INSMED INC, S-4/A, 2000-04-17

INSMED INC
S-4/A, 2000-04-17
PHARMACEUTICAL PREPARATIONS

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<PAGE>

As filed with the Securities and Exchange Commission on April 17, 2000
Registration No. 333-30098

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Amendment No. 2
to
FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

INSMED INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Virginia 2834 54-1972729
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

Michael D. Baer
Chief Financial Officer
Insmed Incorporated
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

Copies to:
Edmund S. Ruffin, Jr., Esq. T. Justin Moore, III, Esq.
Venture Law Group Hunton & Williams
2800 Sand Hill Road Riverfront Plaza, East Tower
Menlo Park, California 94025 951 East Byrd Street
(650) 854-4488 Richmond, Virginia 23219
(804) 788-8464

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the reorganizations of Celtrix Pharmaceuticals, Inc. and Insmed
Pharmaceuticals, Inc., whereby each of Celtrix and Insmed Pharmaceuticals will
become wholly-owned subsidiaries of the Registrant pursuant to the Amended and
Restated Agreement and Plan of Reorganization dated as of February 9, 2000,
described in the joint proxy statement/prospectus contained herein have been
satisfied or waived. If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, 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, 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(d) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier registration statement for the same offering. [ ]

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

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
<PAGE>

[LOGO OF INSMED]

LOGO OF CELTRIX]

Dear Insmed Pharmaceuticals, Inc. Shareholders and Celtrix Pharmaceuticals,
Inc. Stockholders:

The boards of directors of Insmed Pharmaceuticals, Inc. and Celtrix
Pharmaceuticals, Inc. have agreed on the reorganizations of Insmed
Pharmaceuticals and Celtrix into a newly formed holding company, Insmed
Incorporated. Because of the reorganizations, Insmed Pharmaceuticals and
Celtrix will become wholly-owned subsidiaries of Insmed Incorporated. We are
convinced that this transaction will enable the combined company to achieve
its strategic goals and enhance its market position as a drug development
company more quickly than either Insmed Pharmaceuticals or Celtrix could
achieve on their own.

The reorganizations provide for:

. a tax-free merger in which Celtrix common stockholders will receive one
share of Insmed Incorporated common stock for each share of Celtrix
common stock and Celtrix preferred stockholders will receive
approximately shares of Insmed Incorporated common stock for each
share of Celtrix preferred stock, and

. a tax-free share exchange in which Insmed Pharmaceuticals common and
preferred shareholders will receive 3.5 shares of Insmed Incorporated
common stock for each Insmed Pharmaceuticals share.

Insmed Incorporated applied to list its common stock on the Nasdaq National
Market under the ticker symbol "INSM."

We cannot complete the reorganizations unless the stockholders of both of
our companies adopt the reorganization agreement. Each of us will hold a
meeting of our stockholders to vote on this reorganization proposal. Your vote
is very important. Whether or not you plan to attend your stockholders'
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us in accordance with the instructions on the proxy form. If you
sign, date and mail your proxy card without indicating how you want to vote,
we will count your proxy as a vote in favor of the reorganization agreement.
Not returning your card or not instructing your broker how to vote any shares
held for you in "street name" will have the same effect as a vote against the
reorganizations.

The dates, times and places of the meetings are as follows:

For Insmed Pharmaceuticals For Celtrix Stockholders:
Shareholders: , 2000, 10:00 A.M., local time
, 2000, 1:00 P.M., local time 2033 Gateway Place, Suite 600
800 East Leigh Street San Jose, California 95110
Richmond, Virginia 23219

This document provides you with detailed information about these meetings
and the proposed reorganizations. You can also get information about Celtrix
from publicly available documents that Celtrix has filed with the Securities
and Exchange Commission or about Insmed Pharmaceuticals directly from Insmed
Pharmaceuticals c/o Michael D. Baer, Insmed Pharmaceuticals, Inc., 800 East
Leigh Street, Richmond, Virginia 23219 (804) 828-6893.

--------------
We encourage you to read this entire document carefully and thoughtfully,
including the section entitled "Risk Factors" on pages through .

--------------
We strongly support this combination of our companies and join with all the
other members of our boards of directors in enthusiastically recommending that
you vote in favor of the reorganizations.

/s/ Geoffrey Allan, Ph. D.

Geoffrey Allan, Ph.D. Andreas Sommer, Ph.D.
Chairman of the Board, President President
and Chief Executive Officer and Chief Executive Officer
Insmed Pharmaceuticals, Inc. Celtrix Pharmaceuticals, Inc.

EACH VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.

Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved this document or these securities or
determined if this document is accurate or adequate. Any representation to
the contrary is a criminal offense.

This joint proxy statement/prospectus is dated April , 2000
and we will first mail it on or about , 2000
<PAGE>

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110

---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

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

The annual meeting of stockholders of Celtrix Pharmaceuticals, Inc. will be
held at 10:00 a.m., Pacific Standard Time, on , , 2000 at 2033 Gateway
Place, Suite 600, San Jose, California 95110. The meeting is called for the
following purposes:

(1) To consider and vote upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Reorganization, dated as of
February 9, 2000, by and among Celtrix, Insmed Pharmaceuticals, Inc.,
Insmed Incorporated, a newly formed corporation and Celtrix MergerSub,
Inc., a wholly-owned subsidiary of Insmed Incorporated.

(2) To elect five directors of the board of directors to serve until the
2000 Annual Meeting of stockholders and until the earlier of the expiration
of their terms or consummation of the reorganizations;

(3) To ratify the appointment of Ernst & Young LLP as Celtrix's
independent public accountants for the fiscal year ending March 31, 2000;
and

(4) To transact such other business as may properly come before the
annual meeting, or any adjournments or postponements of the annual meeting.

The board of directors of Celtrix has carefully considered the terms of the
reorganization agreement and the reorganizations of Celtrix and Insmed
Pharmaceuticals into wholly-owned subsidiaries of Insmed Incorporated and
believes that the reorganizations are advisable, fair to, and in the best
interests of, Celtrix and its stockholders. The board of directors of Celtrix
has unanimously approved the reorganization agreement and unanimously
recommends that stockholders vote "FOR" adoption of the reorganization
proposal. Your board of directors also unanimously recommends that you vote to
approve the other proposals before you.

The board of directors has fixed the close of business on March 27, 2000, as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the annual meeting or any adjournment or postponement of the
annual meeting. Only stockholders of record at the close of business on the
record date are entitled to notice of and to vote at the annual meeting. A
complete list of stockholders entitled to vote at the meeting will be available
for examination at the annual meeting and at Celtrix's offices at 2033 Gateway
Place, Suite 600, San Jose, CA 95110, during ordinary business hours, after
, 2000, for the examination by any Celtrix stockholder for any purpose
related to the annual meeting.

By Order of the Board of Directors,
[SIGNATURE OF ANDREAS SOMMER]
Andreas Sommer, Ph.D.
President and Chief Executive Officer

, 2000

YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IMMEDIATELY.

You are cordially invited to attend the annual meeting in person. Even if
you plan to be present, we urge you to mark, date, sign and return the enclosed
proxy at your earliest convenience in the envelope provided, which requires no
postage if mailed in the United States. If you attend the annual meeting, you
may vote either in person or by your proxy. You may revoke your proxy at any
time before the vote is taken by delivering to the Secretary a written
revocation or a proxy with a later date or by voting your shares in person at
the annual meeting.

Please do not send stock certificates with your proxy card.
<PAGE>

Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, VA 23219

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

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

The special meeting of shareholders of Insmed Pharmaceuticals, Inc. will be
held at 1:00 p.m., Eastern Standard Time, on , 2000 at 800 East Leigh
Street, Richmond, Virginia. The meeting is called for the following purposes:

(1) To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Reorganization, including the related plan
of exchange, dated as of February 9, 2000, by and among Insmed
Pharmaceuticals, Celtrix Pharmaceuticals, Inc., Insmed Incorporated, a
newly formed corporation and Celtrix MergerSub, Inc., a wholly-owned
subsidiary of Insmed Incorporated; and

(2) To transact such other business as may properly come before the
special meeting, or any adjournments or postponements of the special
meeting.

The board of directors of Insmed Pharmaceuticals has carefully considered
the terms of the reorganization agreement, including the related plan of
exchange and the reorganizations of Celtrix and Insmed Pharmaceuticals into
wholly-owned subsidiaries of Insmed Incorporated and believes that the
reorganizations are advisable, fair to, and in the best interests of, Insmed
Pharmaceuticals and its shareholders. Other than one director who abstained
solely because of a potential conflict of interest as described on page , the
board of directors of Insmed Pharmaceuticals has unanimously approved the
reorganization agreement, including the related plan of exchange, and
unanimously recommends that shareholders vote "FOR" approval of the
reorganization proposal, including the related plan of exchange.

The board of directors has fixed the close of business on March 27, 2000, as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the special meeting or any adjournment or postponement of the
special meeting. Only shareholders of record at the close of business on the
record date are entitled to notice of and to vote at the special meeting. A
complete list of shareholders entitled to vote at the meeting will be available
for examination at the special meeting and at Insmed Pharmaceuticals' offices
at 800 East Leigh Street, Richmond, Virginia 23219, during ordinary business
hours, after , 2000, for the examination by any Insmed Pharmaceuticals
shareholder for any purpose related to the special meeting.

By Order of the Board of Directors,
Geoffrey Allan, Ph.D.
Chairman of the Board,
President and Chief Executive Officer

, 2000

YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IMMEDIATELY.

You are cordially invited to attend the special meeting in person. Even if
you plan to be present, we urge you to mark, date, sign and return the enclosed
proxy at your earliest convenience in the envelope provided, which requires no
postage if mailed in the United States. If you attend the special meeting, you
may vote either in person or by your proxy. You may revoke your proxy at any
time before the vote is taken by delivering to the Secretary a written
revocation or a proxy with a later date or by voting your shares in person at
the special meeting.

