros 7.6 million (FF 50
million) that was subsequently sold. The Synthelabo Agreement is comprised of
two parts: (i) a collaborative research program (the "Research Program"); and
(ii) a license granted to Synthelabo for therapeutic products that

treat prostate cancer and potentially other prostate diseases and that are
derived from genes discovered pursuant to the collaboration (the "License").

The term of the initial Research Program was two years, commencing on
May 9, 1996. Subsequently, the Company and Synthelabo extended the Research
Program for a third year ending in May 1999. The Company has successfully
completed the research milestones provided for in the initial two-year Research
Program, and in April 1999 delivered a third prostate cancer associated gene to
Synthelabo, achieving another milestone in the collaboration. As a result of
this research, the Company has filed one patent application related to
chromosomal regions suspected to contain genes associated with prostate cancer,
and three patent applications related to genes associated with prostate cancer.
Synthelabo has selected one of the three genes for its high-throughput screening
program. The two parties have entered into discussions to further extend the
research collaboration in genomics. Synthelabo and the French pharmaceutical
company Sanofi merged on May 18, 1999, creating world's 18th largest
pharmaceutical company (by prescription pharmaceuticals sales).

Pursuant to the terms of the License, Synthelabo has an exclusive,
worldwide license to develop and sell small molecular weight drugs, therapeutic
proteins, therapeutic antibodies and certain vaccines that treat prostate cancer
and potentially other prostate diseases and that are derived from genes
discovered pursuant to the collaboration. The Company retains all other rights
in the results of the research, including therapeutic oligonucleotides, all gene
and cell therapies, all diagnostic applications and all applications other than
for prostate diseases.

The Company has access to a large collection of DNA samples from
affected families and from unrelated affected and unaffected individuals,
pursuant to its research collaboration agreement with the CENTRE DE RECHERCHE
POUR LES PATHOLOGIES PROSTATIQUES ("CEREPP" or Research Center for Prostate
Pathologies). CEREPP is an association of urologists specializing in prostate
cancer that has established a network for the collection of samples, together
with related clinical data, from several locations in France. Pursuant to the
agreement, which ended on December 31, 1998, the DNA collections remain the sole
and exclusive property of CEREPP, but the results of the Company's genomic
analysis of the collections remain the property of the Company, which has the
exclusive patent and commercial exploitation rights in relation thereto.

In addition, the Company has exclusive access to a collection of DNA
samples from unrelated affected and unaffected individuals being recruited
pursuant to its research agreement with the Technion Research and Development
Foundation, a subsidiary of the Technion Institute of Technology (the "Technion
Institute"), in Haifa, Israel. Pursuant to the agreement, the Laboratory of
Human Molecular Genetics (the "LHMG") of the Technion Institute is responsible
for coordinating the research with various clinical centers in Israel and
compiling the collections of DNA samples and corresponding phenotype and family
history information. The diseases currently targeted by the research include
osteoporosis as well as prostate cancer. It is expected that the programs will
be completed by the end of 1999. The LHMG is free to use the phenotype data for
its own research. The Company is responsible for funding the research, uses the
DNA collection for its genomics analysis, and retains exclusive ownership of the
results of research conducted on the DNA collection, as well as the exclusive
right to apply for, prosecute and maintain patents in relation thereto.

Prostate cancer represents a significant commercial opportunity as
populations of older individuals continue to increase in the developed world.
The American Cancer Society estimates that approximately 185,000 new cases of
prostate cancer and more than 39,000 deaths associated with the disease occur in
the United States each year. Prostate cancer is the most common type of cancer
found in American men, other than skin cancer.

CNS DISORDERS

It is the Company's intention to identify genes associated with CNS
disorders, and specifically with bipolar disease, schizophrenia and Alzheimer's
disease. These diseases are characterized by a lack of efficacious treatments
and thus significant commercial potential. In addition, the Company believes
that CNS disorders are

related to a complex series of genes and therefore that its comprehensive
approach is particularly suited to understanding the genetic causes of these
diseases and their complications.

SCHIZOPHRENIA

On September 26, 1996, the Company entered into a research agreement
with Janssen Pharmaceutica N.V. ("Janssen"), a subsidiary of the U.S.
pharmaceutical company Johnson & Johnson, for a program to identify and clone
genes associated with schizophrenia. In anticipation of entering into such a
research collaboration with the Company, Johnson & Johnson Development
Corporation, pursuant to an agreement dated May 10, 1996, made an equity
investment of approximately euro 3 million (FF 20 million) in the Company,
purchasing 119,900 Ordinary Shares. The Company believes that Johnson &
Johnson's experience in the development and marketing of new products combined
with Genset's strength in gene discovery may further development of new drugs in
the field of CNS disorders.

The initial two-year research program was extended through April 1999.
Under the terms of the agreement and subsequent amendments, Janssen funded
Genset's research, will make additional payments as certain clinical milestones
are met and will pay royalties on net sales of certain products developed with
the genes discovered. In return, Genset granted licenses to Janssen, both
exclusive and non-exclusive, under technology, know-how and patents resulting
from the research, to make, have made and sell certain products, including
drugs, gene therapy, cell therapy and diagnostics products. Janssen has the sole
responsibility to develop and market these products. The Company and third
parties identified regions of DNA containing genes associated with schizophrenia
and the Company is using its biallelic marker map to pinpoint the exact location
of these genes. The Company has undertaken negotiations with Janssen to extend
the term and scope of the Agreement.

To expand the scope of its program to discover schizophrenia genes, the
Company in May 1999 entered into a collaborative arrangement with The Johns
Hopkins University School of Medicine focusing on the identification of risk
factors associated with schizophrenia and the identification of genomic regions
associated with schizophrenia. Under the terms of the agreement, the Company
will analyze a bank of 1800 DNA samples collected from over 300 families
containing one or more members diagnosed with schizophrenia.

Schizophrenia is a severe chronic mental disorder that is estimated to
affect approximately one percent of the world's population. The World Health
Organization estimates that approximately 45 million people worldwide suffer
from this disease. The schizophrenia market worldwide is currently valued in
excess of $2.5 billion and estimated to grow to $5 billion by 2002.
Schizophrenia is characterized by disturbances of mind and personality,
including hallucinations, delusions and deterioration in psychosocial
functioning. The cause of schizophrenia is unknown and there is no known cure
for the disease. Current therapy is inadequate both in terms of efficacy and
side effects. Gradually, a new class of anti-psychotics that combine a superior
efficacy with reduced side effects is replacing conventional neuroleptics.
Despite this progress, antipsychotic treatment remains symptomatic and more
research into the cause of the disease is necessary to develop better treatments
or even a cure for this devastating disease.

BIPOLAR DISEASE

The company is conducting an internal gene discovery program on bipolar
disease based on collections resulting from case-control recruitment programs in
Argentina and France.

In June 1997, the Company established a collaborative network in
Argentina together with the Parmenio Pinero Hospital in Buenos Aires (the
"Hospital") and the LABORATORIA ARGENTINO DE BIOLOGIA MOLECULAR ("LABIMO" or
Argentinian Laboratory of Molecular Biology) for the collection, banking and
analysis of DNA samples from patients affected with CNS disorders and unaffected
controls. Pursuant to the terms of this agreement with LABIMO, which is now
completed, the Company provided research funding, the Psycho-pathology
Department of the Hospital

collected samples and corresponding phenotype and family history information and
LABIMO coordinated the research and compiling of the DNA collection. The
Hospital and LABIMO may use the results of these activities for their own
research purposes. The Company has the right to use the DNA collections for its
genomics research, and retains exclusive ownership of the results of research
conducted on the DNA collection, as well as the exclusive right to apply for,
prosecute and maintain patents in relation thereto.

In addition, the Company has obtained access to samples from patients
affected with bipolar disease and unaffected controls under a clinical research
program with the Versailles Hospital Center outside Paris. The Company expects
this collection program to be completed before the end of 1999.

Bipolar disease has a prevalence in the U.S. of 2 million adults and is
growing at the rate of 20% per year. The annual market for bipolar disease is
estimated to be approximately $1.5 to 2 billion.

ALZHEIMER'S DISEASE

In May 1999, the Company established a strategic alliance with the
Canadian company Algene Biotechnologies Corporation (since June 8, 1999, now
called SignalGene Inc.), providing access to an existing Alzheimer's disease DNA
collection and proprietary regions. The collection includes samples from several
hundred individuals with post-mortem analysis of the disease.

The American Psychiatric Association estimates that 2.5 million
Americans are affected with Alzheimer's disease and the World Health
Organization estimates that 22 million people worldwide are affected by
dementia. The overall neurology market is currently estimated to be
approximately $6 billion with Alzheimer's disease expected to have a market of
$3 billion by 2003.

CARDIOVASCULAR DISEASES

The Company has established a gene discovery program for cardiovascular
disease that is initially focused on hypertension, thrombosis, restenosis and
their complications. On October 31, 1997, the Company entered into a ten-year
strategic research collaboration with the Royal College of Surgeons in Ireland
("RCSI"), a medical school with substantial clinical research activities, to
create a DNA bank and perform genomics research based on association studies
using samples from unrelated individuals. As part of the collaborative
arrangement dating from October 1997, the Company and RCSI formed Surgen, a
dedicated joint venture owned 50% by each party and located in Dublin, Ireland.
RCSI will furnish to Surgen biological samples and corresponding anonymous
clinical data obtained in the course of conducting specified clinical studies,
principally in the field of cardiovascular diseases.

Surgen is responsible for DNA extraction, cell immortalization, sample
and data storage, and more generally, all operations connected with the creation
and maintenance of the DNA bank. Under the terms of the agreement, the Company
has exclusive access to this DNA bank to conduct disease gene discovery and
pharmacogenomics studies and to commercialize any products, including
therapeutic, diagnostic and database products, developed using the DNA bank.
Surgen has the right to use the DNA bank for non-commercial research. The
Company is responsible for funding the salaries of Surgen's employees and the
direct expenses of the DNA bank, has provided a loan to Surgen to serve as
initial working capital, will provide funding for the collection of certain
other samples and will make certain other payments to Surgen.

In addition, as part of its broader program on cardiovascular diseases,
the Company sequenced and filed patent applications on the genomes of both
CHLAMYDIA PNEUMONIAE and CHLAMYDIA TRACHOMATIS L2 strain. The bacterium
CHLAMYDIA PNEUMONIAE has been identified as a potential causative agent in the
formation of atherosclerotic plaques. On August 10, 1998, the Company entered
into an exclusive license agreement with Wyeth-Lederle Vaccines
("Wyeth-Lederle"), a business unit of Wyeth-Ayerst Laboratories, a division of

American Home Products. Pursuant to this agreement, Wyeth-Lederle has
exclusively licensed from the Company the genomic sequence data of CHLAMYDIA
PNEUMONIAE and CHLAMYDIA TRACHOMATIS L2 strain for applications in vaccine
development. In return for the license, Wyeth-Lederle will provide the Company
with up-front licensing fees, clinical milestone payments and royalties on net
sales of vaccine products developed from the genomics data.

The American Heart Association reported in 1998 that 58.8 million
Americans suffer from one or more types of cardiovascular disease ("CVD") and
that CVD is responsible for approximately 41% of all deaths in the United
States. The cost in the United States in 1999 of CVD and stroke, including
health expenditures and loss of productivity, is estimated to be $286.5 billion.
The World Health Organization estimates that CVD is responsible, on a worldwide
basis, for 20% of all deaths, which represents 50% of all deaths in developed
countries and 16% of all deaths in developing countries. The Company believes
that cardiovascular diseases are related to a complex series of genes and
therefore that its comprehensive approach is particularly suited to
understanding the genetic causes of hypertension, thrombosis, myocardial
infarction and their complications. The Company is actively seeking a strategic
alliance with a pharmaceutical company to support drug development from the
results of its gene discovery program.

OBESITY AND OTHER METABOLIC DISORDERS

In February 1997, the Company entered into a preliminary research
collaboration agreement with the INSTITUT NATIONAL DE LA SANTE ET DE LA
RECHERCHE MEDICALE ("INSERM" or National Institute of Health and Medical
Research), pursuant to which the Company funded research in molecular physiology
and pathology conducted by INSERM's Laboratory of Nutrition, Lipoprotein,
Metabolism and Atherosclerosis located at the University of Rennes I in the
Brittany region of France. Based on the results of the research, the Company and
INSERM filed a joint patent application on a new gene coding for a receptor
related to obesity ("LSR," for lipolysis stimulated receptor). INSERM has
granted the Company an exclusive license worldwide to this joint patent
application. Pursuant to the terms of this license, the Company will make
certain royalty payments to INSERM corresponding to the different categories of
products which may result from the use of the gene.

The Company is currently conducting independent research relating to
this gene and a new metabolic pathway. The Company expanded its internal program
on obesity and metabolic disorders through the creation of a dedicated
physiological genomics unit headed by Dr. Bernard Bihain and located at Genset
Corporation in La Jolla, California. As part of this effort, the Company has
established clinical collection programs involving hundreds of comprehensively
phenotyped obese people and non-obese controls. Using these resources obtained
from leading clinical centers in Europe, the Company has already identified a
collection of polymorphic markers within the LSR gene and is undertaking
large-scale association studies to discover and characterize other genes
potentially involved in the obesity metabolic pathway. Progress in this area to
date has resulted in the filing of four patent applications by the Company which
cover genes and polymorphisms related to a new metabolic pathway that controls
the removal of dietary lipids. See " -- Patents and Proprietary Rights -- The
Company's Patent Portfolio and Strategy." The first scientific results of this
program were published in the May 7, 1999 issue of the JOURNAL OF BIOLOGICAL
CHEMISTRY. It is the Company's intention to establish comprehensive
collaborative projects in the field of obesity with pharmaceutical companies and
to license its obesity-related gene discoveries for the discovery and
development of drugs.

In the United States, obesity affects 25 to 33% of the total
population, or an estimated 60 to 80 million people. Obesity-related diseases,
including hypertension, diabetes and certain cancers, are responsible for an
estimated 300,000 deaths annually in the United States. In addition, the World
Health Organization estimates that obesity prevalence is 10 to 25% in Western
Europe and 40% in certain specific groups, including women from Eastern Europe,
Mediterranean countries and in African Americans. The potential market worldwide
for obesity is estimated at $10 to 15 billion.

AGING DISEASES

The Company has established a gene discovery program for aging diseases
that is initially focused on osteoporosis. A recruitment program involving seven
hospitals throughout France has been initiated to collect DNA samples and
associated clinical data from individuals suffering from osteoporosis and
unaffected controls. The Company expects this collection program to be completed
by September 1999. In addition, the Company is obtaining access to samples from
patients affected with osteoporosis as part of the research collaboration with
the Technion Institute in Israel. See " -- Prostate Cancer."

Osteoporosis is a pathological reduction in bone density that is
particularly common in postmenopausal women and is associated with increased
fractures of the wrist, spine and hips. The National Osteoporosis Foundation
estimates that approximately 28 million people in the United States suffer from
osteoporosis, of which approximately 80% are women. More than 1.5 million
annually suffer fractures due to osteoporosis. Approximately 2 million are
taking drug therapy, representing an estimated market of more than $2 billion.
However, the direct cost of this disease in the United States, including
hospitals and nursing homes, is estimated to be $14 billion.

In the field of aging related diseases more generally, the Company has
access through its 1996 agreement with CEPH to all results from CEPH's research
on a large collection of DNA samples from individuals over 95 years of age --
the centenarians. The collection contains DNA from approximately 200 pairs of
centenarian siblings. The centenarian samples are particularly valuable because
they can serve as negative controls for all diseases related to aging. Any
centenarian who is unaffected by a particular aging-related disease, such as
osteoporosis, is very unlikely to have the genetic mutation or mutations related
to the disease.

Under the April 1996 CEPH Agreement, the Company agreed to provide
research funding over three years to be used notably for CEPH's research on
aging conducted using its collection of centenarian DNA samples. In exchange,
CEPH granted the Company a right of first refusal, valid until April 30, 1999
(subject to the dispute described below), covering the use of any results of
CEPH's research on aging, other than research being performed in connection with
certain pre-existing agreements.

CEPH brought a claim against Genset before the Paris Court of First
Instance (TRIBUNAL DE GRANDE INSTANCE) for the payment of the third and fourth
installments for research funding associated with the aging program, due under
the CEPH Agreement. The Company considers that the research reports that CEPH
provided and continues to provide do not provide satisfactory assurance that
CEPH has performed the contracted research on aging or has maintained an
appropriate level of research for the aging program. On March 30, 1998, a panel
of experts appointed by the Court determined that the research reports provided
by the CEPH were not consistent with its obligations under the Agreement. Based
on this determination, the Company filed a counter-claim to recover the research
funding amounts already paid to CEPH. A subsequent court decision dated March
31, 1999, has provided for a further expertise to be conducted in respect of the
more recent research report provided by the CEPH. While no assurance can be
given that Genset will be successful in its claim and successfully defend
against CEPH's claim, all the payments provided for under the agreement have
been provisioned and the Company is confident that this case could not have a
material impact on its results.

THE COMPANY'S PHARMACOGENOMICS PROGRAMS

Pharmacogenomics is the comprehensive study of the genes involved in
drug response. Drug response, like the manifestation of common diseases, is
determined by a combination of interacting gene pathways for drug response as
well as alternative pathways such as drug metabolism and side effects. Genset's
unique biallelic marker map has opened the door to pharmacogenomics by enabling
the Company to find the polymorphisms associated with response to a drug
treatment. The Company's approach to pharmacogenomics is to derive functional
information on drug response genes by comparing individuals with different
responses to drug treatment, using data coming directly from clinical trials.
Using this information, the Company can work with its

pharmaceutical partners to design clinical trials more efficiently and to
achieve better rates of success by tailoring the drug to the correct target
population of patients.

Pharmacogenomics aims to bridge the gap between gene discovery and drug
discovery as it is immediately applicable to clinical trials and marketing of
existing drugs. The diseases which represent the greatest opportunities for
pharmacogenomics are those which have significant phenotypic heterogeneity such
as CNS disorders, including schizophrenia and bipolar disease, and
cardiovascular diseases. This is because the more genetically complex
(polygenic) a disease is, the more difficult it is to locate the correct drug
target and hence the less likely it is that a drug will have its desired effect
across the target population. In addition, clinical trials are long and costly
for these diseases. The Company's pharmacogenomics approach explores the
multiple genes involved in drug response pathways to fine-tune a drug to its
ideal target population.

Pharmacogenomics has the potential to reduce costs and time in drug
development, and to increase efficacy and decrease side effects in marketed
drugs, thereby increasing both the value and safety of drugs. A report in the
JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION ("JAMA", published April 15, 1998)
argues that more than 100,000 Americans die in hospitals each year from adverse
drug reactions. These reactions would be the fourth leading cause of death in
the US after heart disease, cancer and stroke. The findings of this study
underscore the potential importance of pharmacogenomics in identifying patients
who are susceptible to adverse reactions to prescription drugs. The overall
objective of pharmacogenomics is to improve the risk-benefit profile of drugs
and increase their benefit-cost ratio. A drug that is safer and more effective
delivers greater value for the patient and can be sold at a premium while
reducing overall healthcare costs. Also, once the drug is prescribed and used by
a patient population, its use is more likely to be maintained as the drug has
been customized to this population's genetic make-up. Pharmacogenomics offers
the opportunity to build market share based on the real value of the drug and to
collaborate on disease management strategies with patients, doctors and
insurance providers.

STRATEGIC ALLIANCE WITH ABBOTT LABORATORIES

Effective as of July 15, 1997, the Company entered into a strategic
alliance with Abbott Laboratories in the field of pharmacogenomics for the
development of genetic markers and diagnostic tests for the analysis of drug
response. The strategic alliance is comprised of three parts: (i) a subscription
agreement; (ii) an exclusive 18 month research and license agreement for the
development of genetic markers and discovery of genes associated with drug
response to and side effects of an Abbott drug for the treatment of asthma,
Zyflo(R) (zileuton), for which Abbott has agreed to provide research and
development funding and milestone payments that could total up to $22.5 million;
and (iii) an exclusive collaboration for the development of diagnostic systems
for pharmacogenomics research programs (the "Alliance Agreement"). Pursuant to
the subscription agreement and subsequent amendments between the parties, Abbott
made an equity investment in the Company on September 19, 1997 of $10 million,
and the Company has a two-year put option exercisable from September 7, 1998,
subject to certain conditions, to sell an additional $10 million of the
Company's equity to Abbott at the then current market price.

Pursuant to the Alliance Agreement, the Company and Abbott have agreed
to collaborate on additional pharmacogenomics research programs for third party
pharmaceutical companies. Genset will discover genes and markers associated with
drug response and Abbott will develop, produce and market diagnostic tests using
these genes and markers to test patient response to specific drugs. The goal of
the Alliance Agreement is to provide pharmaceutical partners with simple genetic
tests specific for their drugs. Also pursuant to the Alliance Agreement, the
Company and Abbott will share revenues resulting from pharmacogenomics
collaborations based on the relative contributions of their respective
technologies. The Company will receive commercial milestone payments and
royalties on the sales of drugs and diagnostic tests developed pursuant to the
alliance. The Alliance Agreement may be terminated under certain conditions,
including upon a change of control of either party.

RESEARCH COLLABORATION WITH PHARMACIA & UPJOHN

The Company believes that, to date, it is the only company providing
pharmacogenomics programs for the discovery of novel markers and genes involved
in drug response and side effects. On October 2, 1998, the Company entered into
a research collaboration with Pharmacia & Upjohn ("P&U") in the field of
pharmacogenomics for the development of genetic markers and discovery of genes
associated with the efficacy of a P&U compound. Under the terms of the
agreement, P&U will provide licensing fees, research and development funding and
milestone payments, and royalties on sales of therapeutics marketed using the
pharmacogenomics discoveries. In addition, P&U has an option to extend the
agreement for applications of the program discoveries for new drug targets.

The Company is actively seeking pharmacogenomics research
collaborations with pharmaceutical companies to develop markers and discover
genes associated with specific drugs. The Company expects to receive clinical
milestone payments and royalties for all drugs developed and marketed using its
pharmacogenomics technology platform. The Company has established at its
facility in La Jolla, California a pharmacogenomics group to support research
and business development of related programs.

THE COMPANY'S GENE LIBRARIES PROGRAMS

The Company has developed unique gene libraries and proprietary
databases in order to supply the demand of pharmaceutical companies for new
therapeutic targets and products. SignalTag(TM) is the first gene library
developed from Genset's integrated platform of genomics technologies. The
SignalTag(TM) gene library is a proprietary genomics database specific for
secreted proteins. These proteins are of special commercial and therapeutic
interest as they include growth factors, hormones, and cytokines which play a
key role in triggering physiological responses by acting on distant cells or by
reacting to cellular signaling. The demand for novel therapeutic proteins is
high and in 1998 the sale of drugs derived from secreted proteins exceeded $14
billion.

SignalTag(TM) is a subset of the NetGene(TM) database which was
identified using the Company's patented 5 Prime Technology together with
advanced bioinformatics technology. The 5 Prime Technology enables the
systematic, rapid and accurate isolation of the beginning of genes by a specific
tagging process. Secreted protein genes have a characteristic signal sequence at
the 5 prime end which codes for a specific amino acid sequence used by the cell
to direct the proteins to a secretory pathway. See " -- The Company's Technology
- -- NetGene(TM) and SignalTag(TM) Databases." With bioinformatics analysis, the
Company was able to rapidly identify more than 2,000 new gene sequences of
potential commercial value. The Company has applied for patents covering over
2,500 sequences corresponding to the 5 prime ends of genes encoding secreted
proteins. See " -- Patents and Proprietary Rights." As a point of reference, all
current secreted therapeutic proteins-based drugs have been derived from a pool
of fewer than 2,000 genes identified over the last 20 years.

GENETICS INSTITUTE LICENSE AND DISTRIBUTION AGREEMENT

On July 25, 1997, the Company entered into an exclusive license
agreement with Genetics Institute ("GI"), a wholly owned subsidiary of American
Home Products (the "GI Agreement"). Pursuant to the GI Agreement, GI has
exclusively licensed from the Company approximately 2,000 SignalTag(TM)
sequences for which the Company will provide to GI full-length cDNA clones, and
from which GI will express secreted proteins and make them available for
evaluation by pharmaceutical companies through the DiscoverEase(R) distribution
platform. DiscoverEase(R) was launched in September 1996 and represents GI's
initiative to isolate and express a comprehensive library containing novel human
secreted proteins. As of May 1999, DiscoverEase(R) partners that have entered
into agreements with GI for access to the library include Bayer, Chiron, Chugai,
Genentech, Immunex, Kirin, Ontogeny, Rhone-Poulenc Rorer, Sankyo and Scios. In
return for access to the SignalTag(TM) library, GI will provide the Company with
up to $20 million of payments based on the number of clones delivered

by Genset to GI and the number of orders delivered by GI to DiscoverEase(R)
partners. In addition, the Company and GI will share clinical milestone payments
and royalties from therapeutics developed by the program's partners. The first
SignalTag(TM) proteins were delivered to DiscoverEase(R) program partners in
September 1998. Through GI's DiscoverEase(R) program, the Company expects to
retain a significant share of the longer term market value that will be created
from the therapeutic products discovered and developed using SignalTag(TM) novel
secreted proteins.

OTHER INITIATIVES

AGRICULTURAL BIOTECHNOLOGY: THE CERES LICENSE AND SERVICES AGREEMENTS

On December 28, 1997, the Company entered into a series of agreements
with Ceres, Inc. ("Ceres"), a company specializing in the field of agricultural
biotechnology. The collaboration consists of three parts: (i) the acquisition of
an approximately 20% equity interest in Ceres by the Company; (ii) an agreement
for sequencing and bioinformatics services to be provided by the Company for
which Ceres will make quarterly payments and issue additional equity to the
Company; and (iii) an exclusive license agreement providing Ceres access, on a
royalty-free basis, to certain of the Company's technologies for applications in
agricultural genetics. The service and license agreements were amended in the
course of 1998 to expand the program. In addition, as a result of new financings
by Ceres, the Company's percentage equity interest decreased from approximately
20% to 8.4%, as of December 31, 1998. The Company has been granted warrants and
equity-based milestones which will, if exercised or achieved, significantly
increase this equity interest in Ceres.

