GELTEX PHARMACEUTICALS INC, S-3/A, 1998-02-11

GELTEX PHARMACEUTICALS INC
S-3/A, 1998-02-11
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998.

REGISTRATION NO. 333-45151

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

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

GELTEX PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 04-3136767
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

NINE FOURTH AVENUE, WALTHAM, MASSACHUSETTS 02154 (781) 290-5888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MARK SKALETSKY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GELTEX PHARMACEUTICALS, INC.
NINE FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02154
(781) 290-5888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

with copies to:

<TABLE>
<S> <C>
MAUREEN P. MANNING, ESQ. STEVEN D. SINGER, ESQ.
PALMER & DODGE LLP PHILIP P. ROSSETTI, ESQ.
ONE BEACON STREET HALE AND DORR LLP
BOSTON, MASSACHUSETTS 02108 60 STATE STREET
(617) 573-0100 BOSTON, MASSACHUSETTS 02109
(617) 526-6000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

PROSPECTUS (Subject to Completion)

Dated February 11, 1998

2,500,000 SHARES

GELTEX LOGO

COMMON STOCK
---------------------------

All of the shares of Common Stock, $.01 par value per share ("Common
Stock"), offered hereby are being sold by GelTex Pharmaceuticals, Inc. ("GelTex"
or the "Company"). The Common Stock is quoted on the Nasdaq National Market
under the symbol "GELX." On February 6, 1998, the last reported sale price of
the Common Stock on the Nasdaq National Market was $26.50 per share.

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

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

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Per Share............... $ $ $
Total(3)................ $ $ $
</TABLE>

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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $320,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 375,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that the delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1998.
---------------------------
COWEN & COMPANY
CIBC OPPENHEIMER
HAMBRECHT & QUIST
, 1998
<PAGE> 3

AVAILABLE INFORMATION

GelTex has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete. With
respect to each such contract or other document filed as an exhibit to a
document incorporated by reference in this Prospectus, reference is made to the
exhibit for a more complete description of the matter involved and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits
incorporated by reference as a part thereof, are available for inspection and
copying at the Commission's offices as described below.

GelTex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed
pursuant to the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611; and Northeast Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

GelTex hereby incorporates in this Prospectus by reference the following
documents heretofore filed with the Commission (File No. 0-26872) pursuant to
the Exchange Act: (i) GelTex's Annual Report on Form 10-K for the year ended
December 31, 1996; (ii) GelTex's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii) GelTex's
Current Report on Form 8-K filed with the Commission on February 11, 1998; (iv)
the description of the Common Stock contained in GelTex's Registration Statement
on Form 8-A filed with the Commission on September 26, 1995, as amended on
October 12, 1995; and (v) the description of Junior Participating Preferred
Stock Purchase Rights contained in GelTex's Registration Statement on Form 8-A
filed with the Commission on March 5, 1996.

All documents filed by GelTex pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering made hereby shall be deemed to be incorporated in
this Prospectus by reference and to be a part hereof from the respective dates
of the filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.

GelTex hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any and all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents which are not specifically incorporated by reference
into such documents. Requests for such copies should be directed to the
executive offices of GelTex Pharmaceuticals, Inc., Nine Fourth Avenue, Waltham,
Massachusetts 02154, Attention: Investor Relations, telephone (781) 290-5888,
extension 218.

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

RenaGel(R) and CholestaGel(R) are registered trademarks of the Company. Trade
names and trademarks of other companies appearing elsewhere in this Prospectus
are the property of their respective holders.

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

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus and in the documents incorporated into this Prospectus by reference.
Unless otherwise indicated or the context otherwise requires, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
The shares of Common Stock offered hereby involve a high degree of risk. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. Investors should carefully consider the information set forth
under the heading "Risk Factors."

THE COMPANY

GelTex Pharmaceuticals, Inc. is developing non-absorbed, polymer-based
pharmaceuticals that selectively bind to and eliminate target substances from
the intestinal tract. In November 1997, GelTex filed a New Drug Application
("NDA") with the United States Food and Drug Administration ("FDA") for its lead
product, RenaGel phosphate binder, for the control of elevated phosphorus levels
in chronic kidney failure patients. The Company, together with its joint venture
partner, Genzyme Corporation ("Genzyme"), intends to file applications for
RenaGel marketing authorization in Europe and Canada in mid-1998. In December
1997, GelTex initiated the first of two Phase III clinical trials for
CholestaGel non-absorbed cholesterol reducer, a product intended to reduce
elevated LDL cholesterol levels. The Company expects to file a NDA for
CholestaGel in 1999. The Company has initiated an anti-obesity drug discovery
program and is currently conducting pre-clinical studies with several types of
compounds. In addition, the Company is continuing to expand its infectious
disease program.

GelTex's pharmaceuticals act in the intestinal tract without absorption
into the bloodstream, thereby minimizing the potential for adverse effects. The
Company's product development approach represents an advance in the use of
polymer hydrogels as pharmaceuticals. The Company's technology combines an
understanding of chemical interactions necessary for molecular recognition with
the ability to design and synthesize polymer hydrogels. The Company's technology
enables it to combine commercially available monomers that have distinct
structural qualities to create proprietary, non-absorbed polymers that
selectively bind target molecules. The Company designs its polymers to carry a
high density of selective binding sites for the targeted molecules, making them
potent at low dosage levels and permitting oral administration in a convenient
capsule form.

RenaGel phosphate binder is an orally administered, non-absorbed hydrogel
intended to control hyperphosphatemia (elevated phosphorus levels) in patients
with chronic kidney failure. RenaGel is designed to provide significant
advantages over currently available calcium- and aluminum-based phosphate
binders. RenaGel binds dietary phosphate without the use of either calcium or
aluminum and, therefore, does not cause dangerous elevated blood calcium levels
or aluminum toxicities. The Company has formulated RenaGel in a convenient
capsule that is more palatable than the chalky chewable and acidic uncoated
tablet forms of currently available phosphate binders. In June 1997, the Company
formed a 50/50 joint venture with Genzyme for the final development and
commercialization of RenaGel phosphate binder in the United States, Europe and
certain other territories.

CholestaGel cholesterol reducer is an orally administered, non-absorbed
hydrogel intended to reduce elevated LDL cholesterol in patients with
hypercholesterolemia. The Company believes that the structural design of
CholestaGel represents a significant advance over existing bile acid
sequestrants in that its high density of high affinity bile acid binding sites
makes it more potent at lower doses than currently marketed agents. The Company
believes that CholestaGel will meet the need for a non-absorbed
cholesterol-reducing drug that is safe and well tolerated in long term use,
effective at low doses and available in a more convenient dosage form. In
December 1997, GelTex commenced a Phase III double-blind, placebo controlled
study of CholestaGel designed to evaluate the efficacy and tolerability of the
drug at four dosage levels over a six month treatment period.

The Company's anti-obesity program is focused on the development of
non-absorbed polymers that act within the gastrointestinal tract to inhibit the
absorption of fat. The Company is engaged in pre-clinical in vitro and in vivo
animal studies of novel polymers that work within the gastrointestinal tract and
either bind to and inhibit the enzyme responsible for the breakdown of fat or
bind to fat and make it inaccessible to this enzyme. The Company's infectious
disease research program is currently focused on non-absorbed polymers for the
treatment of non-systemic infections in surface sites, including
gastrointestinal, genitourinary, skin and wound sites, and respiratory tract
infections.

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<PAGE> 5

THE OFFERING

Common Stock offered hereby........... 2,500,000 shares

Common Stock to be outstanding after
the offering.......................... 16,142,264 shares(1)

Use of proceeds....................... For Phase III clinical trials and
manufacturing and development costs
relating to CholestaGel, to fund the
Company's share of commercialization
and other costs associated with
RenaGel, for research and development
programs, working capital and other
general corporate purposes.

Nasdaq National Market symbol......... GELX
- ------------------

(1) Based on shares outstanding as of December 31, 1997. Excludes 1,439,479
shares issuable upon the exercise of options outstanding as of December 31,
1997 with a weighted average exercise price of $14.07 per share and 11,400
shares issuable upon the exercise of a warrant outstanding as of December
31, 1997 with an exercise price of $2.50 per share.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fee and research revenue...................... $ 3,000 $ 907 $ 1,663 $ 1,289
Collaborative RenaGel Joint Venture research
revenue............................................ -- -- -- 9,196
------- ------- -------- --------
Total revenue................................. 3,000 907 1,663 10,485
Costs and Expenses:
Research and development.............................. 3,655 6,504 21,755 22,251
Collaborative RenaGel Joint Venture research
expense............................................ -- -- -- 9,196
General and administrative............................ 1,280 1,873 3,154 4,089
------- ------- -------- --------
Total costs and expenses...................... 4,935 8,377 24,909 35,536
------- ------- -------- --------
Loss from operations.................................... (1,935) (7,470) (23,246) (25,051)
Interest income, net.................................... 252 585 3,268 2,877
Equity in loss of RenaGel Joint Venture................. -- -- -- (2,310)
------- ------- -------- --------
Net loss................................................ $(1,683) $(6,885) $(19,978) $(24,484)
======= ======= ======== ========
Net loss per share...................................... $ (0.27) $ (0.85) $ (1.60) $ (1.80)
======= ======= ======== ========
Shares used in computing net loss per share............. 6,139 8,109 12,513 13,592
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities...................... $52,623 $114,909
Working capital....................................................... 49,099 111,385
Total assets.......................................................... 67,118 129,404
Long term obligations, less current portion........................... 6,923 6,923
Stockholders' equity.................................................. 53,418 115,704
</TABLE>

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

(1) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
hereby, at an assumed public offering price of $26.50 per share (the last
sale price on February 6, 1998), and the receipt of the net proceeds
therefrom.

4
<PAGE> 6

RISK FACTORS

Statements made in this Prospectus (including the documents incorporated by
reference herein) relating to the Company's future capital needs, revenue
expectations, plans for product development, regulatory filings, corporate
partnering and sales and marketing, and the timing of clinical trials and
regulatory approvals, or that otherwise relate to future periods, are
forward-looking statements within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. Actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
risks described below or elsewhere in this Prospectus. Such risks should be
considered carefully in evaluating an investment in the Common Stock.

NO PRODUCT SALES TO DATE; RISKS RELATED TO LEAD PRODUCTS

GelTex has generated no revenues to date from product sales. The Company's
potential products are in various stages of research, development, clinical
testing and FDA review. Although the Company has filed a NDA for its first
product, RenaGel phosphate binder, no assurance can be given that the FDA will
approve the NDA or that, if approved, the product will be successfully marketed
by Genzyme, the Company's joint venture partner. In December 1997, the Company
initiated the first of two planned Phase III clinical trials for CholestaGel. If
the results of these trials are not satisfactory, the Company may need to
conduct additional Phase III clinical trials. Any such additional studies would
likely be time consuming and expensive. There can be no assurance that the
results of any of the Company's Phase III clinical trials will be satisfactory.
Should the Company determine that the results of its Phase III clinical trials
for CholestaGel are sufficient to meet the FDA's requirements for product
approval, there can be no assurance that the FDA will concur with the Company's
analysis and approve CholestaGel for commercial sale. The failure of the Company
to obtain FDA approval for RenaGel or CholestaGel, or any significant delay in
obtaining such approvals, would have a material adverse effect on the Company.

DEPENDENCE ON CORPORATE ALLIANCES; LIMITED RELEVANT SALES AND MARKETING
EXPERIENCE

The Company has entered into a joint venture with Genzyme relating to the
final development and commercialization of RenaGel phosphate binder (the
"RenaGel Joint Venture") and intends to enter into development and marketing
agreements for the continued development and commercialization of CholestaGel
non-absorbed cholesterol reducer. The Company plans to rely upon corporate
partners to conduct certain clinical trials, obtain certain regulatory approvals
for and market other potential products. If the Company is unable to conclude
agreements with partners as planned, the Company will have to either delay the
continued development and commercialization of its products or expend its
resources to fund such activities. This could result in a need for the Company
to seek additional sources of funding, and there can be no assurance that such
funding will be available to the Company when needed or on acceptable terms. To
the extent that the Company is successful in obtaining corporate partners for
its products, it will be dependent upon the efforts of these partners and there
can be no assurance that such efforts will be successful. Although Genzyme is
building its own specialty sales force to market RenaGel, it does not have
previous experience marketing to physicians who treat patients with kidney
failure and there can be no assurance that Genzyme will be successful in
achieving market acceptance for RenaGel.

CONTINUING OPERATING LOSSES

As of December 31, 1997, the Company had an accumulated deficit of
approximately $55 million. The continuing development and commercialization of
the Company's potential products will require the commitment of substantial
resources. The Company expects to continue to incur operating losses through at
least the beginning of 2000 as it funds its share of the market introduction
costs of RenaGel phosphate binder and continues to develop its other products.
The amount of net losses and the time required to reach sustained profitability
are highly uncertain. To achieve sustained profitable operations, the Company,
alone or with its corporate partners, must successfully develop, obtain
regulatory approval for, manufacture and market its products. No assurance can
be given that the Company will be able to achieve or sustain profitability.

5
<PAGE> 7

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

Although the Company believes that the net proceeds of this offering,
together with existing cash balances and marketable securities, will be
sufficient to fund its operations through at least the year 2000, the Company's
cash requirements may increase materially from those now planned if FDA approval
of the RenaGel phosphate binder NDA is delayed or not obtained, or because of
results of the Company's research and development efforts, results of clinical
trials, the Company's inability to secure new relationships with strategic
partners, competitive technological advances, the FDA regulatory process and
other factors. Adequate additional funds, whether through additional sales of
securities or collaborative or other arrangements with corporate partners or
from other sources, may not be available when needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale back or
eliminate certain of its research and product development programs or to license
third parties to commercialize products or technologies under terms that the
Company might otherwise find unacceptable.