Please do not send stock certificates with your proxy card.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION PROCESS..................... 1
RECENT DEVELOPMENTS........................................................ 3
SUMMARY.................................................................... 5
The Companies............................................................ 5
The Reorganizations...................................................... 6
The Meetings............................................................. 7
Annual Meeting of Celtrix Stockholders................................... 7
Special Meeting of Insmed Pharmaceuticals Shareholders................... 7
Votes Required........................................................... 7
Recommendation to Stockholders........................................... 8
Interests of Common Stockholder and Director of Insmed Pharmaceuticals
and Insmed Incorporated................................................. 8
Interests of Officers and Directors in the Reorganizations............... 8
Opinion of Celtrix's Financial Advisor................................... 9
Conditions to the Reorganizations........................................ 9
Termination of the Reorganization Agreement.............................. 10
Termination Fee.......................................................... 11
Certain Federal Income Tax Consequences.................................. 11
Accounting Treatment and Considerations.................................. 11
Comparison of Stockholders' Rights....................................... 12
Celtrix Market Price Information......................................... 12
Insmed Pharmaceuticals Market Price Information.......................... 12
Listing of Insmed Incorporated Common Stock.............................. 12
Where You Can Find More Information...................................... 12
Comparative Per Share Data............................................... 13
Celtrix Pharmaceuticals, Inc.--Selected Historical Financial Data........ 14
Insmed Pharmaceuticals, Inc--Selected Historical Financial Data.......... 15
Insmed Incorporated--Unaudited Selected Pro Forma Condensed Consolidated
Financial Information................................................... 16
RISK FACTORS............................................................... 18
Since the value of the consideration to be received in the
reorganizations may fluctuate, we cannot assure Celtrix stockholders and
Insmed Pharmaceutical shareholders of the value of the Insmed
Incorporated common stock they will receive in the reorganization....... 18
The costs of the reorganizations and the costs of integrating the Celtrix
and Insmed Pharmaceuticals businesses are substantial................... 18
Our failure to successfully integrate the companies and transfer
Celtrix's operations to Richmond, Virginia may adversely impact ou
business, financial condition and results of operations................. 18
Failure to complete the reorganizations could negatively impact Celtrix's
stock price and future business and operations.......................... 19
Failure to complete the reorganizations could negatively impact Insmed
Pharmaceuticals' business, financial condition and results of
operations.............................................................. 19
Risks Related to Insmed Incorporated..................................... 20
Because our products are in an early stage of development, none has
received regulatory approval or been released for commercial sale and
therefore we can give you no assurances that we will succeed in
commercializing our products............................................ 20
Since we have a limited operating history, a history of operating losses
and expect to generate operating losses for the foreseeable future, we
may not achieve profitability for some time, if at all.................. 20
If our proposed financing does not close, our existing cash reserves will
only be sufficient to fund our activities until September 2000. If our
proposed financing does close, however, it will result in significant
dilution of your ownership of our shares................................ 20
</TABLE>

i
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<TABLE>
<S> <C>
We will need additional funds in the future to continue our operations,
but we face uncertainties with respect to our access to capital which
could adversely impact our business, financial condition and results of
operations.............................................................. 21
If our products fail in clinical trials or we cannot enroll enough
patients to complete our clinical trials there may be an adverse effect
on our business, financial condition and results of operations.......... 21
Our failure to obtain regulatory approvals for our products under
development may adversely affect our business, financial condition and
results of operations................................................... 22
Our business, financial condition and results of operations may be
materially adversely affected if our products do not receive market
acceptance for any reason............................................... 23
Uncertainty regarding third party reimbursement and healthcare cost
containment initiatives may negatively affect our business, financial
condition and results of operations..................................... 23
We currently have no manufacturing or marketing capability which may make
the commercialization of our products difficult......................... 23
Materials necessary to manufacture SomatoKine(TM) may not be available
which may adversely affect our business, financial condition and results
of operations........................................................... 24
We need corporate partners for success................................... 24
Our growth strategy includes the acquisition of complementary businesses
that may not be available to acquire or, if acquired, might not improve
our business, financial condition or results of operations.............. 24
We intend to conduct proprietary research programs, and any conflicts
with our collaborators could harm our business, financial condition and
results of operations................................................... 25
If we fail to make payments required under the license agreement with the
University of Virginia Patent Foundation, then the license agreement and
our rights to the patents licensed to us may be terminated which would
have an adverse effect on our business, financial condition and results
of operations........................................................... 25
We face uncertainties related to patents and proprietary technology which
may adversely affect our business, financial condition and results of
operations.............................................................. 25
Third parties may claim that our products infringe on their proprietary
rights which may adversely affect our business, financial condition and
results of operations................................................... 26
The inability to compete successfully will harm our business, financial
condition and results of operations..................................... 26
Rapid technological change could make our products obsolete which could
have a material adverse effect on our business, financial condition and
results of operations................................................... 27
We are dependent upon key personnel and others the loss of which could
have a material adverse effect on our business, financial condition and
results of operations................................................... 27
Our products involve the use of hazardous materials which could expose us
to damages which could have a material adverse effect on our business,
financial condition and results of operations........................... 27
We are subject to product liability claims that may not be covered by our
insurance which could have a material adverse effect on our business,
financial condition and results of operations........................... 28
Our business may be negatively impacted by computer failures in the Year
2000.................................................................... 28
We expect that our stock price will be volatile.......................... 29
Celtrix and Insmed Pharmaceuticals have never paid dividends on their
capital stock and we do not anticipate paying any cash dividends in the
foreseeable future...................................................... 29
Certain provisions of Virginia law, our Articles of Incorporation and
Amended and Restated Bylaws make a takeover by a third party difficult.. 29
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS................................. 30
THE MEETINGS............................................................... 32
Times, Dates and Places.................................................. 32
Purpose of the Meetings.................................................. 32
Record Date; Voting Rights; Votes Required for Approval.................. 32
Proxies.................................................................. 35
</TABLE>

ii
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<TABLE>
<S> <C>
Revocation of Proxies.................................................... 36
Solicitation of Proxies.................................................. 36
Availability of Accountants.............................................. 36
THE REORGANIZATIONS........................................................ 37
Results of the Reorganizations........................................... 37
Celtrix and Insmed Pharmaceuticals Stockholder Agreements................ 38
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will
Receive................................................................. 38
Cash Payments for Fractional Shares of Insmed Incorporated Common Stock.. 39
Background and Negotiation of the Reorganizations........................ 39
Celtrix's Reasons for the Reorganizations................................ 45
Insmed Pharmaceuticals' Reasons for the Reorganizations.................. 47
Recommendations of the Boards of Directors............................... 48
Opinion of Celtrix's Financial Advisors.................................. 49
Interests of Common Stockholders and Director of Insmed Pharmaceuticals
and Insmed Incorporated................................................. 55
Interests of Certain Persons in the Reorganizations...................... 55
Material Federal Income Tax Consequences................................. 57
Accounting Treatment..................................................... 58
Procedures for Exchange of Stock Certificates............................ 58
Appraisal Rights......................................................... 59
Federal Securities Law Consequences; Resale Restrictions................. 64
CERTAIN TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT............... 65
The Reorganizations...................................................... 65
Certain Representations and Warranties................................... 66
Certain Covenants........................................................ 67
Conditions to the Reorganizations........................................ 70
Termination of the Reorganization Agreement.............................. 72
Effect of Termination.................................................... 73
Termination Fees; Expenses............................................... 73
Amendments; No Waiver.................................................... 74
DESCRIPTION OF INSMED INCORPORATED CAPITAL STOCK........................... 75
General.................................................................. 75
Common Stock............................................................. 75
Preferred Stock.......................................................... 75
Change of Control Provisions............................................. 76
Transfer Agent and Registrar............................................. 77
COMPARISON OF STOCKHOLDERS' RIGHTS......................................... 78
Authorized Capital....................................................... 78
Special Meetings of Stockholders......................................... 78
Stockholder Meetings..................................................... 79
Advance Notice of Nominations of Directors............................... 79
Merger, Share Exchanges and Sales of Assets.............................. 80
Anti-takeover Statutes................................................... 80
Amendments to Charter.................................................... 81
Amendments to Bylaws..................................................... 82
Appraisal Rights......................................................... 82
Transfer Restrictions.................................................... 83
Stockholder Action by Written Consent.................................... 83
Board of Directors....................................................... 84
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<TABLE>
<S> <C>
Limitation of Director Liability......................................... 84
Indemnification of Directors, Officers and Employees..................... 85
MANAGEMENT AND OPERATION OF INSMED INCORPORATED AFTER THE REORGANIZATIONS.. 87
Insmed Incorporated Board of Directors................................... 87
Board Observer........................................................... 89
Committees............................................................... 89
Management............................................................... 90
Headquarters............................................................. 90
INSMED INCORPORATED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.. 91
MARKET PRICES AND DIVIDEND INFORMATION..................................... 100
ELECTION OF DIRECTORS OF CELTRIX........................................... 102
Nominees................................................................. 102
Celtrix Board of Directors Meetings and Committees....................... 103
Compensation of Celtrix Directors........................................ 103
Celtrix Compensation Committee Report On Executive Compensation.......... 104
Compensation Committee Interlocks And Insider Participation.............. 105
Section 16(a) Beneficial Ownership Reporting Compliance.................. 105
Celtrix Performance Graph................................................ 106
Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting.... 106
DESCRIPTION OF INSMED INCORPORATED......................................... 107
Business Overview........................................................ 107
The Stock Incentive Plan................................................. 107
Summary of the Stock Incentive Plan...................................... 107
The Stock Purchase Plan.................................................. 111
Financing Activity....................................................... 111
Business Overview........................................................ 112
Background: Medical Need................................................. 113
SomatoKine............................................................... 113
Products Under Research And Development.................................. 115
Clinical Development..................................................... 115
Corporate Collaborations................................................. 118
Research And Development................................................. 119
Manufacturing............................................................ 119
Intellectual Property.................................................... 119
Government Regulation.................................................... 120
Insurance; Product Liability............................................. 122
Competition.............................................................. 123
Employees and Properties................................................. 123
Legal Proceedings........................................................ 123
Selected Historical Financial Data....................................... 124
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 125
Quantitative and Qualitative Disclosures About Market Risk............... 131
Directors and Officers................................................... 131
Executive Officer Compensation........................................... 132
Stock Option Plans....................................................... 133
Certain Transactions..................................................... 133
Security Ownership Of Certain Beneficial Owners And Management........... 134
</TABLE>

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<TABLE>
<S> <C>
DESCRIPTION OF INSMED PHARMACEUTICALS...................................... 137
Business Overview........................................................ 137
Medical Background....................................................... 137
Scientific Background.................................................... 138
Current Treatment and Market Opportunities............................... 139
Clinical Development and Regulatory Program for INS-1.................... 139
Competition.............................................................. 141
Patents.................................................................. 143
Government Regulation.................................................... 143
Legal Proceedings........................................................ 145
Properties and Employees................................................. 145
Selected Historical Financial Data....................................... 146
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 146
Impact of Year 2000...................................................... 147
Quantitative and Qualitative Disclosures About Market Risk............... 148
Directors and Officers................................................... 148
Executive Officer Compensation........................................... 149
Stock Option Plans....................................................... 150
Certain Transactions..................................................... 151
Security Ownership of Certain Beneficial Owners and Management........... 151
LEGAL MATTERS.............................................................. 154
EXPERTS.................................................................... 154
WHERE YOU CAN FIND MORE INFORMATION........................................ 154
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................. F-1
ANNEX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AMONG
INSMED PHARMACEUTICALS, INC., CELTRIX PHARMACEUTICALS, INC.,
CELTRIX MERGERSUB, INC. AND INSMED INCORPORATED................... A-1
ANNEX B --FAIRNESS OPINION OF CELTRIX'S INVESTMENT BANKER.................. B-1
ANNEX C --SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.............. C-1
ANNEX D --ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT................. D-1
ANNEX E --INSMED PHARMACEUTICALS STOCKHOLDER AGREEMENT..................... E-1
ANNEX G --CELTRIX STOCKHOLDER AGREEMENT.................................... G-1
ANNEX H --ARTICLES OF INCORPORATION OF INSMED INCORPORATED, AS AMENDED..... H-1
ANNEX I --AMENDED AND RESTATED BYLAWS OF INSMED INCORPORATED............... I-1
</TABLE>

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QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION PROCESS
Q: What will happen to Celtrix and Insmed Pharmaceuticals because of the
reorganizations?