PATENTS AND PROPRIETARY RIGHTS

The Company utilizes both patents and trade secret methods to protect
its proprietary technology platform and its genomics-related inventions.

PATENTS

The Company's commercial success depends, in part, on its ability to
obtain effective patent protection in France, Europe, the United States and
elsewhere for the products and processes resulting from its disease gene
discovery, gene library and pharmacogenomics efforts, as well as for the
proprietary technologies supporting these activities. The Company is actively
and systematically applying for patents to protect the results of its programs
in accordance with defined strategies and objectives for each of its business
areas. The Company believes that its broad technology platform, and in
particular its technologies relating to the high-throughput identification,
genotyping and biostatistical analysis of SNP's, enables it to formulate more
comprehensive patent applications, containing both sequence data and related
pharmaceutically relevant information, and thereby to strengthen its competitive
patent position.

THE LEGAL ENVIRONMENT

There are an estimated 100,000 genes scattered throughout the human
genome and the Company believes that virtually all such genes will be identified
over the next several years. A growing number of groups are attempting to
rapidly identify and patent gene fragments and full-length genes. Patent
applicants seeking protection for gene fragments or full-length genes must
provide sufficient information relating to the uses of such sequences to meet
the utility or industrial applicability requirements in the jurisdictions in
which the applications are pending. The strategies of these groups filing patent
application on gene fragments or full length genes vary widely as to the extent
of biological characterization and the nature of utilities they provide in their
patent applications. Whereas the patentability of an identified gene fragment or
full-length gene together with specific functional

information is widely accepted in most jurisdictions in which the Company wishes
to obtain patent protection, there remains substantial uncertainty regarding the
value of patent applications covering gene fragments or full-length genes
without known function.

In France, Article L.611-17 of the Intellectual Property Code provides
that the knowledge of partial or full-length sequences of genes is not in and of
itself patentable. However, genes with known utility have been patented in
France. This French law has no effect on the patentability of genes in other
European countries. The European Directive on the Legal Protection of
Biotechnological Inventions (98/44/EC) was adopted and entered into force on
July 30, 1998. Member states are required to have implemented the Directive by
July 30, 2000. As regards genomics, the new Directive essentially provides that
"the sequence or partial sequence of a human gene may constitute patentable
subject matter," provided it is "isolated from the human body, or otherwise
produced by means of a technical process," and "[its] industrial application
[is] disclosed in the patent application."

In the United States, the Patent and Trademark Office (the "PTO")
issued guidelines in July 1995 that address the requirements for demonstrating
utility for biotechnology inventions. In accordance with these guidelines,
patents have been granted in the United States on full-length gene sequences for
which a utility is demonstrated. With respect to partial gene sequences, while
the USPTO granted its first expressed sequence tags ("ESTs") patent on October
8, 1998, its position with respect to the patentability of ESTs is still
uncertain.

A 1997 decision by the U.S. Court of Appeals for the Federal Circuit
interpreted strictly the written description requirement in relation to patent
claims covering genes. This case reaffirmed the patentability of human genes,
but suggested that claims encompassing full-length human genes may require
disclosure of the complete gene sequence in the specification of the patent
application. In the course of 1998, the USPTO has issued proposed guidelines for
examination of patent applications under 35USC ss.112, paragraph 1. The interim
guidelines are currently being commented and refined. Though there can be no
assurance they will be adopted in their final version in the course of 1999,
these guidelines when issued will enable a better understanding of the written
description requirement, particularly including issues relating to the
patentability of genes.

Since the coming into force on June 8, 1995 of the U.S. legislation
implementing the General Agreement on Tariffs and Trade, the term of patent
protection in the United States, as it is in Europe, is of 20 years from the
earliest effective filing date of the application. Due to the large number of
biotechnology patent applications being filed and the complex issues involved,
the time from filing to issuance is uncertain in the biotechnology field. A bill
has been introduced before the Congress in the United States which would, in
some cases, extend patent exclusivity past the legislative 20 years from filing
to compensate companies for delays in patent processing. There can be no
assurance, however, that the bill will be enacted.

In most main jurisdictions, patent offices have established restriction
requirement policies under which they only consider a limited number of
independent and distinct nucleotide sequences in a single application. For
example, typically the EPO will examine one nucleotide sequence per application,
while the USPTO will examine 10 distinct sequences per application. In cases
where the initial applications include more sequences, divisional applications
would be required to claim the additional nucleotide sequences. These
requirements are likely to increase the time required and the cost to obtain
patent protection for large numbers of sequences.

In most jurisdictions, patent applications get published 18 months
after he filing of the corresponding priority document. The European Patent
Office (the "EPO") and the French patent authorities issue a "search report"
approximately nine months after an application is filed which, based on a survey
of existing patents, published patent applications and scientific publications,
provides an initial indication of the probability that the patent will be
granted. Based on such reports, the Company decides whether to continue
prosecution of its patent application, whether to extend the application to
foreign countries and whether to amend the application in such countries. In the
United States, on the other hand, patent applications are maintained in secrecy
until patents issue, and since publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months, the
Company

cannot be certain that it was the first creator of inventions covered by pending
patent applications or the first to file patent applications on such inventions.
However, the bill discussed above also provides for the publication of U.S.
patent applications 18 months after filing. There can be no assurance, however,
that the bill will be enacted.

THE COMPANY'S PATENT PORTFOLIO AND STRATEGY

Generally, patents must first be filed in the country in which the
product or process was developed. The Company is typically filing its
applications in France or, as permitted under French regulations, in the United
States. All of the Company's initial or "priority" applications have been
extended within 12 months after the initial filing, either through the procedure
prescribed by the Patent Cooperation Treaty ("PCT") or, independently from the
PCT procedure, to selected countries. The Company currently decides on a
case-by-case basis whether and in which countries to extend any particular
application. The PCT procedure requires that, within eight or 18 months after
the general PCT extension, the applicant selects those countries among the PCT
signatories, which includes notably the 19 countries covered by the EPO as well
as the United States, Canada, Australia, and Japan, in which it wishes to pursue
its application. Whichever procedure it chooses to extend a particular patent
application, the Company typically claims the priority date of its initial
filing for all extensions. The Paris Convention provides that, if an applicant
so chooses, the priority date of an extension will correspond to the date of the
initial filing so long as the invention covered by the extension is the same as
that covered by the initial filing.

As of May 31, 1999, the Company had filed a total of 65 priority
applications, including 23 in France, two directly before the EPO, and 40 in the
United States, out of which 14 French patents, six EPO patents, four Australian
patents, three U.S. patents and one Taiwan patent are in force or allowed.

In its disease gene discovery and pharmacogenomics business areas,
the Company's strategy is to file comprehensive patent applications that
combine full-length gene sequences with genomic information of pharmaceutical
relevance, including typically the corresponding proteins and a functional
characterization and related polymorphic markers and functional mutations,
together with disease or drug response association data, all to the extent
that information is available at the time of filing. In the context of its
research collaboration agreement with Synthelabo, the Company has filed one
patent application related to chromosomal regions suspected to contain genes
associated with prostate cancer and three patent applications related to
genes associated with prostate cancer. In the context of its other partnered
programs, the Company has filed three patent applications related to genes
and related markers associated with specific clinical traits. In the context
of its physiological genomics research program, the Company has four patent
applications which cover genes and corresponding markers, including those
encoding the LSR receptor and its variants, that are associated with
phenotypic traits underlying obesity-related syndromes, as well as treatment
methods addressing said syndromes. Two of these applications are co-owned by
the Company and INSERM. The Company has also filed several other gene
specific applications relating to cancer, drug metabolism, inflammatory
diseases, and central nervous system disorders, one of which is a joint
application, each covering a gene and/or markers, and related information of
pharmaceutical relevance.

In addition, the Company has filed two patent applications relating to
the complete genome sequence of two related infectious microorganisms, one of
which, CHLAMYDIA PNEUMONIAE, has recently been identified as being potentially
associated with the occurrence of cardiovascular diseases, especially
atherosclerosis. Both patent applications claim therapeutic, diagnostic and
vaccine applications. Both applications underwent PCT extension in the context
of the Company's collaboration with Wyeth-Lederle Vaccines.

In its gene library program, the Company's strategy is to seek patent
protection for partial and full-length gene sequences, especially those for
which it has identified a particular potential therapeutic value. As of April
30, 1999, the Company has filed patent applications covering over 35,000 5 prime
ends of genes from over 25 different human tissues, and over 2,500 sequences
corresponding to the 5 prime ends of genes encoding secreted proteins. Despite
the coming into force of the European Directive on the legal Protection of
Biotechnological Inventions, patentability of ESTs in Europe remains highly
uncertain. Likewise, the patentability of ESTs in the United States is currently
uncertain. In the context of its collaboration with Genetics Institute, the
Company has filed patent applications covering a large number of full-length
cDNA sequences corresponding to its SignalTag(TM) 5 prime ESTs. It is the
Company's intention to file patent applications covering all such full-length
cDNA sequences. Despite the therapeutic potential of secreted proteins, the
Company cannot predict the claim coverage, if any, that will be granted in these
patents.

There are currently a large number of both public and private third
parties generating genomics information. As the quantity of such information
that is either patented or published increases, so too does the risk that the
Company will not be able to obtain patent protection for its sequences or that
it will have to undertake interference or opposition procedures, negotiate
licenses, or enter into agreements with third parties with respect to partially
overlapping information.

In addition to protecting the results of its disease gene discovery,
pharmacogenomics and gene library programs, the Company seeks patent protection
for selected proprietary technologies that support these programs in certain
cases where trade secret methods do not offer optimal protection. In its gene
library business area, the Company's patent relating to its 5 prime sequence
identification technique was granted in France and is pending in other
jurisdictions including Europe, the USA and Japan. The company was recently
granted a European patent relating to the solid phase amplification of nucleic
acids. The Company has also filed several patent applications covering its key
genomics technologies, including high-throughput cloning, sequencing, mapping
and genotyping, experimental and computerized statistical methods to generate
and use its high-resolution biallelic marker map, as well as a large number of
biallelic markers. There has been significant controversy regarding whether
biallelic markers, and more generally SNPs, meet the utility requirements for
patentability. The position of patent offices on this question is uncertain, and
there can be no assurance that patent applications filed by the Company that
cover such markers will be granted.

Furthermore, because of restriction requirements issued in most patent
jurisdictions regarding patent applications covering large numbers of nucleic
acid sequences, there can be no assurance that an appropriate protection will be
granted to inventions whose key embodiment encompasses numerous independent
sequences. The number of sequences filed in related patent applications being
very high, it is also difficult to estimate the time required for patent
prosecution and issuance.

In the field of synthetic DNA production, the Company has been granted
two EPO patents and one U.S. patent and has international extension applications
pending in countries outside Europe, that cover its synthesizer and reactor
designs and related processes for the preparation of oligonucleotides. In this
field, the Company has developed and continues to develop proprietary processing
software, synthesizer designs and improvements, and purification and quality
control techniques, which it has chosen to protect using trade secret methods.

In addition to the patents and patent applications covering its
genomics programs, the Company has been granted a patent relating to circular
oligonucleotides and several patents related to the uses of specific types of
oligonucleotides, including sense and antisense therapies. The Company was
principally involved in these fields prior to launching its genomics research
and is currently pursuing prosecution of the international extensions of these
patents which it may license to third parties.

PROPRIETARY RIGHTS

With respect to proprietary know-how that is not patentable or to
potentially patentable processes for which patents are difficult to enforce, the
Company has chosen to rely on trade secret methods, notably confidentiality
agreements, to protect its interests. See " -- Employees."

The Company believes that several elements of its integrated technology
platform involve proprietary know-how, technologies or data which are not
covered by a patent or patent application, including its sequencing using
advanced process control and sequence verification software, BioIntelligence
software, functional polymorphism scanning and statistical association methods.
There can be no assurance that trade secret methods will provide meaningful
protection or adequate remedies in case of breach for the Company's proprietary
know-how or technology.

The Company's NetGeneTM and SignalTagTM databases contain sequence and
related data which is not or has not yet been protected by patents. The Company
has instituted information security measures to protect these databases. In the
case of a strategic partnership or other collaborative arrangement which
requires the sharing of data, the Company's policy is to make available to its
partner only such data as is relevant to the partnership or arrangement, under
controlled circumstances and only during the term of the strategic partnership
or other collaborative arrangement. There can be no assurance, however, that
such measures will adequately protect the Company's sequence data.

GOVERNMENT REGULATION

Regulation by governmental authorities in France, the European Union,
the United States and other countries is a significant factor affecting the
collection and use of the DNA samples necessary for the Company's research, the
development and commercialization by the Company's strategic partners of
pharmaceutical products based on the Company's research, and the safety and
quality procedures governing the Company's research and manufacturing
activities.

Although the Company does not conduct clinical research programs, its
research requires DNA samples that are obtained through such programs. These are
typically conducted by research organizations and clinicians with whom the
Company has a collaboration agreement relating to a specific disease. In
addition, the Company intends to increasingly obtain DNA samples from the
strategic partners for which it is doing research; this will notably be the case
for pharmacogenomics programs. Clinical research programs are subject to the
regulations of the country where they are performed, and generally require,
among other things, that the research protocol pursuant to which the samples
will be collected be approved by an ethical and scientific committee, that each
donor consent to the use that is to be made of the sample and that the samples
and related clinical data be communicated in an anonymous fashion so as to
protect the identity of their donor. The ability of the Company to obtain DNA
samples and related clinical data therefore depends on the ability of its
collaborators and strategic partners to obtain and maintain required
authorizations.

In addition, the Company is directly subject to certain regulations,
both as the promoter or sponsor of several clinical research programs in France
and in respect of its genomics research programs themselves. For example, a
French law enacted in 1996 governing genetic research will require the Company
to declare any research it performs using a collection of DNA samples and
empowers the administration to suspend any such research which does not respect
criteria concerning the appropriate use and safety of the collection and the
confidentiality of resulting data. The government decree specifying the
applicable criteria and the declaration procedure has not yet been promulgated.
The increasing public scrutiny of biotechnology research generally, and genomics
research in particular, is leading to additional regulation of both the
collection and the use of DNA samples. There can be no assurance that such
regulation will not limit either the ability of the Company or its collaborators
or strategic partners to obtain

appropriate DNA samples and related clinical data or the use which the Company
can make of them in a manner which would have a material adverse impact on the
Company's research.

The ultimate success of the Company's commercial strategy depends on
the successful development and marketing of products based on the genomic
information provided by the Company. The ability of the Company's strategic
partners to successfully manufacture and market such human therapeutic, vaccine
or diagnostic products will be subject to strict regulatory controls on the
clinical testing, manufacture, labeling, supply and marketing of these products.
Of particular importance is the requirement in most countries to obtain and
maintain regulatory approval for a product from the relevant regulatory
authority to enable it to be marketed in that country. The process of obtaining
these approvals and the subsequent compliance with appropriate statutes and
regulations are time consuming and require the expenditure of substantial
resources.

The submission of an application to a regulatory authority does not
guarantee that an approval to market the product will be granted by that
authority. Furthermore, each regulatory authority may impose its own
requirements and may refuse to grant, or may require additional data before
granting, an approval even though the relevant product has been approved by
another authority. Even if regulatory approvals are obtained, the marketing and
manufacturing of therapeutic, vaccine and diagnostic products are subject to
continuing regulatory review, and later discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
Any delay in obtaining, or the failure to obtain, such approval would adversely
affect the Company's ability to generate product royalty revenues.

France and other European countries and the United States have very
high standards of technical appraisal and consequently, in most cases, a lengthy
approval process for pharmaceutical products. The trend in recent years has been
towards greater regulation and higher standards. The time taken to obtain such
approval in particular countries varies, but generally takes from six months to
four years from the date of application, depending upon the nature of the
product, the degree of control exercised by the regulatory authority, and the
efficiency of its review procedures.

Because certain of the products which may result from the Company's
research and development programs are likely to involve the application of new
technologies, such products may be subject to substantial additional review by
various governmental regulatory authorities. As a result, regulatory approvals
may require more time than for products using more conventional technologies. In
addition, ethical concerns about the use of genetic predisposition testing, and
in particular about the risk that such testing could lead to discrimination by
insurance providers or employers, may lead to poor market acceptance or to
regulatory controls that would adversely affect the development of or demand for
diagnostic products based on the Company's research.

The Company's research and manufacturing activities involve the
generation, use and disposal of hazardous materials and wastes, including
various chemicals and radioactive compounds. Although the Company believes that
its safety procedures for handling and disposing of such materials comply with
the standards prescribed by French, European Union and United States federal and
state regulations, the risk of environmental contamination or injury from these
materials cannot be eliminated. In addition, the Company cannot predict whether
new regulatory restrictions on the production, handling and marketing of
biotechnology products will be imposed by French, E.U., U.S. or other
governments.

MANUFACTURING AND MARKETING

PRODUCTION OF SYNTHETIC DNA

On the basis of its capacity, the Company believes it is the world's
largest manufacturer of short strands of synthetic DNA, or oligonucleotides,
with capabilities to synthesize, label and purify thousands of oligonucleotides
per

day. The Company believes that it is a highly efficient producer due to its
proprietary and patented Ultrafast Parallel Synthesizer, as well as highly
automated production processes that incorporate comprehensive bioinformatics
from order processing through product delivery. By utilizing quality raw
materials and regular preventive maintenance, the Company has a low rate of
resynthesis. Very little inventory is maintained as synthetic DNA is made to
order, with a typical turnaround time of two days. The Company has introduced an
electronic mail ordering system, which enables customers to input their orders
directly into the oligonucleotide synthesizers of the Company's production
units, thus reducing the risk of errors and accelerating turnaround time. Using
Internet capabilities the Company has also introduced a sophisticated tracking
system allowing its customers to receive information on line about the status of
the processing of their orders.

Genset's Ultrafast Parallel Synthesizer is capable of synthesizing 24
oligonucleotides in parallel in 40 minutes. This unique proprietary instrument
has significantly reduced nucleotide coupling time, the key step in production,
and consumption of phosphoramidites, the primary raw material, compared to the
most advanced instruments currently available commercially, and has
substantially reduced the Company's manufacturing costs. The Ultrafast Parallel
Synthesizer, produced in the Company's Evry facility, is installed in its Paris,
La Jolla, Kyoto and Singapore production lines. The Company has been granted two
patents relating to its synthesizer and reactor designs together with related
processes for nucleic acid synthesis. See " -- Patents and Proprietary Rights."

During 1997, the Company established a separate Oligonucleotides
Division, Genset Oligos, for its synthetic DNA business, which is responsible
for the manufacturing and marketing of synthetic DNA to customers worldwide and
for the production of synthetic DNA used in the Company's genomics research
programs. In addition, this division has operating responsibility for all
manufacturing and selling activities performed at its locations in France, the
United States and Asia.

Genset Oligos has a current monthly capacity nearing 100,000
oligonucleotides and an aggregate of 110 employees in Paris, La Jolla, Kyoto and
Singapore dedicated to the production and quality control of synthetic DNA.
Genset Corporation in La Jolla, California is responsible for production for the
U.S. market, except for certain complex or very large orders. Producing more
than 5,000 DNA fragments per day, the Company's Paris production facility
supplies all orders from customers in Europe and also provides nearly all of the
synthetic DNA used by the Company at its Genomics Research Center. Genset
Singapore Biotechnology Pte. Ltd. is responsible for production for Asia-Pacific
markets outside Japan. Genset KK in Kyoto is responsible for production for the
Japan market.

COMMERCIALIZATION OF SYNTHETIC DNA

The following table sets out the Company's approximate percentage sales
of synthetic DNA by geographic region in each of 1996, 1997, and 1998.

1996 1997 1998

France 41% 35% 30%
Europe (outside France) 21% 25% 24%
United States 29% 33% 32%
Asia 6% 7% 6%
Rest of the World 3% 0% 8%

PRINCIPAL SYNTHETIC DNA CUSTOMERS

Genset Oligos has approximately 4,000 customer accounts in more than 50
countries for its synthetic DNA. Many of the large laboratories involved in the
international effort to map and sequence the human genome are customers,
including French institutions such as the CENTRE NATIONAL POUR LA RECHERCHE
SCIENTIFIQUE (The French

National Scientific Research Center), the Curie Institute, Genethon, the
INSTITUT NATIONAL POUR LA RECHERCHE AGRONOMIQUE (The French National Institute
for Agricultural Research), INSERM, and the Pasteur Institute; American
institutions such as Lawrence Livermore Laboratory, the U.S. NIH, Columbia
University, Harvard Medical School, the Salk Institute, the University of
California, Berkeley, the University of California, San Diego, and Washington
University School of Medicine; the English Sanger Centre; and Japanese
institutions such as the University of Keio and the STAFF Institute. In
addition, many of the Company's customers are private as well as public
biotechnology and pharmaceutical companies. The Company's single largest
customer account represented approximately 6%, 8% and 12% in 1998, 1997 and
1996, respectively, of the Company's consolidated net sales; however, in each
year, the largest customer was a different institution.

SUPPLIERS

The Company currently relies on Applied Biosystems, a division of
Perkin Elmer, and Molecular Dynamics, a division of Amersham, to provide all of
its DNA sequencing machines, and on a limited number of suppliers to provide
reagents for DNA sequencing. While other DNA sequencing machines are available,
the Company does not believe that such other machines are as efficient as the
machines currently used by the Company. Nonetheless, the Company believes that
other new machines as efficient or possibly more efficient than the machines
currently used by the Company could become available in the coming months. The
Company will consider such new machines for its future capacity extensions.

The Company believes that there are adequate alternative suppliers of
all reagents required for its sequencing and FPS programs. In the case of a few
selected reagents, however, alternative suppliers are either significantly more
expensive or their products would permit less efficient sequencing or scanning.
For each of these reagents, the Company has agreements guaranteeing the supply
of a certain quantity at a certain price over periods of one year. There can be
no assurance that the Company will be able to renew such agreements on
commercially acceptable terms. The Company orders other reagents by submitting
purchase orders at the time of purchase. The Company continually seeks to
develop additional sources of reagents, including through internal production,
and experiments with potential new reagents. No assurance can be given, however,
that reagents will remain available in commercial quantities at costs that are
not economically prohibitive. Should the Company be unable to obtain an adequate
supply of reagents or other ingredients at commercially reasonable rates, its
ability to continue to identify genes through gene sequencing and functional
polymorphism scanning in accordance with its current business plan may be
adversely affected.

COMPETITION

GENOMICS RESEARCH

A number of entities are attempting to rapidly identify and patent
genes responsible for causing diseases or an increased susceptibility to
diseases. Competition in this field is intense and expected to increase. The
Company faces competition from pharmaceutical and biotechnology companies,
including several companies in the United States, which have also undertaken
large-scale gene sequencing programs. There have been recent developments in
both corporations and publicly funded research institutions to generate SNP
markers and develop SNP maps. These efforts validate the Company's approach and
leadership position in SNP mapping and present new competitive challenges. In
addition, significant research to identify genes is being conducted by
universities, other non-profit research institutions and French, U.S. and other
government-sponsored entities.

The Company is aware that certain entities are pursuing a gene
identification and characterization and product development strategy based
upon positional cloning approaches and, in certain cases, other approaches
including: random sequencing to identify genes, gene fragments or
polymorphisms without regard to their role in the disease process;
proteomics, which focuses on the study of proteins; and two-hybrid systems,
which focus

on the interactions between proteins. The Company believes, however, that its
comprehensive approach using association studies will enable it to identify
genes related to a given common disease or drug response more quickly than
its competitors. In particular, the Company believes that among the various
elements of its comprehensive approach, each of its high-resolution mapping,
BAC library, sequencing using advanced process control and sequence
verification software, 5 prime sequence identification, gene expression
pattern screening, NetGene(TM) and SignalTag(TM) databases and
BioIntelligence analysis software, genotyping, and FPS technologies involves
proprietary know-how, technology or data and provides it with a competitive
advantage. See " -- The Company's Technological Strategy" and " -- The
Company's Technology ." In addition, the Company believes that its low-cost
access to the synthetic DNA necessary for genomic sequencing, genotyping and
high-resolution mapping is a competitive advantage.

There can be no assurance, however, that other companies have not or
will not develop approaches to identify disease-related and drug response genes
more rapidly than the Company. In addition, there can be no assurance that any
of the Company's competitors using current technology will not discover and
establish a competitive advantage in connection with one or more of the diseases
which the Company has identified as a target or with its pharmacogenomics
programs. In particular, the Company is aware of other programs to identify
genes associated with prostate cancer, of several corporate and academic genomic
research programs targeting schizophrenia, of a few competitors which have
entered into strategic partnerships with pharmaceutical companies targeting
osteoporosis, and of several competitors which have indicated their intention to
perform pharmacogenomics studies. Some of the Company's competitors have already
reported gene discoveries related to other diseases, including the discovery of
genes implicated in human breast cancer, Alzheimer's disease, asthma, diabetes,
coronary artery disease, osteoporosis and obesity in mice and humans. Other
entities may have identified and characterized other disease genes, which
discoveries have not yet been publicly reported.

The Company believes that its ability to compete is also dependent, in
part, upon its ability to continue to create and maintain scientifically
advanced technology, its ability to find appropriate strategic partners, and its
strategic partners' abilities to develop and commercialize drugs or diagnostic
products based upon the Company's gene discoveries. The Company is also
dependent upon its ability to attract and retain qualified personnel, obtain
patent protection or otherwise develop proprietary technology or processes and
secure sufficient capital resources for the expected substantial time period
between technological conception and commercial sales of products based upon the
Company's gene discoveries.