DEPENDENCE ON OTHERS FOR MANUFACTURING; SINGLE SOURCES OF SUPPLY; PROCESS
DEVELOPMENT RISKS

The Company will rely upon third parties to manufacture commercial
quantities of its products. The Company has non-exclusively sublicensed its
rights to manufacture the starting material for RenaGel and CholestaGel to one
supplier and is purchasing quantities of this material under purchase orders
issued to this supplier. The Company has also obtained bulk pharmaceutical grade
production quantities of RenaGel and CholestaGel from two suppliers (one for
each product). The Company has entered into a long-term fixed price supply
agreement with The Dow Chemical Company, the manufacturer of RenaGel bulk
material, but has not concluded a commercial supply agreement with the
manufacturer of CholestaGel bulk material. The Company is negotiating a
long-term fixed price service agreement with one encapsulator to formulate bulk
material into finished product. Should any of these manufacturing relationships
terminate or should any of the suppliers be unable to satisfy the Company's
requirements for starting material, bulk material or finished goods,
respectively, the Company would be unable to commercialize its products as
expected, and the Company's business and financial condition would be materially
and adversely affected. There can be no assurance that the Company will be
successful in obtaining second sources for any of the products or services
described above or that it will be able to obtain such products or services on
commercially reasonable terms.

In addition, the Company is continuing to work with its third party
manufacturers to optimize processes for the manufacture of commercial quantities
of CholestaGel and RenaGel. In the event that the Company's process development
work is unsuccessful, the Company's anticipated profit margins could be
adversely affected.

RELIANCE ON LICENSE TO MANUFACTURE STARTING MATERIAL

A third party has patents covering the starting material employed in the
manufacture of RenaGel and CholestaGel. The Company has obtained a non-exclusive
license under these patents to manufacture the material in connection with the
production of RenaGel and CholestaGel. The Company may not sublicense its rights
under this license without the licensor's consent, except to the Company's
current supplier of the starting material and certain other parties specified in
the license. The license agreement may be terminated upon short notice if the
Company fails to meet its material obligations under the license agreement,
including lump sum payments, royalties and confidentiality obligations. If the
license is terminated and the owner of the patent is unwilling to supply
material to GelTex, the Company may not be able to commercialize its lead
products using current manufacturing procedures, if at all.

TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT

The Company's anti-obesity and infectious disease programs are the primary
focus of the Company's research and development efforts and are in early stages
of pre-clinical development and research, respectively. There can be no
assurance that these programs or the Company's other research and development
activities will be successful or that any product candidates will be chosen from
pre-clinical studies. Should the Company commence the clinical development of
any compounds, there can be no assurance that clinical trials

6
<PAGE> 8

of products under development will demonstrate the safety and efficacy of such
products at all or to the extent necessary to obtain regulatory approvals. With
respect to its research and development activities, the Company may encounter
unanticipated problems, including development, regulatory, manufacturing and
marketing difficulties, some of which may be beyond the Company's ability to
resolve.

COMPREHENSIVE GOVERNMENT REGULATION

The Company's research, development and clinical programs, as well as the
operations of its third party manufacturers and the marketing operations of its
corporate partners, are subject to extensive regulation by numerous governmental
authorities in the United States and other countries. The Company's potential
products require governmental approvals for commercialization, which have not
yet been obtained. The regulatory process, which includes pre-clinical, clinical
and, in certain instances, post-marketing testing to establish safety and
efficacy, can take many years and require the expenditure of substantial
resources. Delays in obtaining such approvals could adversely affect the
marketing of products developed by the Company and the Company's ability to
generate commercial product revenues.

The Company is also subject to numerous environmental, health, and
workplace safety laws and regulations, including those governing laboratory
procedures and the handling of biohazardous materials. Any violation of, and
cost of compliance with, these laws and regulations could adversely affect the
Company's operations. See "Business -- Government Regulation."

COMPETITION AND TECHNOLOGICAL CHANGE

The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company, including research and
development of products for the treatment of hyperphosphatemia,
hypercholesterolemia, obesity and infectious diseases. Although there is only
one product approved in the United States for the control of elevated phosphorus
levels in patients with chronic kidney failure, other products currently used as
phosphate binders include over-the-counter calcium- and aluminum-based antacids
and dietary calcium supplements. In addition, there are several phosphate
binders currently under development. In the cholesterol reduction field,
products are currently available that address some of the needs of the market.
These products include other bile acid sequestrants, HMG-CoA reductase
inhibitors, fibric acid derivatives and niacin. In 1996, sales of HMG-CoA
reductase inhibitors represented approximately 94% of the market for
cholesterol-reducing drugs sold in the United States. Combined worldwide sales
of the three leading HMG-CoA reductase inhibitors exceeded $5 billion in 1996.
While the Company believes that its products will offer certain advantages over
available agents, currently marketed products often have a significant
competitive advantage over new entrants. There can be no assurance that the
Company's products under development will be able to compete successfully with
existing therapies and achieve market acceptance.

The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. In addition to competition from existing
therapies, the Company's success depends upon developing and maintaining a
competitive position in the development of products and technologies in its
areas of focus. There can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective than
any which are being developed by the Company or which would render the Company's
technology and products obsolete or noncompetitive. Many of these competitors
have substantially greater financial and technical resources and production and
marketing capabilities than the Company and its partners, and certain of these
competitors may compete with the Company in establishing development and
marketing agreements with pharmaceutical companies. In addition, many of the
Company's competitors have greater experience than the Company in conducting
pre-clinical testing and human clinical trials and obtaining FDA and other
regulatory approvals. The Company's competitors may succeed in obtaining FDA
approval for products more rapidly than the Company.

7
<PAGE> 9

DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY

The biotechnology and pharmaceutical industries place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company's success will depend, in part, on its
ability to obtain patent protection for its manufacturing processes and products
(including the use of its products), preserve its trade secrets and operate
without infringing the proprietary rights of third parties. The Company has
ongoing research efforts and expects to seek additional patents covering this
research in the future. There can be no assurance of its success or timeliness
in obtaining any patents, or of the breadth or degree of protection that any
such patents will afford the Company. The patent position of biotechnology and
pharmaceutical products is often highly uncertain and usually involves complex
legal and factual questions. There can be no assurance that patent applications
relating to the Company's potential products or technology will result in
patents being issued or that any current or future patents will afford adequate
protection to the Company or not be challenged, invalidated or infringed.
Furthermore, there can be no assurance that others will not independently
develop similar products and processes, duplicate any of the Company's products
or design around any current or future patents of the Company. In addition, the
Company could incur substantial costs in defending itself in suits brought
against it or in suits in which it may assert its patents against others. If the
outcome of any such litigation is unfavorable to the Company, its business could
be materially and adversely affected. To determine the priority of inventions,
the Company may also have to participate in interference proceedings declared by
the United States Patent and Trademark Office, which could result in adverse
decisions and substantial cost to the Company.

In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made
available on terms acceptable to the Company, if at all. If the Company does not
obtain such licenses, it could encounter delays in product market introductions
while it attempts to design around such patents or other rights, or it may be
unable to develop, manufacture or sell such products.

The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if possible, inventions rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach or that the Company's trade secrets will not otherwise
be disclosed to, or discovered by, competitors. There can be no assurance that
such persons or institutions will not assert rights to intellectual property
arising out of their relationships with the Company. See "Business -- Patents
and Trade Secrets."

PRODUCT LIABILITY AND LIMITED INSURANCE

The Company's business exposes it to potential product liability claims,
which are inherent in the testing, manufacturing, marketing and sale of human
therapeutics. The use of the Company's product candidates in clinical trials
also exposes the Company to product liability claims and possible adverse
publicity. These risks increase with respect to the Company's product
candidates, if any, that receive regulatory approval for commercialization. The
Company currently has limited product liability insurance coverage for the
clinical research use of its product candidates. The Company does not have
product liability coverage for the commercial sale of its products but intends
to obtain such coverage if and when its products are commercialized. However,
there can be no assurance that the Company will be able to obtain additional
insurance coverage on acceptable terms, if at all, or that a product liability
claim would not materially adversely affect the business of the Company.

DEPENDENCE ON REIMBURSEMENT

In both domestic and foreign markets, the ability of the Company or its
corporate partners to commercialize the Company's products will depend, in part,
on the availability of reimbursement from third party payors, such as government
health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price and
cost effectiveness of medical products. There can be no assurance that the
Company's potential products will be considered cost effective. If

8
<PAGE> 10

adequate coverage and reimbursement levels are not provided by the government
and third party payors for uses of the Company's therapeutic products, the
market acceptance of these products would be adversely affected. This is
particularly true with respect to RenaGel, which the Company anticipates will
compete with certain low priced over-the-counter products.

DEPENDENCE UPON KEY PERSONNEL

The Company is highly dependent on the members of its management and
scientific staff, the loss of one or more of whom could have a material adverse
effect on the Company. In addition, the Company believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
scientific and managerial personnel, particularly as the Company expands its
activities in clinical trials and the regulatory approval process. The Company
faces significant competition for such personnel from other companies, research
and academic institutions, government entities and other organizations. There
can be no assurance that the Company will be successful in hiring or retaining
the personnel it requires for continued growth. The failure to hire and retain
such personnel could materially and adversely affect the Company.

CONTROL BY SIGNIFICANT STOCKHOLDER; POTENTIAL EFFECT ON STOCK PRICE

As of September 30, 1997, approximately 24% of the Company's Common Stock
outstanding prior to this offering was owned beneficially by The Equitable
Companies Incorporated ("Equitable"). This ownership interest gives Equitable
the ability to influence the outcome of any election of directors or other
actions requiring approval of the Company's stockholders. Additionally, the
shares owned by Equitable were acquired in the open market without any
contractual restrictions on transfer. A sale by Equitable of a significant
number of shares could adversely affect the prevailing market price of the
Company's Common Stock.

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's certificate of incorporation and
by-laws and the terms of its stockholders rights plan may have the effect of
delaying or preventing a change in control of GelTex and thus deprive
stockholders of the opportunity to receive a premium for their shares. In
addition, GelTex's authorized capital stock includes shares of undesignated
preferred stock that may be issued from time to time by the Company's Board in
one or more series. This issuance of series of preferred stock could have the
effect of discouraging attempts to acquire control of GelTex.

9
<PAGE> 11

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock offered hereby, assuming
a public offering price of $26.50 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, will be approximately
$62,286,000 ($71,677,000 if the Underwriters' over-allotment option is exercised
in full). The Company intends to use the proceeds generated by this offering to
fund Phase III clinical trials and manufacturing and development costs
associated with the CholestaGel program; to fund the Company's portion of the
initial commercialization costs and other costs associated with RenaGel; and for
research and development costs associated with its anti-obesity, infectious
disease and other research programs. The Company also intends to use a portion
of the proceeds for working capital and general corporate purposes. The Company
believes that the net proceeds of this offering, together with existing cash
balances and marketable securities, will be sufficient to fund its operations
through at least the year 2000.

The amount and timing of funds required for such uses by the Company
cannot, however, be precisely determined at this time and will be dependent
upon, among other things, regulatory approvals for and the commercial success of
RenaGel, the progress of the Company's research and development programs,
determinations as to commercial potential of the Company's products, the terms
of any collaborative arrangements entered into by the Company for the
development and licensing of its products and other factors, many of which are
beyond the control of the Company. From time to time in the ordinary course of
its business, the Company evaluates possible acquisitions of businesses,
products and technologies that are complementary to those of the Company. The
Company currently has no agreements or understandings and is not engaged in
active negotiations with respect to any material acquisitions.

Pending the application of the net proceeds of this offering, the Company
intends to invest such proceeds in investment grade, interest-bearing
securities.

PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "GELX." The following table sets forth, for the periods indicated,
the range of the high and low last sale prices for the Common Stock:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter........................................................ $ 27 $12
Second Quarter....................................................... 28 14 1/2
Third Quarter........................................................ 20 3/4 11
Fourth Quarter....................................................... 24 1/2 15 3/4
1997
First Quarter........................................................ $ 27 $18 1/4
Second Quarter....................................................... 23 15 3/4
Third Quarter........................................................ 27 17 1/2
Fourth Quarter....................................................... 32 24
1998
First Quarter (through February 6, 1998)............................. $ 29 1/2 $25 1/2
</TABLE>

The last sale price of Common Stock on February 6, 1998, as reported on the
Nasdaq National Market, was $26.50 per share. There were 143 holders of record
of Common Stock as of January 27, 1998.

The Company has never declared or paid cash dividends on shares of its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, for use
in its business. In addition, the terms of the Company's bank debt prohibit the
payment of dividends.

10
<PAGE> 12

CAPITALIZATION

The following table sets forth, as of December 31, 1997, the actual
capitalization of the Company and the capitalization as adjusted to reflect the
sale of the 2,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $26.50 per share (the last sale price on February 6, 1998)
after deducting underwriting discounts and commissions and estimated offering
expenses.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term obligations, less current portion................... $ 6,923 $ 6,923
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, none issued or outstanding................... -- --
Common Stock, $.01 par value, 50,000,000 shares authorized;
13,642,264 shares issued and outstanding (actual);
16,142,264 issued and outstanding (as adjusted)(1)....... 136 161
Additional paid-in capital.................................. 108,659 170,920
Deferred compensation....................................... (510) (510)
Accumulated deficit......................................... (54,944) (54,944)
Unrealized gain on marketable securities.................... 77 77
-------- --------
Total stockholders' equity.................................. 53,418 115,704
-------- --------
Total capitalization........................................ $ 60,341 $ 122,627
======== ========
</TABLE>

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

(1) Excludes 1,435,479 shares issuable upon the exercise of options outstanding
as of December 31, 1997 with a weighted average exercise price of $14.25 per
share and 11,400 shares issuable upon the exercise of a warrant outstanding
as of December 31, 1997 with an exercise price of $2.50 per share.