A: If we complete the reorganizations, Celtrix and Insmed Pharmaceuticals
will become wholly-owned subsidiaries of Insmed Incorporated.

Q: Who is Insmed Incorporated?

A: Insmed Incorporated is a holding company for Celtrix and Insmed
Pharmaceuticals. After the reorganizations Insmed Incorporated will own
100% of Celtrix and Insmed Pharmaceuticals. The board of directors and
officers of Insmed Incorporated will then manage the businesses of Insmed
Pharmaceuticals and Celtrix.

Q: What will happen to my Celtrix or Insmed Pharmaceuticals stock if the
reorganizations are completed?

A: Shareholders of Celtrix and Insmed Pharmaceuticals will become
shareholders of Insmed Incorporated and will no longer own shares of
Celtrix or Insmed Pharmaceuticals. The Insmed Incorporated common stock
will trade on The Nasdaq SmallCap Market under the symbol "INSM."

Q: Who must approve the reorganizations?

A: In addition to the approvals by the Celtrix, Insmed Pharmaceuticals and
Insmed Incorporated boards of directors, which have already been obtained,
the stockholders of Celtrix and Insmed Pharmaceuticals must approve and
adopt the reorganization proposal.

Q: As a Celtrix or Insmed Pharmaceuticals shareholder, what do I need to do
now?

A: After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please complete and sign the Celtrix or
Insmed Pharmaceuticals proxy card, as the case may be, and return it in
the enclosed return envelope as soon as possible so that we can include
your vote at the annual meeting of Celtrix stockholders or the special
meeting of Insmed Pharmaceuticals shareholders, as the case may be. If you
sign, date and mail your proxy card without identifying how you want to
vote, we will count your proxy "FOR" approval and adoption of the
reorganization proposal. Failing to return a signed proxy card or
otherwise vote at the meeting will have the same effect as a vote against
the reorganization proposal.

Q: As an Insmed Pharmaceuticals or Celtrix stockholder, can I change my vote
after I have mailed my proxy?

A: Yes. You can change your vote at any time before you vote your proxy at
the annual meeting of Celtrix stockholders or the special meeting of
Insmed Pharmaceuticals shareholders, as the case may be. You can do this
in one of three ways:

1) send a written notice stating that you would like to revoke your proxy;

2) complete and submit a new proxy; or

3) attend the annual meeting of Celtrix stockholders or the special
meeting of Insmed Pharmaceuticals shareholders, as the case may be, and
vote in person.

If you choose option 1) or 2) you must submit the notice of revocation or
the new proxy to Celtrix or Insmed Pharmaceuticals, as the case may be, at
the address on page .

Q: If my shares are held in "street name" by my stock broker, will the broker
vote these shares on the reorganization proposal on my behalf?

A: A broker will vote shares on the reorganization proposal only if you
provide the broker with instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker
to vote the shares.

Q: Should I send in my stock certificates now?

A: No, you should not send in your stock certificates with your proxy. After
we complete the reorganizations, Insmed

1
<PAGE>

Incorporated will send written instructions to you for exchanging your stock
certificates.

Q. Are Celtrix or Insmed Pharmaceuticals shareholders entitled to appraisal
rights?

A: Yes. Under Delaware law, which governs the rights of stockholders of
Celtrix, Celtrix stockholders have appraisal rights for their shares if
they dissent from the merger. In addition, under Virginia law, which
governs the rights of shareholders of Insmed Pharmaceuticals, Insmed
Pharmaceuticals shareholders have appraisal rights for their shares if they
dissent from the share exchange. In order to exercise your appraisal
rights, you must generally:

. send the company a written statement of your desire to exercise appraisal
rights; and

. vote against the reorganization proposal.

Please read the more detailed description of your appraisal or dissenters'
rights on pages to and the pertinent provisions of Delaware and
Virginia law attached as Annex C and Annex D, respectively.

Q: When do Celtrix, Insmed Pharmaceuticals and Insmed Incorporated expect the
reorganizations to be complete?

A: Celtrix's stockholders meeting and Insmed Pharmaceuticals' shareholders
meeting are on , 2000 and we expect to complete the reorganizations a
few business days later.

Q: Who can help answer my questions?

A: If you have any questions about the reorganizations or if you need
additional copies of this joint proxy statement/prospectus or the enclosed
proxy, you should contact:

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Attn.: Donald D. Huffman
Telephone: (408) 988-2500

Insmed Pharmaceuticals, Inc.
800 E. Leigh St.
Richmond, VA 23219
Attn.: Michael D. Baer
Telephone: (804) 828-6893

2
<PAGE>

RECENT DEVELOPMENTS

Financing

On January 13, 2000 Insmed Incorporated and Insmed Pharmaceuticals entered
into a purchase agreement with a group of investors led by Cooper Hill
Partners, LLC. Other members of the group included funds managed by Orbi Med
Advisors, Quantum Partners and Vector Fund Management. The agreement provides
that, subject to certain conditions described below, the investors will
purchase 5,632,678 shares of Insmed Pharmaceuticals common stock and 6,901,344
warrants of Insmed Incorporated, with each warrant exercisable into one share
of Insmed Incorporated common stock at a price of $2.25, for aggregate
consideration of $34.5 million.

The purchase agreement provides that the financing will close on the same
date as, but immediately prior to, the closing of the reorganizations. Pursuant
to the reorganization agreement, each share of Insmed Pharmaceuticals common
stock purchased by the investors exchanges for 3.5 shares of Insmed
Incorporated common stock. Assuming we complete the financing and that the
investors exercise their warrants immediately following the reorganizations,
the investors, former holders of common and preferred stock of Insmed
Pharmaceuticals, excluding the new investors, and former holders of common and
preferred stock of Celtrix will collectively hold the following percentages of
Insmed Incorporated common stock on a fully diluted basis:

<TABLE>
<CAPTION>
Percentage
Percentage Ownership of Insmed
Ownership of Insmed Incorporated Following
Incorporated Following the Reorganizations
the Reorganizations Assuming Completion
Shareholders Without the Financing(1) of the Financing(1)
- ------------ ------------------------ ----------------------
<S> <C> <C>
New Investors................. -- 22.1%
Former Insmed Pharmaceuticals
Shareholders(2).............. 57.3% 44.6%
Former Celtrix Stockholders... 42.7% 33.3%
</TABLE>
- --------

(1) Calculated as of March 27, 2000, the record date.

(2) Excludes the purchase of Insmed Pharmaceuticals common stock by Taisho
Pharmaceuticals described on page under "License Agreement."

The obligation of the investors to complete the financing is subject to the
satisfaction of a number of conditions by Insmed Pharmaceuticals and Insmed
Incorporated, including:

. the receipt of certificates by the investors from Insmed Pharmaceuticals
and Insmed Incorporated certifying the truth of representations and
warranties made by Insmed Pharmaceuticals and Insmed Incorporated in the
purchase agreement governing the financing;

. the receipt of certificates by the investors from Insmed Pharmaceuticals
and Insmed Incorporated certifying that each company satisfies, or the
investors waive, the conditions to closing the reorganizations stated in
the reorganization agreement; provided that any waiver cannot have a
material effect on the assets, business or operations of Insmed
Incorporated, Insmed Pharmaceuticals or Celtrix, taken as a whole;

. the execution of a registration rights agreement among the investors,
Insmed Pharmaceuticals and Insmed Incorporated;

. the sale of the securities to the investors is exempt from the
registration requirements of the Securities Act of 1933 and state
securities laws; and

. the receipt by the investors of an opinion of Hunton & Williams, counsel
to Insmed Pharmaceuticals and Insmed Incorporated.

3
<PAGE>

License Agreement

On March 14, 2000, Insmed Pharmaceuticals signed a letter of intent with
Taisho Pharmaceuticals Co., Ltd., the leading Japanese over-the-counter
pharmaceutical company, regarding development and commercialization rights for
Insmed Pharmaceuticals lead compound, INS-1, for the treatment of polycystic
ovary syndrome and type 2 diabetes in Japan and other Asian countries. Insmed
Pharmaceuticals retains all the rights to INS-1 in the rest of the world. The
letter of intent specifies that Taisho will make up-front, development,
milestone and royalty payments pursuant to a definitive license agreement which
the parties will negotiate. In addition, on March 28, 2000, Taisho purchased
106,758 shares of Insmed Pharmaceuticals common stock at a price of $28.10 per
share. Assuming we complete the reorganizations, Taisho will receive 373,653
shares of Insmed Incorporated common stock at an effective price per share of
$8.03.

4
<PAGE>

SUMMARY

This summary highlights material information from this joint proxy
statement/prospectus. It does not contain all of the detailed information that
is important to you. To understand the reorganizations and related transactions
more fully, and for a more detailed description of the legal terms of the
reorganizations, you should carefully read this entire document. Each item in
this summary refers to the pages where that subject is discussed more fully.

The Companies (See page )

Insmed Incorporated
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893

Insmed Incorporated is a newly-formed corporation. The only actions taken by
Insmed Incorporated to date are the execution of the reorganization agreement,
the formation of its wholly-owned subsidiary, Celtrix MergerSub, Inc.,
participation in the preparation of this joint proxy statement/prospectus,
certain other matters contemplated by the reorganization agreement and
negotiation and execution of a purchase agreement providing for the sale of
Insmed Pharmaceuticals common stock and warrants to purchase shares of Insmed
Incorporated common stock, as described in "Recent Developments" above. As a
result of the reorganizations, MergerSub will merge with and into Celtrix and
non-dissenting Insmed Pharmaceuticals shareholders will exchange their shares
of Insmed Pharmaceuticals capital stock for shares of Insmed Incorporated
capital stock, such that Celtrix and Insmed Pharmaceuticals will become wholly-
owned subsidiaries of Insmed Incorporated.

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
(408) 988-2500

Celtrix is a biopharmaceutical company developing novel drug candidates to
treat seriously debilitating, degenerative conditions primarily associated with
aging, chronic diseases and severe trauma. Celtrix focuses on restoring lost
tissues and bodily processes essential for the patient's health and quality of
life. Celtrix's product development programs have targeted:

. severe osteoporosis, including hip fracture surgery in the elderly;

. diabetes; and

. acute traumatic injury as in severe burns.

Other potential development programs may target protein wasting diseases
(involving deterioration or degeneration of body tissue) associated with
cancer, AIDS, advanced kidney failure and comparable life-threatening
conditions.

Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893

Insmed Pharmaceuticals is a development stage pharmaceutical company that is
developing drugs to treat metabolic and endocrine diseases associated with
insulin resistance. Insmed Pharmaceuticals' first drug candidate, INS-1, is
currently targeted towards the treatment of type 2 diabetes and polycystic
ovary syndrome or "PCOS." Insmed Pharmaceuticals is currently conducting multi-
center phase II clinical trials for both indications. Insmed Pharmaceuticals'
objective is to establish a leading position in the treatment of metabolic and
endocrine diseases. Insmed Pharmaceuticals intends to achieve this objective
by:

. gaining U.S. regulatory approvals for the use of INS-1 in the treatment
of PCOS;

. retaining U.S. marketing and distribution rights to INS-1 for PCOS;

. entering into a strategic alliance to ensure the development and
commercialization of INS-1 for PCOS outside the U.S. and type 2 diabetic
population worldwide;

. acquiring and in-licensing additional products and technologies.