Many of the Company's competitors have substantially greater research
and product development capabilities and financial, scientific, marketing and
human resources than the Company. These competitors may succeed in identifying
genes or developing drugs earlier than the Company or its strategic partners,
obtaining authorization from pharmaceutical product regulatory agencies for such
products more rapidly than the Company or its strategic partners, or developing
products that are more effective than those proposed to be developed by the
Company or its strategic partners. Any potential products based on genes
identified by the Company will face competition both from companies developing
gene-based products and from companies developing other forms of treatment for
particular diseases targeted by the Company. Certain competitors of the Company
or its strategic partners may be further advanced than the Company in
identifying genes and developing potential products that may compete with
potential products of the Company or its strategic partners. There can be no
assurance that research and development by others will not render the products
which the Company or its strategic partners may seek to develop obsolete or
uneconomical or result in treatments or cures superior to any other therapy
developed by the Company or its strategic partners, or that any therapy
developed by the Company or its strategic partners will be preferred to any
existing or newly developed technologies.

SYNTHETIC DNA

On the basis of its capacity, the Company believes it is the world's
largest manufacturer of synthetic DNA. The Company competes in this industry on
the basis of its technical capabilities, its customer service and the worldwide
implantation of its production facility. The relative importance of various
competitive factors depends on

the market segment being served. Large-scale genomics research projects
require large numbers of different oligonucleotides. The Company believes
that the highly automated organization of its production facilities,
proprietary Ultrafast Parallel Synthesizer and automated patented nucleic
acid synthesis processes enable it to produce greater numbers of
oligonucleotides more quickly, accurately and economically than most if not
all of its competitors. See " -- Manufacturing and Marketing -- Production of
Synthetic DNA."

Other market segments, including academic research and some biology and
clinical chemistry laboratories, typically require smaller quantities and
numbers of oligonucleotides that can be provided by a much greater range of
producers. Most of these producers are considerably smaller, have lower fixed
costs than the Company and serve a local or regional market. The Company
believes its ability to compete in these markets depends, in part, upon its
ability to deliver a wide range of synthetic oligonucleotides at competitive
prices and as flexible and rapid a service as smaller, local producers. Genset
Oligos' electronic mail ordering system enables customers to input their orders
directly into the Company's oligonucleotide synthesizers, thus reducing the risk
of errors and accelerating turnaround time. Alternatively, orders can be placed
through dedicated server on the World Wide Web, which also serves to enhance the
Company's global exposure and customer service. In addition, the Company
believes its recognized research, chemical and analytical chemical expertise
provides it with a unique competitive advantage with respect to customers
requiring complex and specially processed oligonucleotides as well as extremely
high quality standards.

EMPLOYEES

As of May 31, 1999, the Company had 517 full-time employees, including
442 in France, (Paris and Evry) 62 in La Jolla, California, six in Singapore and
seven in Kyoto. This total includes 362 dedicated research and development
personnel; 68 of the Company's employees have Ph.D.s and 11 (including nine of
the employees with Ph.D.s) have M.D.s. The Company believes that employing its
principal scientists on a full-time basis rather than on a temporary consulting
basis has resulted and will continue to result in improved cooperation among its
researchers and in more rapid technological development.

The Company anticipates hiring approximately 70 employees by the end of
1999 to reach a level of approximately 570 employees. While the Company has been
able to attract and retain skilled and experienced scientific personnel, there
can be no assurance that the Company will continue to be able to attract and
retain such personnel.

In order to protect its proprietary know-how and data, the Company has
required all of its employees, other than its three DIRECTEURS GENERAUX, and
each of its strategic partners and collaborators to enter into confidentiality
agreements. In addition, Genset has required all of its research and development
and marketing employees, other than its three DIRECTEURS GENERAUX and its
employees in the United States, to enter into non-compete agreements with terms
of eighteen months to three years after termination of employment with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's proprietary know-how or technology or
adequate remedies in case of breach. See " -- Patents and Proprietary Rights --
Proprietary Rights."

Employment contracts are in place for all personnel other than the
three DIRECTEURS GENERAUX. Under French law, DIRECTEURS GENERAUX have a special
status as senior executives, which precludes them from having employment
contracts. The employment contracts with all of the Company's French employees
are subject to the provisions of the CONVENTION COLLECTIVE DES INDUSTRIES
CHIMIQUES (Collective Agreement for the Chemical Industries). The French union
CGT is represented at the Company since November 1998. The Company believes the
establishment of union representation to be normal in the ordinary course of
business for a French company with over 400 employees. As required by French
law, the Company's management holds periodic meetings with representatives of
employees. See "Directors and Officers of the Registrant." Management considers
its relations with its employees to be good.

ITEM 2: DESCRIPTION OF PROPERTY

Genset's corporate headquarters are in Paris at 24, rue Royale, 75008
Paris, a central downtown location. At this location, the Company leases 1247
square meters (approximately 13,400 square feet) of office space used
principally for executive offices, and patent and bioinformatics activities.
There are two leases with terms of nine years; one began on February 3, 1997,
and the second began on October 15, 1998. In addition, Genset leases 1839 square
meters (approximately 19,800 square feet) of laboratory, production and office
space in a complex located at 1, rue Robert & Sonia Delaunay, 75011 Paris. This
location is occupied principally by Genset Oligos and the Company's accounting
activities. The term of the lease for this location is nine years from January
31, 1991.

The Company's Genomics Research Center is housed in a modern complex
located in Evry, outside of Paris. The Genomics Research Center contains the
Company's integrated sequencing, mapping, gene libraries, genotyping, functional
polymorphism scanning, clinical collections and bioinformatics activities, as
well as industrial office space and engineering support. It currently occupies
approximately 8,500 square meters (approximately 91,500 square feet), out of the
total surface area of approximately 12,000 square meters (129,000 square feet)
covered by the lease, which expires on March 31, 2005.

The Company's U.S. subsidiary leases two facilities in La Jolla,
California. Genset Corporation's production facility and synthetic DNA sales
office are located at 505 Coast Boulevard South, Suite 200, La Jolla, California
92037, where it occupies 17,222 square feet under a lease which expires on
January 31, 2003. This location also contains research facilities for Genset's
pharmacogenomics and physiological genomics programs. Administrative offices are
located at 875 Prospect Street, Suite 206, La Jolla, California 92037, where the
Company occupies approximately 7,000 square feet of office space pursuant to a
lease that expires on August 31, 2003.

The Company's Japanese subsidiary, Genset K.K., is located in the Kyoto
Research Park, where it leases 183 square meters (approximately 2000 square
feet) of office space for its production and sales activities for its expanding
Japanese business. The lease expires on December 31, 2001.

Genset Singapore Biotechnology Pte Ltd leases a production facility of
115 square meters (approximately 1,240 square feet) in a modern building in the
Science Park II of the National University of Singapore. The lease is for two
years from February 16, 1998, with an option to extend for a further twelve
months.

ITEM 3: LEGAL PROCEEDINGS

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

ITEM 4: CONTROL OF REGISTRANT

PRINCIPAL SHAREHOLDERS

At December 31, 1998, there were 7,419,706 Ordinary Shares outstanding
of which 2,743,046 were represented by 8,229,138 ADSs. At May 31, 1999, there
were 7,445,206 Ordinary Shares issued and outstanding of which 2,593,509 were
represented by 7,780,527 ADSs. The fully diluted number of Ordinary Shares at
such date, assuming the exercise of all authorized options and warrants (whether
or not allocated by the Board of Directors), was 9,199,487.

The following table sets forth certain information regarding all owners
of greater than 5% of the Company's Ordinary Shares as of May 31, 1999. (based
on the most recent information available to the Company):

NUMBER OF PERCENT
ORDINARY SHARES OF
SHAREHOLDER OWNED(1) CLASS(2)
- ----------- -------- --------

Fidelity Investment Services Limited(3) 804,134 10.80%
OppenheimerFunds, Inc.(4) 539,533 7.25%
Financiere & Immobiliere Marcel Dassault ("FIMD")(5) 420,466 5.65%
Deutsche Bank(6) 400,000 5.37%
--------- ------
Total 2,164,133 29.07%
--------- ------
--------- ------

- ----------

(1) Including both Ordinary Shares and ADSs.

(2) Calculated based on the total number of Ordinary Shares outstanding at May
31, 1999.
(3) Held by investment management subsidiaries of Fidelity Investment Services
Limited on behalf of discretionary fund managed clients. The number of
Ordinary Shares owned is based on information available as of April 12,
1999.
(4) Held by registered investment companies advised or subadvised by
OppenheimerFunds, Inc. The number of Ordinary Shares owned is based on
information available as of May 31, 1999.
(5) The number of Ordinary Shares owned is provided as of May 19, 1999. FIMD is
a director of the Company, represented on the Board of Directors by Benoit
Habert. See "Directors and Officers of the Registrant -- Board of
Directors." FIMD holds outstanding warrants to purchase 3,800 Ordinary
Shares.
(6) Held by investment management subsidiaries of Deutsche Bank AG, Morgan
Grenfell Asset Management Limited, and Morgan Grenfell Investment
Management Limited on behalf of discretionary fund managed clients. The
number of Ordinary Shares owned is based on information available as of
April 12, 1999.

As of May 31, 1999, the total number of Ordinary Shares owned by
directors of the Company as a group (seven persons) and by executive officers
and senior management (excluding directors) of the Company as a group (20
persons) was 715,888 and 125,423, respectively, or approximately 7.8% and 1.4%,
respectively, of Genset's outstanding Ordinary Shares. If such directors and
executive officers and senior management exercised all their outstanding options
and warrants to purchase Ordinary Shares (including options that have not yet
vested), they would own as a group 19.4% of Genset's fully diluted share
capital, of which 429,166 Ordinary Shares or 4.7% of the share capital would be
held by FIMD, 687,300 Ordinary Shares or 7.5% would be held by the three
directors that are executive officers of the Company, 38,522 Ordinary Shares or
0.4% of the share capital would be held by the other directors, and 627,023
Ordinary Shares or 6.8% of the share capital would be held by executive officers
and senior management (excluding directors) as a group (20 persons). See
"Options to Purchase Securities from Registrant or Subsidiaries."

ITEM 5: NATURE OF TRADING MARKET

MARKET INFORMATION

Prior to the June 1996 initial public offering, there was no public
market for the Ordinary Shares or the American Depositary Shares ("ADSs"). In
the United States, the Ordinary Shares trade in the form of ADSs, each ADS
representing one-third of one Share. The ADSs are listed on the NASDAQ National
Market (the "NASDAQ"), the principal trading market for the Ordinary Shares,
under the symbol "GENXY." American Depositary Receipts evidencing the ADSs are
issuable by The Bank of New York, as Depositary. The Ordinary Shares are also
listed on the NOUVEAU MARCHE of the BOURSE DE PARIS (the "NOUVEAU MARCHE").

THE PARIS BOURSE

Securities listed on the BOURSE DE PARIS (the "Paris Bourse" or Paris
Stock Exchange) are traded in one of four regulated markets. The securities of
most large public companies are listed on the PREMIER Marche, with the SECOND
MARCHE available for small and medium-sized companies. Trading on the NOUVEAU
MARCHE was introduced in March 1996 to allow companies seeking development
capital to access the stock market. A new regulated market was created in May
1998, the MARCHE DES EDR (European Depositary Receipts or EDR market) which has
been in operation with effect from the beginning of 1999, with the introduction
of the euro. Securities of certain other companies have also been traded on a
non-regulated over-the-counter market, the MARCHE LIBRE OTC which is operated by
the SBF-BOURSE DE PARIS.

THE NOUVEAU MARCHE

The NOUVEAU MARCHE is a regulated market, managed and operated by the
SOCIETE DU NOUVEAU MARCHE ("SNM") which is responsible for membership and
listing, organizing admissions and defining clearing and settlement regulations.
The SNM is a subsidiary of the SBF-BOURSE DE PARIS, the organization that
manages and operates the Paris Bourse. The NOUVEAU MARCHE, however, is neither a
new section of an existing market, nor a stepping stone to the Paris Bourse's
SECOND MARCHE.

The NOUVEAU MARCHE has a limited operating history. As of December 31,
1998, only 81 companies were listed on the NOUVEAU MARCHE, which was established
in February 1996. There can be no assurance that the NOUVEAU MARCHE will develop
into a stable and liquid market for securities or that price fluctuations of the
Ordinary Shares on the NOUVEAU MARCHE will not have a negative impact on the
market price of the ADSs on NASDAQ.

The NOUVEAU MARCHE is an electronic market, which combines a central
orderbook with market making to ensure greater liquidity. Member firms of the
NOUVEAU MARCHE may act in one or more capacities: Listing Advisers/Market-Makers
(INTRODUCTEURS/TENEURS DE MARCHE, or ITMs) or broker-dealers
(NEGOCIATEURS-COURTIERS). ITMs operate in a dual capacity as listing advisors
and as market makers for the Ordinary Shares assigned to them. An ITM must be
open for business as of 8:30 a.m. and close no earlier than 5:00 p.m.

Admission to the NOUVEAU MARCHE is subject to certain capital adequacy
and liquidity requirements determined by the SNM. In addition, companies
applying for listing on the NOUVEAU MARCHE are required to publish comprehensive
information regularly and to keep the public informed of all events likely to
affect the market price of their securities.

Since September 14, 1998, the SNM has introduced continuous trading for
the most actively shares on the NOUVEAU MARCHE. For shares which are not traded
continuously, retail orders on the NOUVEAU MARCHE are matched by the central
system at two daily fixings, at 10:30 a.m. and 4:30 p.m. Between such fixings,
ITMs display bid/ask spreads for a minimum number of each of the securities for
which they act as market-makers, and trades with the ITM are executed from time
to time throughout the day. The shares of the Company are traded continuously.
Trading in the securities listed on the NOUVEAU MARCHE may be suspended by the
SNM if quoted prices exceed certain price limits defined by the regulations of
the SNM. In particular, unless market conditions otherwise require, the SNM may
suspend trading of a security, for up to 30 minutes, if the SNM believes that
the offers and demands for such security would cause the next quoted price of a
security to vary by more than 10% from the quoted price resulting from the last
fixing or the last trading price for the shares which are traded on a continuous
basis. In the latter case, further suspensions for up to 30 minutes are also
possible if the price varies again by more than 5%. The SNM may also suspend
trading of a listed security in certain other limited circumstances, including,
for example, the occurrence of unusual trading activity in such security.

Prior to any transfer of securities held in registered form on the
NOUVEAU MARCHE, such securities must be converted into bearer form and
accordingly inscribed in an account maintained by an accredited intermediary
with the SOCIETE INTERPROFESSIONNELLE POUR LA COMPENSATION DES VALEURS
MOBILIERES ("SICOVAM"), an organization that maintains securities accounts of
French listed companies and acts as a clearing house for trades in such
securities. Dealings in securities are initiated by the owner giving
instructions (through an agent, if appropriate) to the relevant accredited
intermediary. Trades of securities listed on the NOUVEAU MARCHE are cleared and
settled through SICOVAM, using a continuous net settlement system. A fee or
commission is payable to the ITM or broker-dealer or other agent involved in the
transaction.

TRADING ACTIVITY

The table below sets forth, for the periods indicated, the reported
high and low sales prices in U.S. dollars for the ADSs on the NASDAQ and the
reported high and low sales prices in euro for the Ordinary Shares on the
NOUVEAU MARCHE and the average daily volume of shares traded on each exchange.

On December 31, 1998, France and ten other countries of the fifteen
countries of the European Union established fixed conversion rates between their
existing sovereign currencies and the euro. Following the introduction of the
euro, on January 1, 1999, all capital markets of these eleven countries
converted to euros and all companies listed on these markets have been
officially quoted in euros since January 4, 1999. Solely for the convenience of
the reader, 1996, 1997 and 1998 prices on the NOUVEAU MARCHE have been restated
from French francs into euros using the official exchange rate fixed on December
31, 1999 (euro 1 = FF 6.55957 or FF 1 = euro 0.152449).

NASDAQ NOUVEAU MARCHE
PRICE PER ADS PRICE PER SHARE
----------- ------------ --------------- --------------
AVG. DAILY AVG. DAILY
CALENDAR PERIOD HIGH LOW VOLUME(1) HIGH LOW VOLUME(2)
- --------------- ---- --- ------ ---- --- ------

1996
Second quarter..................... $ 21.50 $ 18.13 291,103 euro 53.36 euro 43.75 20,221
Third quarter...................... $ 19.25 $ 15.25 29,375 euro 44.97 euro 35.83 4,161
Fourth quarter..................... $ 18.38 $ 15.25 8,422 euro 44.06 euro 36.28 2,094
1997
First quarter...................... $ 17.25 $ 13.25 17,331 euro 44.82 euro 35.06 6,001
Second quarter..................... $ 20.87 $ 15.87 16,038 euro 54.73 euro 38.87 6,027
Third quarter...................... $ 25.00 $ 18.00 43,448 euro 71.96 euro 49.55 9,254
Fourth quarter..................... $ 23.43 $ 17.75 36,210 euro 63.11 euro 46.19 5,233
1998
First quarter...................... $ 29.00 $ 19.62 29,998 euro 81.71 euro 55.34 8,718
Second quarter..................... $ 38.00 $ 28.25 34,771 euro 103.67 euro 80.04 10,785
Third quarter...................... $ 32.50 $ 17.63 28,886 euro 86.96 euro 50.61 8,149
Fourth quarter..................... $ 31.13 $ 22.63 23,970 euro 83.08 euro 55.64 9,615
1999
First quarter ..................... $ 29.00 $ 14.25 53,024 euro 74.45 euro 36.90 11,576
Second quarter (through May 31).... $ 17.88 $ 14.18 23,535 euro 50.15 euro 42.00 10,387

- ----------

(1) Average of the daily number of ADSs traded on the NASDAQ, each ADS
representing one-third of one Ordinary Share. The purchase and sale of the
same ADS is counted as one transaction.

(2) Average of the daily number of Ordinary Shares traded on the NOUVEAU
MARCHE.

TRADING BY THE COMPANY IN ITS SECURITIES

Under French law amended by a law dated July 2, 1998, a company may not
subscribe for newly-issued shares in its own capital, but it may, either
directly or through an intermediary acting on its behalf, acquire its own shares
(a) to reduce its share capital by canceling such acquired shares, with approval
of the shareholders at an extraordinary meeting, (b) to provide shares for
distribution to employees under a profit-sharing plan or stock option plan, and
(c) if the company shares are listed on a regulated market (i.e. on the PREMIER
MARCHE, the SECOND MARCHE or the NOUVEAU MARCHE), subject to the filing of a
NOTE D'INFORMATION that has received a VISA of the COB and after obtaining
approval from the shareholders at an ordinary meeting, acquire up to 10 % of its
share capital. In the latter case, the company may decide (i) to keep these
shares, (ii) to sell or transfer them (including to employees under a non-profit
or stock option plan) or (iii) with the approval of the shareholders at an
extraordinary shareholders' meeting, to cancel them up to a limit of 10% of the
outstanding capital over a 24 month-period. French law also

requires the Company to notify such purchases to the COB, prior to engaging
in such transactions as well as to report on any purchase and sale thereafter.
In addition, pursuant to Regulation n(degree) 90-04 (as modified) of the COB,
all purchases by the Company of its own shares are subject to certain
limitations, including as to timing, price and quantity, so as not to disrupt
the normal trading of the shares. Furthermore, the Company has to inform the
CONSEIL DES MARCHES FINANCIERS (the "CMF") the self-regulatory organization that
has general authority over French stock exchange, on a monthly basis of any
purchase, sale, transfer or cancellation of its own shares. The CMF will then
make this information public.

In addition, under French law an issuer may not directly or through a
person acting on its own behalf, own more than 10% of its outstanding share
capital except in certain limited circumstances. If a company acquires its own
shares, they must be held in registered form and fully paid up at the time of
their acquisition by the Company. Such shares are deemed outstanding under
French law but, as long as held by the Company, they are not entitled to
dividends, voting rights or preferential rights.

On May 9, 1999, the Company received shareholder approval to purchase
up to a maximum of 10% of the outstanding Ordinary Shares of the Company. This
approval is subject to the conditions that the share purchase price must not
exceed euro 80, that the share selling price must not be lower euro 40, and that
the total funds spent by the Company on purchasing its own shares must not
exceed euro 5,000,000. Such authorization will expire on the date of the annual
ordinary meting of shareholders that will approve the accounts for the year
ended December 31, 1999.

ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

LIMITATIONS AFFECTING SHAREHOLDERS OF A FRENCH COMPANY

OWNERSHIP OF ADSS OR ORDINARY SHARES BY NON-FRENCH RESIDENTS

Under French law, there is no limitation on the right of non-French
residents or non-French security holders to own, or where applicable, to vote
securities of a French company. However, both E.U. and non-E.U. residents must
file a DECLARATION ADMINISTRATIVE, or administrative notice, with French
authorities in connection with the acquisition of a controlling interest in any
French company. Under existing administrative rulings, ownership of 20 percent
or more of a listed company's share capital or voting rights is regarded as a
controlling interest, but a lower percentage may be held to be a controlling
interest in certain circumstances (depending upon such factors as the acquiring
party's intentions, its ability to elect directors or financial reliance by the
French company on the acquiring party).

EXCHANGE CONTROLS

Under current French exchange control regulations, there are no
limitations on the amount of payments that may be remitted by a French company
to non-French residents. Laws and regulations concerning foreign exchange
controls do require, however, that all payments on transfers of funds made by a
French resident to a non-French resident be handled by an accredited
intermediary. In France, all registered banks and substantially all credit
establishments are accredited intermediaries.

REQUIREMENTS FOR HOLDINGS EXCEEDING CERTAIN PERCENTAGES

French law provides that any individual or entity (including a holder
of ADSs), acting alone or in concert with others, that acquires, directly or
indirectly, more than 5%, 10%, 20%, 331/3%, 50% or 662/3% of the outstanding
voting shares or the rights thereof of a listed company, or that increases or
decreases its shareholding or voting rights thereof by any such percentage, must
notify such company within fifteen calendar days of the date such threshold has
been crossed, of the number of shares it holds and the voting rights attached
thereto. Such individual or

entity must also notify the CMF, within five trading days of the date such
threshold has been crossed. In addition, any shareholder who fails to comply
with the above requirements may have all or part of its voting rights suspended
for up to five years by the commercial court at the request of the company's
chairman, any shareholder or the COB.

In addition, the Company's STATUTS provide that every shareholder
(including a holder of ADSs) who, directly or indirectly, acting alone or in
concert with others, acquires ownership or control of Ordinary Shares
representing 2%, or any multiple of 2%, of the Company's share capital or voting
rights, or whose holdings fall below any such limit, shall be required to notify
the Company of such fact within 15 calendar days of such acquisition or
disposition. Failure to comply with such notification provisions will result in
the suspension of the voting rights attached to the Ordinary Shares exceeding
such 2% threshold held by such shareholder if requested by one or more
shareholders holding Ordinary Shares representing at least 2% of the Company's
share capital or voting rights.

In order to permit shareholders to give the notice required by French
law, the Company is obligated to publish information with respect to the total
number of votes available as of the date of the Company's annual general meeting
in the BULLETIN DES ANNONCES LEGALES OBLIGATOIRES ("BALO") not later than 15
calendar days after such meeting. In addition, if the number of available votes
changes by at least 5% between two ordinary general meetings, the Company is
required to publish in the BALO, within 15 calendar days of such change, the
number of votes then available and provide the CMF with a written notice. In
order to facilitate compliance with the notification requirements provided for
in French law, a holder of ADSs may deliver any such notification to the
Depositary with respect to shares represented by ADSs and the Depositary shall
immediately forward such notification to the Company and the CMF.

Under COB regulations, any person or persons, acting alone or in
concert with others, who acquires more than 10% or 20% of the voting rights of a
listed company, must file with the CMF, the COB and such company a report
disclosing its future intentions with respect to the company. Such report must
be filed with the CMF and the COB within five trading days of the date such
threshold has been crossed and with such company within ten calendar days of the
date such threshold has been crossed. The CMF makes the notice public and the
person or persons who have acquired such voting rights are required to publish a
press release in a financial newspaper having national circulation in France,
stating whether or not such person or persons intend, within 12-month period
following the acquisition, to increase its shareholdings and request a seat on
such company's Board of Directors and whether such person or persons are acting
in concert with others.

FORM, HOLDING AND TRANSFER OF ORDINARY SHARES

Genset's STATUTS provide that Ordinary Shares may be held in registered
or bearer form.

In accordance with French law concerning "DEMATERIALISATION" of
securities, the ownership rights of holders of the Ordinary Shares are not
represented by share certificates but by book entries. Banque Nationale de
Paris, on behalf of the Company, and acting as its agent, maintains a share
account with SICOVAM in respect of all Ordinary Shares held in registered form
(the "Company Share Account"). Ordinary Shares are inscribed in the name of each
shareholder (either directly, or, at the shareholder's request, through such
shareholder's accredited intermediary) in separate accounts (the "Shareholder
Accounts") maintained by Banque Nationale de Paris. Each Shareholder Account
shows the name of the holder and such shareholder's shareholdings and, in the
case of Ordinary Shares inscribed through an accredited intermediary, shows that
they are so held. Genset, as a matter of course, issues confirmations as to
holdings of Ordinary Shares inscribed in the Shareholder Accounts to the persons
in whose names the shareholdings are inscribed, but these confirmations do not
constitute documents of title.

In the case of Ordinary Shares held in bearer form, the shares are held
on the shareholder's behalf by an accredited intermediary and are inscribed in
an account maintained by the accredited intermediary with SICOVAM separate from
the Company Share Account. Ordinary Shares held in this manner are referred to
as being in bearer form. Each accredited intermediary maintains a record of
Ordinary Shares held through it and will issue certificates

of inscription in respect thereof. Transfers of Ordinary Shares held in bearer
form may only be effected through accredited intermediaries and SICOVAM. The
Company's STATUTS permit it to request SICOVAM at any time to provide the
Company with the identity of the holders of bearer Ordinary Shares and with the
number of Ordinary Shares so held.

An owner of Ordinary Shares resident outside France may trade Ordinary
Shares on the Paris Bourse. Should such owner, or the broker or other agent
through whom a sale is effected, require assistance in this connection, an
accredited intermediary should be contacted. A fee or commission is payable to
the SOCIETE DE BOURSE (the French broker, accredited intermediary or other
agent) involved in the transaction.