DILUTION

The net tangible book value of the Company at December 31, 1997 was
$52,952,000, or $3.88 per share of Common Stock. Giving effect to the sale of
the 2,500,000 shares of Common Stock offered hereby at an assumed public
offering price of $26.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses, the Company's pro forma net
tangible book value at December 31, 1997 would have been $115,239,000, or $7.14
per share. This represents an immediate dilution in net tangible book value of
$19.36 per share to new investors purchasing shares in the offering and an
immediate increase in net tangible book value of $3.26 per share to existing
stockholders. The following table illustrates the per share dilution.

<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $26.50
Net tangible book value before the offering....................... $3.88
Increase in net tangible book value attributable to this
offering....................................................... 3.26
------
Pro forma net tangible book value after the offering(1)............. 7.14
-------
Dilution to new investors(2)........................................ $19.36
======
</TABLE>

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

(1) Pro forma net tangible book value per share represents the amount of total
tangible assets of the Company less total liabilities, divided by
16,142,264, the number of shares of Common Stock outstanding as of December
31, 1997, after giving effect to the sale of the 2,500,000 shares of Common
Stock offered hereby.

(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the amount of cash paid by a new investor for
a share of Common Stock.

11
<PAGE> 13

SELECTED FINANCIAL DATA

The following selected financial data for the five years ended December 31,
1997 are derived from the Company's audited financial statements. The data set
forth below should be read in conjunction with the Company's financial
statements and related notes thereto incorporated by reference in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fee and research revenue............... $ -- $ 3,000 $ 750 $ 1,244 $ 1,000
Collaborative RenaGel Joint Venture research
revenue...................................... -- -- -- -- 9,196
Research grant................................. -- -- 157 419 289
------- ------- ------- -------- --------
Total revenue................................ -- 3,000 907 1,663 10,485
Costs and Expenses:
Research and development....................... 808 3,655 6,504 21,755 22,251
Collaborative RenaGel Joint Venture research
expense...................................... -- -- -- -- 9,196
------- ------- ------- -------- --------
Total research and development............... 808 3,655 6,504 21,755 31,447
General and administrative..................... 777 1,280 1,873 2,924 4,089
Other, nonrecurring............................ -- -- -- 230 --
------- ------- ------- -------- --------
Total costs and expenses..................... 1,585 4,935 8,377 24,909 35,536
------- ------- ------- -------- --------
Loss from operations............................. (1,585) (1,935) (7,470) (23,246) (25,051)
Interest income.................................. 66 303 684 3,343 3,095
Interest expense................................. -- (51) (99) (75) (218)
Equity in loss of RenaGel Joint Venture.......... -- -- -- -- (2,310)
------- ------- ------- -------- --------
Net loss......................................... $(1,519) $(1,683) $(6,885) $(19,978) $(24,484)
======= ======= ======= ======== ========
Net loss per share(1)............................ $ (0.27) $ (0.85) $ (1.60) $ (1.80)
======= ======= ======== ========
Shares used in computing net loss per share(1)... 6,139 8,109 12,513 13,592
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, and marketable
securities....................................... $ 5,626 $13,953 $33,175 $73,425 $52,623
Working capital.................................... 5,399 12,665 31,824 72,461 49,099
Total assets....................................... 5,992 16,111 35,993 78,068 67,118
Long term obligations, less current portion........ -- 671 420 124 6,923
Stockholders' equity............................... 5,721 13,979 33,650 75,056 53,418
</TABLE>

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

(1) Historical earnings per share for 1993 have not been presented because such
amounts are not deemed meaningful due to the significant change in the
Company's capital structure that occurred in connection with the initial
public offering of the Company's Common Stock in 1995.

12
<PAGE> 14

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

OVERVIEW

Since inception, the Company has devoted substantially all of its resources
to its research and product development programs, including manufacturing
potential products. GelTex has generated no revenues from product sales and has
been dependent upon funding from external financing, strategic corporate
alliances, interest income and government grants. The Company has not been
profitable since inception and had an accumulated deficit of $55.0 million at
December 31, 1997. Losses have resulted principally from costs incurred in
research and development, and manufacturing and clinical testing of potential
products, and from general and administrative expenses. The Company expects its
research and development expenses to continue to increase in connection with
Phase III clinical trials for CholestaGel, the continuing development of
processes for the manufacture of commercial quantities of CholestaGel, and the
expansion of its anti-obesity, infectious disease and other research programs.
In addition, the Company expects to report increasing losses from its interest
in the RenaGel Joint Venture during the period leading to the market
introduction of RenaGel. As a result, the Company expects to incur additional
operating losses through at least the beginning of 2000. The Company's ability
to achieve and sustain profitability is dependent on the timely receipt of FDA
approval for RenaGel phosphate binder, the success of the Phase III clinical
trials of, and the ability to obtain regulatory approval for, CholestaGel
cholesterol reducer, the Company's ability to enter into product development and
commercialization agreements with corporate partners, and the Company's ability
to secure and maintain contract manufacturing services for the commercial supply
of its potential products at an acceptable cost. Revenue the Company may earn
from Genzyme in connection with the RenaGel Joint Venture or other revenue
earned from any other strategic corporate alliances may result in the Company
experiencing periods of profitability. However, the Company's results of
operations for such periods may not be indicative of the Company's results of
operations for other periods in which the Company does not earn revenue from
strategic corporate alliances.

RESULTS OF OPERATIONS

Fiscal Years Ended 1997, 1996 and 1995

The Company earned total revenue of $10.5 million in 1997 compared to $1.7
million earned during 1996 and $907,000 earned during 1995. Under the terms of
the RenaGel Joint Venture, the Company and Genzyme are each expected to fund the
RenaGel Joint Venture in an amount equal to 50% of budgeted costs and expenses
associated with the final development and commercialization of RenaGel for the
relevant period. Each party that incurs project expenses, either as internal
operating costs or third party obligations, is reimbursed by the RenaGel Joint
Venture for 100% of the costs incurred. During 1997, $9.2 million in revenue
earned by the Company represents reimbursement from the RenaGel Joint Venture
for certain development and manufacturing costs incurred by the Company. The
amount of reimbursement revenue earned by the Company will vary according to the
obligations of, and related expenses incurred by, the Company, and is expected
to decrease in the future as the Company completes its development activities
for the RenaGel Joint Venture. In 1997, the Company's other sources of revenue
consisted of a $1.0 million milestone payment from a corporate partner and
approximately $300,000 under a grant from the United States Department of
Commerce's Advanced Technology Program. The Company has received all the
payments it is expected to receive under this grant. Revenue earned during 1996
consisted of $1.2 million in milestone payments and research revenue from a
corporate partner and $419,000 from the Department of Commerce grant. In 1995,
the Company earned $750,000 of research revenue from a corporate partner and
$157,000 from the same Department of Commerce grant.

The Company's total operating expenses for 1997 were $35.5 million,
compared to $24.9 million in 1996 and $8.4 million in 1995. Research and
development expenses increased 44% to $31.4 million in 1997 from the $21.8
million incurred in 1996, which was triple the $6.5 million spent in 1995. The
increase during 1997 was due primarily to increased process development costs
for the manufacture of RenaGel and CholestaGel, costs associated with
manufacturing RenaGel in preparation for filing the NDA, and costs incurred in
filing the

13
<PAGE> 15

NDA for RenaGel, as well as increased clinical trial expense associated with
CholestaGel and increases in personnel and related research and development
costs associated with the initiation of the Company's anti-obesity program and
the expansion of the infectious disease program. The increase during 1996 was
due primarily to increasing third party expenses associated with the development
of RenaGel and CholestaGel, including the production of clinical trial material,
clinical trial expenses and process development expenses. General and
administrative expenses increased approximately 41% to $4.1 million in 1997 from
$2.9 million in 1996 and $1.9 million in 1995 due primarily to increased
business development costs and increased administrative personnel and related
costs.

The Company's equity in the loss of the RenaGel Joint Venture was $2.3
million for 1997, which represents the Company's 50% portion of the RenaGel
Joint Venture's loss for the year. There was no corresponding amount in prior
years. The Company expects that the RenaGel Joint Venture will continue to
operate at a loss at least into 1999.

Interest income decreased slightly to $3.1 million in 1997 from $3.3
million in 1996 due to a decrease in cash and marketable securities balances
available for investment. Interest income in 1996 exceeded the interest income
of $684,000 in 1995 due to higher average cash and marketable securities
balances available in 1996 resulting from the Company's initial public offering
in November 1995 and from a follow-on public offering in May 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations through December 31, 1997 primarily
with $87.3 million in net proceeds from two public offerings of equity
securities, $20.3 million from private sales of equity securities, $15.5 million
from license fees and research and development revenues from the RenaGel Joint
Venture and other collaborative research agreements and $7.4 million in interest
income. Cash, cash equivalents and marketable securities were $52.6 million at
December 31, 1997, compared to $73.4 million at December 31, 1996.

In June 1997, the Company licensed all of its rights to RenaGel phosphate
binder (outside of Japan and certain Pacific Rim countries) to the RenaGel Joint
Venture in exchange for Genzyme's agreement to pay $27.5 million, consisting of
a $2.5 million equity investment (received in June 1997), a $15.0 million non-
refundable payment due upon receipt of marketing approval from the FDA, and a
$10.0 million non-refundable payment due one year after FDA approval. Under the
agreement, the Company and Genzyme are each expected to make capital
contributions to the RenaGel Joint Venture in an amount equal to 50% of all
costs and expenses associated with the development and commercialization of
RenaGel, including costs and expenses incurred by either party in performing
under the agreement, and the Company and Genzyme will share equally in the
profits generated from sales of the product. To the extent that either party
fails to fund its 50% share of costs and expenses, the profit sharing interests
and the future funding obligations of the parties will be proportionately
adjusted.

In April 1997, the Company entered into a contract manufacturing agreement
for RenaGel phosphate binder. Under the terms of the agreement, the Company is
required to fund capital equipment costs of approximately $6.0 million. The
Company elected to fund its portion of the capital equipment costs through third
party financing as discussed below, and the Company paid the RenaGel Joint
Venture the majority of its portion of the capital equipment costs in the fourth
quarter of 1997. The Company may be obligated to pay up to $3.75 million in
additional equipment costs in the event that the Company requires the
manufacturer to increase capacity and implement certain manufacturing changes
designed to result in a lower product cost. The contract manufacturing agreement
also requires the Company to purchase minimum quantities of product beginning in
1998. The minimums are based upon the Company's estimated product requirements
and are subject to increases as product sales increase and as the manufacturer
increases its capacity for the product. As a result of the execution of the
contract manufacturing agreement, the Company may be obligated to make a $1.5
million royalty payment to a third party for a license to certain process
development technology developed by the third party under contract to the
Company. All of the above-referenced capital equipment costs, the minimum
purchase obligations and the royalty payment are costs associated with the
RenaGel Joint

14
<PAGE> 16

Venture and, to the extent that each company is funding 50% of the budgeted
costs and expenses of the RenaGel Joint Venture, they will be borne equally by
the Company and Genzyme.

In May 1997, the Company entered into a $5.0 million term loan to finance
the cost of leasehold improvements to, and equipment purchases for, its new
facility. The agreement provides for repayment of the principal amount of the
loan in 48 equal monthly installments which commenced in January 1998. The loan
bears interest at the bank's prime rate, and certain equipment purchased with
funds received under the term loan has been pledged as collateral. In October
1997 this term loan was increased by $3.0 million to finance the Company's
portion of the capital equipment costs under the contract manufacturing
agreement for RenaGel. At December 31, 1997, the Company had fully drawn down on
this loan. In addition, at December 31, 1997, the Company had approximately
$757,000 outstanding on an equipment line of credit with a bank, bearing
interest at the bank's prime rate and due in monthly installments through
December 2000.

In February 1997, the Company entered into a ten year lease for its new
research and development and administrative facility. The lease requires annual
payments of $302,000 for the first five years and $353,000 for the remainder of
the term. The Company will continue to lease an administrative and research and
development facility at its previous location through 2004. In October 1997, the
Company entered into a three year sublease agreement covering the facility.

At December 31, 1997, the Company had net operating loss carryfowards for
income tax purposes of approximately $55.0 million which expire through 2012.
Since the Company expects to incur operating losses through at least the
beginning of 2000, the Company believes that it is more likely than not that all
of the deferred tax assets will not be realized, and therefore no tax benefit
for the prior losses has been provided. The future utilization of net operating
loss carryforwards will be subject to limitation under the changes in stock
ownership rules of the Internal Revenue Code of 1986, as amended. Because of
this limitation, it is possible that taxable income in future years, which would
otherwise be offset by net operating losses, will not be offset and therefore
will be subject to tax.

The Company believes that the net proceeds from this offering, together
with its existing cash balances and marketable securities, will be sufficient to
fund its operations through at least the year 2000. However, the Company's cash
requirements may increase materially from those now planned if FDA approval of
the RenaGel NDA is delayed or not obtained, or because of results of the
Company's research and development efforts, results of clinical trials, the
Company's inability to enter into new relationships with strategic partners,
competitive technological advances, the FDA regulatory process and other
factors. Adequate additional funds, whether through additional sales of
securities or collaborative or other arrangements with corporate partners or
from other sources, may not be available when needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale back or
eliminate certain of its research and product development programs or to license
third parties to commercialize products or technologies under terms that the
Company might otherwise find unacceptable.

IMPACT OF YEAR 2000

The Company has conducted an assessment of its software and related systems
and believes they are year 2000 compliant.