5
<PAGE>

The Reorganizations (See page )

The reorganization agreement, as amended and restated as of February 9,
2000, is attached as Annex A to this joint proxy statement/ prospectus and is
incorporated by reference into this joint proxy statement/prospectus.
Throughout this document, we refer to the amended and restated reorganization
agreement as the reorganization agreement. Celtrix and Insmed Pharmaceuticals
encourage their stockholders to read the reorganization agreement because it is
the legal document that governs the reorganizations.

Insmed Incorporated will issue approximately shares to the
Celtrix stockholders upon completion of the reorganizations. As of November 30,
1999, the original date of signing the reorganization agreement, this equals an
aggregate consideration of approximately $72 million. Upon completion of the
reorganizations, each of Celtrix and Insmed Pharmaceuticals will become wholly-
owned subsidiaries of Insmed Incorporated.

The Merger

. a wholly-owned subsidiary of Insmed Incorporated will merge with and into
Celtrix. Celtrix is the surviving corporation and becomes a wholly-owned
subsidiary of Insmed Incorporated.

. each issued and outstanding share of Celtrix common stock converts into
the right to receive one (1) share of Insmed Incorporated common stock.

. each issued and outstanding share of Celtrix preferred stock converts
into the right to receive approximately shares of Insmed Incorporated
common stock.

. each outstanding option, warrant or right to purchase shares of Celtrix
common stock converts into a new option, warrant or other right, as
appropriate, to purchase the same number of shares of Insmed Incorporated
common stock at the same exercise price and on other terms substantially
similar to the old option.

. we will pay cash instead of issuing fractional shares or options,
warrants or other rights to purchase fractional shares.

The Share Exchange

. each issued and outstanding share of Insmed Pharmaceuticals common stock
exchanges for 3.5 shares of Insmed Incorporated common stock.

. each issued and outstanding share of Insmed Pharmaceuticals preferred
stock exchanges for 3.5 shares of Insmed Incorporated common stock.

. Insmed Pharmaceuticals becomes a wholly-owned subsidiary of Insmed
Incorporated.

. Each outstanding option, warrant and other right to purchase shares of
Insmed Pharmaceuticals common stock converts into a new option, warrant
or other right, as appropriate, of Insmed Incorporated to purchase a
number of shares of Insmed Incorporated common stock equal to the number
of shares of Insmed Pharmaceuticals common stock that were subject to the
option, warrant or other right, multiplied by 3.5 at an exercise price
per share divided by 3.5 and rounded up to the nearest tenth of a cent,
and on other terms substantially similar to the old option.

. we will pay cash instead of issuing fractional shares or options,
warrants or other rights to purchase fractional shares.

Throughout this document, we refer to the merger of Celtrix MergerSub into
Celtrix as the merger and we refer to the exchange by non-dissenting Insmed
Pharmaceuticals shareholders of Insmed Pharmaceuticals capital stock for Insmed
Incorporated capital stock as the share exchange, and collectively, we refer to
the share exchange and the merger as the reorganizations.

Stockholder Voting Agreements

Certain directors, officers and affiliates of Celtrix, who collectively own
as of the record date

6
<PAGE>

for the Celtrix annual stockholders' meeting approximately 41.8% of Celtrix's
outstanding common stock, and certain directors, officers and affiliates of
Insmed Pharmaceuticals, who collectively own as of the record date for the
Insmed Pharmaceuticals special shareholders' meeting approximately 19.9%, 65.3%
and 59.6% of Insmed Pharmaceuticals' outstanding common stock, outstanding
Series A Preferred Stock and outstanding Series B Preferred Stock,
respectively, have signed stockholders agreements to vote their shares of
Celtrix and Insmed Pharmaceuticals capital stock, as the case may be, in favor
of the reorganization proposal. In addition, a holder of 4.6% of the
outstanding Celtrix common stock on the record date for the Celtrix annual
stockholders' meeting has agreed to vote its shares in the same manner as are
voted by a majority of the remaining shares of Celtrix common stock. See
"Celtrix and Insmed Pharmaceuticals Stockholder Agreements" on page for a more
detailed description of the stockholder agreements.

The Meetings

Annual Meeting of Celtrix Stockholders (See page )

At the annual meeting of Celtrix stockholders, Celtrix stockholders will
vote upon the following:

. approval and adoption of the reorganization agreement;

. election of five directors of the board of directors;

. ratification of the appointment of Ernst & Young LLP as Celtrix's
independent public accountants for the fiscal year ending March 31, 2000;
and

. transaction of such other business as may properly come before the
meeting.

Special Meeting of Insmed Pharmaceuticals Shareholders (See page )

At the special meeting of Insmed Pharmaceuticals shareholders, Insmed
Pharmaceuticals shareholders will vote upon the following:

. approval of the reorganization agreement, including the related plan of
exchange; and

. transaction of such other business as may properly come before the
meeting.

Votes Required (See page )

Celtrix. The annual meeting proposals require the following affirmative
votes for approval:

Reorganization Proposal

. majority of the outstanding shares of Celtrix common stock.

Election of Directors

. the five nominees receiving the greatest number of votes will become the
new directors of Celtrix.

Ratification of Accountants

. majority of the shares of Celtrix common stock present in person or by
proxy and entitled to vote.

Transaction of Most Other Business

. majority of the shares of Celtrix common stock present in person or by
proxy and entitled to vote.

Insmed Pharmaceuticals. The special meeting proposals require the following
affirmative votes for approval:

Reorganization Proposal

. more than two-thirds of the outstanding shares of the Insmed
Pharmaceuticals common stock, voting as a single voting group;

. more than two-thirds of the outstanding shares of the Insmed
Pharmaceuticals Series A Preferred Stock, voting as a single voting
group;

. more than two-thirds of the outstanding shares of the Insmed
Pharmaceuticals Series B Preferred Stock, voting as a single voting
group; and

. more than two-thirds of the outstanding shares of Insmed Pharmaceuticals
capital stock, voting as a single voting group.

Transaction of Most Other Business

. majority of common stock, Insmed Pharmaceuticals Series A Preferred Stock

7
<PAGE>

and Series B Preferred Stock, voting as a single voting group, present in
person or by proxy at the meeting and entitled to vote.

Recommendation to Stockholders (See page )

Celtrix. The board of directors of Celtrix believes that the reorganizations
are advisable, fair to and in the best interests of Celtrix and its
stockholders and unanimously recommends that Celtrix stockholders vote "FOR"
the adoption of the reorganization agreement.

In reaching its recommendation in favor of the reorganization agreement and
the related transactions, the Celtrix board of directors considered the
opportunities for Celtrix as a separate company and as combined with Insmed
Pharmaceuticals and Insmed Incorporated, or as combined with other possible
companies, as well as other factors. See "Celtrix's Reasons for the
Reorganizations" on page .

Insmed Pharmaceuticals. The board of directors of Insmed Pharmaceuticals
believes that the reorganizations are advisable, fair to and in the best
interests of Insmed Pharmaceuticals and its shareholders and, other than one
director who abstained solely because of a potential conflict of interest as
described on page , unanimously recommends that Insmed Pharmaceuticals
shareholders vote "FOR" approval of the reorganization agreement, including the
related plan of exchange.

In reaching its recommendation in favor of the reorganization agreement and
the related transactions, the Insmed Pharmaceuticals board of directors
considered the opportunities for Insmed Pharmaceuticals as a separate company
and as combined with Celtrix and Insmed Incorporated, as well as other factors.
See "Insmed Pharmaceuticals' Reasons for the Reorganizations" on page .

Interests of Common Stockholder and Director of Insmed Pharmaceuticals and
Insmed Incorporated (See page )

Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed
Incorporated boards of directors, is a General Partner of BioAsia Investments,
LLC. BioAsia is the general partner of Biotechnology Development Fund, L.P. and
Biotechnology Development Fund III, L.P. As of February 9, 2000, the
Biotechnology Fund(s) owned:

. 917,500 shares of Insmed Pharmaceuticals Series B Preferred Stock;

. 4,530,516 shares of Celtrix common stock;

.an option to purchase 75,000 shares of Celtrix common stock at an exercise
price of $2.438 per share which the Biotechnology Fund(s) exercised; and

.a warrant to purchase 615,258 shares of Celtrix common stock at an
exercise of $2.68 per share which the Biotechnology Fund(s) exercised.

Interests of Officers and Directors in the Reorganizations (See page )

Celtrix. The Celtrix board of directors also considered the following
interests of Celtrix officers and directors before approving the reorganization
agreement:

. Celtrix has entered into a consulting agreement with Andreas Sommer,
Ph.D., under which he will receive $6,000 per month for a period of
eighteen months after the reorganizations;

. upon closing of the reorganizations, Celtrix will pay a $50,000
transaction bonus to each of the current officers (and one former
officer) of Celtrix;

. Insmed Incorporated has entered into an arrangement with Malcolm J.
McKay, Ph.D. under which he will receive from Insmed Incorporated 106.5%
of the base salary he currently receives from Celtrix for a period
terminating on December 31, 2000, plus

8
<PAGE>

standard Insmed Incorporated employee benefits;

. indemnification and limitation of liability provisions covering Celtrix
directors and officers will be substantially the same in all material
respects for Insmed Incorporated directors and officers after the
effective time of the reorganizations;

. immediately prior to the effective time of the reorganizations, all
outstanding options to purchase shares of Celtrix common stock, including
those options held by Celtrix officers and directors, shall become fully
vested and exercisable. Officers and directors hold options to purchase
1,130,000 of such shares, 603,199 of which were vested as of December 31,
1999; and

. the directors' and officers' outstanding and unexercised options to
purchase Celtrix common stock convert into new Insmed Incorporated
options according to the reorganization exchange formula.

Insmed Pharmaceuticals. The Insmed Pharmaceuticals board of directors also
considered the following interests of Insmed Pharmaceuticals officers and
directors before approving the reorganization agreement:

. under the terms of the reorganization agreement, Geoffrey Allan, Ph.D.,
will become President and Chief Executive Officer of Insmed Incorporated;

. under the terms of the reorganization agreement, Michael D. Baer will
become Chief Financial Officer of Insmed Incorporated;

. upon completion of the reorganizations, Insmed Pharmaceuticals will pay a
bonus of $120,000 to Geoffrey Allan, Ph.D., its President, Chief
Executive Officer and Chairman of the Board, and $50,000 to Michael D.
Baer, its Chief Financial Officer;

. under the terms of the reorganization agreement, Celtrix and Insmed
Pharmaceuticals agree that Geoffrey Allan, Ph.D., Kenneth G. Condon,
Graham K. Crooke, MB.BS, Steinar J. Engelsen, M.D. and Edgar G. Engleman,
M.D. will be the initial directors of Insmed Incorporated;

. indemnification and limitation of liability provisions covering Insmed
Pharmaceuticals directors and officers will be substantially the same in
all material respects for Insmed Incorporated directors and officers
after the effective time of the reorganizations; and

. the directors' and officers' outstanding and unexercised options to
purchase Insmed Pharmaceuticals common stock will convert into new Insmed
Incorporated options according to the reorganization exchange formula.