SHARES ISSUED BEFORE THE DIVIDEND PAYMENT DATE

Under French law, whether or not dividends are eventually paid, shares
of a listed company issued in any year prior to the dividend payment date are
generally not fungible with the other outstanding shares of the company. Until
the annual ordinary meeting of shareholders has determined whether dividends
will be paid in respect of the preceding fiscal year and, if so, until such
dividends are paid, the shares issued since January 1 generally trade at a
discount to those issued previously since they do not have the potential right
to a dividend from the preceding year. If only a limited number of shares are
issued during this period such as, for example, pursuant to the exercise of
options or warrants, it is unlikely that a liquid market for these newly-issued
shares will develop and the owners thereof may therefore encounter difficulties
in trading the shares until the dividend payment date, at which time they become
fungible with all the other shares of the company.

ITEM 7: TAXATION

FRENCH TAXATION

The following is a general summary of the material French tax
consequences of owning and disposing of Ordinary Shares for a holder who is not
a French tax resident and does not hold the Ordinary Shares in connection with a
business conducted in France. The statements relating to French tax laws set out
below are based on the laws in force as of the date hereof, and are subject to
any changes in applicable French tax laws or in any applicable double taxation
conventions or treaties with France occurring after such date.

This discussion is intended only as a descriptive summary and does not
purport to be a complete analysis or list of all potential tax effects of the
purchase or ownership of the Ordinary Shares.

POTENTIAL PURCHASERS OF ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN
TAX ADVISERS CONCERNING THE CONSEQUENCES OF OWNERSHIP AND DISPOSAL OF ORDINARY
SHARES.

TAXATION ON SALE OR DISPOSAL OF ORDINARY SHARES

Subject to the provisions of any relevant double tax treaty, persons
who are not French residents for the purpose of French taxation (as well as,
under certain conditions, foreign states, international organizations and
certain foreign public bodies) and who have held not more than 25%, directly or
indirectly, of the dividend rights ("BENEFICES SOCIAUX") of the Company at any
time during the preceding five years, are not generally subject to any French
income tax or capital gains tax on any sale or disposal of Ordinary Shares.

If a transfer of Ordinary Shares is evidenced by a written agreement,
such share transfer agreement is, in principle, subject to registration
formalities and therefore to a 1% registration duty assessed on the higher of
the purchase price and the market value of the Ordinary Shares (subject to a
maximum assessment of FF 20,000 per transfer), provided that, under certain
circumstances, no duty is due if such written share transfer agreement is

executed outside France.

TAXATION OF DIVIDENDS

In France, dividends are paid out of after-tax income. French residents
are entitled to a tax credit, known as the AVOIR FISCAL. Since January 1, 1999,
the rate of the AVOIR FISCAL depends on its user, and is generally equal to 45%
of the dividends paid, unless such AVOIR FISCAL is being used by and individual
or some specific entities, in which case it is equal to 50% of the dividend
paid. Dividends paid to non-residents are normally subject to a 25% French
withholding tax and, under French domestic law, non-residents are not eligible
for the benefit of the AVOIR FISCAL. Under most tax treaties entered into
between France and other countries, such withholding tax may, subject to certain
conditions, be reduced and give rise in such other country to a tax credit of
the amount of the tax withheld or, in the case of certain tax treaties, be
eliminated.

Furthermore, the following countries and TERRITOIRES D'OUTRE-MER and
other territories have entered into treaties with France whereby tax residents
of such countries and territories may, under certain circumstances, obtain from
the French tax authorities a reduction (generally to a rate of 15%) of all or
part of such withholding tax and a refund of the AVOIR FISCAL (net of applicable
withholding tax), or in the case of German tax residents, a tax credit in an
amount equal to the aggregate of the amount of the applicable AVOIR FISCAL and
the amount of the applicable withholding tax.

Australia Canada Israel Malta Pakistan Togo
Austria Finland Italy Mauritius Senegal Turkey
Belgium Gabon Ivory Coast Mexico Singapore United Kingdom
Bolivia Germany Japan Netherlands South Korea United States of America
Brazil Ghana Luxembourg New Zealand Spain Venezuela
Burkina Faso Iceland Malaysia Niger Sweden
Cameroon India Mali Norway Switzerland

TERRITOIRES D'OUTRE-MER AND OTHER TERRITORIES

New Caledonia
Saint-Pierre et Miquelon
Mayotte

Treaties with some of the countries and territories listed above
contain specific limitations applicable to corporate entities entitled to
benefit from the AVOIR FISCAL, or limit the rights to the AVOIR FISCAL strictly
to individual residents (as opposed to corporate entities).

Dividends paid to non-residents of France benefiting from the AVOIR
FISCAL in accordance with a tax treaty (other than German residents) will be
subject, on the date of payment, to the withholding tax at the reduced rate
provided for by such treaty (subject to certain filing formalities) rather than
to the French withholding tax at the rate of 25% to be later reduced to the
treaty rate; PROVIDED, HOWEVER, that they establish their entitlement to such
reduced rate before the date of payment.

Amounts distributed as dividends by French companies out of profits
which have not been taxed at the ordinary corporate income tax rate or which
have been earned and taxed more than five years before the distribution are
subject to a PRECOMPTE or prepayment by such companies. The PRECOMPTE is paid by
the distributing company to the French tax authorities and is generally equal to
one-half of the nominal dividend distributed. However, the PRECOMPTE may be
reduced to 45% in respect of dividends paid to holders that are entitled to use
the AVOIR FISCAL at the rate of 45% rather than the rate of 50%, provided that
the Company certifies to have distributed such dividends to such beneficiaries.
When a tax treaty in force does not provide for a refund of the AVOIR FISCAL or
when the

non-resident investor is not entitled to such refund but is otherwise entitled
to the benefits of a tax treaty, such investor may obtain from the French tax
authorities a refund of such PRECOMPTE to the extend such PRECOMPTE was actually
paid in cash by the Company (net of applicable withholding tax).

ESTATE AND GIFT TAX

Generally, France imposes estate and gift tax on non-residents on
certain real and personal property acquired by inheritance or gift from a
non-resident of France if such property is deemed to be situated in France.
France has entered into estate and gift tax treaties with a number of countries
pursuant to which, assuming certain conditions are met, residents of the treaty
countries may be exempted from such tax or obtain a tax credit. Prospective
investors in Ordinary Shares should consult their own advisors concerning the
applicability of French estate and gift tax to their shareholding in the Company
and the availability of, and the conditions for claiming exemption under, such a
treaty.

WEALTH TAX

In the absence of a more favorable tax treaty, the French wealth tax
(IMPOT DE SOLIDARITE SUR LA FORTUNE) does not generally apply to non-French
resident individual investors owning directly or indirectly less than 10% of the
Company's share capital.

TAXATION OF U.S. INVESTORS

The following is a general summary of the material United States
federal income and French tax consequences to owners of one or more ADSs or
Ordinary Shares (a) who own, directly and indirectly, less than 10% of the
capital of the Company, (b) who are (i) citizens or residents of the United
States for United States federal income tax purposes, (ii) United States
domestic corporations or (iii) otherwise subject to United States federal income
taxation on a net income basis in respect of the ADSs or Ordinary Shares, (c)
who are entitled to Treaty benefits under the "limitation on benefits"
provisions contained in the Treaty, as discussed below ("U.S. Holders"), (d) who
hold the ADSs or Ordinary Shares as capital assets and (e) whose functional
currency is the U.S. dollar. Certain holders (including, but not limited to,
United States expatriates, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax,
securities broker-dealers and persons holding the ADSs or Ordinary Shares as
part of a conversion transaction) may be subject to special rules not discussed
below. Because this is a general summary, prospective purchasers are advised to
consult their own tax advisor with respect to the purchase and ownership of ADSs
and Ordinary Shares.

The statements of United States and French tax laws set forth below
assume that each obligation in the Deposit Agreement and any related agreement
will be performed in accordance with its terms and are based on United States
and French laws and the double taxation conventions between the United States
and France in force, and on the practice of the French tax authorities, as of
the date hereof, and as a consequence are subject to any changes in such laws,
conventions or practice occurring after such date. In this regard, the
Convention between the United States of America and the French Republic for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital of August 31, 1994 (the "Treaty"), entered into
force on December 30, 1995 and the French tax authorities issued tax regulations
on June 7, 1994 and March 1, 1996 (the "Regulations").

For purposes of the Treaty and the United States Internal Revenue Code
of 1986, as amended (the "Code"), U.S. Holders of ADRs will be treated as owners
of the ADSs evidenced thereby and the Ordinary Shares represented by such ADSs.

TAXATION OF DIVIDENDS

AVOIR FISCAL

Under the Treaty, the rate of French withholding tax on dividends paid
to a U.S. Holder whose ownership of the ADSs or Ordinary Shares is not
effectively connected with a permanent establishment or a fixed base in France
is reduced to 15%. Dividends paid to an Eligible U.S. Holder as defined below
will be immediately subject to the reduced rate of 15%, provided that such
holder establishes before the date of payment that such holder is a resident of
the United States under the Treaty in accordance with the procedures described
below. An Eligible U.S. Holder would also be entitled to a payment equal to the
AVOIR FISCAL, (i.e. to 45% or 50% of the dividend paid; depending on whether its
user is an individual or not), less a 15% withholding tax. As noted below, such
payment will not be made to an Eligible U.S. Holder until after the close of the
calendar year in which the dividend was paid and only upon receipt by the French
tax authorities of a claim made by the Eligible U.S. Holder for such payment in
accordance with the procedures set forth below.

An Eligible U.S. Holder is a U.S. Holder whose ownership of ADSs or
Ordinary Shares is not effectively connected with a permanent establishment or
fixed base in France, and who is (i) an individual or other non-corporate holder
that is a resident of the United States as defined pursuant to the provisions of
the Treaty, (ii) a United States corporation, other than a regulated investment
company, (iii) a United States corporation which is a regulated investment
company only if less than 20% of its Ordinary Shares are beneficially owned by
persons who are neither citizens nor residents of the United States or (iv) a
partnership or trust that is treated as a resident of the United States as
defined pursuant to the provisions of the Treaty, but only to the extent that
its partners, beneficiaries or grantors would qualify under clause (i) or (ii)
above.

In general, under the Treaty, an Eligible U.S. Holder may receive a
payment of the AVOIR FISCAL only if such holder (or its partners, beneficiaries
or grantors, if the holder is a partnership or trust) attests that it is subject
to United States federal income taxes on the payment of the AVOIR FISCAL and the
related dividend. Certain entities are not entitled to the full AVOIR FISCAL.
Tax-exempt "U.S. Pension Funds", as discussed below, and certain other
tax-exempt entities (including certain State-owned institutions, not-for-profit
organizations and individuals with respect to dividends beneficially owned by
such individuals and derived from an investment in a tax-favored retirement
account) ("Other Tax-Exempt Entities") that own, directly and indirectly, less
than 10% of the capital of the Company, and that satisfy certain filing
formalities specified in the Regulations (i) are entitled to a payment, subject
to French withholding tax, equal to 30/85 of the gross AVOIR FISCAL (the
"partial AVOIR FISCAL") and (ii) are eligible for the reduced withholding tax
rate of 15% on dividends. A "U.S. Pension Fund" includes the exempt pension
funds established and managed in order to pay retirement benefits subject to the
provisions of Section 401(a) (qualified retirement plans), Section 403(b) (tax
deferred annuity contract) or Section 457 (deferred compensation plans) of the
Code.

Dividends paid to an Eligible U.S. Holder will be subject to the
reduced withholding tax rate of 15% at the time the dividend is paid if (i) such
holder duly completes and provides the French tax authorities with Treasury Form
RF 1 A EU-NO. 5052 (the "Form") before the date of payment of the relevant
dividend together with, if such Eligible U.S. Holder is not an individual, an
affidavit attesting that it is the beneficial owner of all the rights attached
to the full ownership of the ADSs or Ordinary Shares, including, but not limited
to dividend rights, or (ii) if completion of the Form is not possible prior to
the payment of dividends, such holder duly completes and provides the French tax
authorities with a simplified certificate (the "Certificate") stating that (a)
such holder is a U.S. resident as defined pursuant to the provisions of the
Treaty, (b) such holder's ownership of the ADSs or Ordinary Shares is not

effectively connected with a permanent establishment or fixed base in France,
(c) such holder owns all the rights attached to the full ownership of the ADSs
or Ordinary Shares, including but not limited to dividend rights, and (d) such
holder meets all the requirements of the Treaty for obtaining the benefit of the
reduced rate of withholding tax and the right to payment of the French AVOIR
FISCAL. Dividends paid to a U.S. Holder that is not entitled to the AVOIR FISCAL
(I.E., not an Eligible U.S. Holder) or to an Eligible U.S. Holder that has not
filed a completed Form or Certificate before the dividend payment date will be
subject to French withholding tax at the rate of 25%. Such holder may claim a
refund of the excess withholding tax and an Eligible U.S. Holder may claim the
AVOIR FISCAL by completing and providing the French tax authorities with the
Form before December 31st of the year following the end of the calendar year
during which the dividend is paid. U.S. Pension Funds and Other Tax-Exempt
Entities are subject to the same general filing requirements as Eligible U.S.
Holders except that they may have to supply additional documentation evidencing
their entitlement to these benefits.

Eligible U.S. Holders, U.S. Pension Funds and Other Tax-Exempt Entities
must file the Form and, when applicable, the affidavit in order to receive
payment of the AVOIR FISCAL or partial AVOIR FISCAL (whichever is applicable).
The AVOIR FISCAL or partial AVOIR FISCAL is generally expected to be paid to
Eligible U.S. Holders, U.S. Pension Funds and Other Tax-Exempt Entities within
12 months of filing the Form, but not before January 15th following the end of
the calendar year in which the related dividend is paid. Similarly, any French
withholding tax refund is generally expected to be paid to U.S. Holders within
12 months of filing the Form, but not before January 15th following the end of
the calendar year in which the related dividend is paid.

The Form or the Certificate, together with their respective
instructions, will be provided by the Depositary to all U.S. Holders of ADRs
registered with the Depositary and are also available from the United States
Internal Revenue Service. The Depositary will arrange for the filing with the
French tax authorities of all Forms or Certificates completed by U.S. Holders of
ADRs that are returned to the Depositary within the time period specified by the
Depositary in its distribution to registered U.S. Holders of ADRs.

For United States federal income tax purposes, the gross amount of a
dividend and the amount of the AVOIR FISCAL paid to a U.S. Holder, including any
French withholding tax thereon, will be included in gross income as dividend
income in the year each such payment is received (which, in the case of a U.S.
Holder of ADRs, will be the date of receipt by the Depositary) to the extent
paid or deemed paid out of the Company's current or accumulated earnings and
profits as calculated for United States federal income tax purposes. No
dividends received deduction will be allowed with respect to dividends paid by
the Company. Such dividends will generally constitute foreign source "passive"
or (in the case of certain holders) "financial services" income for foreign tax
credit purposes. The amount of any dividend paid in francs or euros, including
the amount of any French taxes withheld therefrom, will be equal to the dollar
value of the francs or euros on the date such dividend is included in income
(which, for a U.S. Holder of ADRs, will be the date of receipt by the
Depositary), regardless of whether the payment is in fact converted into
dollars. A U.S. Holder will generally be required to recognize a United States
source ordinary income or loss upon the sale or disposition of francs or euros.
Moreover, a U.S. Holder may be required to recognize foreign currency gain or
loss, which will generally be United States source ordinary income or loss, upon
the receipt of a refund of amounts, if any, withheld from a dividend in excess
of the Treaty rate of 15%.

French withholding tax imposed at the Treaty rate of 15% on dividends
paid by the Company and on any related payment of the AVOIR FISCAL is treated as
payment of a foreign income tax and, subject to certain conditions and
limitations, may be taken as a credit against such U.S. Holder's United States
federal income tax liability.

PRECOMPTE

dividend distributed. However, the PRECOMPTE may be reduced to 45% in respect of
dividends paid to holders that are entitled to use the AVOIR FISCAL at the rate
of 45% rather than the rate of 50%, provided that the Company certifies to have
distributed such dividends to such beneficiaries.

A U.S. Holder not entitled to the full AVOIR FISCAL may generally
obtain a refund from the French tax authorities of any PRECOMPTE paid by the
Company with respect to the dividends distributed. Pursuant to the Treaty, the
amount of the PRECOMPTE refunded to United States residents is reduced by the
15% withholding tax applicable to dividends and by the partial AVOIR FISCAL paid
to U.S. Pension Funds and other Tax-Exempt Entities. A holder is only entitled
to a refund of PRECOMPTE actually paid in cash by the Company (net of applicable
withholding tax) and is not entitled to a refund of the PRECOMPTE paid by the
Company by off-setting French and/or foreign tax credits.

A U.S. Holder entitled to the refund of the PRECOMPTE must apply for
such refund by filing a French Treasury form RF 1 B EU-NO. 5053 before the end
of the year following the year in which the dividend was paid. The form and its
instructions are available from the United States Internal Revenue Service or at
the CENTRE DES IMPOTS DES NON RESIDENTS (9 rue d'Uzes, 75094 Paris Cedex 2).

For United States federal income tax purposes, the amount of the
PRECOMPTE paid to a U.S. Holder will be included in gross income as dividend
income in the year each such payment is received. Such amounts will generally
constitute foreign source "passive" or (in the case of certain holders)
"financial services income for foreign tax credit purposes. The amount of any
PRECOMPTE paid in francs, including the amount of any French taxes withheld
therefrom, will be equal to the dollar value of the francs or euros on the date
such PRECOMPTE is included in income (which, for a U.S. Holder of ADRs, will be
the date of receipt by the Depositary), regardless of whether the payment is in
fact converted into dollars. A U.S. Holder will generally be required to
recognize a United States source ordinary income or loss upon the sale or
disposition of francs or euros.

TAXATION OF CAPITAL GAINS

A U.S. Holder who is a resident of the United States as defined
pursuant to the provisions of the Treaty will not be subject to French tax on
any capital gain from the sale or exchange of ADSs or Ordinary Shares unless
these ADSs or Ordinary Shares form part of the business property of a permanent
establishment or fixed base that the U.S. Holder has in France. Special rules
apply to individuals who are residents of more than one country. The deposit or
withdrawal of Ordinary Shares by U.S. Holders under the Deposit Agreement will
not be subject to United States federal income tax. In general, for United
States federal income tax purposes, a U.S. Holder will recognize a capital gain
or loss on the sale or exchange of ADRs or Ordinary Shares in the same manner as
on the sale or exchange of any other Ordinary Shares held as capital assets.
Such gain or loss, if any, will generally be United States source gain or loss.
In the case of a U.S. Holder who is an individual, any capital gain generally
will be subject to U.S. federal income tax at preferential rates if specified
minimum holding periods are met.

PASSIVE FOREIGN INVESTMENT COMPANY STATUS

The Company may be classified as a "passive foreign investment company"
(a "PFIC") for United States federal income tax purposes if certain tests are
met. The Company will be a PFIC with respect to a U.S. Holder if for any taxable
year in which the U.S. Holder held the Company's Ordinary Shares, either (i) 75%
or more of the gross income of the Company for the taxable year is passive
income; or (ii) the average value of its assets during the taxable year which
produce passive income or which are held for the production of passive income is
at least 50% of the average fair market value of all the Company's assets for
such year. Passive income means, in general, dividends, interest, royalties,
rents (other than rents and royalties derived in the active conduct of a trade
or business and not derived from a related person), annuities, net gains from
the sale or exchange of assets that produce passive income, net gains from
commodities transactions, net gains from foreign currency transaction and income
equivalent to interest. For the purpose of the PFIC test, if a foreign
corporation owns directly or indirectly at least 25% by value of the stock of
another corporation, the foreign corporation is treated as owning its
proportionate share of the assets of

the other corporation, and as if it had received directly its proportionate
share of the income of such other corporation. The effect of this special
provision with respect to the Company and its direct and indirect ownership of
its subsidiaries is that the Company, for purposes of the income and assets
tests described above, will be treated as owning directly its proportionate
share of the assets of the subsidiaries and of receiving directly its
proportionate share of each of those companies' income, if any, so long as the
Company owns, directly or indirectly, at least 25% by value of the particular
company's stock. Active business income of the Company's subsidiaries will be
treated as active business income of the Company, rather than as passive income.

If the Company were to be classified as a PFIC, a U.S. Holder would be
subject to various adverse U.S. tax consequences. Such adverse consequences
include an interest charge on taxes deemed deferred by them on receipt of
certain "excess" dividend distributions by the Company to the U.S. Holder and on
realization of gain on disposition of any of the U.S. Holder's Company stock
(all of which distributions and gains would be taxable as ordinary income), or
if a U.S. Holder were to so elect to, and the Company were to agree with certain
reporting requirements, such U.S. Holder would be currently taxable on the U.S.
Holder's pro rata share of the Company's ordinary earnings and profits and
long-term capital gains for each year (at ordinary income or capital gains
rates, respectively), even if no dividend distributions were received. Based on
the nature of the Company's expected income, assets and activities, the Company
does not believe that it is currently a PFIC. No assurance can be made, however,
that the IRS will not challenge this position or the Company will not
subsequently become a PFIC.

FRENCH ESTATE AND GIFT TAXES

Pursuant to "The Convention Between the United States of America and
the French Republic for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of
November 24, 1978," a transfer of Ordinary Shares or ADSs by gift or by reason
of the death of a U.S. Holder that would otherwise be subject to French gift or
inheritance tax, respectively, will not be subject to French tax unless (i) the
donor or the transferor is domiciled in France at the time of making the gift,
or at the time of his or her death, or (ii) the Ordinary Shares or ADSs were
used in, or held for use in, the conduct of a business through a permanent
establishment or fixed base in France.

FRENCH WEALTH TAX

The French wealth tax does not generally apply to a U.S. Holder who is
a resident of the United States as defined pursuant to the provisions of the
Treaty.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general, information reporting requirements will apply to dividends
paid in respect of ADSs or Ordinary Shares the proceeds received in the sale,
exchange or redemption of the ADSs or Ordinary Shares by a non-corporate U.S.
Holder, and a 31% backup withholding tax may apply to such amounts if the U.S.
Holder fails to provide an accurate tax identification number or to report
interest and dividends required to be shown on its federal income tax returns.
Finalized Treasury regulations have generally expanded the circumstances under
which information reporting and backup withholding may apply for payments made
after December 31, 2000. Holders of ADSs or Ordinary Shares should consult their
tax advisors regarding the application of the information reporting and backup
withholding rules.

ITEM 8: SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto appearing elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data for the five years ended December 31, 1994, 1995,
1996, 1997 and 1998 have been extracted or derived from the Consolidated
Financial Statements of the Company, which have been prepared in accordance with
U.S. GAAP and audited by Ernst & Young Audit, France, independent auditors.

YEAR ENDED AND AT DECEMBER 31,
-----------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998 1998
-----------------------------------------------------------------------------
FF FF FF FF FF euro(1) U.S. $(1)
(in thousands, except per share data)

Consolidated Statement of
Operations
Data:
Research and development
revenues.................... 3,986 472 16,135 64,232 139,702 21,297 25,005
Net sales...................... 27,346 27,290 32,426 34,458 36,824 5,614 6,591
------ ------ ------ ------ ------ ----- -----
Total Revenues......... 31,332 27,762 48,561 98,690 176,526 26,911 31,596
------ ------ ------ ------ ------- ------ ------

Research and development
expenses ................... (14,845) (32,478) (88,006) (152,349) (221,269) (33,732) (39,604)
Cost of goods sold............. (17,394) (18,419) (21,398) (20,764) (17,494) (2,667) (3,131)
Selling and marketing expenses. (3,187) (3,508) (4,767) (7,296) (8,061) (1,229) (1,443)
General and administrative
expenses.................... (15,083) (17,162) (30,865) (45,927) (56,995) (8,689) (10,201)
-------- -------- -------- -------- -------- ------- --------
Total Expenses......... (50,509) (71,567) (145,036) (226,336) (303,819) (46,317) (54,379)
-------- -------- --------- --------- --------- -------- --------

Loss from operations... (19,177) (43,805) (96,475) (127,646) (127,293) (19,406) (22,783)
-------- ------- -------- --------- --------- -------- --------

Interest income (expense), net. (904) 1,742 9,220 12,554 11,211 1,709 2,007
Foreign Exchange gain (loss)... (433) (891) 298 1,941 (5,834) (889) (1,044)
Other income (expense) net..... 33 10 56 150 16,272 2,480 2,913
Equity in loss of affiliate.... - - - - (8,514) (1,298) (1,524)
-------- -------- -------- --------- --------- -------- --------
Loss before income tax
benefit............... (20,481) (42,944) (86,901) (113,001) (114,158) (17,404) (20,431)
-------- -------- -------- --------- --------- -------- --------

Income tax benefit(3).......... 3,474 7,942 21,815 19,147 17,628 2,687 3,155
-------- -------- -------- -------- -------- -------- --------
Net loss............... (17,007) (35,002) (65,086) (93,854) (96,530) (14,717) (17,276)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Loss per ordinary share(2)(4).. (5.64) (7.96) (11.66) (13.54) (13.24) (2.02) (2.37)
Weighted average of Ordinary Shares
outstanding(2)(4)........... 3,016 4,396 5,581 6,932 7,293 7,293 7,293

Loss per ADS (American
Depositary Share)(2)(4)..... (1.88) (2.65) (3.89) (4.51) (4.41) (0.67) (0.79)
Weighted average of ADSs
outstanding(2)(4)........... 9,048 13,188 16,743 20,796 21,879 21,879 21,879

Consolidated Balance Sheet
Data:
Cash and cash equivalents 63,420 42,071 518,773 461,437 329,315 50,204 58,943
Total assets .......... 112,456 114,010 662,633 674,916 666,411 101,594 119,278
Long-term liabilities
(excluding current
portion)............ 20,355 35,860 42,142 41,014 52,600 8,019 9,415
Accumulated Deficit..... (50,154) (85,156) (150,242) (244,096) (201,108) (30,659) (35,996)
Shareholders' equity.... 69,105 57,591 560,443 552,537 493,565 75,243 88,342

- ----------------------
(1) Euro amounts are translated at the fixed rate of FF 6.55957 for each euro
and dollar amounts are translated solely for convenience at the Noon Buying
Rate in New York on December 31, 1998, of 5.5870 French francs per U.S.
dollar.
(2) See "Item 19: Financial Statements -- Note 1 of the Notes to the
Consolidated Financial Statements."
(3) See "Item 19: Financial Statements -- Note 8 of the Notes to the
Consolidated Financial Statements."
(4) Figures for 1994 and 1995 have been adjusted to reflect the 100-for-1 share
split approved by the shareholders on April 29, 1996.