15
<PAGE> 17

BUSINESS

OVERVIEW

GelTex Pharmaceuticals, Inc. is developing non-absorbed, polymer-based
pharmaceuticals that selectively bind to and eliminate target substances from
the intestinal tract. The Company's product development efforts are focused on
therapeutic agents for the treatment of hyperphosphatemia (elevated phosphorous
levels) in patients with chronic kidney failure; hypercholesterolemia (elevated
LDL cholesterol levels); obesity; and infectious diseases.

The Company's most advanced product candidate, RenaGel phosphate binder, is
an orally administered, non-absorbed hydrogel for the control of
hyperphosphatemia in patients with chronic kidney failure. In November 1997,
GelTex filed a NDA with the FDA for RenaGel phosphate binder. The Company,
together with its joint venture partner, Genzyme, intends to file applications
for RenaGel marketing authorization in Europe and Canada in mid-1998.

GelTex is also developing CholestaGel, an orally administered, non-absorbed
hydrogel, for the reduction of elevated LDL cholesterol levels in patients with
hypercholesterolemia. In December 1997, GelTex commenced a Phase III clinical
study of CholestaGel. The double-blind, placebo controlled study is designed to
evaluate the efficacy and tolerability of the drug at four dosage levels over a
six month treatment period. The Company intends to initiate another Phase III
study of CholestaGel in mid-1998 in order to evaluate once daily and split
dosing regimens. The Company expects to file a NDA for CholestaGel in 1999.

The Company has initiated an anti-obesity drug discovery program focused on
the development of non-absorbed polymers that act in the gastrointestinal tract
to inhibit the body's absorption of fat. The Company is continuing to expand its
infectious disease program focused on the development of non-absorbed polymer-
based pharmaceuticals to treat or prevent non-systemic infectious diseases.

THE COMPANY'S TECHNOLOGY

During the digestive process, the intestinal tract delivers nutrients and
water to the bloodstream and eliminates waste products and indigestible
materials through the bowel. Absorption of nutrients, electrolytes, water and
certain digestive substances such as bile acids is controlled by the intestinal
wall, which acts as a gateway from the intestines to the bloodstream, allowing
small molecules to pass from the intestinal tract into the bloodstream and
preventing larger molecules from entering circulation. Orally administered drugs
are either absorbed through the intestinal wall into the bloodstream, or are
non-absorbed and achieve their intended therapeutic effect by acting in the
intestinal tract. Non-absorbed drugs are less likely to cause the toxicities
associated with many absorbed drugs.

GelTex's products are designed to be orally administered in capsule or
tablet form. The hydrogels are not broken down during the digestive process and,
as a result, are too large to be absorbed through the intestinal wall and into
the bloodstream. As the hydrogels pass through the stomach and into the
intestines, they selectively and tightly bind targeted molecules and absorb
significant amounts of water, forming a soft, gelatinous material. In this form,
the hydrogel passes easily through the intestinal tract and, with the attached
target molecules, is excreted from the body.

16
<PAGE> 18

The Company's enabling technology offers the following benefits:

- Broad Application to Diseases and Conditions. The Company believes its
enabling technology is applicable to a broad range of diseases and
conditions treatable through the intestinal tract such as elevated
phosphorus levels, elevated LDL cholesterol, obesity and certain
infectious diseases.

- Low Risk of Adverse Side Effects. The Company's polymer-based products
currently under development are designed to be non-absorbed and well
tolerated. Since the products act only in the intestinal tract and are
not absorbed into the bloodstream, they are less likely to cause the
toxicities associated with many absorbed drugs.

- Convenient Oral Dosage Form. The Company's polymer-based products are
designed to be potent at low dosage levels, thereby permitting oral
administration in a convenient capsule or tablet form.

PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS

The key elements of the Company's product development and commercialization
strategy include: (i) applying the Company's polymer technology to produce drug
therapies that act in the intestinal tract; (ii) producing pharmaceuticals for
which there are major and well defined markets; (iii) producing pharmaceuticals
that offer significant improvements over available therapies or treat diseases
for which no effective therapy currently exists; and (iv) collaborating with
strategic partners to fund the manufacture and distribution of the Company's
products and product development activities. The Company believes that the
safety profile and well defined clinical pathways of its products have
contributed to its clinical progress to date.

The Company has novel pharmaceutical products in various stages of
regulatory review, clinical testing and research and development for the
treatment of elevated phosphorus levels, elevated LDL cholesterol, obesity and
infectious diseases. The table below outlines the status of the Company's
product development and research programs.

<TABLE>
<CAPTION>
PRODUCT/PROGRAM INTENDED INDICATIONS DEVELOPMENT STATUS*
- ------------------- -------------------------------- --------------------------------
<S> <C> <C>
RenaGel Control of elevated phosphorus NDA filed with the FDA in
levels in patients with chronic November 1997
kidney failure European and Canadian marketing
authorization applications
expected to be filed in mid-1998
CholestaGel Reduction of elevated First Phase III clinical trial
cholesterol in patients with commenced December 1997
primary hypercholesterolemia Second Phase III clinical trial
(elevated low-density to be initiated in mid-1998
lipoprotein (LDL) cholesterol) NDA expected to be filed with
the FDA in 1999
Anti-Obesity Inhibit absorption of fat Pre-clinical
Infectious Disease Treatment or prevention of non- Research
systemic infectious diseases
</TABLE>

- ---------------
* "Clinical trials" refers to testing in humans. "Pre-clinical" refers to
testing in animals. "Research" includes the discovery or creation of prototype
compounds, in vitro studies of those compounds and preliminary evaluation in
animals. See "Business -- Government Regulation."

17
<PAGE> 19

RENAGEL PHOSPHATE BINDER

Overview

The United States Health Care Financing Administration ("HCFA") estimates
that, at the end of 1996, approximately 214,000 patients in the United States
were receiving chronic dialysis treatment for end-stage kidney disease.
According to HCFA data, the number of dialysis patients in the United States
increased by 7% to 10% annually between 1985 and 1996. Based on reported growth
rates of approximately 5% to 7% per year, the Company estimates that the number
of dialysis patients in Western Europe in 1996 was in excess of 170,000. In
Japan, with reported growth rates of approximately 6% per year, the Company
estimates that the number of dialysis patients in 1996 was approximately
165,000.

Control of blood phosphorus levels is central to the prevention of renal
bone disease in patients with chronic kidney failure. Phosphate is absorbed into
the bloodstream through the small intestine from protein-rich high-phosphate
foods such as meat, fish and dairy products. Healthy kidneys maintain a delicate
balance between phosphorus and calcium levels in the blood by excreting excess
phosphorus in the urine. In patients with chronic kidney failure, the kidneys
are unable to remove enough phosphorus to maintain the necessary balance.
Elevated phosphorus levels signal the body to excrete parathyroid hormone
("PTH"), which breaks down bone to release calcium into the blood in an effort
to reestablish the balance between calcium and phosphorus. Chronic kidney
failure patients with uncontrolled elevated phosphorus levels experience bone
loss as well as calcification of the circulatory system caused by excessive
amounts of phosphorus and calcium in the blood.

To reduce elevated phosphorus levels, nearly all dialysis patients use some
form of phosphate binder, currently the only available treatment for
hyperphosphatemia. Phosphate binders bind dietary phosphate in the intestinal
tract, thereby preventing its absorption into the bloodstream. The Company
estimates that the potential worldwide market for phosphate binders for dialysis
patients is between $300 and $500 million. In addition to the dialysis
population, many patients in the early stages of chronic kidney failure (the
pre-dialysis population) use phosphate binders. The Company estimates that
greater than 700,000 Americans can be classified as pre-dialysis patients.

Currently available phosphate binders include calcium acetate, the only
FDA-approved phosphate binder, and calcium carbonate and aluminum hydroxide,
neither of which is approved in the United States for the control of
hyperphosphatemia in patients with chronic kidney failure. In order to achieve
adequate reductions in phosphate absorption, calcium acetate and calcium
carbonate, the most commonly used agents, must be taken at doses which can lead
to constipation and noncompliance. In addition, calcium therapy requires
frequent monitoring because its use can cause dangerous elevations of blood
calcium levels (hypercalcemia). Hypercalcemia occurs in 25% to 50% of patients
taking calcium-based binders. Aluminum hydroxide is more effective at lower
doses than calcium acetate or calcium carbonate, but it is infrequently used
because aluminum absorbed from the intestinal tract accumulates in the tissues
of patients with chronic kidney failure, causing aluminum-related osteomalacia
(softening of the bones), anemia and dialysis dementia (deterioration of
intellectual function). The Company believes that a non-absorbed, calcium-free
and aluminum-free phosphate binder will offer significant benefits in the
treatment of hyperphosphatemia in patients with chronic kidney failure.

Development Status

GelTex has developed RenaGel phosphate binder for the control of
hyperphosphatemia in patients with chronic kidney failure. GelTex filed a NDA
for RenaGel with the FDA in November 1997. The product is designed to provide
significant advantages over currently available phosphate binders. RenaGel binds
dietary phosphate without the use of either calcium or aluminum and, therefore,
will not cause hypercalcemia or aluminum toxicities. Additionally, RenaGel has
been formulated in a convenient capsule form that is more palatable than the
chalky chewable and acidic uncoated tablet forms of currently available
phosphate binders.

The Company filed an Investigational New Drug Application ("IND") for
RenaGel with the FDA in November 1994, three years prior to the filing of the
NDA. The Company commenced the clinical

18
<PAGE> 20

development of the product in December 1994 with a Phase I clinical trial,
designed to establish safety, toleration and phosphate binding efficacy in 24
healthy volunteers. The trial demonstrated that RenaGel was well tolerated and
that the adverse reaction profile of RenaGel was similar to that of placebo. The
trial also demonstrated a dose-dependent decrease in urinary phosphorus
excretion, indicating that RenaGel bound dietary phosphate, leaving less to be
absorbed into the bloodstream.

The safety, efficacy, and tolerability of RenaGel in 36 dialysis patients
was studied in a Phase IIa clinical trial completed in August 1995. This study
was designed to demonstrate that RenaGel is equivalent in potency to currently
available calcium-based phosphate binders. In this study, RenaGel was shown to
be safe and well tolerated by dialysis patients. All patients completed drug
treatment and the adverse reaction profile of RenaGel was similar to that of the
placebo. This trial demonstrated that RenaGel produces a dose-dependent decrease
in serum phosphorus levels and is approximately equal in potency to the
currently available calcium-based phosphate binders.

The Company completed a two month open-label, dose titration Phase IIb
clinical trial in 48 dialysis patients in April 1996 at five clinical sites.
This trial design followed the expected treatment regimen for RenaGel, which
will involve initiation of therapy at a low dose, followed by bi-weekly dose
titration until the dose reflects the unique dietary phosphate intake of each
patient. Results of this trial demonstrated that RenaGel significantly decreased
serum phosphorus without increasing serum calcium, while maintaining adequate
control of PTH levels.

GelTex completed two pivotal Phase III clinical trials in the first quarter
of 1997. The first trial, a 172-patient, open-label, placebo controlled study,
confirmed and expanded the results of the Company's Phase IIb study,
demonstrating RenaGel's ability to control phosphorus levels without elevating
calcium levels. The reduction of serum phosphorus levels resulting from RenaGel
treatment is shown in the graph below. Results of this study also suggest that
reducing phosphorus levels in the absence of calcium supplementation can aid in
the control of PTH levels.

<TABLE>
<CAPTION>
Measurement Period Duration of
(Fiscal Year Covered) Washout RenaGel Treatment Washout
<S> <C> <C> <C>
0 6.80
1 8.00
2 9.10 9.10
3 8.20
4 7.70
5 7.20
6 7.10
7 7.10
8 6.80
9 6.70
10 6.60 6.60
11 7.40
12 8.00
</TABLE>

19
<PAGE> 21

The second Phase III trial was an 82-patient crossover study, designed to
compare the safety and efficacy of RenaGel with that of calcium acetate
(PhosLo(R)). Results of this trial showed that RenaGel is as effective as
calcium acetate in reducing serum phosphorus levels with significantly fewer
incidents of hypercalcemia.

The Company is currently conducting an extended use study of RenaGel
involving 192 patients. The study, which is expected to conclude in March 1998,
is designed to provide additional safety data and long-term efficacy data. In
mid-1998, the Company expects to commence a pivotal study necessary to support
applications in Europe and the United States for a pre-dialysis indication for
RenaGel. In addition, the Company is continuing its efforts to develop
additional more convenient dosage formulations of RenaGel.

In June 1997, the Company formed a 50/50 joint venture with Genzyme for the
final development and commercialization of RenaGel phosphate binder in the
United States, Europe and other territories not previously licensed to Chugai
Pharmaceutical Co., Ltd. ("Chugai"). See "Business -- Development and Marketing
Agreements."

CHOLESTAGEL NON-ABSORBED CHOLESTEROL REDUCER

Overview

Elevated LDL cholesterol (hypercholesterolemia) has been widely recognized
as a significant risk factor for coronary heart disease since the mid-1980s. As
a result of the increased awareness and the broad prevalence of elevated LDL
cholesterol, cholesterol-reducing drugs have emerged as one of the largest and
fastest growing pharmaceutical product categories. In 1996, the worldwide market
for cholesterol-reducing drugs exceeded $6 billion.

While the risks of hypercholesterolemia are well recognized, the condition
remains significantly under-treated worldwide. According to a 1993 report from
the National Cholesterol Education Program ("NCEP") of the National Institutes
of Health, an estimated 65 million Americans have elevated cholesterol levels.
Of these, 13 million would require both drug and diet therapy to achieve
adequate reductions in cholesterol levels. A separate 1993 study showed that
only 5 million Americans were receiving cholesterol-reducing drugs. Worldwide,
only an estimated one-third of individuals who should be receiving
cholesterol-reducing drugs are receiving therapy. The market for
cholesterol-reducing drugs is expected to grow as awareness and diagnosis
continue to increase.