Opinion of Celtrix's Financial Advisor (See page )

Celtrix. In deciding to approve the reorganization agreement and the related
transactions, the board of directors of Celtrix received and considered the
opinion of Pacific Growth Equities, Inc. as to the fairness, from a financial
point of view, of the consideration to be received upon completion of the
reorganizations as of November 29, 1999, the date the board of directors of
Celtrix considered and approved the merger. On February 9, 2000, the date the
Celtrix board of directors approved the amended and restated reorganization
agreement, Pacific Growth delivered a revised opinion which states that based
upon its review of the amended and restated reorganization agreement and
considering the matters discussed in its original letter, dated November 29,
1999, it believes that, as of November 29, 1999, the consideration to be
received by the Celtrix stockholders is fair, from a financial point of view.
The opinion contains certain important qualifications and a description of
assumptions made, matters considered, areas of reliance on others and
limitations on the review undertaken by Pacific Growth. A copy of the opinion
is attached as Annex B to this joint proxy statement/prospectus.

Conditions to the Reorganizations (See page )

Celtrix and Insmed Pharmaceuticals. The completion of the reorganizations is
subject to the satisfaction of a number of conditions by Celtrix and

9
<PAGE>

Insmed Pharmaceuticals, including:

. effectiveness of the registration statement Insmed Incorporated files;

. approval of the reorganization agreement by the Celtrix stockholders and
the Insmed Pharmaceuticals shareholders;

. the absence of any restraining order, injunction or other legal restraint
preventing the completion of the reorganization transactions;

. receipt of all required governmental and other consents and approvals;

. approval of the Insmed Incorporated common stock for inclusion on the
Nasdaq National Market or The Nasdaq SmallCap Market, subject to official
notice of issuance; and

. receipt by each of Celtrix and Insmed Pharmaceuticals of written
agreements from certain affiliates imposing restrictions on their
disposition of the Insmed Incorporated common stock that they receive in
the reorganizations.

Celtrix. The obligation of Celtrix to complete the merger is subject to the
satisfaction of a number of conditions, including:

. the receipt of certificates by Celtrix from Insmed Pharmaceuticals
certifying the truth of its representations in the reorganization
agreement and certifying the performance of its covenants in the
reorganization agreement;

. receipt of listing approval from the Nasdaq National Market or The Nasdaq
SmallCap Market for the Insmed Incorporated shares that Celtrix
stockholders receive in the reorganizations;

. receipt of a favorable tax opinion from Venture Law Group regarding the
treatment of the merger as a reorganization and other matters related to
the merger;

. the absence of any events that could have a material adverse effect on
Insmed Pharmaceuticals;

. receipt by Insmed Pharmaceuticals of all necessary consents, approvals,
actions, registrations and filings; and

. the reasonable satisfaction of Celtrix and Celtrix's counsel with the
proceedings and documents that Insmed Pharmaceuticals executes in
connection with the reorganizations.

Insmed Pharmaceuticals. The obligation of Insmed Pharmaceuticals to complete
the share exchange is subject to the satisfaction of a number of conditions,
including:

. the receipt of certificates by Insmed Pharmaceuticals from Celtrix
certifying the truth of its representations and warranties in the
reorganization agreement and certifying the performance of its covenants
in the reorganization agreement;

. receipt of listing approval from the Nasdaq National Market or The Nasdaq
SmallCap Market for the Insmed Incorporated shares that Insmed
Pharmaceuticals shareholders receive in the reorganizations;

. receipt of a favorable tax opinion from Hunton & Williams regarding the
treatment of the exchange as a reorganization and other matters related
to the exchange;

. the absence of any events that could have a material adverse effect on
Celtrix;

. receipt by Celtrix of all necessary consents, approvals, actions,
registrations and filings; and

. the reasonable satisfaction of Insmed Pharmaceuticals' and Insmed
Incorporated's counsel with the proceedings and documents that Celtrix
executes in connection with the reorganizations.

Unless the law prohibits it, either Celtrix or Insmed Pharmaceuticals could
elect to waive a condition that has not been satisfied and complete the
reorganizations. If either party waives any condition relating to tax opinions
or any other material condition, we will amend this joint proxy
statement/prospectus and resolicit shareholder approval of the reorganizations.

10
<PAGE>

Termination of the Reorganization Agreement (See page )

Celtrix and Insmed Pharmaceuticals may mutually agree by written consent to
terminate the reorganization agreement without completing the reorganizations.
Also, the parties may terminate the reorganization agreement in certain other
circumstances, including the following:

By Celtrix or Insmed Pharmaceuticals:

. if a court or government authority has prevented the reorganizations or
the reorganizations are not completed by May 31, 2000.

By Celtrix:

. if the reorganization proposal does not receive the requisite shareholder
votes at the Insmed Pharmaceuticals special meeting;

. upon a material breach of a representation or warranty, covenant or
agreement by Insmed Pharmaceuticals or Insmed Incorporated if either
company does not cure the breach within 10 business days after notice of
the breach;

. if the board of directors of Insmed Pharmaceuticals fails to recommend to
its shareholders approval of the reorganization proposal or they withdraw
such recommendation; or

. if Celtrix enters into a binding written agreement with respect to a
superior proposal.

By Insmed Pharmaceuticals:

. if the reorganization proposal does not receive the requisite stockholder
votes at the Celtrix annual meeting;

. upon a material breach of a representation or warranty, covenant or
agreement by Celtrix and Celtrix does not cure the breach within 10
business days after notice of the breach;

. if the board of directors of Celtrix fails to recommend to its
stockholders approval of the reorganization proposal or they withdraw
such recommendation; or

. if Insmed Pharmaceuticals enters into a binding written agreement with
respect to a superior proposal.

Termination Fee (See page )

If a party terminates the reorganization agreement, under certain
circumstances Celtrix may have to pay Insmed Pharmaceuticals or Insmed
Pharmaceuticals may have to pay Celtrix a termination fee of $2,500,000 plus
certain other fees and expenses not to exceed $250,000.

Certain Federal Income Tax Consequences (See page )

The reorganizations are conditioned on the receipt of opinions from legal
counsel that, among other things:

. the merger and the share exchange each will qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue
Code or as part of an exchange described in Section 351 of the Internal
Revenue Code; and

. no gain or loss is recognized by Celtrix's stockholders in connection
with the merger, or by Insmed Pharmaceuticals' shareholders in connection
with the share exchange, other than with respect to any cash received
instead of fractional shares and except that no opinion is required with
respect to any Insmed Incorporated shares received by the Celtrix Series
A Preferred stockholder with respect to accrued but unpaid dividends on
such preferred stock.

Tax matters are complicated, and the tax consequences of the proposed
transactions to you depend on the facts of your own situation. We encourage you
to consult your own tax advisors for a full understanding of the tax
consequences of the reorganizations to you.

Accounting Treatment and Considerations (See page )

For accounting purposes Insmed Pharmaceuticals is the acquiring company.
Insmed Incorporated is a holding company formed by

11
<PAGE>

Insmed Pharmaceuticals in order to facilitate the exchange of shares in
accordance with the reorganization agreement. The historical basis of Insmed
Pharmaceuticals assets and liabilities will carry over to Insmed Incorporated.
We expect to account for the acquisition of Celtrix by Insmed Incorporated
under the purchase method of accounting in accordance with generally accepted
accounting principles. We will allocate the purchase price among Celtrix's
assets and liabilities based on their estimated fair values.

Comparison of Stockholders' Rights (See page )

Insmed Incorporated and Insmed Pharmaceuticals are each incorporated under
the laws of the Commonwealth of Virginia. Celtrix is incorporated under the
laws of the State of Delaware. Virginia law, the Insmed Pharmaceuticals
Articles of Incorporation and the Insmed Pharmaceuticals Bylaws currently
govern the rights of Insmed Pharmaceuticals shareholders. Upon completion of
the share exchange, Insmed Pharmaceuticals shareholders become shareholders of
Insmed Incorporated and Virginia law, Insmed Incorporated's Articles of
Incorporation and Insmed Incorporated's Amended and Restated Bylaws will govern
their rights as shareholders. Delaware law and the Celtrix Certificate of
Incorporation and Celtrix Bylaws currently govern the rights of Celtrix
stockholders. Upon completion of the merger, Celtrix stockholders become
shareholders of Insmed Incorporated, and Virginia law, the Insmed Incorporated
Articles of Incorporation and Insmed Incorporated Amended and Restated Bylaws
will govern their rights as shareholders. See "Comparison of Stockholders'
Rights" on pages to .

Celtrix Market Price Information (See page )

Celtrix lists its common stock on The Nasdaq SmallCap Market. On November
30, 1999, the last full trading day before the public announcement of the
proposed reorganizations, Celtrix common stock closed at $1.563 per share. On
, 2000, the last day for which such information could be calculated before
the date of this joint proxy statement/prospectus, Celtrix common stock closed
at $ per share.

Celtrix has not historically paid dividends to its stockholders. Insmed
Incorporated does not anticipate paying dividends to its shareholders in the
foreseeable future.

Insmed Pharmaceuticals Market Price Information (See page )

No market currently exists for Insmed Pharmaceuticals common stock.

Listing of Insmed Incorporated Common Stock (See page )

Insmed Incorporated applied to list its stock on The Nasdaq SmallCap Market
under the ticker symbol "INSM."

Where You Can Find More Information (See Page )

If you would like more information about Celtrix, it is in documents filed
by Celtrix with the Securities and Exchange Commission. We provide instructions
on how you can obtain copies of these documents on page . If you would like
more information about Insmed Pharmaceuticals, it is in documents on file at
Insmed Pharmaceuticals' headquarters.

12
<PAGE>

Comparative Per Share Data

The following table states historical per share data for Insmed
Pharmaceuticals and Celtrix as well as consolidated per share data on an
unaudited pro forma basis after giving effect to the acquisition of Celtrix by
Insmed Incorporated and accounting for that transaction under the purchase
method of accounting. The Insmed Incorporated pro forma consolidated data has
been computed using the historical Celtrix and Insmed Pharmaceuticals data. The
table also provides "equivalent pro forma" information for Insmed
Pharmaceuticals showing the expected per share data giving effect to the
exchange ratio provided for in the reorganization agreement and the financing
described under "Recent Developments" on page , but assuming that Insmed
Pharmaceuticals remained as a separate entity and did not become a wholly-owned
subsidiary of Insmed Incorporated. Celtrix "equivalent pro forma" data was not
presented because applying the exchange ratio provided in the reorganization
agreement to the historical data would not have produced a different result. No
cash dividends were paid by Insmed Pharmaceuticals or Celtrix during any of the
periods presented and Insmed Incorporated does not anticipate paying any cash
dividends in the foreseeable future. You should read the table in conjunction
with the selected historical financial information and the unaudited pro forma
condensed consolidated financial information of Insmed Pharmaceuticals and
Celtrix included in this joint proxy statement/prospectus. You should not rely
on the pro forma financial information as an indication of the results that
Insmed Incorporated would have achieved if the acquisition of Celtrix by Insmed
Incorporated had taken place earlier or as an indication of the results of
Insmed Incorporated after the acquisition of Celtrix by Insmed Incorporated.