DIVIDEND POLICY

The Company currently intends to retain all earnings for use in the
operation and expansion of its business and correspondingly does not anticipate
paying any cash or share dividends on its Ordinary Shares in the foreseeable
future. To date, the Company has never declared or paid cash or share dividends
on its Ordinary Shares. Dividends if and when declared by the Company will be
declared in francs but paid to holders of ADSs in dollars.

Dividends paid to ADR holders will be net of fees and charges of the
Depository, net of French withholding tax and may be affected by exchange rate
fluctuations. See " -- Exchange Rate Information" and "Taxation."

ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 20-F contains certain forward-looking
statements that involve risks and uncertainties relating to the future financial
and technological performance of the Company. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. In evaluating such statements,
readers should specifically consider factors which could affect expected
results, including, but not limited to, those highlighted in the relevant
sections hereof and principally: (i) the uncertainties inherent in scientific
research in a field subject to intense competition and rapid technological
change, and in particular the risk that the Company will be unable to discover
and patent genes associated with common diseases or other valuable information
prior to its competitors; (ii) the inability to maintain or initiate third-party
arrangements which generate revenues, in the form of license fees, research and
development support, royalties and other payments, in return for rights to the
results of the Company's research; and (iii) delays or difficulties in
developing or acquiring genomics technologies and technical and managerial
personnel to fulfill gene discovery programs at reasonable costs. Readers are
cautioned not to place undue reliance on such statements, which speak only as of
the date hereof. The Company undertakes no obligation to release publicly any
revisions to forward-looking statements to reflect any changes in events,
conditions or circumstances on which such statements are based.

OVERVIEW

The Company's main costs and expenses relate to the cost of its
research and development activities and DNA manufacturing facilities. In
addition in 1996, 1997 and 1998, the Company has invested significantly in the
expansion of its personnel and facilities and the further development of its
integrated technology platform at industrial-scale in order to fulfill its
corporate mission and strategic objectives. In particular, the Company has
developed all the necessary tools to complete its proprietary high-density
biallelic marker map of the human genome. This map is key to the Company's
genome-wide approach to perform association studies in unrelated individuals to
identify low penetrance genes responsible for many common diseases and clinical
traits. This approach has allowed the Company to secure new strategic
partnerships and generate potential future revenue streams.

Based upon its current plans, the Company believes that its existing
resources and loans will be adequate to satisfy its capital requirements
through the end of 2000. The Company has made this estimate assuming that:
(i) it will not exercise its Abbott put option; (ii) some, but not all, of
the partnership agreements that expired in 1999 or are due to expire during
this period will be renewed; and (iii) no additional strategic partnerships
are entered into during this

period. Any or all of such additional resources would extend the period during
which the Company is able to satisfy its capital requirements. There can be no
assurance, however, that the Company's research and development plans or other
changes affecting the Company's operating expenses will not result in the need
for additional funding before such time or that, if needed, such additional
funding would be available. See " -- Liquidity and Capital Resources."

The Company has incurred losses since its inception and anticipates
that it will incur losses for the next few years. The Company's primary sources
of revenue are, and for the next several years will be limited to, payments made
pursuant to the terms of existing and future strategic alliances with
pharmaceutical companies, licensing arrangements, revenues from its synthetic
DNA activities and interest income. Certain payments under existing strategic
alliance arrangements are contingent upon the Company meeting certain
milestones.

The timing and amount of revenues under strategic alliance arrangements
will be subject to significant fluctuations and therefore the Company's results
of operations for any period may not be comparable to the results of operations
for any other period. In addition, historical results should not be viewed as
indicative of future operating results.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1997

Genset reported total revenues of FF 176.5 million for the year ended
December 31, 1998, an increase of 79% compared to total revenues of FF 98.7
million for the year ended December 31, 1997. Research and development ("R&D")
revenues comprised FF 139.7 million or 79% of total revenues, while
oligonucleotide sales accounted for FF 36.8 million. Revenue from R&D more than
doubled in 1998 from FF 64.2 million in fiscal 1997 as a result of the
initiation of new research collaborations, ongoing research collaborations and
the completion of research milestones. During the year, Genset initiated new
research collaborations with Ceres in agricultural genetics and Pharmacia &
Upjohn in pharmacogenomics, and entered into a licensing agreement with
Wyeth-Lederle Vaccines. In addition, the Company extended existing research
agreements with Synthelabo and Janssen Pharmaceutica, a division of Johnson &
Johnson, and continued other ongoing agreements with Abbott Laboratories and
Genetics Institute.

Genset's total operating expenses increased 34% to FF 303.8 million for
the year ended December 31, 1998 from FF 226.3 million for 1997. This increase
was due primarily to the increase in R&D expenses resulting from the continued
expansion of gene discovery and pharmacogenomics programs. Specifically, R&D
expenses for the year were FF 221.3 million, an increase of 45% as compared to
FF 152.3 million in 1997. This increase was due to the addition of new personnel
and new sequencing equipment, the expansion of facilities, particularly for
high-throughput mapping and genotyping and bioinformatics, and the initiation of
new genomics programs. The percentage of research expenses funded by external
research collaborations increased significantly to 63% in 1998 from 42% in 1997.
Genset expects R&D expenses to continue to increase as additional personnel are
hired, facilities are expanded and additional programs for gene discovery,
pharmacogenomics and gene libraries are initiated. The Company also recognized a
deferred compensation expense of FF 4.4 million in 1998 related to stock options
granted to R&D personnel.

Cost of goods sold and selling and marketing expenses amounted to FF
17.5 million and FF 8.1 million, respectively. Both related to oligonucleotide
sales.

General & administrative ("G&A") expenses increased 24% to FF 57.0
million in 1998 from FF 45.9 million in 1997 as a result of an increase in
patent and licensing activities and bringing operations on line in new

geographic areas. G&A expenses are expected to continue to increase during 1999
due to continued expansion of patent, licensing and business development
activities. The Company also recognized a deferred compensation expense of FF
3.1 million in 1998 related to stock options granted to general and
administrative personnel.

The amortization of total deferred compensation over the next four
years with respect to stock options outstanding as of December 31, 1998 will
amount to approximately FF 22.4 million.

Net interest income declined approximately 11% to FF 11.2 million in
1998 from FF 12.6 million in 1997, reflecting declining cash and cash equivalent
balances. The Company reported a net foreign exchange loss of FF 5.8 million in
1998 in contrast to the foreign exchange gain reported in 1997. This is a result
of the decline of the yen and the U.S. dollar relative to the French franc
during the year and accounting in French francs for assets denominated in yen
and U.S. dollars.

The Company recorded gain on sale of stock by equity investee of FF
15.2 million with respect to its equity interest in Ceres, which is accounted
for using the equity method. The Company also recorded a loss of FF 8.5 million
from equity in loss of affiliated companies reflecting, predominantly, the
continued development of Ceres' research activities.

Genset recorded a decrease in income tax benefit to FF 17.6 million for
1998 compared to FF 19.2 million for 1997. This benefit is principally due to a
research tax credit that is calculated based on the increase of qualifying
research expenditures in France and was lower due to a marginally lower increase
in 1998. As of December 31, 1998, the Company had a research-related income tax
credit receivable of FF 66.7 million, of which FF 8.0 million is recoverable in
1999, FF 21.8 million is recoverable in 2000, FF 19.2 million is recoverable in
2001 and FF 17.7 million is recoverable in 2002.

The Company reported a net loss for the year ended December 31, 1998 of
FF 96.5 million as compared to a net loss of FF 93.9 million for the year ended
December 31, 1997. The Company expects to continue to report losses for the next
several years. At December 31, 1998, the Company's accumulated deficit was FF
201.1 million compared to FF 244.1 million at December 31, 1997. In accordance
with French law, the Company set off FF 139.5 million of accumulated deficit
against surplus paid-in capital during 1998.

YEARS ENDED DECEMBER 31, 1997 AND 1996

Genset reported total revenues of FF 98.7 million for the year ended
December 31, 1997, an increase of more that two-fold compared to total revenues
of FF 48.6 million for the year ended December 31, 1996. R&D revenues comprised
FF 64.2 million or 65% of total revenues compared to 33% of total revenues for
the year ended December 31, 1996 and a four-fold increase over the prior year,
while oligonucleotide sales accounted for FF 34.5 million. The increase in
revenue from R&D for the year was due primarily to the initiation of new
research collaborations, as well as ongoing research collaborations and the
completion of research milestones. During the year, Genset signed a pioneering
alliance with Abbott Laboratories for pharmacogenomics and collaboration with
Genetics Institute for secreted proteins.

Genset's R&D expenses increased 73% to FF 152.3 million during 1997
from FF 88 million in 1996. This increase was due to costs associated with the
50% increase in staffing to fulfill ongoing and new research contracts, the
increase in consumption of oligonucleotides for production of the
high-resolution map, and the amortization of leasehold improvements and
additional laboratory equipment for the Genomics Research Center. The percent of
research expenses funded by external research collaborations increased
significantly to 42% in

1997 from 18% in 1996. The Company also recognized a deferred compensation
expense of FF 12.2 million in 1997 related to stock options and warrants granted
to research and development personnel.

Cost of goods sold and selling and marketing expenses amounted to FF
20.8 million and FF 7.3 million, respectively. Both related to oligonucleotide
sales.

G&A expenses increased 50% to FF 45.9 million during 1997 from FF 30.9
million in 1996. The Company recognized a deferred compensation expense of FF
1.5 million in 1997 related to stock options granted to general and
administrative personnel.

Net interest income increased significantly to FF 12.6 million in 1997
from FF 9.2 million in 1996 due to a substantial cash position during all of
1997, which was invested in money market funds and certificates of deposit.
Foreign exchange gains of FF 1.9 million in 1997 compared to FF 0.3 million in
1996 are attributable to the appreciation of dollar-denominated accounts
receivable.

Genset recorded a small decrease in income tax benefit to FF 19.1
million in 1997 compared to FF 21.8 million in 1996. This benefit, which is
calculated based on the increase of qualifying research expenditures in France,
was lower due to a marginally lower increase in 1997.

The Company's net loss increased to FF 93.9 million in 1997 from FF
65.1 million in 1996. At December 31, 1997, the Company's accumulated deficit
was FF 244.1 million compared to FF 150.2 million at December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations through the private placement
of equity securities, loans, conditional interest-free loans received from
ANVAR, a French government agency, French government grants and the June 1996
initial public offering of its equity securities. From its inception in mid-1989
through December 1998, the Company received FF 515.5 million gross proceeds from
its initial public offering in June 1996; FF 59.7 million in cash proceeds from
the sale of equity to Abbott Laboratories in September 1997; FF 216.0 million
gross proceeds from private placements; FF 96.5 million in bank loans;
approximately FF 15 million in government grants; FF 10.5 million in conditional
interest-free loans; and FF 16.0 million from the ASSOCIATION FRANCAISE CONTRE
LES MYOPATHIES (the "AFM loan"), in connection with the research agreement
signed in 1994. At December 31, 1998, the Company's long term debt (including
current portion) amounted to FF 68.4 million compared with FF 58.2 million at
December 31, 1997. This increase was due to two new bank loans to finance
partially the construction of the genotyping, bioinformatics and mapping
laboratories. At December 31, 1998, cash and cash equivalents and short term
investments (less than three months) totaled FF 329.3 million.

For the year ended December 31, 1998, the Company's principal uses of
cash were funding of research and development expenses, purchases of additional
equipment for sequencing, genotyping, and bioinformatics, and expansion of
Genset's Genomics Research Center.

The Company's future capital requirements, the timing and amount of
expenditures and the adequacy of available funds will depend upon many factors,
including the progress of the Company's research and development programs and
the magnitude of these programs, the Company's ability to develop and maintain
strategic partnerships and collaborative agreements, the progress of the
development and commercialization of potential drugs resulting from the
Company's programs, competing technological and market development, the

process of preparing, filing, maintaining and enforcing patent claims and other
intellectual property rights and related costs, the regulatory process and other
factors. Based upon its current plans, the Company believes that its existing
resources and loans will be adequate to satisfy its capital requirements through
the end of 2000. Any one or more of the factors listed above could significantly
affect the Company's expected research costs or other operating expenses and
there can be no assurance that any such change will not result in the need for
additional funding before such time or that, if needed, such additional funding
would be available.

MARKET RISK

CURRENCY EXCHANGE RATE SENSITIVITY

Effective January 1, 1999, Genset converted its accounts from French
francs into euros. The Company publishes its Consolidated Financial Statements
in euros and the majority of its expenses are and will for the foreseeable
future continue to be denominated in euros or euro-based currencies. The
majority of the Company's revenues, however, are denominated in currencies other
than euros, principally in U.S. dollars. A strengthening or weakening of the
euro against the U.S. dollar could therefore significantly affect the Company's
consolidated income. The Company has significant U.S. dollar denominated
expenses that partially limit its exposure to fluctuations between the euro and
the U.S. dollar. These include the expenses of the Company's U.S. subsidiary
Genset Corporation, as well as U.S. dollar denominated payment obligations of
Genset S.A. pursuant to numerous contracts entered into with non-French
entities. In addition, the Company has, beginning in 1999, decided to enter into
hedging transactions on a non-speculative basis to limit the potential impact of
exchange rate fluctuations. These transactions have to date been limited to
purchasing, when deemed necessary, forward contracts to cover firm U.S. dollar
commitments so as to fix the value in euros of these future revenues.

In addition to the euro and the U.S. dollar, the other primary
functional currencies for the Company's operations are the Singapore dollar and
the yen. The total amount of the Company's expenses and revenues denominated in
these currencies remain relatively small; the Company therefore does not expect
that a strengthening or weakening of the euro against these other currencies
would have a material impact on its financial results.

The Company's balance sheet may also be affected by exchange rate
fluctuations as a result of variations in the euro value of assets denominated
in other currencies. As at December 31, 1998, approximately 19.5% of the
Company's consolidated total assets were denominated in currencies other than
euros, principally U.S. dollars.

INTEREST RATE SENSITIVITY

The Company's net positive interest income has been positive since
1995, resulting from cash and cash equivalent balances that are significantly
greater than its debt. Consequently, the principal risk currently associated
with interest rate fluctuations is that interest income could decrease as a
result of a continued decrease in interest rates. As the Company's net cash and
cash equivalent balance decreases, the net effect of such a decrease in interest
rates also diminishes. See "--Liquidity and Capital Resources."

The great majority of the Company's long-term debt bears interest at
fixed rates. The Company had approximately FF 47 million of fixed-rate long-term
debt outstanding at December 31, 1998, bearing interest at rates of between
4.25% and 8.25%. At that date, the Company's variable-rate long-term debt
consisted of FF 4 million, bearing interest at a rate calculated based on French
daily money market rates.

ASIAN AND LATIN AMERICAN FINANCIAL CRISES

The recent financial crises in Asia and Latin America had no material
effect on the 1998 results of the Company. As the Company's activities in Asia
and Latin America remain limited, the Company does not believe these crises will
have a material effect on its 1999 results.

YEAR 2000

The Company has concluded an initial evaluation of its principal
accounting, management and research software applications and computer systems
to determine to what extent each could be subject to Year 2000 failures and what
impact such failures could have on the Company.

The Company has communicated with all external suppliers of critical
software applications and computer systems to coordinate the evaluation of any
potential Year 2000 issues in respect thereof. The cost to date of the Company's
evaluation has not been material. Based on this initial evaluation, the Company
believes that none of its critical software applications and computer systems
will be incapacitated by Year 2000 failures. In addition, the Company does not
anticipate that it will incur significant operating expenses or be required to
invest heavily in software or computer modifications or replacements, or that
any Year 2000 failures that could occur would result in disruptions in business
or research operations that would have a material adverse effect on the Company.

In further preparation of the arrival of Year 2000, the Company intends
to continue to test its internally developed software applications and to
communicate with its major suppliers to evaluate their readiness to address any
Year 2000 issues. The Company does not, however, expect that it will be able to
determine prior to the end of 1999 that none of its software applications or
computer systems will suffer Year 2000 failures or to evaluate the Year 2000
readiness of all its suppliers, collaborators and customers. Consequently,
disruptions related to the Year 2000 may result in delays to the Company's
research programs or to the delivery of synthetic DNA orders or invoices. The
Company is elaborating contingency plans to ascertain and address as quickly as
possible any software or system failures arising following the arrival of Year
2000. Depending on the nature of these disruptions, however, which is impossible
to determine beforehand, the Company may not be able to make required
modifications or replacements on a timely basis, and the disruptions could, in
the worst case, result in significantly delayed research programs and in the
Company losing actual or potential genomics research or synthetic DNA customers.

THE EURO

The Company installed new accounting software in 1998 that is adapted
for the conversion to accounting in euros. The Company completed in January 1999
the conversion of its accounts and accounting systems into euros. Its 1998
accounts are published in French francs and euros and the Company has, beginning
with the first quarter 1999, been publishing its accounts in euros only. The
Company also translates its annual audited and quarterly unaudited accounts into
U.S. dollars in English language documents that are distributed in the United
States and in other countries outside France.

The Company converted all its French franc denominated cash and
financial instruments into euros effective January 1, 1999, and has accounted
for all cash transactions since that date in euros. The Company accepts invoices
from suppliers either in euros or other currencies but accounts for all invoices
in euros. All payments are made either in euros or U.S. dollars depending on the
currency of the invoice. The Company will invoice French customers in both
French francs and euros through the end of 1999. To date, the Company has not
experienced any significant problems or delays resulting from the conversion of
its accounts into euros, and

the Company does not expect material delays or costs to be associated with this
conversion. There can be no assurance, however, that systemic difficulties at
the national level or among the Company's clients and suppliers related to the
conversion to euros will not adversely impact the Company's conversion or result
in additional costs.

ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT

MANAGEMENT

In accordance with French law governing a SOCIETE ANONYME, the
Company's affairs are managed by its Board of Directors and by its Chairman of
the Board and Chief Executive Officer, who has full authority to manage the
affairs of the Company, subject to the prior authorization of the Board of
Directors for certain decisions.

BOARD OF DIRECTORS

Under French law, the Board of Directors is responsible, among other
things, for presenting accounts to the shareholders and convening shareholders'
meetings. In addition, the Board of Directors reviews and monitors the Company's
economic, financial and technological strategies. The Company's Board of
Directors consists of between three and 24 members elected by the Company's
shareholders at their general meetings. Each director must own at least one
share of Genset. Under French law a director may be an individual or a
corporation.

Directors are required to comply with applicable law and Genset's
STATUTS (or charter and by-laws). Under French law, the Chairman of the Board
and Chief Executive Officer may be responsible individually for actions taken by
such person that are contrary to the company's interests, and the directors may
be responsible for such actions both individually and jointly.

The Company has a compensation committee, which is responsible for
proposing the salaries and incentives of the Company's executive officers and
senior management to the Board. The Company also has an audit committee.

The following table sets forth the names of the directors of the
Company, their current positions with the Company, the dates of their initial
appointment as directors and the expiration dates of their current term.
Genset's STATUTS provide that each director is elected for a maximum six-year
period. Directors need not be French nationals and there is no limitation on the
number of terms that directors may serve.

INITIALLY TERM
NAME AGE CURRENT POSITIONS APPOINTED(1) EXPIRES
- ---- --- ----------------- ------------ -------

Pascal Brandys 40 Chairman of the Board of Directors 1989 2004
and Chief Executive Officer (PRESIDENT
DIRECTEUR GENERAL)
Marc Vasseur 49 Director, Chief Biology Officer and 1992 2004
DIRECTEUR GENERAL
Daniel Cohen 48 Director, Chief Genomics Officer and 1996 2002
DIRECTEUR GENERAL
Laurent Degos 53 Director and President of the Scientific 1989 2004
Advisory Board
FIMD (represented by
Benoit Habert(2)) 33 Director 1994 2000
Martyn Greenacre(3) 57 Director and President of the 1993 2005
Compensation Committee
Edmund Olivier de Vezin(2)(3) 61 Director 1994 2002

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

(1) Dates specified for directors representing corporations relate to the
entity represented.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.

PASCAL BRANDYS has been Chairman of the Board of Directors and Chief
Executive Officer (PRESIDENT DIRECTEUR GENERAL) of the Company since he
co-founded the Company in 1989 and President and Chief Executive Officer of
Genset Corporation since its founding in 1992. Mr. Brandys is also President of
France Biotech, the professional association of French biotechnology companies
and is a Director of Ceres Inc., a private plant genomics company and Ilog S.A.,
a public optimization software company. Prior to founding the Company, from 1988
to 1989, Mr. Brandys was a Partner at Eurocontinental Ventures in London. At
Eurocontinental Ventures Mr. Brandys managed technology and biotechnology
investments in Europe. In 1986 he founded and became Chief Executive Officer of
Unihon, a venture capital fund acquired in 1989 by Credit Agricole. Mr. Brandys
is a graduate of the ECOLE POLYTECHNIQUE, has an M.S. in Civil Engineering from
the ECOLE NATIONALE DES PONTS ET CHAUSSEES and an M.S. in Economic Systems from
Stanford University.

MARC VASSEUR, PH.D., co-founded the Company in 1989 and has been Chief
Biology Officer and DIRECTEUR GENERAL of the Company since 1992. He is on leave
of absence from the University of Paris where he is a Professor of Virology and
Head of the Molecular Virology Laboratory. Professor Vasseur is a molecular
biologist specializing in the regulation of gene expression and transcriptional
regulation of cellular and viral genes. From 1980 to 1987, Professor Vasseur was
a scientist in the Cell Genetics Laboratory at the Pasteur Institute (Paris).
From 1975 to 1980, he was a scientist at the Institute of Cancer Research
(Villejuif, France). He started his research career at the Institute of
Physico-Chemical Biology, where he worked from 1971 to 1975. Professor Vasseur
has served on a number of boards and committees at the University of Paris and
at CNRS; he was a member of CNRS' National Board for five years. Professor
Vasseur received his Ph.D. from the University of Paris. He is the author of
more than 50 scientific publications and the book, Oncogenic Viruses.

DANIEL COHEN, M.D., PH.D., joined the Company in 1996 as Chief Genomics
Officer and DIRECTEUR GENERAL. Professor Cohen is a Professor of Medical
Genetics at the University of Paris VII. Before joining the Company, Professor
Cohen was a co-founder and Scientific Director of CEPH. Professor Cohen was also
a co-founder and Scientific Director of Genethon and has served as a scientific
advisor for another genomics company. He is Doctor Honoris Causa of Shanghai,
Xi'an and Ben Gourion University, and has received UNESCO's Prize of New

Human Rights, the Daniel Bauperthuy Prize from the French Academy of Sciences
for epidemiology, and the Grand Prize for Medical Literature for the book, The
Genes of Hope, which has been translated into seven languages. Professor Cohen
received the Legion of Honor in 1998. He has authored more than 100 scientific
publications. Professor Cohen has an M.D. and a Ph.D. in Immunology and
Immunogenetics from the University of Paris VII.

LAURENT DEGOS, M.D., PH.D., a co-founder of the Company and the
President of its Scientific Advisory Board, is a Professor of Hematology at the
University of Paris VII-Denis Diderot. He is also the Director of the Institute
of Hematology at the University of Paris VII-Denis Diderot and head of the
Hematology Department (adult leukemia) at Hopital Saint-Louis in Paris.
Professor Degos is president of the Scientific Council of the Institute of
Health Policy and the author of three books and 200 publications. He is a past
director of INSERM Unit, and the past president of the Committee of Hematology
of the National Council of French Universities and is a member of several
editorial boards in hematology and leukemia. Professor Degos is the recipient of
a number of international honors and awards (including from the General Motors
Cancer Foundation in 1994). He is also a correspondent member of French Science
Academy and president of the Scientific Board of Paris Hospitals. He has an M.D.
and a Ph.D. in Human Biology from the University of Paris.

BENOIT HABERT is President of Dassault Development, the venture capital
company of Financiere & Immobiliere Marcel Dassault ("FIMD"). Mr. Habert is also
a member of the Board of Directors of Dassault Industries, the industrial
holding of the Dassault Group Industries and a member of the Board of Directors
of Dassault Electronique. Prior to joining Dassault Development, he was a member
of the New Issue Department at Banque Indosuez, which he joined in 1991. Mr.
Habert has two masters degrees in business and tax law from the University of
Paris and holds an M.B.A. from INSEAD.

MARTYN GREENACRE joined Delsys Pharmaceutical Corp. as President and
Chief Executive Officer in 1997. Previously he was at Zynaxis Inc. as President
and Chief Executive Officer from 1993 to 1997 and at SmithKline Beecham plc
since 1973, where from 1989 he was responsible for the strategic direction and
operational management of pharmaceutical subsidiaries in Europe and for planning
and executing European aspects of the merger between SmithKline Beckman and
Beecham Pharmaceutical. He is also a director of Cephalon Inc. and Creative
BioMolecules. Mr. Greenacre received his M.B.A. and B.A. degrees from Harvard
University.

EDMUND OLIVIER DE VEZIN has been a partner at Oxford Bioscience
Partners L.P. ("Oxford Bioscience Partners") since 1992. Prior to entering the
venture capital field in 1984, he managed domestic and international operations
for Diamond Shamrock, Corning Glass Works and Conoco Chemicals. He is a Life
Fellow and Member of the National Council of the Salk Institute and a former
Chairman of Biotechnology Venture Investors Group. Mr. Olivier de Vezin has an
M.B.A. from Harvard University and a B.S. in Chemical Engineering from Rice
University.