Physicians frequently prescribe a low fat, low cholesterol diet (the NCEP
Step I diet) as an initial approach to lowering elevated cholesterol. In cases
where dietary changes alone do not adequately lower a patient's cholesterol
levels, drug therapy may be needed. Physicians have the option of prescribing
one of two types of therapies: non-absorbed cholesterol-reducing drugs (i.e.,
bile acid sequestrants) or several classes of absorbed agents. One class of
absorbed agents is the HMG-CoA reductase inhibitors (generally referred to as
"statins"), the most widely prescribed class of cholesterol-reducing agents in
the United States. Combined worldwide sales of the three leading HMG-CoA
reductase inhibitors exceeded $5 billion in 1996. These drugs work by blocking
cholesterol synthesis and enhancing the liver's ability to clear LDL cholesterol
from the blood.

Bile acid sequestrants, an alternative therapy to absorbed agents such as
HMG-CoA reductase inhibitors, have been marketed for decades. Bile acids are
synthesized by the liver from cholesterol and secreted into the intestines to
aid digestion of fats. Bile acid sequestrants bind to bile acids in the
intestinal tract and increase their excretion from the body. To replenish the
bile acid pool, the liver draws cholesterol from the bloodstream, resulting in a
reduction in blood cholesterol levels. Bile acid sequestrants work without
entering the bloodstream and are generally regarded as safer than absorbed
agents such as HMG-CoA reductase inhibitors, which require frequent liver
function tests. Since cholesterol-reduction therapy typically involves a
life-long drug regimen, many doctors prescribe bile acid sequestrants as
first-line drug therapy, especially for primary prevention of coronary heart
disease and in younger patients.

Sales of bile acid sequestrants in the United States exceeded $111 million
in 1996. The most widely prescribed bile acid sequestrant in the United States
is cholestyramine, a polymer resin which is based on a single monomer.
Cholestyramine is an inefficient and weak binder of bile acids and, therefore,
must be taken

20
<PAGE> 22

in large quantities. Typically, patients must drink a mixture of two to three
tablespoons of cholestyramine in eight ounces of water twice a day. The
unpleasant intestinal side effects (such as constipation) and necessarily large
doses of currently available bile acid sequestrants prompt many patients to
discontinue this therapy. As a result, many physicians either switch patients to
or initially prescribe HMG-CoA reductase inhibitors. The Company believes that a
bile acid sequestrant with improved efficacy and a more convenient dosage form
will increase patient acceptance and use of bile acid sequestrant therapy.

Development Status

GelTex is developing CholestaGel for the reduction of elevated LDL
cholesterol levels in patients with hypercholesterolemia. In December 1997,
GelTex initiated the first of two Phase III clinical trials for CholestaGel. The
Company believes that the structural design of CholestaGel represents a
significant advance over existing bile acid sequestrants in that it carries a
high density of high affinity bile acid binding sites, making it more potent at
lower doses than currently marketed agents. The Company believes that
CholestaGel will meet the needs of the market for a non-absorbed
cholesterol-reducing drug that is safe and well tolerated in long term use,
effective at low doses and available in a more convenient dosage form. The
Company also believes that CholestaGel may be a particularly appropriate therapy
for young people with elevated cholesterol levels who may be on therapy for the
rest of their lives and that CholestaGel may expand treatment of mild-to-
moderate cholesterol elevations (LDL cholesterol from 130 to 160 mg/dL) by
giving physicians a safer therapy to prescribe to patients at lower risk of
coronary heart disease.

The Company filed an IND for CholestaGel with the FDA in May 1995, and
commenced the clinical development of CholestaGel in June 1995. In March 1996,
the Company completed a Phase IIa study of CholestaGel. This study was designed
to evaluate the safety, tolerability and lipid-lowering efficacy of CholestaGel
in subjects with LDL cholesterol levels exceeding 160 mg/dL. Analysis of the
data from this study indicates that patients receiving 1.2 grams b.i.d. (twice
daily) of CholestaGel experienced an average 27 mg/dL (15%) reduction in LDL
cholesterol, and patients receiving 3.6 grams b.i.d. experienced an average 50
mg/dL (29%) reduction. Patients receiving placebo experienced no meaningful
change in LDL cholesterol levels. No dose-limiting side effects were reported.

In February 1997, the Company completed a Phase IIb, 147-patient dose
ranging study looking at four dose levels of CholestaGel. Analysis of the data
from this study indicates patients receiving 1.6 grams b.i.d. of CholestaGel
experienced an average 24 mg/dL (12%) reduction in LDL cholesterol and patients
receiving 2.0 grams b.i.d. experienced an average 35 mg/dL (17%) reduction. This
study also showed that CholestaGel was well tolerated with a lack of
gastrointestinal side effects, which are significant problems with existing bile
acid sequestrants. In February 1997, the Company also completed a Phase IIc
clinical trial of CholestaGel. This study compared once daily dosing versus
twice daily dosing in 119 patients. All patients took a total of 1.6 grams per
day. Results of this study indicate that once daily dosing is at least as
effective as split dosing.

In December 1997, the Company initiated the first of two planned Phase III
trials of CholestaGel. The first is a double-blind, placebo controlled study of
560 patients at 18 sites. The study is designed to evaluate the efficacy and
tolerability of CholestaGel at four dosage levels over a treatment period of six
months. The Company plans to commence a second Phase III trial for CholestaGel
in mid-1998. The study is expected to be conducted with 120 patients at six
sites over a treatment period of six weeks. The second Phase III study is
designed to confirm the results of the Company's Phase IIc clinical study which
showed that once daily dosing is at least as effective as split dosing regimens.
Assuming successful completion of these Phase III clinical studies, the Company
expects to file a NDA for CholestaGel in 1999.

In addition to the benefits which the Company expects CholestaGel to
provide as monotherapy, the Company believes that many patients may benefit by
combining low doses of CholestaGel and HMG-CoA reductase inhibitors. Currently
available bile acid sequestrants are approved for use in combination with
HMG-CoA reductase inhibitors. In September 1997, the Company announced positive
results from a Phase II clinical trial designed to evaluate the cholesterol
lowering effect achieved by administering a low dose of CholestaGel in
combination with a low dose of lovastatin, a generic form of a leading HMG-CoA
reductase inhibitor. In the 134-patient study, a low dose of CholestaGel (2.4
grams) administered with half of the lowest

21
<PAGE> 23

recommended dose of lovastatin (10 mg), dosed together and separately, produced
a 60 mg/dL (34%) and 53 mg/dL (32%) reduction in LDL cholesterol, respectively.
This reduction was approximately 50% greater than that achieved with low dose
lovastatin alone. The chart below presents the results of the combination study.
The Company intends to commence development of a product combining low doses of
CholestaGel and lovastatin in a single formulation in late 1998.

CHOLESTAGEL PHASE II STUDY

CLINICAL RESULTS: COMBINATION STUDY WITH LOVASTATIN;
CHANGES IN LDL CHOLESTEROL

[CHART]

<TABLE>
<S> <C>
mg/dL

Placebo 0
CholestaGel (2.4 g) -14.6
Lovastatin (10 mg) -39.5
CholestaGel/Lovastatin dosed together -60.2
CholestaGel/Lovastatin dosed apart -53.1
</TABLE>

The Company is conducting an extended use study with CholestaGel in 260
patients. The study, which is expected to conclude in late 1998, is designed to
provide additional safety data and long term efficacy data.

The Company is continuing to develop a tablet formulation of CholestaGel
that will reduce the number of pills required to achieve a targeted reduction in
cholesterol. The Company is also conducting pre-clinical studies in an effort to
identify more potent bile acid sequestrant polymers that can further improve the
dosing necessary to achieve a targeted reduction in cholesterol.

The Company intends to commercialize CholestaGel through collaborations
with third parties.

22
<PAGE> 24

ANTI-OBESITY PROGRAM

Overview

Obesity is a global healthcare concern and represents one of the most
serious problems facing the medical community today. It is generally recognized
that people who have a body weight exceeding 20% of ideal weight or who have a
body mass index, defined as body weight in kilograms divided by height in meters
squared, of greater than 27 are obese. In 1996, the World Health Organization
expressed its concern that the prevalence of obesity is increasing at an
alarming rate in both industrialized and developing countries. According to
recent industry data, one-third, or 58 million, of all adult Americans are
obese. This chronic and often debilitating disease, which is associated with an
increase in mortality and morbidity, has a significant impact on the healthcare
system. The health problems associated with obesity, including diabetes,
coronary artery disease and hypertension, are reported to result in more than
$60 billion annually in health care costs and loss of income in the United
States.

The conventional therapy for the treatment of obesity is behavioral
modification, which includes a change in quantity and quality of food and a
regular exercise program. However, less than 5% of all patients who enter most
weight loss programs are successful in losing weight. Approximately 66% of all
patients who initially lose weight regain the weight in one year, and virtually
all of them regain the weight in five years. Because obesity is believed to be a
complex metabolic disease with genetic and behavioral components, the medical
community and the obese patient population continue to seek effective
anti-obesity agents.

There are three general approaches for pharmacological intervention for the
treatment of obesity: (i) drugs which achieve their therapeutic effect by
decreasing the patient's appetite; (ii) drugs which block the absorption of fat;
and (iii) drugs which stimulate basal metabolism. Drugs that have been approved
for use in the United States fall into the first category and include: a
combination therapy of phentermine and fenfluramine (Phen/fen), which has been
widely used during the past ten years; dexfenfluamine (Redux) which received FDA
approval in May 1996; and subutramine (Meridia) which received FDA approval in
November 1996. However, the currently available drugs are only recommended for
short term use of up to 12 months. In addition, Phen/fen and Redux have recently
been associated with incidences of primary pulmonary hypertension and heart
valve problems, leading to their voluntary withdrawal from the market. In
addition to the drugs that have been approved for use, orlistat, a drug which
blocks the absorption of fat from the gastrointestinal tract, has been submitted
to the FDA for approval. According to the National Task Force on the Prevention
and Treatment of Obesity, an effective obesity treatment will require long term
drug treatment, in conjunction with diet and behavior modification. The Company
believes that a non-absorbed agent that inhibits the absorption of fat may offer
significant benefits in the long term treatment of obesity.

Application of the Company's Technology

The Company is developing non-absorbed polymers that act within the
gastrointestinal tract to inhibit the absorption of fat. In the gastrointestinal
tract, ingested fat is broken down by pancreatic lipase, permitting absorption
by the intestinal lining. The fat is then transported throughout the bloodstream
to body tissues. An excess of fat delivered to body tissues leads to obesity. By
preventing fat breakdown, fat is eliminated from the body and a patient loses
weight.

The Company has synthesized novel polymers that work within the
gastrointestinal tract and either bind to lipase and inhibit the enzyme activity
or bind to fat and make it inaccessible to lipase. The Company is engaged in
pre-clinical in vitro and in vivo animal studies with both classes of compounds.
In animal studies conducted in rats, the Company has seen a two-fold and a
ten-fold increase in the amount of fecal fat excreted following treatment with
its pancreatic lipase inhibitor compounds and its fat binding compounds,
respectively. The Company has initiated long term studies in obese rats to study
the weight reducing effects of the two classes of compounds. The Company plans
to select one or more candidate compounds for clinical development in early
1999. The Company believes that its pancreatic lipase inhibitors or its fat
binding polymers, used alone or in combination, may offer a safe and effective
long term treatment for obesity.

23
<PAGE> 25

INFECTIOUS DISEASE PROGRAM

Overview

The treatment of infectious diseases has become increasingly more
complicated with the recent appearance and recognition of new pathogenic
organisms, and the emergence of resistance to available antibiotics. Organisms
and resistance patterns previously thought to be exotic or rare are becoming
increasingly more prevalent. These events have stimulated renewed interest
throughout the pharmaceutical and biotechnology industries in research and
development focused on the treatment of infectious diseases. The Company
believes that the use of polymers as antimicrobial agents represents a novel
technological approach to the treatment of infectious disease.

The Company is applying its expertise in polymer design and synthesis and
molecular recognition technology to discover and develop polymer-based
pharmaceuticals designed to treat infectious diseases. The Company's research in
this area is initially focused on non-absorbed compounds for the treatment of
non-systemic infections in surface sites, including gastrointestinal,
genitourinary, skin and wound, and respiratory tract infections. In the area of
infectious disease, the Company believes that polymers may be designed to
achieve their therapeutic effect by (i) killing or inhibiting microbial growth,
(ii) inhibiting the adherence of pathogens to host cell surfaces, (iii) binding
and inactivating microbial toxins essential for virulence and (iv) acting
synergistically with commercially available and investigatory antibiotics.

The Company's initial goal of demonstrating the feasibility of the use of
polymers as antimicrobials was directed at two diarrheal pathogens,
Cryptosporidium parvum and rotavirus. GelTex scientists developed polymers which
effectively inactivated both Cryptosporidium and rotavirus in in vivo
experiments in cultured cells and in experimentally infected animals. Both
programs demonstrated the feasibility of the Company's approach. However, the
Company has chosen not to pursue the development of polymer-based
pharmaceuticals for the treatment of either cryptosporidiosis or rotavirus. In
the case of cryptosporidiosis, the Company's decision was based on the emergence
of protease-inhibitor regimes for the treatment of AIDS patients, which has
caused the overall incidence of cryptosporidiosis and other AIDS-related
infections to decrease dramatically. In the case of rotavirus infections, there
is now a highly efficacious vaccine available for the treatment of the disorder.