<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C> <C>
Insmed Pharmaceuticals--Historical
Basic and diluted net loss per share...... $(2.16)
Book value per common share(1)............ $(4.80)
<CAPTION>
Year Ended Nine Months Ended
March 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Celtrix--Historical
Basic and diluted net loss per share...... $(0.58) $(0.39)
Book value per common share(1)............ $ 0.13 $(0.15)
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C> <C>
Pro Forma Consolidated--Insmed Incorporated
Basic and diluted net loss per share...... $(0.19)
Book value per common share(2)............ $ 0.53
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C> <C>
Equivalent Pro Forma Consolidated--
Per Insmed Pharmaceuticals, Inc. Share
Basic and diluted net loss per share(3)... $(0.67)
Book value per common share(3)............ $ 1.86
</TABLE>
- --------
(1) The historical book value per common share is computed by dividing
stockholders' equity attributable to common stock (total stockholders'
equity, less aggregate liquidation preferences of preferred stocks) by the
number of shares of common stock outstanding at the end of the period.
(2) The pro forma consolidated book value per common share is computed by
dividing pro forma stockholders' equity by the pro forma shares of common
stock outstanding at the end of the period.
(3) Represents the pro forma consolidated amounts multiplied by the exchange
ratio applicable to the Insmed Pharmaceuticals stock.

13
<PAGE>

Celtrix Pharmaceuticals, Inc.--Selected Historical Financial Data

In the table below, we provide you with selected historical financial data
of Celtrix Pharmaceuticals, Inc. We have prepared this information using the
consolidated financial statements of Celtrix Pharmaceuticals, Inc. as of and
for the five years ended March 31, 1999 and as of and for the nine-month
periods ended December 31, 1999 and 1998. The financial statements as of and
for the five fiscal years ended March 31, 1999 have been audited by Ernst &
Young LLP, independent auditors. The financial statements as of and for the
nine-month periods ended December 31, 1999 and 1998 have not been audited.

When you read this selected historical financial data, it is important that
you also read the historical financial statements and related notes, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages .

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
-------- ------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Total revenues.......... $ 2,200 $ 1,750 $ 658 $ 661 $ 131 $ 79 $ 12
Operating expenses:
Cost of sales.......... 134 31 5 1 -- -- --
Research and
development........... 18,091 10,990 11,999 13,006 6,830 6,432 629
General and
administrative........ 3,459 2,063 1,814 1,985 2,272 1,725 1,424
Restructuring costs.... 2,108 -- -- -- 5,160 5,178 --
-------- ------- -------- -------- -------- -------- --------
Total operating
expenses............... 23,792 13,084 13,818 14,992 14,262 13,335 2,053
-------- ------- -------- -------- -------- -------- --------
Operating loss.......... (21,592) 11,334) (13,160) (14,331) (14,131) (13,256) (1,341)
Equity loss in joint
venture............... -- -- -- -- -- -- (8,973)
Interest income, net... 843 625 464 681 132 121 74
Gain on sale of
investment............ -- 3,463 -- 737 -- -- --
Proceeds from
settlement agreement.. -- -- -- -- 600 -- --
-------- ------- -------- -------- -------- -------- --------
Net loss................ $(20,749) $(7,246) $(12,696) $(12,913) $(13,399) $(13,135) $(10,240)
======== ======= ======== ======== ======== ======== ========
Basic and diluted net
loss per share:
Net loss............... $ (1.57) $ (0.51) $ (0.83) $ (0.61) $ (0.58) $ (0.59) $ (0.39)
Weighted average
shares................ 13,255 14,161 15,238 21,004 22,941 22,235 26,548
<CAPTION>
March 31, December 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Balance Sheet
Data:
Cash, cash equivalents
and investments........ $ 19,929 $17,643 $ 5,788 $ 7,913 $ 1,258 $ 1,780 $ 1,243
Total assets............ 35,024 30,145 16,956 17,876 4,501 5,312 4,407
Long-term obligations... 828 238 -- -- -- -- --
Convertible/exchangeable
preferred stock........ -- -- -- -- -- -- 7,948
Stockholders' equity
(deficiency)........... 29,436 26,786 14,210 14,744 3,280 3,568 (4,234)
</TABLE>

14
<PAGE>

Insmed Pharmaceuticals, Inc.--Selected Historical Financial Data

In the table below, we provide you with selected historical financial data
of Insmed Pharmaceuticals. We have prepared this information using the
consolidated financial statements of Insmed Pharmaceuticals as of and for the
five years ended December 31, 1999. The financial statements as of and for the
five fiscal years ended December 31, 1999 have been audited by Ernst & Young
LLP, independent auditors.

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Total revenues................... $ 380 $ 146 $ -- $ 100 $ 663
Operating expenses:
Research and development........ 877 1,302 2,604 3,769 6,349
General and administrative...... 666 943 979 1,626 2,445
------- ------- ------- ------- -------
Total operating expenses......... 1,543 2,245 3,583 5,395 8,794
------- ------- ------- ------- -------
Operating loss................... (1,163) (2,099) (3,583) (5,295) (8,131)
Interest income, net............ (43) 11 103 486 338
------- ------- ------- ------- -------
Net loss......................... $(1,206) $(2,088) $(3,480) $(4,809) $(7,793)
======= ======= ======= ======= =======
Basic and diluted net loss per
share:
Net loss........................ $ (0.75) $ (0.87) $ (1.22) $ (1.47) $ (2.16)
Weighted average shares......... 1,607 2,399 2,854 3,278 3,606
<CAPTION>
December 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and
investments..................... $ 60 $ 2,106 $ 2,050 $11,677 $ 4,635
Total assets..................... 173 2,386 2,365 11,938 5,296
Convertible participating
preferred stock................. -- 5,294 -- -- --
Stockholders' equity
(deficiency).................... (1,512) (3,093) 2,151 11,661 4,462
</TABLE>

15
<PAGE>

Insmed Incorporated--Unaudited Selected Pro Forma Condensed Consolidated
Financial Information

The following Pro Forma Condensed Consolidated Financial Statements reflect
the reorganization of Insmed Pharmaceuticals and Celtrix into Insmed
Incorporated in accordance with the reorganization agreement. The unaudited pro
forma condensed consolidated financial information we provide you with below
gives effect to the purchase of Celtrix and integration of Insmed
Pharmaceuticals by and into Insmed Incorporated, assuming that each share of
Insmed Pharmaceuticals' stock outstanding is exchanged for 3.5 shares of Insmed
Incorporated common stock and each share of Celtrix common stock is exchanged
for 1.0 share of Insmed Incorporated common stock and each share of Celtrix
Series A Preferred Stock is exchanged for shares of Insmed Incorporated
common stock. The historical basis of Insmed Pharmaceuticals' assets and
liabilities will carry over to Insmed Incorporated because Insmed
Pharmaceuticals is considered the acquiror for accounting purposes. The assets
and liabilities of Celtrix will be recorded at their estimated fair values. The
unaudited pro forma condensed consolidated statement of operations for the year
ended December 31, 1999, combine the historical statements of operations of
Insmed Pharmaceuticals and Celtrix as if the reorganizations had occurred
January 1, 1999. The Celtrix financial information has been recast to conform
to the December 31 fiscal year end of Insmed Incorporated. The unaudited pro
forma condensed consolidated balance sheet data as of December 31, 1999 gives
effect to the reorganizations and the $34.5 million equity financing described
in "Recent Developments" on page as if each occurred on December 31, 1999,
and gives effect to the preliminary allocation of the purchase price to the
Celtrix assets acquired, including in-process research and development, and
liabilities assumed based upon a valuation performed by an independent third
party which has not yet been finalized. This data should be read in conjunction
with the selected historical financial information, the unaudited pro forma
condensed consolidated financial statements and the separate historical
financial statements of Insmed Pharmaceuticals and Celtrix included elsewhere
in this joint proxy statement/prospectus. The unaudited pro forma condensed
consolidated financial information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position that would have been achieved had the reorganizations been completed
at January 1, 1999, and such information should not be construed as
representative of future operating results or financial position. Information
with regard to the pro forma adjustments are on pages to .

16
<PAGE>

Insmed Incorporated--Unaudited Selected Pro Forma Condensed Consolidated
Financial Information

<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------
Historical
------------------------
Insmed Pro Forma Pro Forma
Pharmaceuticals Celtrix Adjustments Combined
--------------- -------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues................ $ 663 $ 763 $ 1,426
Costs and expenses:
Research and development..... 6,349 1,027 7,376
General and administrative... 2,445 1,953 4,398
------- -------- ----- --------
8,794 2,980 11,774
------- -------- ----- --------
Operating loss................ (8,131) (2,217) (10,348)
Equity in loss of joint
venture...................... -- (8,973) (8,973)
Amortization of goodwill...... -- -- $(798) (798)
Interest income, net.......... 338 85 423
Proceeds from settlement
agreement.................... -- 600 600
------- -------- ----- --------
Net loss...................... $(7,793) $(10,505) $(798) $(19,096)
======= ======== ===== ========
Net loss per share--basic and
diluted...................... $ (2.16) $ (0.40) $ (0.19)
======= ======== ===== ========
Shares used in computing basic
and diluted net loss per
share........................ 3,606 26,176 99,306
======= ======== ===== ========
</TABLE>

<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------------------------------------------
Financing
Historical Pro Forma Insmed as Historical Reorganization
Insmed Adjustments Adjusted Celtrix Adjustments Pro Forma
---------- ----------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and investments........ $4,635 $32,600 $37,235 $ 1,243 $ -- $38,478
Total assets............ 5,296 32,600 37,896 4,407 12,997 55,300
Convertible/exchangeable
preferred stock........ -- 7,948 (7,948) --
Total stockholders'
equity (deficiency).... 4,462 32,600 37,062 (4,234) 19,321 52,149
</TABLE>

17
<PAGE>

RISK FACTORS

An investment in the Insmed Incorporated common stock offered by this joint
proxy statement/prospectus involves a high degree of risk. Before you decide to
invest in the Insmed Incorporated common stock offered by this joint proxy
statement/prospectus, you should carefully consider the following risk factors,
together with the other information contained in this joint proxy
statement/prospectus.

The risks and uncertainties described below are not the only ones facing
Insmed Incorporated. Additional risks and uncertainties not presently known to
Insmed Incorporated or that Insmed Incorporated currently deems immaterial may
also impair Insmed Incorporated's business operations.

If any of the following risks actually occur, they could materially
adversely affect Insmed Incorporated's business, financial condition, or
results of operations. In such case, the trading price of Insmed Incorporated's
common stock could decline and you could lose all or part of your investment.

Risks Related to the Reorganizations

Since the value of the consideration that Celtrix stockholders and Insmed
Pharmaceutical shareholders receive in the reorganizations may fluctuate, we
cannot assure Celtrix stockholders and Insmed Pharmaceuticals shareholders of
the value of the Insmed Incorporated common stock they will receive in the
reorganization.