EXECUTIVE OFFICERS AND SENIOR MANAGEMENT

Under French law, the Chairman of the Board and Chief Executive Officer
has full executive authority to manage the affairs of the Company. The Board of
Directors has the power to appoint and remove, at any time, the Chairman of the
Board and Chief Executive Officer. Pursuant to Genset's STATUTS, the Chairman of
the Board and Chief Executive Officer has broad powers to act on behalf of the
Company and to represent the Company in dealings with third parties, subject
only to those powers expressly reserved to the Board of Directors or the
shareholders. The Chairman of the Board and Chief Executive Officer determines
and is responsible for matters such as the implementation of the goals,
strategies and budget for the Company's different business activities.

Pursuant to French law and Genset's STATUTS, the Board of Directors can
appoint up to five DIRECTEURS GENERAUX proposed by the Chairman and Chief
Executive Officer, whose powers and responsibilities are determined by the
Board, together with the Chief Executive Officer. Each such DIRECTEUR GENERAL
generally has broad powers to represent and bind the Company in dealing with
third parties.

The Company is highly dependent on the principal members of its
management and scientific staff, the loss of whose services might adversely
affect the Company's prospects for success. Furthermore, recruiting and
retaining qualified scientific personnel will be critical to the Company's
success. Although the Company believes it will be able to attract and retain
skilled and experienced scientific personnel, there can be no assurance, given
the competition between pharmaceutical and health care companies, universities
and non-profit research institutions for experienced scientists, that it will be
able to do so. While most of the Company's personnel have signed employment
contracts, which contain non-compete and confidentiality clauses, there can be
no assurance that these provisions will provide meaningful protection for the
Company's know-how or technology or adequate remedies in case of breach. In
addition, the Company's three DIRECTEURS GENERAUX have not signed employment
contracts or non-compete or confidentiality agreements and none of the Company's
employees in the United States have signed non-compete agreements. The Company
has not obtained key-man life insurance coverage during 1999 with respect to its
three DIRECTEURS GENERAUX.

The following table sets forth the names of the executive officers and
senior management of the Company, their current positions with the Company and
the first dates as of which they served as executive officers or senior
management of the Company.

EXECUTIVE OFFICERS

NAME AGE CURRENT POSITION(S) SINCE
- ---------------------------------------------------------------------------------------------------------------

Pascal Brandys 40 Chairman of the Board of Directors and 1989
Chief Executive Officer (PRESIDENT
DIRECTEUR GENERAL)
Marc Vasseur 49 Director, Chief Biology Officer and 1992
DIRECTEUR GENERAL
Daniel Cohen 48 Director, Chief Genomics Officer and 1996
DIRECTEUR GENERAL
Bernard E. Bihain 40 Vice President, Physiological Genomics 1998
Marta Blumenfeld 43 Vice President, Genomics Analysis 1990
Jerome Chailloux 49 Chief Information Officer 1995
Ilya Chumakov 49 Vice President, Mapping 1996
Catherine Faure-Cachard 40 Director of Administration and Finance 1991
Audrey D. Keane 39 Vice President, Business Development 1996
Agnes Le Saux-Narjoz 33 Vice President, Marketing 1989
Jay Lichter 37 Vice President, Pharmacogenomics 1998
Bruno Poddevin 34 Vice President, Oligonucleotides Division 1992
Nicholas J. Schork 37 Vice President, Biostatistics and Genetic Epidemiology 1999
Deborah A. Smeltzer 45 Chief Financial Officer 1996
Cecile Tharaud 33 Director of Patents and Licenses 1996
Francois Thomas 41 Director of Development and Medical Ventures 1999

PASCAL BRANDYS. See " -- Board of Directors."

MARC VASSEUR, PH.D. See " -- Board of Directors."

DANIEL COHEN, M.D., PH.D. See " -- Board of Directors."

BERNARD E. BIHAIN, M.D., Vice President, Physiological Genomics, joined
the Company in 1998. Dr. Bihain earned an M.D. from the Free University of
Brussels, Belgium and completed his postdoctoral research fellowship at Columbia
University, New York. Subsequently, he was Assistant Professor of Physiology at
the Louisiana State University Medical School in New Orleans. From 1994 to 1998,
he was Director of Research at INSERM Unit 391 and Chairman of the Department of
Biochemistry at the University of Rennes. Dr. Bihain is the author of more than
20 scientific publications. His field of expertise focuses on the pathogenesis
of metabolic diseases such as obesity and diabetes and their vascular
complications.

MARTA BLUMENFELD, PH.D., Vice President, Genomics Analysis, joined the
Company in 1990. From 1986 to 1990, she was a postdoctoral scientist studying
oncogenic viruses at the Pasteur Institute (Paris). Dr. Blumenfeld has a Ph.D.
in Biochemistry from the University of Buenos Aires and is the author of more
than 30 scientific publications.

JEROME CHAILLOUX, PH.D., Chief Information Officer, joined the Company
in 1995. From 1987 to 1995, Dr. Chailloux was co-founder, Chief Scientific
Officer and member of the board of Ilog, a subsidiary of INRIA, the French
National Institute of Computer Science. Ilog is a world leader in C++
development tools and is listed on NASDAQ. Prior to founding Ilog, Dr. Chailloux
was directing research at INRIA in the fields of artificial intelligence, Lisp
and functional programming. Dr. Chailloux is a developer of the Lisp language
and author of 30 publications. He received his Ph.D. in Computer Science from
the University of Paris VI in 1980.

ILYA CHUMAKOV, PH.D., Vice President, Mapping, joined the Company in
1996. Prior to joining the Company, Dr. Chumakov was employed as a research
scientist at CEPH (1990-1996), most recently as its Scientific Director, where,
together with Professor Cohen, he lead the effort to produce the first physical
map of the human genome. Before joining CEPH, Dr. Chumakov was the leading staff
scientist at the Institute of Molecular Biology in Moscow, where he worked from
1977 to 1990. He received a Ph.D. from Moscow State University in 1971 and a
D.Sc. in Molecular Biology from the Institute of Molecular Biology of the
Russian Academy of Sciences in Moscow in 1990. He has authored more than 70
scientific publications.

CATHERINE FAURE-CACHARD, Director of Administration and Finance, joined
the Company in 1991. From 1988 to 1990, she was a financial analyst at Banque
Indosuez. From 1987 to 1988, she was the financial controller at Eurosept Group,
a management consulting firm acquired by EDS, where she was responsible for
accounting, tax, budget control, payroll, human resources and procedures.
Earlier she was Director of Accounting at an industrial concern. She began her
career in 1981 as an auditor with BEFEC-Price Waterhouse. Ms. Faure-Cachard
received her M.B.A. from ECOLE SUPERIEURE DE COMMERCE in Paris.

AUDREY D. KEANE, Vice President, Business Development, joined the
Company in 1996. Previously, she was Vice President of Business Development at
Sequana Therapeutics where she was responsible for structuring and negotiating
strategic alliances with major pharmaceutical and biotechnology companies for
the commercial development of therapeutics and diagnostic products. Ms. Keane
received her M.B.A. from Harvard Graduate School of Business Administration and
a B.S. in Chemical Engineering from Case Western Reserve University.

AGNES LE SAUX-NARJOZ joined the Company in 1989 as the Market
Development Manager and became Vice President, Marketing in 1993. In this role,
she is responsible for strategic marketing for the Company and developing and
managing advertising, pricing, and sales policies worldwide. Ms. Le Saux-Narjoz
has held a variety of market

and strategic assessment positions within the biotechnology sector prior to
joining the Company, most recently at Bioinvest and Transgene. She received her
M.S. in Pharmaceutical Sciences from the University of Paris, with
concentrations in pharmaceutical marketing and health economics.

JAY LICHTER, PH.D., Vice President, Pharmacogenomics, joined the
Company in 1998. Prior to joining the Company, Dr. Lichter was Senior Director
of Pharmacogenetics and Diagnostics at Sequana Therapeutics where he held
various positions since its inception in 1993. Before joining Sequana, he was
involved with pharmacogenetics research at Dupont Merck Pharmaceutical company,
and prior to that he studied population genetics at Yale University. Dr. Lichter
received his Ph.D. in Biochemistry from the University of Illinois in Chicago in
1992. He has authored more than 35 scientific publications.

BRUNO PODDEVIN, PH.D., joined the Company in 1992 and became Director
of Production in 1994 and Vice President, Oligonucleotides Division in 1997.
Prior to joining the Company, he was a post-doctoral fellow at the National
Cancer Institute (Bethesda, MD). Dr. Poddevin has a Ph.D. in Molecular Biology
from the University of Paris-Orsay and an M.S. in Engineering from the ECOLE
CENTRALE DE PARIS. He has authored more than 15 publications.

NICHOLAS J. SCHORK, M.A., PH.D., Vice President of Biostatistics and
Genetic Epidemiology, joined the Company in 1999. For the past five years, Dr.
Schork has been an Associate Professor in the Department of Epidemiology &
Biostatistics at Case Western Reserve University in Cleveland, Ohio, as well as
an adjunct Associate Professor in the Department of Biostatistics at Harvard
University and an adjunct Associate Staff Scientist at the Jackson Laboratory in
Bar Harbor, Maine. Dr. Schork has specific expertise in statistical issues of
relevance to high-resolution mapping efforts and population-based genetic
studies. Dr. Schork holds an M.A. in Philosophy, an M.A. in Statistics, and a
Ph.D. in Epidemiology from the University of Michigan in Ann Arbor. He has
authored over 100 publications, on all aspects of statistical and theoretical
genetics and epidemiology.

DEBORAH A. SMELTZER joined the Company in 1996 as Chief Financial
Officer. From 1990 to 1996 she was a Managing Director and from 1988 to 1989 she
was a Vice President of the general partner of the Grotech Partners venture
funds in Baltimore, Maryland and managed both public and private investments in
the biomedical and environmental industries. From 1985 to 1987, Ms. Smeltzer was
an Associate in the Corporate Finance Department of Baker, Watts & Co. Ms.
Smeltzer received an M.B.A. from Stanford University Graduate School of Business
and a B.S. in Biological Science and an M.S. in Medical Microbiology from the
University of California, Irvine.

CECILE THARAUD, PH.D. joined the Company in 1996 as Director of Patents
and Licenses. Prior to joining the Company, she was Director of Business
Development at SmithKline Beecham, France from 1995 to 1996, and was Director of
New Products for Glaxo Laboratories, France from 1993 to 1995. Dr. Tharaud
received an M.B.A. from INSEAD and her Ph.D. in Molecular Genetics and Applied
Immunology from the INSTITUT NATIONAL AGRONOMIQUE PARIS-GRIGNON. Dr. Tharaud is
also a graduate of the ECOLE POLYTECHNIQUE.

FRANCOIS THOMAS, M.D. joined the Company in 1999 as Director of
Development and Medical Ventures. From 1995 to 1998, he was President of
Bioserve Ltd, a consulting firm to the pharmaceutical industry specializing in
biotechnology and oncology. From 1991 to 1994, Dr. Thomas was Medical and
Scientific Director of Ipsen Biotech and from 1989 to 1991 Director of Research
and Development Planning at Pharmaceutical Group Ipsen Beaujour. Dr. Thomas
received his M.D. from the Paris School of Medicine in 1984 and his M.S. from
the M.I.T. Sloan School of Management in 1995. He is board certified in medical
oncology and has authored more than 70 scientific publications.

SENIOR MANAGEMENT

NAME AGE CURRENT POSITION SINCE
- ----------------------------------------------------------------------------------------------------

Hadi Abderrahim 35 Director of Mapping Research 1998
Johanne Alsayed 37 Director of Quality 1992
Christian Blourde 44 Director of Automation and Engineering 1990
Jonathan Burnham 32 Director of Legal Affairs 1998
Jean-Baptiste Dumas Milne Edwards 41 Director of Gene Libraries 1994
Pierre Le Ber 35 Director of Sequencing 1995
Naceur Tounekti 34 Director of Mapping Production 1996

HADI ABDERRAHIM, M.D., PH.D., Director of Mapping Research, joined the
Company in 1998. Prior to joining the Company, he was employed by Cell Genesys
Inc (1992-1995) (Foster, City, CA) as research scientist and more recently by
Stanford University (1996-1998). Dr Abderrahim received his M.D. from the
Medical Sciences Institute of Algiers and his Ph.D. from the University Paris
VI.

JOHANNE ALSAYED, PH.D., Director of Quality since 1992, joined the
Company in 1991 as a Senior Scientist. Dr. Alsayed's duties include the
implementation of a Total Quality Management System for the Company's production
and research activities. Dr. Alsayed earned her Ph.D. in Molecular Biology with
a specialty in Human Genetics from the University of Paris VII. Dr. Alsayed also
holds an M.S. in Human Genetics from the Cochin Institute (1986) and a B.S. in
Cellular Biology and Genetics from the University of Rennes (1985).

CHRISTIAN BLOURDE, Director of Automation and Engineering, joined the
Company in 1990. From 1981 to 1990, he was Manager of Research and Development
and involved in several major projects of protein processing at the Regional
Transfusion Center in Lyon. He was responsible for setting up a large scale cell
culture plant for hybridoma and was an adviser to Rhone-Poulenc for
microfiltration membranes of cell cultures. Mr. Blourde received his M.S. in
Engineering from the National Institute of Applied Sciences.

JONATHAN BURNHAM, Director of Legal Affairs, joined the Company in
1998. From 1994 to 1997, he was an associate with the law firm of Shearman &
Sterling in their New York, London and Paris offices, practicing in the fields
of corporate finance and mergers and acquisitions. From 1993 to 1994, he was a
trainee at the Legal Service of the European Commission. A member of the New
York State Bar, Mr. Burnham received a B.A. from Dartmouth University, LL.B.
(common law) and B.C.L. (civil law) degrees from McGill University and a Masters
in International Law from the University of Aix-Marseille.

JEAN-BAPTISTE DUMAS MILNE EDWARDS, PH.D., Director of Gene Libraries,
joined the Company in 1994. Prior to joining the Company, he was a scientist at
Genethon. During his Ph.D. studies at University Paris VI, he invented a
strategy to isolate the 5 prime end of messenger RNAs (SLIC) which is now used
worldwide. Dr. Dumas Milne Edwards has authored 24 publications, and was granted
the French government's AGGREGATION as professor of biology. He is also a
graduate of the ECOLE NORMALE SUPERIEURE.

PIERRE LE BER, PH.D., Director of Sequencing, joined the Company in
1995. From 1989 until joining the Company, Dr. Le Ber was employed by the French
pharmaceutical company Synthelabo, first as Project Manager in the Research
Department where he was responsible for Synthelabo's Virology Program
(1989-1992), and then as the Assistant to the Director of Chemical Production
(1993-1994). Dr. Le Ber is a graduate of the ECOLE POLYTECHNIQUE in Paris and
has a Ph.D. in Molecular Pharmacology from the University of Paris-Orsay.

NACEUR TOUNEKTI, PH.D., Director of Mapping Production, joined the
Company in 1996. Prior to joining the Company, he was employed by the Health and
Beauty Care Division of Procter & Gamble France, first as production Team
Manager (1992-1993) and then as Industrial Hygiene & Safety and Environmental
Control Manager (1994-1995). Dr. Tounekti received his M.S. in Engineering from
the ECOLE CENTRALE DE PARIS and has a Ph.D. in Molecular Biology from the
University of Paris-Orsay.

SCIENTIFIC ADVISORY BOARD

The Company has organized a Scientific Advisory Board ("SAB") composed
of six individuals with expertise in the fields of molecular biology, genetics,
transcription regulation DNA chemistry and hematology. The SAB is international
in scope and its members are affiliated with institutions in France, Germany,
Japan and the United States. The Company consults with individual members of the
SAB periodically when advice is required in their particular area of expertise.
The members of the SAB receive a fee for each meeting with the Company and are
reimbursed for expenses incidental to their attendance of these meetings. In
addition, certain members of the SAB have been granted stock options. The
members of the SAB are:

JEAN-FRANCOIS BACH, M.D., Professor of Immunology at Necker Hospital in
Paris. He is also Director of an INSERM Unit devoted to the genetics and
treatment of autoimmune diseases. More recently he has developed major interest
in the genetic diseases of the adult, notably polygenic diseases. Professor Bach
is member of the French Academy of Sciences and of the French Academy of
Medicine. He has received several major national and international scientific
prizes.

STEPHEN K. BURLEY, M.D., PH.D., Director of the Laboratory of Molecular
Biophysics and Professor at The Rockefeller University. He is also an
investigator at the Howard Hughes Medical Institute. Dr. Burley is a Fellow of
the Royal Society of Canada and was awarded the Leon Reznick Memorial Prize for
excellence and accomplishment in research by Harvard Medical School. He is a
member of the New York Academy of Sciences and has authored more than 85
scientific publications.

LAURENT DEGOS, M.D., PH.D., President of the Scientific Advisory Board.
See " -- Board of Directors."

YOSHIYUKI SAKAKI, PH.D., Professor at the Human Genome Center at the
University of Tokyo. Dr. Sakaki is also Vice President of HUGO, the Human Genome
Organization. He has authored more than 200 scientific publications.

GUNTHER SCHUTZ, PH.D., Professor of Physiological Chemistry and
Director of the Department of Molecular Biology of the Cell at the Institute of
Cell and Tumor Biology, German Cancer Research Center in Heidelberg. Prior to
1980, Dr. Schutz led an independent research group at the Max-Planck Institute
for Molecular Genetics at the Freie University in Berlin. He has authored more
than 200 publications and received the Gottfried-Wilhem-Leibnitz Prize of the
Deutsche Forschungagemeinschaft in 1987. In 1997, he was given the European
Medal of the Society of Endicronology and in 1998 he received the
Max-Plank-Research Prize for International Cooperation.

MOSHE YANIV, PH.D., Professor at the Department of Biotechnology at the
Pasteur Institute in Paris, where he heads the Unit on oncogenic viruses, Dr.
Yaniv is a member of the French Academy of Sciences. He was the Vice Chairman
(1992-1995) and Chairman (1996) of the Council of EMBO (European Molecular
Biology Organization). His research is focused on growth control, development
and transcription regulation and he has authored more than 200 publications. He
received the Charles-Leopold Mayer prize of the French Academy of Science in
1995.

ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS

The aggregate amount of compensation paid by the Company to all of its
directors as a group (seven persons in 1998, including four independent
directors who receive limited compensation for services as directors, and
reimbursement of expenses incidental to their attendance at Board of Directors
meetings) for services in all capacities for 1998 was approximately FF 7.0
million. The aggregate amount of compensation paid by the Company to all of its
executive officers (excluding directors) and senior management as a group (20
persons) for their services in 1998 was approximately FF 10.4 million.

The Company does not contribute to any pension, retirement or other
plans for its executive officers or senior management.

ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

STOCK OPTION PLANS

Pursuant to resolutions adopted by the shareholders on July 27, 1992,
October 25, 1994, March 19, 1996, April 15, 1996, May 22, 1997 and May 19, 1999,
the Board of Directors has granted options to purchase Ordinary Shares to
certain officers and employees of the Company. The following table sets out
certain information relating to the various option plans, as of May 31, 1999:

OPTIONS ORDINARY OPTION EXERCISE
OPTIONS OPTIONS OUT- SHARES PRICE PER EXPIRATION
OPTION PLAN ISSUABLE ISSUED STANDING ISSUABLE SHARE(FF) DATE(1)(2)
----------- -------- ------ -------- -------- --------- ----------

July 27, 1992 784 784 39 3,900(3) 28.80 November 8, 2002

October 25, 1994 1,000 1,000 295 29,500(3) 40 April 30, 2004

March 19, 1996 7,000 7,000 5,766 576,600(3) -(4) March 31, 2008

April 15, 1996 2,000 2,000 1,861 186,100(3) -(5) January 31, 2008

May 22, 1997 400,000 396,786 395,067 395,067 -(6) March 31, 2008

May 19, 1999 500,000 0 0 N/A N/A N/A

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

(1) The options under each plan have various expiration dates. In each case,
the latest expiration date of options already issued under the plan is
indicated.

(2) All plans contain restrictions limiting the exercise of options after the
employee is no longer an employee of the Company.

(3) Adjusted to reflect the 100-for-1 share split approved by the shareholders
on April 29, 1996.

(4) The exercise prices of the outstanding options, which depend on the date at
which they were issued, range from FF 160 to FF 411.35.

(5) The exercise prices of the outstanding options, which depend on the date at
which they were issued, range from FF 172.08 to FF 411.35.

(6) The exercise prices of the outstanding options, which depend on the date at
which they were issued, range from FF 254 to FF 521.

As of May 31, 1999, an aggregate of 419,000 Ordinary Shares could be
purchased pursuant to outstanding options held by the PRESIDENT DIRECTEUR
GENERAL and the two DIRECTEURS GENERAUX of the Company as a group (three
persons) and an aggregate of 501,600 Ordinary Shares could be purchased pursuant
to outstanding options held by the other executive officers and senior
management of the Company as a group (20 persons).

In its June 23, 1999 meeting, the Board of Directors decided to
modify all outstanding stock options to provide that they would vest and
become immediately exercisable upon the successful completion of any offer
for, or other action in respect of, some or all of the shares of the Company,
which offer or action results in a change of control of the Company.

WARRANT PLANS

Pursuant to resolutions adopted on July 27, 1992, October 25, 1994,
March 28, 1995, March 19, 1996, May 22, 1997, May 19, 1998, August 19, 1998 and
May 19, 1999, the shareholders have authorized the issuance of warrants to
purchase Ordinary Shares to certain directors and consultants of the Company and
certain other non-employees. The following table sets out certain information
relating to the various warrant plans, as of May 31, 1999:

WARRANTS ORDINARY WARRANT EXERCISE
WARRANTS WARRANTS OUT- SHARES PRICE PER EXPIRATION
WARRANT PLAN AUTHORIZED SUBSCRIBED STANDING ISSUABLE SHARE(FF) DATE(1)
------------ ---------- ---------- -------- -------- --------- -------

July 27, 1992 784 784 20 2,000(2) 28.80 October 5, 2000

March 19, 1996 1,000 308 219 21,900(2) 160 March 18, 2001

May 22, 1997 4,000 4,000 1,000 1,000 250 May 21, 2002

May 19, 1998 32,000 30,000 30,000 30,000 574 May 18, 2003

August 19, 1998 2,000 2,000 2,000 2,000 546.50 August 18, 2003

May 19, 1999 4,000 0 0 N/A N/A N/A

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

(1) The warrants under each plan may have various expiration dates. In each
case, the latest expiration date of warrants issued under the plan is
indicated.

(2) Adjusted to reflect the 100-for-1 share split approved by the shareholders
on April 29, 1996.

As of May 31, 1999, an aggregate of 20,100 Ordinary Shares could be
purchased pursuant to outstanding warrants held by directors (other than
executive officers) of the Company as a group (four persons), and no outstanding
warrants were held by executive officers or senior management of the Company.

ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

Not applicable.

PART II

ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED

Not applicable.

PART III

ITEM 15: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES AND USE OF PROCEEDS

MODIFICATION OF DEPOSITARY ARRANGEMENTS

Effective as of April 10, 1998, the Company and The Bank of New York,
as Depositary, amended the Deposit Agreement governing the ADSs of the Company.
This amendment was intended to simplify the procedures enabling ADS holders to
effectively vote the Ordinary Shares underlying their ADSs. Pursuant to these
amended procedures, all beneficial owners of ADSs as of the record date fixed
for a given shareholders' meeting shall receive, among other materials, a
summary in English or an English version of the notice of such meeting and a
copy of the materials provided by the Company to enable the beneficial owners to
give voting instructions regarding the resolutions being considered by the
meeting.

In order to instruct the Depositary to vote the Ordinary Shares
underlying their respective ADSs, beneficial owners must complete, sign and
return the voting instruction card or form provided to the person indicated
thereon. In signing and returning the card or form, the beneficial owner (a)
certifies that it was the beneficial owner on the record date of the ADSs being
voted and is entitled to exercise the right to vote with respect thereto, (b)
undertakes to be the beneficial owner of such ADSs during the five calendar days
immediately prior to and on the meeting date, and (c) certifies or undertakes
such other matters as may from time to time be necessary to permit the exercise
of voting rights by beneficial owners of ADSs in accordance with French law or
the STATUTS of Genset. The beneficial owners may, by completing, signing and
returning voting instruction cards or forms without providing specific voting
instructions on the resolutions, instruct the Depositary to vote the
corresponding Ordinary Shares in favor of all the resolutions proposed by the
Board of Directors of Genset.

USE OF PROCEEDS

The Company conducted a registered initial public offering of its
Ordinary Shares in June 1996, pursuant to a registration statement with file
number 33-34758, which was declared effective on June 4, 1996.

The net proceeds from the offering after underwriting discounts and
commissions and other expenses were $90,203,350. In the period from the
effectiveness of the registration statement to December 31, 1998, the Company
has expended (U.S. dollar amounts converted from French Francs at the December
31, 1998 exchange rate of FF5.5870 to $1.00):

FF 85 million ($15.2 million) on the construction of plant, building
and facilities;

FF 120 million ($21.5 million) on the purchase and installation of
machinery and equipment;

FF 36 million ($6.4 million) on the repayment of indebtedness; and

FF 150 million ($26.8 million) as working capital (including research
and development and general and administrative expenditures).

As the period for which the above amounts are presented do not
correspond precisely to accounting periods of the Company and as the categories
do not in all cases correspond to those used by the Company in its accounting
procedures, these amounts represent reasonable estimates made by the Company for
each category of expenditures.

As of December 31, 1998, the Company had FF 320.7 million ($57.4
million) invested in money market funds and short-term certificates of deposit.

Other than the compensation paid to directors and officers in
connection with their respective duties, all of such payments were made to
persons other than directors, officers or affiliates of the company. See " --
Directors and Officers of the Registrant."

The expenditures set forth above are consistent with the use of
proceeds described in the prospectus.

PART IV

ITEM 17: FINANCIAL STATEMENTS

Not applicable.

ITEM 18: FINANCIAL STATEMENTS

See Item 19 for a list of financial statements filed under Item 18.