Applications of the Company's Technology

During the development of anti-cryptosporidium polymers, the Company
designed polymers active on pathogen surfaces. Unlike conventional antibiotics
which often act through mechanisms targeting single (often intracellular)
enzymes, the Company's polymers have mechanisms combining charge and
hydrophobicity similar to those of peptide antibiotics. GelTex believes that by
targeting the extracellular activity sites it will be able to develop
polymer-based drugs against which pathogens may not become resistant. In
addition, because the mechanism of action of the polymers appears to be
profoundly different from conventional antibiotics, the Company believes that
its polymer-based pharmaceuticals could act synergistically with other
anti-infectives. The Company has commenced a screening program to characterize
activities of numerous polymer classes against panels of important human
bacterial and other types of pathogens.

In collaboration with several academic scientists, the Company is also
investigating the potential use of its polymers to bind, inhibit or inactivate
toxins which are essential virulence factors in diseases caused by many
bacterial infections. The preliminary experiments have resulted in in vitro
demonstrations of activity against several toxins important in gastrointestinal
infections. The Company believes that this presents a new approach for the
management and prevention of hospital-associated gastrointestinal infections.

In addition, the Company believes that its technology may be useful in the
treatment of disorders affecting mucins that line various human organ sites such
as the gastrointestinal tract, respiratory tract and the genitourinary tract.

24
<PAGE> 26

DEVELOPMENT AND MARKETING AGREEMENTS

The Company's strategy is to commercialize its products through development
and marketing agreements with pharmaceutical companies or other strategic
partners. GelTex expects that such agreements will provide the Company with (i)
financial support in the form of license, research and development and/or
milestone payments, (ii) capabilities in research and development and sales and
marketing and (iii) a revenue stream on product sales following regulatory
approvals.

Genzyme Corporation

In June 1997, GelTex and Genzyme formed the RenaGel Joint Venture under
which the parties will finalize the development of and commercialize RenaGel
phosphate binder in all countries other than Japan and other Pacific Rim
countries. Under the agreement, the Company and Genzyme are each expected to
make capital contributions to the RenaGel Joint Venture in an amount equal to
50% of all costs and expenses associated with the development and
commercialization of RenaGel, including costs and expenses incurred by either
party in performing under the agreement, and the Company and Genzyme will share
equally in the profits generated from sales of the product. To the extent that
either party fails to fund its 50% share of costs and expenses, the profit
sharing interests and the future funding obligations of the parties will be
proportionately adjusted. Under the agreement, GelTex licensed all of its rights
to RenaGel phosphate binder in the territory to the RenaGel Joint Venture and
Genzyme was appointed as the exclusive distributor of RenaGel in the territory.

Under the agreement, Genzyme made a $2.5 million equity investment in the
Company. In addition, Genzyme agreed to pay GelTex $15 million upon the receipt
of marketing approval from the FDA, and $10 million one year following FDA
approval.

Chugai Pharmaceutical Co., Ltd.

In December 1994, GelTex granted Chugai an exclusive license to develop and
commercialize RenaGel in Japan and other Pacific Rim countries. Chugai, a
leading Japanese pharmaceutical company, is the largest distributor in Japan of
rHuEPO, a product which is used to treat anemia in patients with chronic kidney
failure.

The agreement provides for Chugai to fund the development of RenaGel in
Japan and other Pacific Rim countries and grants Chugai the exclusive right to
manufacture and market the product in the territory. Chugai made an upfront
license payment to GelTex and has agreed to make milestone payments to GelTex,
payable throughout the development process in Japan. Chugai will pay a royalty
to GelTex on net product sales in the territory. Chugai has the right to
terminate the agreement on short notice at any time prior to product approval in
Japan. Termination will relieve Chugai of any further payment obligations under
the agreement and will end any license granted to Chugai by GelTex. The Company
has received two milestone payments of $1 million each from Chugai, the first in
December 1996 upon Chugai's initiation of a Phase I clinical trial for RenaGel
in Japan and the second in December 1997.

STARTING MATERIAL AND MANUFACTURING

The Company's two lead products, RenaGel phosphate binder and CholestaGel
cholesterol reducer, are manufactured from a starting material which is covered
by patents owned by a third party. The Company has obtained a non-exclusive
license under these patents to manufacture the material in connection with the
production of RenaGel and CholestaGel. The Company may not sublicense its rights
under this license without the licensor's consent, except to the Company's
current supplier of the starting material and certain other parties specified in
the license. The license agreement may be terminated upon short notice if the
Company fails to meet its material obligations under the license agreement,
including lump sum payments, royalties and confidentiality obligations. See
"Risk Factors -- Reliance on License to Manufacture Starting Material."

The Company has chosen not to build the capacity to manufacture its
potential products and, therefore, purchases from third party manufacturers its
compounds for pre-clinical research and clinical trial purposes

25
<PAGE> 27

and expects to be dependent on third party manufacturers for commercial
production. The Company has non-exclusively sublicensed its rights to
manufacture the starting material for its two lead compounds, RenaGel and
CholestaGel, to one supplier and is purchasing quantities of this material under
purchase orders issued to this supplier. The Company has also obtained
pharmaceutical grade bulk production quantities of RenaGel and CholestaGel from
two suppliers (one for each compound). This bulk production is being used in
clinical trials of CholestaGel and was used in clinical trials of RenaGel. The
Company has entered into a long term, fixed price commercial manufacturing
arrangement with The Dow Chemical Company, its supplier of RenaGel bulk
material. The Dow agreement requires the Company to purchase minimum quantities
of the material beginning this year. The Company is in discussions with a second
supplier for RenaGel bulk material and is currently negotiating a long term,
fixed price manufacturing agreement with the manufacturer of CholestaGel bulk
material. In addition, the Company is negotiating a long term fixed price
service agreement with one encapsulator to formulate RenaGel bulk material into
finished product. See "Risk Factors -- Dependence on Others for Manufacturing;
Single Sources of Supply; Process Development Risks."

The Company is continuing to work with its third party manufacturers to
optimize processes for the manufacture of commercial quantities of RenaGel and
CholestaGel. In the event the continuing process development work is not
successful, the Company's profit margins could be adversely affected.

The Company is exploring relationships with other suppliers to complement
its relationships with its existing suppliers. The Company has established a
quality control program, including a set of standard operating procedures,
intended to ensure that third party manufacturers under contract produce the
Company's compounds in accordance with the FDA's current Good Manufacturing
Practices.

The production of GelTex's compounds is based in part on technology that
the Company believes to be proprietary. GelTex maintains confidentiality
agreements, contractual arrangements and patent filings to protect this
proprietary knowledge. In the event that the Company's manufacturers fail to
abide by the limitations or confidentiality restrictions in the manufacturing
arrangements, the proprietary nature of GelTex's technology could be adversely
affected and, consequently, any competitive advantage that GelTex has achieved
as a result of the proprietary nature of this technology could be jeopardized.

PATENTS AND TRADE SECRETS

The biotechnology and pharmaceutical industries place considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. The Company actively seeks, when appropriate, protection
for its products and proprietary information by means of United States and
foreign patents and registration of its trademarks. In addition, the Company
relies upon trade secrets and contractual arrangements to protect certain of its
proprietary information and products.

The Company has 11 issued U.S. patents and approximately 25 pending U.S.
patents. In addition, the Company has filed approximately 60 international and
foreign counterparts. The U.S. patents issued to the Company cover technology
related to RenaGel and a class of other orally administered non-absorbed
phosphate-binding polymers and their use in the treatment of hyperphosphatemia
and technology related to CholestaGel and other polymeric materials. There can
be no assurance that any patents will issue from any of the Company's patent
applications. Further, there can be no assurance that any current or future
patents will provide the Company with significant protection against competitive
products or otherwise be of commercial value.

Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of its scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by employees and, when possible and appropriate, consultants, advisors and
collaborators. There can be no assurance that these agreements will effectively
prevent disclosure of the Company's confidential information or will provide
meaningful protection for the Company's confidential

26
<PAGE> 28

information if there is unauthorized use or disclosure. Furthermore, the
Company's business may be adversely affected by competitors who independently
develop substantially equivalent or improved technology.

COMPETITION

Phosphate binders are currently the only available treatment for
hyperphosphatemia. There are several phosphate binders available or under
development. A prescription calcium acetate preparation is currently the only
product approved in the United States for the control of elevated phosphorus
levels in patients with chronic kidney failure. Other products used as phosphate
binders include over-the-counter calcium- and aluminum-based antacids and
dietary calcium supplements. Calcium acetate and calcium carbonate, the most
commonly used agents, must be taken at sufficient doses to achieve adequate
reductions in phosphate absorption, which can lead to constipation and patient
noncompliance. In addition, calcium therapy requires frequent monitoring because
its use can cause hypercalcemia. Aluminum hydroxide is more effective at lower
doses than calcium acetate or calcium carbonate, but it is infrequently used
because aluminum absorbed from the intestinal tract accumulates in the tissues
of patients with chronic kidney failure, causing aluminum-related osteomalacia,
anemia and dialysis dementia. RenaGel binds dietary phosphate without the use of
either calcium or aluminum and, therefore, will not cause hypercalcemia or
aluminum toxicities. The Company believes that RenaGel will effectively compete
with existing phosphate binders by offering an excellent tolerability profile
and a more palatable formulation than that of currently available phosphate
binders.

In the cholesterol-reduction field, products are currently available that
address some of the needs of the market. These products include other bile acid
sequestrants, HMG-CoA reductase inhibitors, fibric acid derivatives and niacin.
In 1996, sales of HMG-CoA reductase inhibitors represented approximately 94% of
the market for cholesterol-reducing drugs sold in the United States. Combined
worldwide sales of the three leading HMG-CoA reductase inhibitors exceeded $5
billion in 1996. Bile acid sequestrants work without entering the bloodstream
and are generally regarded as safer than absorbed agents such as HMG-CoA
reductase inhibitors, which require frequent liver function tests. However, the
unpleasant intestinal side affects and necessarily large doses of currently
available bile acid sequestrants prompt many patients to discontinue this
therapy. The most widely prescribed bile acid sequestrant in the United States
is cholestyramine, a polymer resin which is based on a single monomer.
Cholestyramine is an inefficient and weak binder of bile acids and, therefore,
must be taken in large quantities. The Company believes that CholestaGel will
effectively compete with currently available bile acid sequestrants by offering
improved efficacy and tolerability and a more palatable formulation than that of
currently available bile acid sequestrants. However, currently marketed products
often have a significant competitive advantage over new entrants and there can
be no assurance that the Company will be able to secure a sufficient percentage
of its targeted market to meet its current revenue projections. Failure to do so
will adversely affect the Company's ability to achieve and sustain
profitability.

In addition to currently available therapies, several of the Company's
competitors are engaged in development activities and clinical trials of other
types of cholesterol-reducing agents. Many of the Company's competitors have
substantially greater financial and other resources, larger research and
development staffs and more extensive marketing and manufacturing organizations
than the Company. These competitors may also compete with the Company in
establishing development and marketing agreements with pharmaceutical companies.
There are also academic institutions, governmental agencies and other research
organizations that are conducting research in areas in which the Company is
working. See "Risk Factors -- Competition and Technological Change."

27
<PAGE> 29

GOVERNMENT REGULATION

The development, manufacture and potential sale of therapeutics is subject
to extensive regulation by United States and foreign governmental authorities.
In particular, pharmaceutical products are subject to rigorous pre-clinical and
clinical testing and to other approval requirements by the FDA in the United
States under the Federal Food, Drug and Cosmetic Act and the Public Health
Service Act and by comparable agencies in most foreign countries.

Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. The data, obtained from studies in several
animal species, as well as from laboratory studies, are submitted in an IND
application or its equivalent in countries outside the United States where
clinical studies are to be conducted. The pre-clinical data must provide an
adequate basis for evaluating both the safety and the scientific rationale for
the initiation of clinical trials.

Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the compound into healthy human subjects prior to
introduction into patients, the product is tested for safety, adverse affects,
dosage, tolerance, absorption, metabolism, excretion and clinical pharmacology.
Phase II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the compound for a specific indication, to
determine dose tolerance and the optimal dose range as well as to gather
additional information relating to safety and potential adverse effects. Phase
III trials are undertaken to further evaluate clinical safety and efficacy in an
expanded patient population at geographically dispersed study sites, in order to
determine the overall risk-benefit ratio of the compound and to provide an
adequate basis for product labeling. Each trial is conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.

Data from pre-clinical and clinical trials are submitted to the FDA as a
NDA for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug is likely to take a number of years and require the expenditure of
substantial resources. Preparing a NDA or marketing authorization application
involves considerable data collection, verification, analysis and expense, and
there can be no assurance that FDA or any other health authority approval will
be granted on a timely basis, if at all. The approval process is affected by a
number of factors, primarily the risks and benefits demonstrated in clinical
trials as well as the severity of the disease and the availability of
alternative treatments. The FDA or other health authorities may deny a NDA or
marketing authorization application if the authority's regulatory criteria are
not satisfied or may require additional testing or information.

Even after initial FDA or other health authority approval has been
obtained, further studies, including Phase IV post-marketing studies, may be
required to provide additional data on safety and will be required to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially tested. Also, the FDA or other
regulatory authorities may require post-marketing reporting to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand the
further marketing of the products. Further, if there are any modifications to
the drug, including changes in indication, manufacturing process or labeling or
a change in manufacturing facility, an application seeking approval of such
changes will be required to be submitted to the FDA or other regulatory
authority.

Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements. Further, the FDA
regulates the export of products produced in the United States and may prohibit
the export even if such products are approved for sale in other countries.

28
<PAGE> 30

In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resources
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.

Completing the multitude of steps necessary before marketing can begin
requires the expenditure of considerable resources and a lengthy period of time.
Delay or failure in obtaining the required approvals, clearances or permits by
the Company, its corporate partners or its licensees would have a material
adverse effect on the ability of the Company to generate sales or royalty
revenue. The impact of new or changed laws or regulations cannot be predicted
with any accuracy.