Celtrix common stock is subject to substantial price volatility and,
therefore, the value of the consideration that Celtrix stockholders and Insmed
Pharmaceuticals shareholders receive is subject to the same volatility. At the
effective time of the reorganizations, each outstanding share of Celtrix common
stock will convert into one share of Insmed Incorporated common stock, and each
outstanding share of Celtrix Series A Preferred Stock will convert into
approximately shares of Insmed Incorporated common stock and each
outstanding share of common stock and preferred stock of Insmed Pharmaceuticals
will convert into 3.5 shares of Insmed Incorporated common stock. These
exchange ratios will not increase or decrease due to fluctuations in the market
price of Celtrix's common stock. Thus, the value of the shares of Insmed
Incorporated common stock that Celtrix stockholders and Insmed Pharmaceuticals
shareholders in the reorganizations receive will depend upon the market price
of Celtrix common stock at the effective time of the reorganizations, which may
be greater or less than the value at the time the Celtrix stockholders vote on
the merger and the Insmed Pharmaceuticals shareholders vote on the share
exchange. Recent market prices of Celtrix common stock are listed under the
caption "Market Prices and Dividend Information" on page . We encourage
Celtrix stockholders and Insmed Pharmaceuticals shareholders to obtain current
market quotations for Celtrix common stock.

The costs of the reorganizations and the costs of integrating the Celtrix and
Insmed Pharmaceuticals businesses are substantial.

We estimate that it will cost approximately $3.5 million to complete the
reorganizations. These costs will consist of transaction fees for investment
bankers, attorneys, accountants and other costs incurred by Celtrix and Insmed
Pharmaceuticals. There can be no assurance that we will not incur additional
charges in excess of these amounts to reflect costs associated with the
reorganizations, including the costs of integrating the Celtrix and Insmed
Pharmaceuticals businesses.

Our failure to successfully integrate the companies and transfer Celtrix's
operations to Richmond, Virginia may adversely impact our business, financial
condition and results of operations.

We will need to successfully integrate and streamline overlapping functions
of the combined companies, part of which will include moving Celtrix's
operations from its current headquarters in San Jose, California to Insmed
Incorporated's headquarters in Richmond, Virginia. Our failure to effectively
accomplish the integration of Celtrix's and Insmed Pharmaceuticals' operations
could have an adverse effect on our business, results of operations and
financial condition.

18
<PAGE>

This move may not be smooth or successful. The necessity of coordinating
between Richmond, Virginia and San Jose, California may increase the
difficulties of moving. Moving the operations following the reorganizations
requires the dedication of management resources that may temporarily distract
attention from the day-to-day business of the combined companies.

Failure to complete the reorganizations could negatively impact Celtrix's stock
price and future business and operations.

If Celtrix and Insmed Pharmaceuticals do not complete the reorganizations
for any reason, Celtrix may be subject to a number of material risks, including
the following:

. Insmed Pharmaceuticals may require Celtrix to pay a termination fee of
$2.5 million which would reduce Celtrix's available cash by approximately
33%. Under those circumstances, Celtrix would be able to fund its
operations for approximately the next 12 months;

. the price of Celtrix common stock may decline to the extent that the
current market price of Celtrix common stock reflects a market assumption
that each party will complete the reorganizations;

. Celtrix must pay costs related to the reorganizations, such as legal and
accounting fees, even if the reorganizations are not completed; and

. current and prospective Celtrix employees may experience uncertainty
about their future role with Celtrix. This may adversely affect Celtrix's
ability to attract and retain key management and technical personnel.

Further, if either party terminates the reorganizations and Celtrix's board
of directors determines to seek another reorganization or business combination,
Celtrix may not be able to find a partner willing to pay an equivalent or more
attractive price than that which would be paid in the merger. In addition,
while the reorganization agreement is in effect and subject to certain limited
exceptions, Celtrix may not solicit a reorganization, sale of assets or other
business combination, with any party other than Insmed Pharmaceuticals.

Failure to complete the reorganizations could negatively impact Insmed
Pharmaceuticals' business, financial condition and results of operations.

If Celtrix and Insmed Pharmaceuticals do not complete the reorganizations
for any reason, Insmed Pharmaceuticals may be subject to a number of material
risks, including the following:

. Celtrix may require Insmed Pharmaceuticals to pay a termination fee of
$2.5 million which would reduce Insmed Pharmaceuticals' available cash by
approximately one-third;

. the financing described under "Recent Developments" on page would not
be completed;

. without the financing and after accounting for the termination fee,
Insmed Pharmaceuticals only would be able to fund its operations until
September 2000;

. Insmed Pharmaceuticals will remain a private corporation with no public
market for the sale of its shares and therefore shareholders of Insmed
Pharmaceuticals may be unable to liquidate their investment in Insmed
Pharmaceuticals;

. Insmed Pharmaceuticals must pay costs related to the reorganizations,
such as legal and accounting fees, even if the reorganizations are not
completed; and

. current and prospective Insmed Pharmaceuticals employees may experience
uncertainty about their future role with Insmed Pharmaceuticals. This may
adversely affect Insmed Pharmaceuticals' ability to attract and retain
key management and technical personnel.

Further, if either party terminates the share exchange and Insmed
Pharmaceuticals' board of directors determines to seek another reorganization
or business combination, Insmed Pharmaceuticals may not be able to

19
<PAGE>

find a partner willing to combine on terms similar to the share exchange. In
addition, while the reorganization agreement is in effect and subject to
certain limited exceptions, Insmed Pharmaceuticals may not solicit a merger,
sale of assets or other business combination, with any party other than
Celtrix.

Risks Related to Insmed Incorporated

Because our products are in an early stage of development, none has received
regulatory approval or been released for commercial sale and therefore we can
give you no assurances that we will succeed in commercializing our products.

Our long-term viability and growth will depend on successful
commercialization of products resulting from our research activities. All of
our potential products and production technologies are in the research or
development stages and we have generated no revenues from product sales. Our
potential products will require significant additional development, laboratory
and clinical testing and investment before their commercialization. We can give
you no assurances that we will be able to identify, develop or produce products
with commercial potential or that our products will secure market acceptance.
The failure to commercialize our potential products will have an adverse effect
on our business, financial condition and results of operations. In addition,
the research, development, testing, clinical trials and acquisition of the
necessary regulatory approvals with respect to any given product will take many
years and thus delay our receipt of revenues, if any, from any such products.
In addition, potential products that appear promising at early stages of
development may fail for a number of reasons, including, the possibility that
the products:

. may be ineffective;

. may cause harmful side effects; or

. may be too expensive to manufacture.

Our products may also fail to receive regulatory approval. In addition, our
products, even when approved by regulatory authorities, may fail to achieve
market acceptance or be precluded from commercialization by the proprietary
rights of third parties.

Since we have a limited operating history, a history of operating losses and
expect to generate operating losses for the foreseeable future, we may not
achieve profitability for some time, if at all.

We are at an early stage of development and we currently have no marketed
products. We have incurred losses during our initial years of operations and
expect to continue to incur operating losses for the foreseeable future since
all of our resources are devoted to the development and testing of our
products. The process of developing our products requires significant pre-
clinical testing and clinical trials as well as regulatory approvals. In
addition, commercialization of our drug candidates will require the
establishment of a sales and marketing organization and contractual
relationships to enable product manufacturing and other related activity. We
expect that these activities, together with our general and administrative
expenses, will result in substantial operating losses for the foreseeable
future. As of December 31, 1999, the accumulated deficit for Insmed
Pharmaceuticals was $22,780,309 and for Celtrix was $140,928,465, and for the
year ended December 31, 1999, the net loss for Insmed Pharmaceuticals was
$7,792,684 and for the nine months ended December 31, 1999, the net loss for
Celtrix was $10,239,931.

If our proposed financing does not close, our existing cash reserves will only
be sufficient to fund our activities until September 2000. If our proposed
financing does close, however, it will result in significant dilution of your
ownership of our shares.

As discussed in "Recent Developments" on page , we entered into a purchase
agreement with a number of investors which provides for Insmed Pharmaceuticals
to issue 5,632,678 shares of its common stock and for Insmed Incorporated to
issue warrants to purchase up to 6,901,344 shares of Insmed Incorporated common
stock at any exercise price of $2.25 per share for an aggregate consideration
of $34.5 million. This financing is

20
<PAGE>

subject to approval of the share exchange by the shareholders of Insmed
Pharmaceuticals and the merger by the stockholders of Celtrix, as well as those
conditions normal and customary to a stock purchase agreement and no assurance
can be given that the financing will actually occur. If we do not complete the
proposed financing, our existing cash reserves will be sufficient to fund our
activities only until September 2000. If the financing does occur, however,
shareholders of Insmed Incorporated at the time of the reorganizations may
suffer significant dilution if the value of the Insmed Incorporated common
stock is substantially higher at the time of the reorganizations than the price
paid by the investors in this financing.

We will need additional funds in the future to continue our operations, but we
face uncertainties with respect to our access to capital which could adversely
impact our business, financial condition and results of operations.

Our future capital requirements will be substantial in order to continue to
conduct the time consuming research and development, clinical studies and
regulatory activities necessary to bring our potential therapeutic products to
market and to establish production, marketing and sales capabilities. There can
be no assurance that our cash reserves together with any funding subsequently
received will be sufficient to satisfy our capital requirements. The failure to
satisfy our capital requirements will result in an adverse effect on our
business, financial condition and results of operations. These future capital
requirements will depend on many factors, including the progress of preclinical
testing and clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing and prosecuting patent
applications and enforcing patent claims and the establishment of strategic
alliances and activities required for product commercialization. Including the
funds received in connection with the financing discussed in "Recent
Developments" on page , we believe that existing cash reserves, together with
proceeds from the proposed financing will be sufficient to fund our activities
for more than two years. If we do not complete the proposed financing, our
existing cash reserves will be sufficient to fund our activities only until
September 2000.

We intend to seek additional funding through strategic alliances and may
seek funding through private or public sales of our securities or by licensing
all or a portion of our technology. Such funding may result in significant
dilution to existing shareholders or may limit our rights to the technology we
are currently developing. There can be no assurance, however, that additional
funding will be available on reasonable terms, or at all. If adequate funds are
not available, we may need to curtail significantly our product development
programs and/or relinquish rights to our technologies or product candidates.

If our products fail in clinical trials or we cannot enroll enough patients to
complete our clinical trials there may be an adverse effect on our business,
financial condition and results of operations.

In order to sell our products, we must receive regulatory approval for our
products. Before obtaining regulatory approvals for the commercial sale of any
of our products under development, we must demonstrate through preclinical
studies and clinical trials that the product is safe and effective for use in
each target indication. If any of our products fail in clinical trials, we
cannot obtain FDA approval for such products. Therefore, if our products fail
in clinical trials there will be an adverse effect on our business, financial
condition and results of operations. In addition, the results from preclinical
testing and early clinical trials may not be predictive of results obtained in
later clinical trials. There can be no assurance that clinical trials we
conduct, by contract research organizations we retain or by corporate partners
will demonstrate sufficient safety and effectiveness to obtain regulatory
approvals. A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in late stage clinical trials
even after promising results in early stage development.