ITEM 19: INDEX TO FINANCIAL STATEMENTS AND EXHIBITS AND SIGNATURE

INDEX TO FINANCIAL STATEMENTS

The following financial statements of Genset S.A. and its Subsidiaries
are filed as part of this Annual Report, together with the report of the
independent accountants. Financial statement schedules are omitted as the
information is not required, is not applicable, or the information is presented
in the financial statements or notes thereto.

Page
----

Independent Auditor's Report............................................................. F-1

Consolidated Balance Sheets as of December 31, 1997 and 1998............................ F-2

Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998................................................ F-4

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1997 and 1998............................................... F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998............................................... F-6

Notes to the Consolidated Financial Statements.......................................... F-7

INDEX TO EXHIBITS

1.1 P STATUTS of Genset S.A. amended through January 29, 1999

1.2+ P Amendment dated as of May 12, 1998 to Agreement dated as of
September 26, 1996, between the Company and Janssen Pharmaceutica,
N.V.

1.3+ P Amendment dated as of June 30, 1998 to the Technology License
Agreement dated as of December 28, 1997, between the Company and Ceres,
Inc.

1.4+ P Amended and Restated Services Agreement dated as of June 30, 1998
replacing the Services Agreement dated as of December 28, 1997, between
the Company and Ceres, Inc.

1.5+ P Amendment dated as of June 30, 1998 to the Series A Preferred Stock
Issuance Agreement dated as of December 28, 1997, between the Company
and Ceres, Inc.

1.6+ P Amendment dated September 8, 1998 to the Alliance Agreement dated as of
July 15, 1997 between the Company and Abbott Laboratories

1.7+ P Amendment dated September 8, 1998 to the Subscription Agreement dated as
of July 15, 1997 between the Company and Abbott Laboratories

1.8+ P Second Amended and Restated Right of First Refusal and Co-Sale
Agreement dated as of December 31, 1998, by and among Ceres, Inc.,
certain founders of Ceres, Inc., the Company and the other investors in
Ceres, Inc.

1.9 P Amended and Restated Investors Rights Agreement dated as of December 31,
1998, by and between Ceres, Inc., the Company and the other investors
in Ceres, Inc.

2.1+ P License Agreement (No .1) dated as of August 10, 1998 between the
Company and Lederle-Praxis Biologicals, a Division of American Cyanamid
Company

2.2+ P License Agreement (No .2) dated as of August 10, 1998 between the
Company and Lederle-Praxis Biologicals, a Division of American Cyanamid
Company

2.3+ P Research and License Agreement dated as of October 2, 1998 between the
Company and Pharmacia and Upjohn Company

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

+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
P Filed concurrently with the Securities and Exchange Commission in paper
format under cover of Form SE.

SIGNATURE

Pursuant to the requirements of Section 12 of the Securities and
Exchange Act 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

GENSET S.A.

Dated: June 28, 1999 By: /s/ Deborah A. Smeltzer
----------------------------
Name: Deborah A. Smeltzer
Title: Chief Financial Officer

Report of Independent Auditors

To the directors and shareholders of Genset, S.A.:

We have audited the accompanying consolidated balance sheets of Genset,
S.A. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States.

/s/ JEAN-YVES JEGOUREL
- -----------------------------
Jean-Yves Jegourel
Ernst & Young Audit

Paris, France
February 9, 1999

F-1

GENSET
CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

ASSETS

DECEMBER 31,
---------------------------------------------------
1998 1998 1998 1997
---------- ------------- ------------- -----------
US$ EURO FF FF

CURRENT ASSETS:
Cash and cash equivalents .............................................. 58,943 50,204 329,315 461,437
Short-term investments ................................................. 285
Accounts receivable (less allowance for doubtful accounts
of FF 418 in 1998, FF 415 in 1997 and FF 293 in 1996) ............. 6,468 5,509 36,136 14,273
Receivable from affiliates ............................................. 2,285 1,946 12,767
Receivable from State .................................................. 3,877 3,302 21,661 17,745
Inventory .............................................................. 1,218 1,037 6,805 3,901
Prepaid expenses and other current assets .............................. 1,922 1,637 10,738 10,347
---------- ------------- ------------- -----------
TOTAL CURRENT ASSETS .............................................. 74,713 63,635 417,422 507,988
---------- ------------- ------------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements and fixtures .................................... 15,075 12,840 84,223 60,264
Laboratory equipment ................................................... 19,118 16,284 106,815 76,452
Office and computer equipment .......................................... 7,530 6,414 42,071 27,510
Construction in progress ............................................... 4,420 3,765 24,697 13,372
---------- ------------- ------------- -----------
Total property and equipment ...................................... 46,143 39,303 257,806 177,598
Less accumulated depreciation and amortization ......................... (15,808) (13,464) (88,319) (64,673)
PROPERTY AND EQUIPMENT, NET ................................................. 30,335 25,839 169,487 112,925
---------- ------------- ------------- -----------
Other assets:
Research and development tax credit receivable, less current portion . 10,508 8,950 58,706 48,973
Patent development costs (less accumulated amortization of FF 4,502
in 1998, FF 3,004 in 1997 and FF 1,875 in 1996) .............. 784 668 4,382 2,693
Investments in affiliates .............................................. 2,284 1,945 12,759 -
Other long term assets ................................................. 654 557 3,655 2,337
---------- ------------- ------------- -----------
TOTAL ASSETS ...................................................... 119,278 101,594 666,411 674,916
---------- ------------- ------------- -----------
---------- ------------- ------------- -----------

See notes to condensed consolidated financial statements.

The financial information expressed in U.S.$ and euros are presented solely for
the convenience of the reader and is translated from French francs at the noon
buying rate in New York on December 31, 1998 which was FF 5.5870 for each U.S.$
and at the fixed rate of 6.55957 for each euro.

F-2

GENSET
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(AMOUNTS IN THOUSANDS)

LIABILITIES AND SHAREHOLDERS' EQUITY

DECEMBER 31,
----------------------------------------------
1998 1998 1998 1997
---------- ---------- ---------- ----------
US$ EURO FF FF

CURRENT LIABILITIES:
Current portion of long term debt .................................... 3,827 3,260 21,383 18,436
Current portion of capital lease obligation .......................... 365 311 2,037 1,462
Accounts payabl ...................................................... 13,287 11,318 74,244 42,431
Accrued expenses ..................................................... 1,989 1,694 11,112 8,442
Deferred revenues .................................................... 2,053 1,749 11,470 10,594
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES ........................................ 21,521 18,332 120,246 81,365
---------- ---------- ---------- ----------
Long-term debt, less current portion ..................................... 8,413 7,166 47,006 39,742
Capital lease obligation, less current portion ........................... 598 509 3,339 1,272
Minority interest ........................................................ 404 344 2,255 -
---------- ---------- ---------- ----------
Total long term liabilities ...................................... 9,415 8,019 52,600 41,014
---------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, FF 17 nominal value; 7,419,706 and 7,189,087
shares issued and outstanding - December 31, 1998 and
December 31, 1997, respectively .................................. 22,577 19,229 126,135 122,214
Additional paid-in capital ........................................... 105,746 90,067 590,804 686,479
Accumulated deficit .................................................. (35,996) (30,659) (201,108) (244,096)
Less ad .............................................................. (41) (35) (231) (596)
Deferred compensation ................................................ (4,007) (3,413) (22,389) (11,542)
Cumulative translation adjustment .................................... 63 54 354 78
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY ....................................... 88,342 75,243 493,565 552,537
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... 119,278 101,594 666,411 674,916
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

See notes to condensed consolidated financial statements.

F-3

GENSET
CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1998 1998 1997 1996
------------- ------------- ------------- ------------- -------------
US$ EURO FF FF FF

Research and development revenues ....................... 25,005 21,297 139,702 64,232 16,135
Oliogonucleotide sales .................................. 6,591 5,614 36,824 34,458 32,426
------------- ------------- ------------- ------------- -------------
TOTAL REVENUES ..................................... 31,596 26,911 176,526 98,690 48,561
------------- ------------- ------------- ------------- -------------
Research and development expenses ....................... (39,604) (33,732) (221,269) (152,349) (88,006)
Cost of goods sold ...................................... (3,131) (2,667) (17,494) (20,764) (21,398)
Selling and marketing expenses .......................... (1,443) (1,229) (8,061) (7,296) (4,767)
General and administrative expenses ..................... (10,201) (8,689) (56,995) (45,927) (30,865)
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES ........................... (54,379) (46,317) (303,819) (226,336) (145,036)
------------- ------------- ------------- ------------- -------------
LOSS FROM OPERATIONS ............................... (22,783) (19,406) (127,293) (127,646) (96,475)
------------- ------------- ------------- ------------- -------------
Interest income ......................................... 2,663 2,268 14,876 16,020 11,888
Interest expense ........................................ (656) (559) (3,665) (3,466) (2,668)
Foreign exchange gain (loss) ............................ (1,044) (889) (5,834) 1,941 298
Minority interest ....................................... 3 2 16 - -
Other income ............................................ 195 166 1,089 150 56
Gain on sale of stocks by equity investee ............... 2,715 2,312 15,167 - -
Equity in loss of affiliated companies .................. (1,524) (1,298) (8,514) - -
------------- ------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAX ............................. (20,431) (17,404) (114,158) (113,001) (86,901)
------------- ------------- ------------- ------------- -------------
Income tax benefit ...................................... 3,155 2,687 17,628 19,147 21,815
------------- ------------- ------------- ------------- -------------
NET LOSS ........................................... (17,276) (14,717) (96,530) (93,854) (65,086)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

Loss per ordinary share (2.37) (2.02) (13.24) (13.54) (11.66)
Weighted average number of ordinary shares outstanding .. 7,293 7,293 7,293 6,932 5,581

Loss per ADS (American Depositary Share) ................ (0.79) (0.67) (4.41) (4.51) (3.89)
Weighted average number of equivalent ADSs outstanding .. 21,879 21,879 21,879 20,796 16,743

As of December 31, 1998, there were oustanding 7,419,706 ordinary shares, or
22,259,118 equivalent ADSs.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

NET LOSS .......................................... (17,276) (14,717) (96,530) (93,854) (65,086)

Change in cumulative translation adjustment ............ 49 42 276 (391) (46)
------------- ------------- ------------- ------------- -------------
COMPREHENSIVE NET LOSS ............................ (17,227) (14,675) (96,254) (94,245) (65,132)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

See notes to condensed consolidated financial statements.

F-4

GENSET
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ORDINARY SHARES ADDITIONAL ACCUMU- ADVANCES DEFERRED CUMULATIVE SHARE-
------------------ PAID-IN LATED TO SHARE- COMPEN- TRANSLATION HOLDERS'
SHARES * AMOUNT CAPITAL DEFICIT HOLDERS SATION ADJUSTMENT EQUITY
--------- ------- --------- -------- --------- -------- ----------- --------
FF FF FF FF FF FF FF

AT JANUARY 1, 1996 ........................... 4,098,900 69,681 73,629 (85,156) (1,078) 515 57,591
Exercise of stock options .................... 97,800 1,663 886 2,549
Exercise of warrants ......................... 76,300 1,297 2,999 4,296
Shares issued to employee savings plan ....... 7,485 127 1,362 1,489
Exercice of options and warrants funded by
advances to shareholders ................ (1,639) (1,639)
Issuance of ordinary shares at
FF 166.86 per share ..................... 419,500 7,132 62,866 69,998
Issuance of ordinary shares in public
offering, less costs of raising capital.. 2,070,000 35,190 431,772 466,962
Deferred compensation arising from
stock option grants ..................... 14,247 (14,247)
Grant of warrants to CEPH .................... 18,300 18,300
Subscription of warrants ..................... 125 125
Amortization of deferred compensation ........ 5,904 5,904
Translation adjustment ....................... (46) (46)
Net loss ..................................... (65,086) (65,086)
--------- ------- --------- -------- --------- -------- ----------- --------
AT DECEMBER 31, 1996 ......................... 6,769,985 115,090 606,186 (150,242) (1,639) (9,421) 469 560,443
--------- ------- --------- -------- --------- -------- ----------- --------

Exercise of stock options from FF 28.80
to FF 207.50 per share .................. 36,600 622 2,547 3,169
Exercise of warrants from FF 28.80
to FF 250 per share ..................... 205,000 3,484 15,414 18,898
Exercice of options and warrants funded by
advances to shareholders ................ 1,043 1,043
Issuance of ordinary shares at
FF 336.39 per share ..................... 177,502 3,018 56,692 59,710
Deferred compensation arising from stock
option grants ........................... 5,624 (5,624) -
Subscription of warrants ..................... 16 16
Amortization of deferred compensation ........ 3,503 3,503
Translation adjustment ....................... (391) (391)
Net loss ..................................... (93,854) (93,854)
--------- ------- --------- -------- --------- -------- ----------- --------
AT DECEMBER 31, 1997 ......................... 7,189,087 122,214 686,479 (244,096) (596) (11,542) 78 552,537
--------- ------- --------- -------- --------- -------- ----------- --------

Exercise of stock options from FF 28.80
to FF 390 per share ..................... 130,719 2,223 18,524 20,747
Exercise of warrants from FF 28.80
to FF 250 per share ..................... 99,900 1,698 6,982 8,680
Exercice of options and warrants funded by
advances to shareholders ................ 365 365
Accumulated deficit moved to APIC ............ (139,518) 139,518 -
Deferred compensation arising from stock
option grants ........................... 18,209 (18,209) -
Subscription of warrants ..................... 128 128
Amortization of deferred compensation ........ 7,362 7,362
Translation adjustment ....................... 276 276
Net loss ..................................... (96,530) (96,530)
--------- ------- --------- -------- --------- -------- ----------- --------
AT DECEMBER 31, 1998 ......................... 7,419,706 126,135 590,804 (201,108) (231) (22,389) 354 493,565
--------- ------- --------- -------- --------- -------- ----------- --------
--------- ------- --------- -------- --------- -------- ----------- --------

AT DECEMBER 31, 1998
(IN THOUSANDS OF EUROS) ................. 19,229 90,067 (30,659) (35) (3,413) 54 75,243
------- --------- -------- --------- -------- ----------- --------
------- --------- -------- --------- -------- ----------- --------
AT DECEMBER 31, 1998
(IN THOUSANDS OF U.S.$) ................. 22,577 105,746 (35,996) (41) (4,007) 63 88,342
------- --------- -------- --------- -------- ----------- --------
------- --------- -------- --------- -------- ----------- --------

See notes to audited condensed consolated financial statements.

* Restated to reflect April 1996 100-for-1 stock split.

The financial information expressed in U.S.$ and euros are presented solely
for the convenience of the reader and is translated from French francs at
the noon buying rate in New York on December 31, 1998 which was FF 5.5870
for each U.S.$ and at the fixed rate of 6.55957 for each euro.

F-5

GENSET
CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1998 1998 1997 1996
---------- ----------- ---------- ---------- ----------
US$ EURO FF FF FF

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... (17,276) (14,717) (96,530) (93,854) (65,086)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and
equipment and intangibles ......................... 4,567 3,890 25,516 25,235 14,908
Stock compensation expense .............................. 1,318 1,122 7,362 3,503 5,902
Non-cash R&D revenue .................................... (1,836) (1,564) (10,257) - -
Equity in loss of affiliated companies .................. 1,524 1,298 8,514 - -
Gain on sale of stocks by equity investee ............... (2,715) (2,312) (15,167) - -
Goodwill amortization ................................... 758 646 4,235 - -
Variation of minority interests ......................... 404 344 2,257 - -
Increase (decrease) in cash from:
Accounts receivable - trades ........................ (3,941) (3,356) (22,011) 448 (6,225)
Accounts receivable - affiliates .................... (2,286) (1,947) (12,770) - -
State receivable .................................... (2,443) (2,080) (13,646) (24,821) (23,036)
Inventory ........................................... (520) (443) (2,903) (1,065) (1,415)
Prepaid expenses and other current assets ........... (71) (61) (399) 3,896 (1,499)
Accounts payable .................................... 5,667 4,826 31,659 15,739 7,330
Accrued expenses .................................... 483 411 2,699 1,358 3,299
Deferred revenue .................................... 156 133 871 9,445 1,115
Other ............................................... (202) (172) (1,129) (536) (818)
--------- -------- --------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES ........... (16,413) (13,982) (91,699) (60,652) (65,525)
--------- -------- --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short term investments ........... 50 43 280 - 6,268
Purchases of investments ................................ - - - 508 -
Purchases of property and equipment ..................... (13,679) (11,651) (76,426) (82,773) (23,609)
Payment of patent development costs and
acquisition of other intangibles ..................... (611) (520) (3,414) (2,449) (516)
Other ................................................... (15) (13) (84) - -
--------- -------- --------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ........... (14,255) (12,141) (79,644) (84,714) (17,857)
--------- -------- --------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans ..................................... 5,370 4,573 30,000 30,554 18,178
Repayment of loans ...................................... (3,534) (3,010) (19,747) (22,742) (5,720)
Principal payments on capital lease obligations ......... (261) (222) (1,458) (1,747) (3,225)
Cash proceeds from sale of common stock ................. 5,316 4,528 29,920 82,837 550,954
--------- -------- --------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ....... 6,891 5,869 38,715 88,902 560,187
--------- -------- --------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents. 129 110 506 (872) (103)
Net decrease in cash and cash equivalents ................... (23,648) (20,142) (132,122) (57,336) 476,702
Cash and cash equivalents, beginning of period .............. 82,591 70,346 461,437 518,773 42,071
--------- -------- --------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................... 58,943 50,204 329,315 461,437 518,773
--------- -------- --------- ---------- ----------
--------- -------- --------- ---------- ----------

See notes to condensed consolidated financial statements.

The financial information expressed in U.S.$ and euros are presented solely
for the convenience of the reader and is translated from French francs at
the noon buying rate in New York on December 31, 1998 which was FF 5.5870
for each U.S.$ and at the fixed rate of 6.55957 for each euro.

F-6

GENSET SA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of French francs, except share and per share data)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Genset, S.A. (the "Company") is incorporated as a SOCIETE ANONYME or
limited liability corporation under the laws of the Republic of France. The
Company was organized in 1989 to discover, develop and market products derived
from DNA and genetics research.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from those estimates.

The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries globally integrated as well as the
accounts of its minority-owned affiliates integrated using the equity method.

Percentage Accounting
Name of Investee Headquarters of Ownership Policies
---------------- ------------ ------------ --------

SUBSIDIARIES
Genset Corp 875 Prospect Street, Suite 206 100% consolidation
La Jolla, CA 92037, USA

Genset KK SCB #3 - Kyoto Research Park 100% consolidation
1 Awata-cho Chudoji
Shimogyo-Ku
Kyoto 600-8815, Japan

Genset Singapore The Alpha bldg #04-28 52.60% consolidation
Biotechnology Pte Ltd Singapore Science Park II
10 Science Park Road,
Singapore 117684

AFFILIATES
Surgen Ltd c/o Royal College of Surgeons 50% equity method
in Ireland
123 St Stephen's Green
Dublin 2, Ireland

Ceres Inc. 3007 Malibu Canyon 8.41% equity method
Malibu, CA 90265, USA

All intercompany accounts and transactions of companies globally
integrated have been eliminated. The fiscal year-end is December 31, 1998 for
all subsidiaries and affiliates.

The financial information expressed in U.S. dollars is presented solely
for the convenience of the reader and is translated from French francs at the
noon buying rate in New York on December 31, 1998 which was

F-7

FF 5.5870 for each U.S. dollar. Certain prior year amounts have been
reclassified to conform to the current year presentation.

TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES

Each foreign entity's results are measured in the currency in which
that entity primarily conducts its business (the functional currency). The local
currency is the functional currency for the Group's foreign subsidiaries. The
reporting currency of the Company is the French franc. For consolidation
purposes, the financial statements of entities whose functional currency is
other than the French franc are translated into French franc equivalents at
exchange rates as follows: (1) balance sheet accounts at year-end rates; and (2)
income statement accounts at weighted average exchange rates for the year.
Translation gains or losses are recorded in shareholders' equity and transaction
gains and losses are reflected in net income. The Company has not undertaken
hedging transactions to cover its currency translation exposure.

CONVERSION OF ACCOUNTS INTO EUROS

The Company converted all its accounts and accounting systems to euros
effective January 1, 1999. Its official year-end 1998 accounts are published in
both French francs and euros, and the Company intends, beginning with its first
quarter 1999 accounts, to publish its accounts in euros. The Company will
continue to provide a translation of its annual audited and quarterly unaudited
accounts into U.S. dollars in English language documents distributed in the
United States and in other countries outside France.

The Company converted all its French franc denominated cash and
financial instruments into euros effective January 1, 1999, and has since
accounted for all transactions in euros. The Company accepts invoices from
suppliers either in euros or other currencies, but will account for all invoices
in euros.

REVENUE RECOGNITION

Revenues from oligonucleotide sales and related products are recognized
upon shipment. Revenues from research collaborations with strategic alliance
partners are recognized on a basis consistent with the performance requirements
of the contract. Certain fees payable to the Company under these contracts are
milestone-related and are due in accordance with the terms of each contract when
the milestone is achieved. The Company recognizes this milestone-related revenue
only when each milestone has been fully performed, as agreed by the parties.
Costs incurred under these contracts are considered costs in the period
incurred, regardless of when the related revenue is recognized. Payments
received in advance of performance are recorded as deferred revenue.

The Company recognizes revenue from unconditional, non-refundable
grants received from governmental agencies in the period granted. Revenue from
conditional grants received is recognized when all conditions stated in the
grant have been met. Revenue from grants funding long-term research programs are
recognized on the percentage-of-completion method when there are no set
milestones or other technical requirements. Once stated conditions, milestones
or other requirements have been met, such grants are non-refundable.

RESEARCH AND DEVELOPMENT EXPENSE AND RELATED TAX CREDIT

Research and development costs are expensed as incurred. Such expenses
form the basis for a tax credit in France, which is recorded as a current tax
benefit in the period in which the qualifying expenses are incurred and the
credit claimed. The credit is recoverable in cash, if not used to offset taxes
payable, in the fourth year following its generation.

F-8

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

The Company's customers consist principally of pharmaceutical
companies, research centers, hospitals and other state and privately owned
entities throughout Europe, the United States and Asia. The Company performs
ongoing credit evaluations of its customers' financial condition, and generally
no collateral is required. The Company maintains provisions for potential credit
losses, and such losses have been within management's expectations. The activity
in the allowance for doubtful accounts may be summarized as follows:

1998 1997 1996
---- ---- ----

Allowance balance at January 1 415 293 90
Amounts charged to expense 16 170 210
Amounts written off (13) (48) (7)
---- ---- ----
Allowance balance at December 31 418 415 293
---- ---- ----
---- ---- ----

In 1998, seven strategic alliance partners, which include one
affiliate, accounted for FF 139,449, or 79%, of consolidated revenues. Amounts
receivable from these seven partners at December 31, 1998, totaled FF 33,126.

In 1997, three strategic alliance partners accounted for approximately
FF 55,275, or 56%, of consolidated revenues. Amounts receivable from these three
partners at December 31, 1997, totaled FF 6,030.

In 1996, one strategic alliance partner accounted for approximately FF
11,445, or 24%, of consolidated revenues. Amounts receivable from this partner
at December 31, 1996, totaled FF 6,030.

NET LOSS PER SHARE

On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). Prior to the
adoption of SFAS 128, net loss per share has been calculated in accordance with
the provisions of Accounting Principles Board Opinion 15, "Earnings Per Share"
("APB 15"), using the weighted average number of shares and dilutive equivalent
shares from stock options and warrants using the treasury stock method. SFAS 128
replaces the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share exclude any dilutive effects of stock options and warrants.
Pursuant to SFAS 128, the Company is required to change the method currently
used to compute loss per share and to restate all prior periods.

There is no impact of adopting SFAS 128 on the previous calculation of
loss per share for the years ended December 31, 1996 and 1995. As net losses
have been reported in these periods, the dilutive effects of stock options and
warrants were excluded from the calculation of net loss per share under APB 15.

CASH EQUIVALENTS AND INVESTMENTS

The Company considers all highly liquid investments with insignificant
interest rate risk and purchased with an original maturity of three months or
less to be cash equivalents. Such investments totaled FF 320,721 and FF 458,587
at December 31, 1998 and 1997, respectively.

Cash equivalents and investments, all classified as available-for-sale,
include marketable securities which are principally money market funds and
short-term certificates of deposit. The cost associated with such securities
approximates fair value.

In 1998, the Company booked a net exchange loss of FF 3,241. Gross
realized and unrealized gains and losses on sales of available-for-sale
securities during 1997 and 1996 were immaterial.

F-9

INVENTORIES

Inventories are stated at the lower of average cost (first-in,
first-out) or market and consist primarily of materials and supplies. Provision
is made for obsolete and slow-moving inventories.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation and amortization
are charged to expense over the expected useful lives of the assets as follows:

Method Period
------ ------

Leasehold improvements straight-line 5 to 10 years
Laboratory equipment accelerated 3 to 5 years
Office and computer equipment straight-line 5 years
Office furniture straight-line 5 to 7 years

Assets under capital leases are amortized over the asset life, when
there is a bargain purchase option, or over the remaining lease term.
Amortization of capital leases is included in depreciation expense.

Long-lived assets are written-down when, as a result of events and
changes in circumstances within the year, their recoverable value based on
undiscounted future cash flow appears to be permanently less than their carrying
value.

INTANGIBLE ASSETS

Intangible assets include principally patent development costs. Such
costs, principally legal fees, related to the development of patents are
capitalized and amortized on a straight-line basis over five years.

The Company's policy is to evaluate, at each balance sheet date, the
appropriateness of the carrying values of the unamortized balances of intangible
assets on the basis of estimated future cash flows and other factors. If such
evaluations were to indicate a material impairment of these intangible assets,
such impairment would be recognized by a write-down of the applicable asset.

INCOME TAXES

The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. A valuation allowance is recorded if it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.

EMPLOYEE STOCK OPTION PLANS

In 1996, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." As permitted by SFAS 123, the Company has elected to continue to
account for its employee stock option plans in accordance with the provisions of
the Accounting Principles Board opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," which requires that compensation expense be recorded when
the option exercise price is less than the market value of the underlying share
on the grant date.