HUMAN RESOURCES

As of January 15, 1998, GelTex had 73 full-time employees. 62 of these
individuals (21 of whom hold Ph.D. or M.D. degrees) are involved in research and
development, and 11 are in general and administrative functions. Members of the
Company's Scientific Advisory Board and Bile Acid Advisory Board come from a
number of different disciplines, with expertise in polymer chemistry, medicinal
chemistry, molecular recognition, clinical pharmacology and clinical medicine.

FACILITIES

The Company leases approximately 25,000 square feet of laboratory and
office space in one building at Nine Fourth Avenue, Waltham, Massachusetts. The
lease expires in March 2007 and the Company has the option to extend the lease
until March 2012.

29
<PAGE> 31

MANAGEMENT

The executive officers and directors of the Company consist of the
following individuals:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Mark Skaletsky....................... 49 President, Chief Executive Officer and Director
Steven Burke, M.D. .................. 37 Vice President, Clinical Research
Jeffrey D. Klinger, Ph.D., M.P.H. ... 51 Vice President, Infectious Diseases
W. Harry Mandeville, Ph.D. .......... 48 Vice President, Chemical Technology
Paul J. Mellett, Jr. ................ 42 Vice President, Administration and Finance,
Chief Financial Officer and Treasurer
Joseph Tyler......................... 47 Vice President, Manufacturing
Robert J. Carpenter*................. 52 Chairman of the Board of Directors
J. Richard Crout+.................... 69 Director
Henri A. Termeer+.................... 52 Director
Jesse Treu, Ph.D.*................... 50 Director
George M. Whitesides, Ph.D. ......... 58 Director
</TABLE>

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

* Member of the Compensation Committee

+ Member of the Audit Committee

MARK SKALETSKY, President, Chief Executive Officer and Director. Mr.
Skaletsky joined GelTex in May 1993 as President, Chief Executive Officer and a
Director of the Company. He served as Treasurer of the Company from August 1993
until May 1997. Mr. Skaletsky previously served from 1988 to 1993 as Chairman
and Chief Executive Officer of Enzytech, Inc., a biotechnology company, and
President and Chief Operating Officer of Biogen, Inc., a biotechnology company,
from 1983 to 1988. He is a director of Isis Pharmaceuticals, Inc. and LeukoSite,
Inc.

STEVEN BURKE, M.D., Vice President, Clinical Research. Dr. Burke joined
GelTex in 1994 after having served as Associate Director, Gastrointestinal
Clinical Research of Glaxo, Inc., a pharmaceutical company, from 1992 to 1994
and Assistant Clinical Professor of Medicine, Gastroenterology, at the
University of North Carolina from 1993 until 1994. Dr. Burke currently also
serves as a Staff Physician, Gastroenterology, at the Brockton/West Roxbury VA
Medical Center. He was a Research Fellow in Gastroenterology from 1991 to 1992
and a Clinical Fellow in Gastroenterology from 1990 to 1991 at Brigham and
Women's Hospital.

JEFFREY D. KLINGER, PH.D., M.P.H., Vice President, Infectious Diseases. Dr.
Klinger joined the Company in August 1997 after having served as an independent
consultant to companies in areas of technology applications, markets and
strategy and as Vice President, Corporate Research at Vysis, Inc. from 1995 to
1996. Dr. Klinger held several senior level positions at GENE-TRAK, a probe
diagnostics company for infectious disease testing, from 1987 to 1994. From 1985
to 1986, Dr. Klinger served as Senior Scientist & Project Leader, Clinical
Microbiology at Integrated Genetics, a company specializing in infectious and
genetic disease diagnostics and recombinant protein therapeutics. Previously,
Dr. Klinger served as an Assistant Professor at Case Western Reserve University
School of Medicine from 1978 to 1985 where he co-directed the Microbiology Core
Facility, a major NIH-funded cystic fibrosis research and teaching center.

W. HARRY MANDEVILLE, PH.D., Vice President, Chemical Technology. Dr.
Mandeville joined the Company in 1992 from his position as Director, Research,
Development and Engineering, Chemical Products Group at the Waters
Chromatography Division of Millipore Corp., an analytical instrumentation
company, which he joined in 1987.

PAUL J. MELLETT, JR., Vice-President, Administration and Finance, Chief
Financial Officer and Treasurer. Mr. Mellett joined the Company in April 1997
from Marshall Contractors, Inc. where he most recently served as Chief Financial
Officer. Marshall Contractors, Inc. is a construction management firm
specializing in biotechnology and microelectronics projects. Before joining
Marshall Contractors, Inc. in 1994, Mr. Mellett was an Audit Partner with
Deloitte & Touche LLP in Boston which he joined in 1977.

30
<PAGE> 32

JOSEPH TYLER, Vice President, Manufacturing. Mr. Tyler joined GelTex in
April 1995 from Stryker Biotech, a medical device company, which he joined in
1992, serving as Director, Operations. From 1990 to 1992, Mr. Tyler was employed
at Abbott Biotech (formerly Damon Biotech), a biologics company, as Director,
Manufacturing and later as General Manager.

ROBERT J. CARPENTER, Chairman of the Board. Mr. Carpenter, a co-founder of
GelTex, has served as Chairman of the Board since 1991. He is President of
Boston Medical Investors, Inc., an investment firm. Mr. Carpenter served as
President and Chief Executive Officer of GelTex from 1991 to 1993. He served as
an Executive Vice President of Genzyme Corporation, a human health care company,
from 1989 to 1991, and was Chief Executive Officer and Chairman of the Board of
IG Laboratories, Inc., a genetic testing service company, from 1989 to 1991.
Prior to that, he was Chairman, President and Chief Executive Officer of
Integrated Genetics, Inc., a biotechnology company, which he joined as President
in 1981. He is a director of Genzyme Corporation.

J. RICHARD CROUT, Director. Dr. Crout was elected a director in May 1997.
Dr. Crout has served as President of Crout Consulting, a firm providing
consulting services to the pharmaceutical and biotechnology industries, since
1994. From 1984 to 1994, Dr. Crout served as Vice President, Medical and
Scientific Affairs, of Boehringer Mannheim Pharmaceuticals Corporation, a
pharmaceutical company. Prior to that, Dr. Crout served as Associate Director
for Medical Applications of Research at the National Institutes of Health from
1982 to 1984 and as Director, Bureau of Drugs, U.S. Food and Drug Administration
from 1973 to 1982.

HENRI A. TERMEER, Director. Mr. Termeer has been a director since 1992. He
joined Genzyme Corporation, a human health care company, in 1983 and holds the
positions of Chief Executive Officer, President and Chairman. Prior to joining
Genzyme, Mr. Termeer held various management positions at Baxter Travenol
Laboratories, Inc., a manufacturer of human health care products, including
Executive Vice President of Baxter's Hyland Therapeutics Division. Mr. Termeer
is also a director of Genzyme Transgenics Corporation, Abiomed, Inc.,
AutoImmune, Inc., Diacrin, Inc. and Xenova Ltd. and a trustee of Hambrecht &
Quist Healthcare Investors and Hambrecht & Quist Life Sciences Investors.

JESSE TREU, PH.D., Director. Dr. Treu has been a director since 1993. He
has been a General Partner of the venture capital firm, Domain Associates, since
1986. Dr. Treu is a director of Trimeris, Inc., Focal, Inc. and Ribogene, Inc.

GEORGE M. WHITESIDES, PH.D., Director. Dr. Whitesides, a co-founder of
GelTex, has been a director since 1992. He has been affiliated with Harvard
University since 1982, where he is the Mallinckrodt Professor of Chemistry. He
has extensive experience as a consultant in both research and research
management in the chemical, pharmaceutical and related industries. Dr.
Whitesides is a director of Dexter Corporation and Advanced Magnetics, Inc.

31
<PAGE> 33

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, CIBC Oppenheimer Corp. and Hambrecht & Quist LLC, have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company..............................................
CIBC Oppenheimer Corp. ......................................
Hambrecht & Quist LLC........................................

---------
Total................................................... 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.

The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the public offering, the offering price and other selling terms may be changed
by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,500,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,500,000 shares are being offered.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.

The directors and officers of the Company and Genzyme, holding in the
aggregate approximately 697,555 shares of Common Stock outstanding prior to this
offering and 344,096 shares of Common Stock subject to exercisable stock
options, and the Company have agreed that, for a period of 90 days after the
effective date of the Registration Statement, they will not, without the prior
written consent of Cowen & Company, offer, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into, or exchangeable for,
or warrants to purchase, any shares of Common Stock, or grant any option to
purchase, any shares of Common Stock, except that the Company may issue (i)
shares or options to purchase Common Stock pursuant to the Company's employee
and director stock plans and (ii) shares of Common Stock upon the exercise of
outstanding warrants.

32
<PAGE> 34

In order to facilitate this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
this offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of the Common
Stock in the open market. The Underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Common Stock in this
offering, if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for and purchase shares of the
Common Stock in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the Common Stock above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.

The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
marker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

LEGAL OPINIONS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The financial statements of GelTex Pharmaceuticals, Inc. at December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 appearing in the Company's Current Report on Form 8-K, dated February 11,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology" and
"Business -- Patents and Trade Secrets" have been reviewed and approved by
Hamilton, Brook, Smith & Reynolds, P.C., patent counsel to the Company, as
experts on such matters, and are included herein in reliance upon that review
and approval.

33
<PAGE> 35

================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Incorporation of Certain Documents
by Reference........................... 2
Prospectus Summary....................... 3
Risk Factors............................. 5
Use of Proceeds.......................... 10
Price Range of Common Stock and Dividend
Policy................................. 10
Capitalization........................... 11
Dilution................................. 11
Selected Financial Data.................. 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 13
Business................................. 16
Management............................... 30
Underwriting............................. 32
Legal Opinions........................... 33
Experts.................................. 33
</TABLE>

================================================================================

2,500,000 SHARES

GELTEX LOGO

COMMON STOCK

---------------------------
PROSPECTUS
---------------------------

COWEN & COMPANY
CIBC OPPENHEIMER
HAMBRECHT & QUIST

, 1998

================================================================================
<PAGE> 36

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses to be borne by GelTex in connection with this offering of
Common Stock are estimated as follows:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 25,075
Nasdaq listing fee................................................ $ 17,500
NASD fees and expenses............................................ $ 9,000
Blue Sky fees and expenses........................................ $ 10,000
Printing and engraving expenses................................... $ 70,000
Accounting fees and expenses...................................... $ 40,000
Legal fees and expenses........................................... $125,000
Transfer Agent and Registrar fees................................. $ 10,000
Miscellaneous expenses............................................ $ 13,425
--------
Total........................................................ $320,000
========
</TABLE>

All of the above figures, except the SEC registration fee and the Nasdaq
listing fee, are estimates.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him in
connection with any such action, suit or proceeding, if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. Except as ordered
by a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the corporation where the person involved is
adjudged to be liable to the Registrant.

Article EIGHTH of the Registrant's Restated Certificate of Incorporation
provides that a director shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that elimination or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined.

Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit or proceeding whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become a director or officer of the Registrant, or
is or was serving, or has agreed to serve at the request of the Registrant as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise. The
indemnification provided for in Article NINTH is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and shall inure to the benefit of the heirs, executors and administrators of
such persons. Article NINTH further permits the Board of Directors to authorize
the grant of indemnification rights to other employees and agents of the
Registrant and such rights may be equivalent to, or greater or less than, those
set forth in Article NINTH.

II-1
<PAGE> 37

Article V, Section 1 of the Registrant's Amended and Restated By-laws
provides that the Registrant shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity or arising out of
such person's status as such.

The Registrant maintains insurance for directors and officers and has
entered into agreements with certain officers and directors affirming the
Registrant's obligation to indemnify them to the fullest extent permitted by law
and providing various other protections.

ITEM 16. EXHIBITS

See Exhibit Index immediately following the signature page.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15 hereof, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE> 38

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on
February 11, 1998.

GELTEX PHARMACEUTICALS, INC.

By: /s/ MARK SKALETSKY
------------------------------------
Mark Skaletsky, President, and
Chief Executive Officer

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

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -------------------------------

/s/ MARK SKALETSKY President (Principal Executive February 11, 1998
- ------------------------------------------ Officer) and Director
Mark Skaletsky
* Vice President February 11, 1998
- ------------------------------------------ Administration and Finance
Paul J. Mellett, Jr. (Principal Financial and
Accounting Officer)

* Chairman of the Board and February 11, 1998
- ------------------------------------------ Director
Robert J. Carpenter

* Director February 11, 1998
- ------------------------------------------
J. Richard Crout

* Director February 11, 1998
- ------------------------------------------
Henri A. Termeer

* Director February 11, 1998
- ------------------------------------------
Jesse Treu

* Director February 11, 1998
- ------------------------------------------
George M. Whitesides

*By: /s/ MARK SKALETSKY
- ------------------------------------------
Attorney-in-fact
</TABLE>

II-3
<PAGE> 39

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement dated as of , 1998 by and among the Company, Cowen
& Company, CIBC Oppenheimer Corporation and Hambrecht & Quist LLC.*
3.1 Restated Certificate of Incorporation of the Company dated June 4, 1996.
4.1 Rights Agreement dated as of March 1, 1996 between the Company and American Stock
Transfer & Trust Company. Filed as Exhibit 1 to the Company's Registration
Statement on Form 8-A dated March 1, 1996 and incorporated herein by reference.
4.2 First Amendment to Rights Agreement between the Company and American Stock Transfer
& Trust Company dated as of July 29, 1997. Filed as Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated
herein by reference.
5.1 Opinion of Palmer & Dodge LLP.**
23.1 Consent of Ernst & Young LLP, independent auditors to Company.
23.2 Consent of Hamilton, Brook, Smith and Reynolds, P.C.
23.3 Consent of Palmer & Dodge LLP. Included in Exhibit 5.1.**
24.1 Power of Attorney.**
</TABLE>

- ---------------
* To be filed by amendment.