F-10

SEGMENT INFORMATION

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 superseded Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company considers its various research and production activities to be
integrated components of its single business segment, the discovery, development
and marketing of products derived from DNA and genetics research.

RECENT PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountant
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company plans to adopt the SOP on January 1,
1999. The SOP will require the capitalization of certain costs incurred after
the date of adoption in connection with developing or obtaining software for
internal use. The Company currently expenses such costs as incurred. The Company
has not yet determined the impact of adopting this SOP.

In June 1998, the Financial Accounting Standard Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. This statement is effective for fiscal years beginning
after June 15, 1999, and will be adopted by the Company for the year ending
December 31, 2000. Because the Company expects to make minimal or no use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or on the financial
position of the Company.

2. RESEARCH AND COLLABORATION AGREEMENTS

On October 2, 1998, the Company entered into a two-year
pharmacogenomics collaboration with Pharmacia & Upjohn. Under the terms of the
agreement, the Company will use its pharmacogenomics technology to discover
markers and genes involved in response to a Pharmacia & Upjohn compound. The
collaboration is also intended to enhance Pharmacia & Upjohn's discovery
research program by identifying targets for the development of new compounds. In
connection with the collaboration, Genset will receive research fees, research
milestone and clinical milestone payments, and royalty payments on future sales
of the collaborative compound that would make use of the pharmacogenomics
discoveries. Royalties would also be awarded for second-generation compounds
that are discovered, developed and commercialized by Pharmacia & Upjohn based on
genes identified through the research collaboration.

On August 10, 1998, the Company entered into an exclusive license
agreement with Wyeth-Lederle Vaccines, a business unit of Wyeth-Ayerst
Laboratories, division of American Home Products Corporation. Under the terms of
the license agreement, Genset granted Wyeth-Lederle Vaccines an exclusive
worldwide royalty-bearing license to its know-how and patent applications
covering the entire CHLAMYDIA PNEUMONIAE and CHLAMYDIA TRACHOMATIS L2 strain
genomic sequences for the development and commercialization of vaccines. In
consideration of the rights granted to Wyeth-Lederle Vaccines, the Company
received an initial license fee and could receive payments upon the achievement
of certain clinical development milestones. In addition, the Company will
receive royalty payments on all future sales of vaccines that are discovered and
developed using the licensed technologies.

F-11

On December 28, 1997, the Company entered into a series of agreements
with Ceres, Inc. ("Ceres"), a company specializing in the field of agricultural
biotechnology. The collaboration consists of three parts: (i) the acquisition of
an approximately 20% equity interest in Ceres by the Company; (ii) an agreement
for sequencing and bioinformatics services to be provided by the Company for
which Ceres will make quarterly payments and issue additional equity to the
Company; and (iii) an exclusive license agreement providing Ceres access, on a
royalty-free basis, to certain of the Company's technologies for applications in
agricultural genetics. The service and license agreements were amended in the
course of 1998 to expand the program. In addition, as a result of new financings
by Ceres, the Company's percentage equity interest has been reduced. Under the
services agreement, the Company has been granted additional equity upon
achievement of certain milestones. At December 31, 1998, the difference between
the book value of the investment in Ceres and the underlying equity in the net
assets was FF 2,632, which has been recorded as gain on sale of stocks by equity
investee for FF 15,167, resulting from successive decreases in the percentage of
interest from approximately 20% to 8.4%, as goodwill a
mortization for FF 4,235
and as equity in loss of affiliated companies for FF 8,300.

On July 25, 1997, the Company entered into an exclusive license
agreement with Genetics Institute, a subsidiary of American Home Products.
Under this agreement, Genetics Institute has licensed from the Company
approximately 2,000 SignalTag-TM- sequences and full-length clones for
secreted proteins for inclusion in Genetics Institute's
DiscoverEase-Registered Trademark- program. The Company will receive payments
of up to FF 120 million based on the delivery of clones to Genetics Institute
and orders received from DiscoverEase-Registered Trademark- subscribers.

Effective as of July 15, 1997, the Company entered into a strategic
alliance with Abbott Laboratories in the field of pharmacogenomics for the
development of genetic markers and diagnostic tests for the analysis of drug
response. The strategic alliance is comprised of three parts: (i) a
subscription agreement; (ii) an exclusive 18 month research and license
agreement for the development of genetic markers and discovery of genes
associated with drug response to and side effects of an Abbott drug for the
treatment of asthma, Zyflo-Registered Trademark- (zileuton), for which Abbott
has agreed to provide research and development funding and milestone payments
that could total up to approximately FF 135 million; and (iii) an exclusive
collaboration for the development of diagnostic systems for pharmacogenomics
research programs. Pursuant to the subscription agreement and subsequent
amendments between the parties, Abbott made an equity investment in the
Company on September 19, 1997 of approximately FF 60 million and the Company
has a two-year put option, that is exercisable until September 7, 2000,
subject to certain conditions, to sell an additional approximately FF 60
million of the Company's equity to Abbott at the then current market price.

Effective September 26, 1996, the Company entered into a strategic
alliance with Janssen Pharmaceutica N.V., an affiliate of Johnson & Johnson, for
the discovery of genes associated with schizophrenia. The term of the agreement
was for a period of two years, commencing on September 26, 1996. The parties
have agreed to continue research under the agreement through April 1999. In
anticipation of the agreement, on May 10, 1996, Johnson & Johnson Development
Corporation purchased 119,900 ordinary shares of the Company for FF 20,007.

On May 9, 1996, the Company entered into a research and development
collaboration agreement with the French pharmaceuticals company Synthelabo (the
"Synthelabo Agreement") to discover and sequence genes involved in or associated
with prostate cancer. Pursuant to the Synthelabo Agreement, Synthelabo made an
equity investment of approximately FF 50 million and agreed to provide an
aggregate of FF 355 million in research funding and milestones payable as and
when certain research, patent and clinical objectives are met. In addition, the
Company will receive royalty payments on any future drug sales, which may result
from the use of certain of the Company's research conducted pursuant to the
terms of the Synthelabo Agreement. The term of the initial research program was
two years, commencing on May 9, 1996. Subsequently, the Company and Synthelabo
extended the Research Program for a third year ending in May 1999.

F-12

Aggregate revenues of FF 139,449 and FF 55,275 were recorded from these
research and collaboration agreements during 1998 and 1997, respectively.

3. AGREEMENTS WITH THE CLINICAL AND RESEARCH INSTITUTIONS

In October 1997, the Company formed a strategic research collaboration
with the Royal College of Surgeons in Ireland (RCSI) to perform large-scale
cardiovascular genomic research programs based on association studies. As part
of the collaborative arrangement, the Company and RCSI have formed Surgen, a
50:50 owned dedicated joint venture located in Dublin, Ireland. Surgen conducts
sample collection and storage, DNA extraction, cell immortalization, and, more
generally, all operations connected with the DNA banking part of this project.

In April 1996, the Company entered into an agreement with the CENTRE
D'ETUDE DU POLYMORPHISME HUMAIN ("CEPH") setting out the terms of the transfer
to the Company of CEPH's mapping team and of certain proprietary materials and
data and the terms of collaboration between the Company and CEPH relating to
research on aging. The Company granted warrants to CEPH for the purchase of
209,800 ordinary shares of the Company at an exercise price of FF 100 per share.
All of the warrants have been exercised. These warrants were valued at a total
of FF 18,300 and have been recorded as prepaid research and development expense.
Such prepaid expense is being amortized over the period that services were to be
provided to the Company under the agreement. Amortization expense of FF 668 and
FF 10,457 was recorded in the years ended December 31, 1998 and 1997,
respectively.

The Company entered into an agreement effective as of July 1, 1994 with
the ASSOCIATION FRANCAISE CONTRE LES MYOPATHIES (the "AFM"), a private
non-profit association founded to combat neuromuscular diseases, and Genethon, a
private non-profit association. Pursuant to this agreement, the AFM made an
equity investment of approximately FF 11,000 in the Company and agreed to loan
the Company FF 16,000 over a two-year period commencing on January 1, 1995. The
loan is repayable with interest calculated at the French daily money market
rates, which was 3.0927% at December 31, 1998, in four annual installments due
December 31, 1997 through 2000.

4. INVENTORIES

The Company's inventories at December 31 comprised:

1998 1997
---- ----

Raw materials and supplies 6,805 3,641
Work-in-process -- 260
------ ------
Total 6,805 3,901
------ ------
------ ------

No provisions were recorded in 1998 or 1997.

F-13

5. FIXED ASSETS

The Company's fixed assets at December 31 are broken down as follows:

1998 1997
---- ----

Leasehold improvements 84,223 60,264
Laboratory equipment 106,815 76,452
Furnishings - office and computer equipment 42,071 27,510
Fixed assets under construction 24,697 13,372
------ ------
Total cost 257,806 177,598
------- -------
------- -------
Less: accumulated depreciation (88,319) (64,673)
-------- --------
Net fixed assets 169,487 112,925
------- -------
------- -------

The increase in fixed assets in 1998 resulted primarily from: (i) the
expansion and relocation of certain bioinformatics resources as well as the
genomics analysis and medical research departments to the Genomics Research
Center at Evry; and (ii) the new laboratory equipment for this Center and
additional sequencing machines in the high-throughput sequencing laboratory.

6. LONG-TERM DEBT

The Company's long-term debt at December 31 comprised:

1998 1997
---- ----

Bank loans bearing interest at rates of 4.25% to 8.25% 60,389 44,678
Conditional interest-free loan from French governmental agency -- 1,500
Amounts due to the AFM 8,000 12,000
--------- --------
Total 68,389 58,178
--------- --------
--------- --------
Less current portion (21,383) (18,436)
-------- --------
Total long term debt less current portion 47,006 39,742
--------- --------
--------- --------

The loans are to be repaid in monthly or quarterly installments through
the year 2003. The average interest rates on these loans are 6.53% and 6.76% in
1998 and 1997, respectively.

The Company has received interest-free loans from ANVAR (AGENCE
NATIONALE DE VALORISATION DE LA RECHERCHE), an agency of the French government
that provides financing to French companies for research and development.
Repayment of the loans is contingent upon the technical and commercial success
of the research programs to which they relate. Thus, the Company recorded in
1997 FF 8,500 in research revenues following the declaration of the technical
and commercial failure of the early research program involved.

At December 31, 1998, bank debt with a balance due of FF 3,372 is
secured by equipment with a net book value of FF 27.

Scheduled repayments of long-term debt are as follows:

1999 21,383
2000 18,703
2001 13,858
2002 9,504
2003 4,941
-------
Total 68,389
-------
-------

F-14

Interest paid in the years ended December 31, 1998, 1997 and 1996 was
approximately FF 3,596, FF 2,605 and FF 1,610, respectively.

7. SHAREHOLDERS' EQUITY

All the equity amounts described below have been adjusted to reflect a
100-for-1 stock split which occurred in April 1996.

GENERAL

At December 31, 1998, the issued and outstanding share capital of the
Company consists of 7,419,706 ordinary shares, nominal value FF 17 per share.

The shareholders' meeting of August 19, 1998 authorized the Board of
Directors to convert the Company's share capital into euros, to round the
nominal value per ordinary share to the nearest whole euro, and to proceed with
a capital increase to give effect to the rounding by offsetting the required
amount against the available capital reserves of the Company. The Board of
Directors gave effect to the conversion in January.

In August 1998, the shareholders approved a reduction of the
accumulated deficit, which was effected by a setoff against surplus paid-in
capital.

In September 1997, the Company issued 177,502 ordinary shares to Abbott
Laboratories (corresponding to a capital increase of FF 59,710).

In June 1996, the Company issued 2,070,000 ordinary shares in the
United States and France in a public offering generating net proceeds of FF
466,962. Simultaneous with the public offering, the Company effected a 100-for-1
stock split, reducing the nominal value of ordinary shares from FF 1,700 to FF
17.

Concurrent with the public offering, the Company issued 7,485 ordinary
shares at a price of FF 199.22 per share in connection with the Genset Employee
Savings Plan.

In May 1996, the Company issued 299,600 ordinary shares to Synthelabo
for cash consideration of FF 49,990 and 119,900 ordinary shares to Johnson &
Johnson Development Corporation for cash consideration of FF 20,007.

In 1995, the Company issued for cash 404,700 shares at FF 60 per share
for a total of FF 21,682, net of costs of raising capital.

PREEMPTIVE SUBSCRIPTION RIGHTS

Existing shareholders have preemptive rights to subscribe for cash on a
pro rata basis for any new shares issued by the Company. Shareholders may,
subject to certain conditions, waive such preemptive subscription rights at an
extraordinary general meeting of shareholders. Preemptive subscription rights,
if not previously waived, are transferable during the subscription period
relating to a particular offer of shares.

F-15

WARRANTS

Under the authorized plans approved by shareholders in 1998, 1997,
1996, 1995, 1994, 1992 and 1990, the Company issued a certain number of warrants
to purchase ordinary shares (including the warrants issued to CEPH).

Number of Ordinary Shares
Underlying the Warrants
-----------------------

Balance at December 31, 1994 170,600
----------
Subscriptions 18,200
Exercised (17,300)
Expired or Canceled (2,000)
----------
Balance at December 31, 1995 169,500
----------
Subscriptions 240,600
Exercised (76,300)
Expired or Canceled --
----------
Balance at December 31, 1996 333,800
----------
Subscriptions 4,000
Exercised (205,000)
Expired or Canceled (8,000)
----------
Balance at December 31, 1997 124,800
----------
Subscriptions 32,000
Exercised (99,900)
Expired or Canceled --
----------
Balance at December 31, 1998 56,900
----------
----------

Issued warrants outstanding at December 31, 1998:

Number of Ordinary Shares Exercise Price FF Expiration Date
------------------------- ----------------- ---------------

2,000 28.8 October 5, 2000
21,900 160.0 March 18, 2001
1,000 250.0 May 21, 2002
28,000 574.0 May 18, 2003
2,000 574.0 May 18, 2003
2,000 546.5 August 18, 2003

STOCK OPTIONS

Under the authorized plans approved by Shareholders in 1997, 1996,
1994, 1992 and 1990, the Company has issued stock options entitling the holder
thereof to subscribe for one ordinary share per option under the 1997 Plan and
100 ordinary shares per option under all the prior plans. Options generally vest
ratably over a four-year period from the date of grant and expire five years
from date of vesting.

F-16

A summary of activity under the plans is as follows:

Options Outstanding
-------------------------------
Number Weighted average
of price per share
Shares in FF
------ -----

Balance at December 31, 1994 143,800 23.74
------- -----
Granted 70,000 40.00
Exercised (27,600) 11.38
Expired or canceled (40,000) 40.00
-------- -----
Balance at December 31, 1995 146,200 55.59
------- -----
Granted 930,400 159.87
Exercised (97,800) 26.04
Expired or canceled (13,900) 47.68
-------- -----
Balance at December 31, 1996 964,900 165.91
------- ------
Granted 77,668 257.57
Exercised (36,600) 86.58
Expired or canceled (19,800) 148.45
-------- ------
Balance at December 31, 1997 986,168 166.03
------- ------
Granted 275,900 393.31
Exercised (130,719) 158.71
Expired or canceled (30,481) 317.01
-------- ------
Balance at December 31, 1998 1,100,868 219.68
--------- ------
--------- ------

Of the total options granted in 1996, 334 gave the holder the right to
purchase 33,400 ordinary shares subject to the achievement of certain
milestones. Compensation expense corresponding to the difference between the
exercise price and the market value on the date the milestone is achieved will
be recorded on the milestone date.

At December 31, 1998 and 1997, options to purchase 485,167 and 423,100
shares, respectively, were exercisable at weighted-average exercise prices of FF
160.42 and FF 154.84, respectively.

At December 31, 1998, 1,218,881 shares were reserved for issuance to
option holders (1,100,868 under outstanding options at an exercise price ranged
from FF 28.80 to FF 521 plus 118,013 under options authorized but not yet
granted).

The weighted average remaining contractual life of all options
outstanding is 4.86 years at December 31, 1998.

The exercise of options by certain employees in 1996 was financed by a
loan from the Company. The outstanding balance of this loan at December 31, 1998
and 1997 has been shown as a reduction of shareholders' equity.

In December 1996, the French parliament adopted a law that requires
French companies to pay French social contributions and certain salary-based
taxes, which may represent, for the Company, up to 39% of the taxable salary, on
the difference between the exercise price of a stock option and the fair market
value of the underlying shares on the exercise date if the beneficiary disposes
of the shares (or converts them to bearer form) before a five-year period
following the grant of the option. The new law is consistent with personal
income tax law that requires individuals to pay income tax on the difference
between the option exercise price and the fair value of the shares at the grant
date if the shares are sold or otherwise disposed of within five years of the
option

F-17

grant. The law, as subsequently modified, applies to all of the Company's
options granted after January 1, 1997 as well as to options granted prior to
January 1, 1997 and exercised between January 1, 1997 and March 31, 1998.

The Company has not recorded a liability for social charges which may
be assessed for options granted as of December 31, 1998 as the liability, being
dependent on future trading values of the Company's shares and the timing of
employees' decisions to exercise options and sell the related shares, cannot be
estimated. The Company also does not consider that the liability is probable due
to the income tax disincentives to employees of exercising options and selling
the shares prior to the five-year period.

Pro forma information regarding net loss and loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following average assumptions for 1998, 1997 and
1996, respectively: risk-free interest rate of 3.65% in all three years;
dividend yields of 0% in all three years; volatility factors of the expected
market price of the Company's ordinary shares of 0.5% both in 1998 and in
1997and 0.4% in 1996, respectively; and a weighted-average expected life of the
option of five to eight years.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for loss per share
information):

1998 1997 1996
---- ---- ----

Pro forma net loss (118,363) (107,322) (90,257)
Pro forma loss per share (16.23) (15.48) (16.17)

These initial pro forma disclosures are not likely to be representative
of the effects of applying SFAS 123 in future years as the 1998, 1997, 1996
amounts reflect expense for only three, two and one year's vesting,
respectively.

The weighted-average fair values of options granted during 1998, 1997
and 1996 were as follows:

1998 1997 1996
---- ---- ----

Options whose price was greater than market price
of the underlying shares on the grant date NA NA 90.49
Options whose price was less than the market price
of the underlying shares on the grant date 290.53 212.99 84.93

8. INCOME TAXES

For financial reporting purposes, loss before income tax benefit
includes the following components at December 31:

1998 1997 1996
---- ---- ----

France (98,593) (108,819) (85,403)
United States (12,928) (2,753) (450)
Asia (2,637) (1,429) (1,048)
---------- ---------- --------
Total (114,158) (113,001) (86,901)
---------- ---------- --------
---------- ---------- --------

The income tax benefit in 1998, 1997, and 1996 is due to research and
development tax credits earned by the French company and recorded as current tax
benefit. There was no current tax expense or benefit in the

F-18

Company's subsidiaries, nor any deferred tax in any country, due to the
continuing losses of all companies in the consolidated group.

A reconciliation of income taxes computed at the French statutory rate
(41.66% in 1998, 41.66% in 1997 and 36.66% in 1996) to the income tax benefit is
as follows at December 31:

1998 1997 1996
---- ---- ----

Income tax benefit computed at the
French statutory rate 47,558 47,077 31,858
Operating losses not utilized (47,558) (47,077) (31,858)
Research and development tax credit 17,701 19,172 21,840
Other taxes (73) (25) (25)
--------- --------- ---------
Total 17,628 19,147 21,815
--------- --------- ---------
--------- --------- ---------

Significant components of the Company's deferred tax assets and
liabilities consist of the following at December 31:

1998 1997
---- ----

Deferred tax liabilities:
Intangibles expensed upon acquisition for tax purposes (2,013) (1,122)
---------- ----------
Deferred tax assets:
Net operating loss carry forwards 125,341 86,457
Research and development costs capitalized and
amortized for tax purposes 49,814 33,329
Other 389 191
----------- -----------
Total deferred tax assets 175,544 119,977
Valuation allowance (173,531) (118,855)
----------- -----------
Net deferred tax -- --
----------- -----------
----------- -----------

As of December 31, 1998, the Company had French net operating loss
carry forwards of approximately FF 267,239 of which FF 247,064 have no
expiration date. The remaining FF 20,175 net operating loss carry forwards will
expire in the years 1999 through 2001, if not utilized, as follows at
December 31:

1999 8,142
2000 175
2001 11,858
------
Total 20,175
------
------

The Company also had research income tax credit receivables of FF
66,673 which are recoverable if not used to offset taxes payable in the fourth
year following their generation. Of the total amount receivable, FF 7,967 is
recoverable in 1999.

The Company had U.S. net operating loss carry forwards of approximately
FF 29,120 which expire in the years 2007 through 2013 for federal tax purposes,
and FF 7,369 which expire in the years 1999 through 2003 for State of California
tax purposes. The Company had net operating loss carry forwards from its other
subsidiaries of approximately FF 6,788, which expire in 1999, 2000, 2001 and
2002. The utilization of these net operating loss carry forwards is limited to
the future operations of the Company in the tax jurisdictions in which such
carry forwards arose.

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9. INFORMATION ON PERSONNEL AND DIRECTORS

At December 31, the Company's employees were allocated as follows:

1998 1997
---- ----

Research and development 333 236
Total 479 355

Salary expenses in the years 1998 and 1997 were FF 111,633 and FF
77,223, respectively. The aggregate amount of compensation paid by the Company
to all of its directors as a group (eight persons in 1998, including five
independent directors who received limited compensation for services as
directors, and reimbursement of expenses incidental to their attendance at Board
of Directors meetings) for services in all capacities for 1998 was approximately
FF 7,012. The aggregate amount of compensation paid by the Company to all of its
executive officers (excluding directors) and senior management as a group (18
persons) for their services in 1998 was approximately FF 10,495.

The Company contributes to pensions for personnel in France in
accordance with French law, by contributions based on salaries to the relevant
state-sponsored organizations. The Company has no further liability in
connection with these plans.

French law also requires payment of a lump sum retirement indemnity to
employees based upon years of service and compensation at retirement. Benefits
do not vest prior to retirement. The Company's obligation at December 31, 1998
and 1997 were immaterial.

As of December 31, 1997, the U.S. subsidiary had established a 401(K)
retirement plan for its employees; there is no obligation to make employer
contributions. As of December 31, 1998, other subsidiaries had no pension plans.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1998 and 1997, the carrying values of financial
instruments such as cash and cash equivalents, trade receivables and payables,
other receivables and accrued liabilities, and the current portions of long-term
debt and capital lease obligations approximated their market values, based on
the short-term maturities of these instruments. At December 31, 1998 and 1997,
the fair value of long-term debt was FF 43,337 and FF 30,042, respectively. Fair
value is determined based on expected future cash flows, discounted at market
interest rates, and other appropriate valuation methodologies.

11. LEASE COMMITMENTS

The Company leases certain of its equipment under capital leases.
Capitalized costs of approximately FF 10,717 are included in property and
equipment at each of December 31, 1998 and 1997. Accumulated amortization of
these leased assets was approximately FF 8,808 and FF 7,969 at December 31, 1998
and 1997, respectively.

F-20

Future minimum lease payments under capital lease obligations due for
the fiscal years ending December 31 are as follows:

1999 2,182
2000 1,299
2001 1,097
2002 1,086
2003 31
-------
Total minimum lease payments 5,695
Less amount representing interest (319)
-------
Present value of net minimum lease payments 5,376
Less current portion (2,037)
-------
Long-term portion of minimum lease payments 3,339
-------
-------

The Company leases certain office, laboratory and research facilities
under operating leases, which expire through 2000. The majority of these leases
have nine-year terms, but are cancelable at the Company's option at each
three-year anniversary. Future minimum lease payments under operating leases due
for the fiscal years ending December 31 are as follows:

1999 12,874
2000 13,156
2001 13,569

Rental expense for the years ended December 31, 1998, 1997, and 1996
was approximately FF 12,238, FF 9,693, and FF 4,261, respectively.

12. INDUSTRY AND GEOGRAPHIC INFORMATION

The Company operates in one segment, the discovery, development and
marketing of products derived from DNA and genetics research.

Information about the Company's operations by geographic area is as
follows at December 31:

United
France States Asia Elimination Consolidated
------ ------ ---- ----------- ------------

1998
Customers 159,945 11,788 4,793 -- 176,526
Intercompany 3,891 -- -- (3,891) --
-------- -------- ------- ------ ----------
Total revenues: 163,836 11,788 4,793 (3,891) 176,526
-------- -------- ------- ------ ----------
-------- -------- ------- ------ ----------
Operating loss (106,897) (17,656) (2,747) 7 (127,293)
Identifiable assets 668,407 15,705 9,429 (27,137) 666,411

1997
Customers 84,728 11,543 2,419 -- 98,690
Intercompany 2,475 184 -- (2,659) --
------- ------- ------- ------- ---------
Total revenues: 87,203 11,727 2,419 (2,659) 98,690
-------- -------- ------- ------ ----------
-------- -------- ------- ------ ----------
Operating loss (123,284) (2,740) (1,508) (114) (127,646)
Identifiable assets 684,572 6,274 1,727 (17,657) 674,916

F-21

United
France States Asia Elimination Consolidated
------ ------ ---- ----------- ------------

1996
Customers 37,169 9,266 2,126 -- 48,561
Intercompany 1,779 199 -- (1,978) --
------- ------ ------- ------ --------
Total revenues: 38,948 9,465 2,126 (1,978) 48,561
-------- -------- ------- ------ --------
-------- -------- ------- ------ --------

Operating loss (95,026) (345) (1,104) -- (96,475)
Identifiable assets 668,254 6,994 1,426 (14,041) 662,633

Intercompany sales between geographic regions are accounted for at cost
plus a gross margin.

The Company's export sales from France were divided as follows at
December 31:

1998 1997 1996
---- ---- ----

United States 101,302 17,646 487
United Kingdom 3,473 3,483 2,396
Italy 1,370 1,508 1,425
Other European countries 19,691 18,977 6,502
Asia and Middle East 1,203 2,132 1,478
Others 230 1,268 1,266
-------- ------- -------
Total 127,269 45,014 13,544
-------- ------- -------
-------- ------- -------

F-22