** Previously filed.

<PAGE> 1
Exhibit 3.1

RESTATED
CERTIFICATE OF INCORPORATION
OF
GELTEX PHARMACEUTICALS, INC.

The undersigned, Mark Skaletsky and Peter Wirth, do hereby certify:

A. They are the duly elected and acting President and Secretary,
respectively, of Geltex Pharmaceuticals, Inc., a Delaware corporation (the
"Corporation").

B. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State on November 15, 1991, and the name under which
the Corporation was originally incorporated is Geltex, Inc.

C. The Certificate of Incorporation, as previously amended, is
further amended and restated to read in full as follows:

FIRST. The name of the Corporation is Geltex Pharmaceuticals, Inc.
(hereinafter sometimes referred to as the "Corporation").

SECOND. The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805-1297. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.

THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifty-five million (55,000,000)
shares, of which five million (5,000,000) shares, par value $0.01 per share, are
to be of a class designated "Preferred Stock" and fifty million (50,000,000)
shares, par value $0.01 per share, are to be of a class designated "Common
Stock."

The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Corporation.

4.1. UNDESIGNATED PREFERRED STOCK

The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article FOURTH, to provide by resolution for
the issuance of the shares of Preferred Stock in one or more series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and qualifications, limitations or restrictions
thereof.

- 1 -

<PAGE> 2

The authority of the Board with respect to each series shall include,
but shall not be limited to, determination of the following:

(a) The number of shares constituting that series and the distinctive
designation of that series;

(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;

(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;

(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;

(e) Whether or not the shares of that series shall be redeemable, and
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;

(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;

(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;

(h) Any other relative rights, preferences and limitations of that
series.

4.2. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

4.2.1. AUTHORIZED AMOUNT AND DESIGNATION. A total of Five Hundred
Thousand (500,000) shares of the Preferred Stock shall be designated as "Series
A Junior Participating Preferred Stock" (the "Junior Preferred Stock"). Such
number of shares may be increased or decreased by resolution of the Board of
Directors; PROVIDED, that no decrease shall reduce the number of shares of
Junior Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Junior
Preferred Stock.

4.2.2. DIVIDENDS AND DISTRIBUTIONS.

(A) Subject to the prior and superior rights of the holders of
any shares of any series of preferred stock (collectively, the "Preferred
Stock") ranking prior and superior to the Junior Preferred Stock with respect to
dividends, the holders of shares of Junior Preferred Stock,

- 2 -

<PAGE> 3

in preference to the holders of Common Stock of the Corporation (the "Common
Stock"), and of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Junior Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Junior Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in paragraph (A) of this Section
4.2.2. immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Junior Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Junior Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior

- 3 -

<PAGE> 4

Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.

4.2.3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock
shall have the following voting rights:

(A) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Junior Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

(B) Except as otherwise provided herein, in the Restated
Certificate of Incorporation, in any other Resolution of the Board of Directors
of the Corporation creating a series of Preferred Stock, or by law, the holders
of shares of Junior Preferred Stock and the holders of shares of Common Stock
and any other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.

(C) Except as set forth herein or as otherwise provided by
law, holders of Junior Preferred Stock shall have no voting rights.

4.2.4. CERTAIN RESTRICTIONS.

(A) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in Section
4.2.2. are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Junior Preferred Stock;

(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and
all such parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are then entitled;

- 4 -

<PAGE> 5

(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Preferred Stock; or

(iv) redeem, purchase or otherwise acquire for
consideration any shares of Junior Preferred Stock, or any shares of stock
ranking on a parity with the Junior Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.

(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this section 4 purchase or otherwise acquire such shares at such time and in
such manner.

4.2.5. REACQUIRED SHARES. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock,
subject to the conditions and restrictions on issuance set forth herein, in the
Restated Certificate of Incorporation, in any other Resolution of the Board of
Directors of the Corporation creating a series of Preferred Stock, or as
otherwise required by law.

4.2.6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received $100.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Junior Preferred Stock shall be entitled
to receive, to the extent greater than the foregoing, an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Junior Preferred Stock were entitled immediately prior to

- 5 -

<PAGE> 6

such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

4.2.7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Junior Preferred Stock shall at the same time be similarly exchanged or changed
into an amount per share (subject to the provision for adjustment hereinafter
set forth) equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Junior Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

4.2.8. REDEMPTION. The shares of Junior Preferred Stock shall not be
redeemable.

4.2.9. RANK. The Junior Preferred Stock shall rank junior with respect
to the payment of dividends and the distribution of assets to all series of the
Corporation's Preferred Stock that specifically provide that they shall rank
prior to the Junior Preferred Stock. Nothing herein shall preclude the Board
from creating any series of Preferred Stock ranking on a parity with or prior to
the Junior Preferred Stock as to the payment of dividends or the distribution of
assets.

4.2.10. AMENDMENT. The Restated Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Junior Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding Junior Preferred Stock, voting together as a
single series.

4.2.11. FRACTIONAL SHARES. The Junior Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of the Junior Preferred Stock.

4.3. COMMON STOCK

The Common Stock is subject to the rights and preferences of the
Preferred Stock as hereinbefore set forth or authorized.

- 6 -

<PAGE> 7

Subject to the provisions of any applicable law or of the by-laws of
the Corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided herein or by law or by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall have exclusive voting rights for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.

Subject to the rights of any one or more series of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends from time to
time as may be declared by the Board of Directors out of any funds of the
Corporation legally available for the payment of such dividends.

In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock of the full amount to which they are
entitled, the holders of Common Stock shall be entitled to share ratably
according to the number of shares of Common Stock held by them, in all remaining
assets of the Corporation available for distribution to its stockholders.

4.4. ISSUANCE

Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the Corporation,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine.

FIFTH. The Corporation is to have perpetual existence.

SIXTH. Election of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide. The Board of Directors shall
consist of not less than three nor more than fifteen directors, the exact number
to be determined from time to time by resolution adopted by the affirmative vote
of a majority of the directors then in office. The directors shall be divided
into three classes, as nearly equal in number as the then total number of
directors constituting the entire Board permits, with the term of office of one
class expiring each year. The initial directors of the first class shall be
elected to hold office for a term expiring at the next succeeding annual
meeting, the initial directors of the second class shall be elected to hold
office for a term expiring at the second succeeding annual meeting and the
initial directors of the third class shall be elected to hold office for a term
expiring at the third succeeding annual meeting. At each succeeding annual
meeting of stockholders beginning in the first year following the election of
such staggered Board of Directors, successors to the class of directors whose
term expires at that meeting shall be elected for a three year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in the size of such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no event will a decrease in the number of directors shorten the term of any
incumbent director.

- 7 -

<PAGE> 8

Any vacancies in the Board of Directors for any reason, and any directorships
resulting from any increase in the number of directors, may be filled by the
Board of Directors, acting by a majority of the directors then in office,
although less than a quorum, and any directors so chosen shall hold office until
the next election of the class for which such directors shall have been chosen.
Notwithstanding the foregoing, and except as otherwise required by law, whenever
the holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the election, terms of office and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation and certificates of
designation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article SIXTH unless expressly provided by
such terms. Subject to the foregoing, at each annual meeting of stockholders the
successors to the class of directors whose terms shall then expire shall be
elected to hold office for a term expiring at the annual meeting for the year in
which their term expires and until their successors shall be elected and
qualified, subject to prior death, resignation, retirement or removal.

Except as otherwise determined by the Board of Directors in
establishing a series of Preferred Stock as to directors elected by holders of
such series, at any special meeting of the stockholders called at least in part
for the purpose, any director or directors may, by the affirmative vote of the
holders of at least a majority of the stock entitled to vote for the election of
directors, be removed from office for cause. The provisions of this subsection
shall be the exclusive method for the removal of directors.

SEVENTH. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the by-laws of the Corporation.

EIGHTH. A director shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the elimination or limitation of liability
is not permitted under the General Corporation Law of the State of Delaware as
in effect when such liability is determined. No amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.

NINTH. The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was, or has agreed to become, a director or officer of
the Corporation, or is or was serving, or has agreed to serve, at the request of
the Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom.

Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which

- 8 -

<PAGE> 9

undertaking may be accepted without reference to the financial ability of such
person to make such repayments.

The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.

The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.

TENTH: (i) Except as set forth in part (ii) of this Article TENTH, the
affirmative vote of the holders of 66 2/3% of the shares of all classes of stock
of the Corporation entitled to vote for the election of directors, considered
for the purposes of this Article TENTH as one class, shall be required (a) for
the adoption of any agreement for the merger or consolidation of the Corporation
or any Subsidiary (as hereinafter defined) with or into any Other Corporation
(as hereinafter defined), (b) to authorize any sale, lease, exchange, mortgage,
pledge or other disposition of all or substantially all of the assets of the
Corporation or any Subsidiary to any Other Corporation, (c) to authorize the
issuance or transfer by the Corporation of any Substantial Amount (as
hereinafter defined) of securities of the Corporation in exchange for the
securities or assets of any Other Corporation, or (d) to engage in any other
transaction the effect of which is to combine the assets and business of the
Corporation or any Subsidiary with any Other Corporation. Such affirmative vote
shall be in addition to the vote of the holders of the stock of the Corporation
otherwise required by law, the Certificate of Incorporation of the Corporation
or any agreement or contract to which the Corporation is a party.

(ii) The provisions of part (i) of this Article TENTH shall not
be applicable to any transaction described therein if such transaction is
approved by a resolution of the Board of Directors of the Corporation, provided
that the directors voting in favor of such resolution include a majority of the
persons who were duly elected and acting members of the Board of Directors prior
to the time any such Other Corporation became a Beneficial Owner (as hereinafter
defined) of 5% or more of the shares of stock of the Corporation entitled to
vote for the election of directors. In considering such transaction, the Board
of Directors shall give due consideration to such factors as it deems relevant,
which may include without limitation the social and economic effects on the
employees, customers, suppliers and other constituents of the Corporation and
its Subsidiaries and on the communities in which the Corporation and its
Subsidiaries operate or are located.

(iii) The Board of Directors shall have the power and duty to
determine for the purposes of this Article TENTH, on the basis of information
known to such Board, if and when any Other Corporation is the Beneficial Owner
of 5% or more of the outstanding shares of stock of the Corporation entitled to
vote for the election of directors. Any such

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<PAGE> 10

determination, if made in good faith, shall be conclusive and binding for all
purposes of this Article TENTH.

(iv) As used in this Article TENTH, the following terms shall
have the meanings indicated:

"Other Corporation" means any person, firm, corporation
or other entity, other than a Subsidiary of the Corporation, which is the
Beneficial Owner of 5% or more of the shares of stock of the Corporation
entitled to vote in the election of directors.

"Subsidiary" means any corporation in which the
Corporation owns, directly or indirectly, more than 50% of the voting
securities.

"Substantial Amount" means any securities of the
Corporation having a then fair market value of more than $500,000.

An Other Corporation (as defined above) shall be deemed
to be the "Beneficial Owner" of stock if such Other Corporation or any
"affiliate" or "associate" of such Other Corporation (as those terms are defined
in Rule 12b-2 promulgated under the Securities and Exchange Act of 1934 (15
U.S.C. 78 aaa et seq.), as amended from time to time), directly or indirectly,
controls the voting of such stock or has any options, warrants, conversion or
other rights to acquire such stock.

(v) This Article TENTH may not be amended, revised or revoked,
in whole or in part, except by the affirmative vote of the holders of 66 2/3% of
the shares of all classes of stock of the Corporation entitled to vote for the
election of directors, considered for the purposes of this Article TENTH as one
class of stock.

ELEVENTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken by
written consent without a meeting, and the power of stockholders to consent in
writing without a meeting to the taking of any action is specifically denied.

This Article ELEVENTH may not be amended, revised or revoked, in whole
or in part, except by the affirmative vote of the holders of 66 2/3% of the
shares of all classes of stock of the Corporation entitled to vote for the
election of directors, considered for the purposes of this Article ELEVENTH as
one class of stock.

D. The foregoing Restated Certificate of Incorporation has been
approved by the Board of Directors of the Corporation.

E. The foregoing Restated Certificate of Incorporation was adopted by
the holders of a majority of the outstanding shares of Common Stock in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.

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<PAGE> 11

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Mark Skaletsky, its President, and attested by Peter Wirth, its
Secretary on June 4, 1996.

/S/ MARK SKALETSKY
--------------------------------
Mark Skaletsky, President

Attest:

/S/ PETER WIRTH
- ---------------------------------
Peter Wirth, Secretary

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<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-45151) and
related Prospectus of GelTex Pharmaceuticals, Inc. and to the incorporation by
reference therein of our report dated February 9, 1998, with respect to the
financial statements of Geltex Pharmaceuticals, Inc. included in its Current
Report on Form 8-K dated February 11, 1998, filed with the Securities and
Exchange Commission.

ERNST & YOUNG LLP

Boston, Massachusetts
February 11, 1998

<PAGE> 1
EXHIBIT 23.2

[HAMILTON, BROOK, SMITH & REYNOLDS, P.C. LETTERHEAD]

CONSENT OF SPECIAL COUNSEL FOR GELTEX PHARMACEUTICALS, INC.

We hereby consent to the reference to our name, and to the statements
with respect to us, in GelTex Pharmaceuticals, Inc.'s Amendment to the
Registration Statement on Form S-3 (File No. 333-45151) and the Prospectus
relating thereto under the caption "Experts".

HAMILTON, BROOK, SMITH & REYNOLDS, P.C.

By: /s/ David E. Brook
---------------------------------------------
David E. Brook

Dated: February 10, 1998