The rate of completion of our clinical trials is dependent on, among other
factors, the rate of patient enrollment. Patient enrollment is a function of
many factors, including:

. the size of the patient population;

. the nature of the protocol;

21
<PAGE>

. the proximity of patients to clinical sites; and

. the eligibility criteria for the study.

We believe our planned procedures for enrolling patients are appropriate.
However, delays in patient enrollment will result in increased costs and
delays, which could have a material adverse effect on our business, financial
condition and results of operations.

Our failure to obtain regulatory approvals for our products under development
may adversely affect our business, financial condition and results of
operations.

Because our products are in an early stage of development, none has received
regulatory approval or been released for commercial sale. The preclinical
testing and clinical trials of any compounds we or our collaborative partners
develop and the manufacturing and marketing of any drugs produced from such
compounds must comply with regulation by numerous federal, state and local
governmental authorities in the United States, principally the Food and Drug
Administration, and by similar agencies in other countries in which these
agencies may test and market drugs developed by us or our collaborative
partners. No product can receive Food and Drug Administration approval unless
human clinical trials show it to be safe and effective. There can be no
assurance that clinical testing will provide evidence of safety and
effectiveness in humans or that regulatory agencies will grant approvals for
any of our products or even, if granted, that we can bring those products to
the market economically.

The regulatory process takes many years and requires the expenditure of
substantial resources. Data obtained from preclinical and clinical activities
are subject to varying interpretations that could delay, limit or prevent
regulatory agency approval. We may also encounter delays or rejections based on
changes in regulatory agency policies during the period in which we develop a
drug and/or the period required for review of any application for regulatory
agency approval of a particular compound. Delays in obtaining regulatory agency
approvals could adversely affect the marketing of any drugs we or our
collaborative partners develop. Such delays could result in the imposition of
costly procedures on our and on our collaborative partners' activities,
diminish any competitive advantages that we or our collaborative partners may
attain, and adversely affect our ability to receive royalties, any of which
could have a material adverse effect on our business, financial condition and
results of operations.

If the FDA grants approval for a drug, however, such approval may include
limitations on the indicated uses for which we may market the drug and this
could limit the potential market for any such drug. Furthermore, if we obtain
approval for any of our products, the marketing and manufacture of such
products remains subject to extensive regulatory requirements. Even if the FDA
grants approval, such approval would be subject to continual review, and later
discovery of unknown problems could result in restrictions on the products for
future use or their withdrawal from the market. Failure to comply with
regulatory requirements could, among other things, result in fines, suspension
of regulatory approvals, operating restrictions and criminal prosecution. In
addition, many countries require regulatory agency approval of pricing and may
also require approval for the marketing in such countries of any drug we or our
collaborative partners develop.

We cannot be certain that we will obtain any regulatory approvals in other
countries and the future to obtain such approvals may have material adverse
effect on our business, financial condition and results of operations. In order
to market our products outside of the U.S., we and our corporate partners must
comply with numerous and varying regulatory requirements of other countries
regarding safety and quality. The approval procedures vary among countries and
can involve additional testing. The time required to obtain approval in other
countries might differ from that required to obtain FDA approval. The
regulatory approval process in other countries includes all of the risks
associated with obtaining FDA approval detailed above. Approval by the FDA does
not ensure approval by the regulatory authorities of other countries.

22
<PAGE>

Our business, financial condition and results of operations may be materially
adversely affected if our products do not receive market acceptance for any
reason.

There can be no assurance that any products we successfully develop, if
approved for marketing, will achieve market acceptance. Our business, financial
condition and results of operations may be materially adversely affected if our
products do not receive market acceptance for any reason. The degree of market
acceptance of any products we develop will depend on a number of factors,
including:

. the establishment and demonstration in the medical community of the
clinical efficacy and safety of our product candidates;

. their potential advantage over existing treatment methods; and

. reimbursement policies of government and third-party payers, including
insurance companies.

For example, even if we obtain regulatory approval to sell our products,
physicians and health care payers could conclude that our products are not safe
and effective and not use them to treat patients. Our competitors may also
develop new technologies or products which are more effective or less costly,
or that seem to be more cost-effective than our products. There is no assurance
that physicians, patients, third-party payers or the medical community in
general will accept and use any products that we may develop.

Uncertainty regarding third party reimbursement and healthcare cost containment
initiatives may negatively affect our business, financial condition and results
of operations.

If we succeed in bringing any of our proposed products to the market, we
cannot assure you that they will be considered cost-effective or that third-
party reimbursement will be available or sufficient. Our commercial success
will depend in part on third-party payers agreeing to reimburse patients for
the costs of products. Reimbursement is generally provided by government health
administration authorities, private health insurers and other organizations.
Third-party payers frequently challenge the pricing of new drugs. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products. Therefore, third-party payers may not approve our products for
reimbursement.

If third-party payers do not approve our products for reimbursement, sales
will suffer as some patients will opt for a competing product that is approved
for reimbursement. Even if reimbursement is available, payer's reimbursement
policies may adversely affect our and our corporate partners' ability to sell
such products on a profitable basis.

Moreover, the trend toward managed healthcare in the United States, the
growth of organizations such as health maintenance organizations, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for our products which could have
an adverse effect on our business, financial condition and results of
operations.

In addition, legislation and regulations affecting the pricing of
pharmaceuticals may change in ways adverse to us before or after the FDA or
other regulatory agencies approve any of our proposed products for marketing.
While we cannot predict the likelihood of any such legislative or regulatory
proposals, the adoption of such proposals could have a material adverse effect
on our business, financial condition and results of operations.

We currently have no manufacturing or marketing capability which may make the
commercialization of our products difficult.

We have no manufacturing experience. Our failure to successfully manufacture
and market our products could have a material adverse effect on our business,
financial conditions and results of operations. We intend to enter strategic
alliances with other parties that have established manufacturing and marketing
capabilities. There can be no assurance that we will be able to enter such
strategic alliances on terms favorable to us, or at all. As an alternative, we
may choose to pursue the commercialization of such products on our own which
would require substantial additional funds.

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<PAGE>

If the FDA or any other regulatory agency permits us to commence commercial
sales of products, we will face competition with respect to commercial sales,
marketing and distribution, areas in which we have no experience. To market any
of our products directly, we must develop a marketing and sales force with
technical expertise and with supporting distribution capability. Alternatively,
we may obtain the assistance of a pharmaceutical company with a large
distribution system and a large direct sales force. There can be no assurance
that we will be able to establish sales and distribution capabilities or be
successful in gaining market acceptance for our proprietary products. To the
extent we enter co-promotion or other licensing arrangements, any revenues we
receive will be dependent on the efforts of third parties and there can be no
assurance that such efforts will be successful.

Materials necessary to manufacture SomatoKineTM may not be available which may
adversely affect our business, financial condition and results of operations.

The recombinant proteins which are the components of SomatoKine are made at
only a few facilities. We believe we currently have sufficient quantities to
conduct two clinical trials. We will need to contract with an outside
contractor in order to pursue additional clinical trials. A shutdown in any of
these facilities due to technical, regulatory or other problems, resulting in
an interruption in supply of these materials, could have an adverse impact on
our business, financial condition and results of operations.

We need corporate partners for success.

We will rely on a number of significant collaborative relationships with
pharmaceutical companies for our manufacturing, research funding, clinical
development and/or sales and marketing performance. Reliance on collaborative
relationships poses a number of risks, including the following:

. we will not be able to control whether our corporate partners will devote
sufficient resources to our programs or products;

. disputes may arise in the future with respect to the ownership of rights
to technology developed with corporate partners;

. disagreements with corporate partners could lead to delays in or
termination of the research, development or commercialization of product
candidates, or results in litigation or arbitration;

. contracts with our corporate partners may fail to provide significant
protection or may fail to be effectively enforced if one of these
partners fails to perform;

. corporate partners have considerable discretion in electing whether to
pursue the development of any additional products and may pursue
technologies or products either on their own or in collaboration with our
competitors; and

. corporate partners with marketing rights may choose to devote fewer
resources to the marketing of our products than they do to products of
their own development.

Given these risks, there is a great deal of uncertainty regarding the
success of our current and future collaborative efforts. If these efforts fail,
our product development or commercialization of new products could be delayed
or revenue from existing products could decline.

Our growth strategy includes the acquisition of complementary businesses that
may not be available to acquire or, if acquired, might not improve our
business, financial condition or results of operations.

As part of our business strategy, we expect to pursue additional
acquisitions. Nonetheless, we cannot assure you that we will identify suitable
acquisitions or that we can make such acquisitions at an acceptable price. If
we acquire additional businesses, those businesses may require substantial
capital and we cannot assure you that such capital will be available in
sufficient amounts or that financing will be available in amounts and on terms
that we deem acceptable. Furthermore, the integration of acquired businesses
may result in unforeseen difficulties that require a disproportionate amount of
management's attention and our other resources. Finally, we cannot assure you
that we will achieve productive synergies and efficiencies from these
acquisitions.

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<PAGE>

We intend to conduct proprietary research programs, and any conflicts with our
collaborators could harm our business, financial condition and results of
operations.

An important part of our strategy involves conducting proprietary research
programs. Any conflict with our collaborators could reduce our ability to
obtain future collaboration agreements and negatively influence our
relationship with existing collaborators, which could reduce our revenues and
have an adverse effect on our business, financial condition and results of
operations. For example, we may pursue opportunities in fields that could
conflict with those of our collaborators. Moreover, disagreements with our
collaborators could develop over rights to our intellectual property.

Certain of our collaborators could also become competitors in the future.
Our collaborators could:

. develop competing products;

. preclude us from entering into collaborations with their competitors;

. fail to obtain timely regulatory approvals;

. terminate their agreements with us prematurely; or

. fail to devote sufficient resources to the development and
commercialization of products.

Any of these developments could harm our product development efforts.

If we fail to make payments required under the license agreement with the
University of Virginia Patent Foundation, then the Foundation may terminate the
license agreement and our rights to the patents licensed to us, which would
have an adverse effect on our business, financial condition and results of
operations.

We have a license agreement with the University of Virginia Patent
Foundation with respect to a number of our patents that obligates us to pay
license fees and royalties. We must also pay filing and maintenance costs for
the patent rights associated with the license agreement and any new patent
applications. For the fiscal years ended December 31, 1999 and 1998, we paid
$110,921 and $165,016, respectively, in patent and licensing fees associated
with this license. If we fail to make payments required under the license
agreement, then the University of Virginia Patent Foundation may terminate the
license agreement and our rights to the patents licensed to us, which would
have an adverse effect on our business, financial condition and results of
operations.

We face uncertainties related to patents and proprietary technology which may
adversely affect our business, financial condition and results of operations.

Our success will depend in part on our ability to:

. obtain patent protection for our products;

. preserve trade secrets;

. prevent third parties from infringing on our patents; and

. refrain from infringing on the patents of others, both domestically; and
internationally.

Our patent positions are highly uncertain, and any future patents we receive
for our potential products will be subject to this uncertainty which may have
an adverse effect on our business, financial condition and results of
operations. We intend to actively pursue patent protection for products with
significant potential commercial value arising in the course of our research
and development activities. Nevertheless, it is possible that, in the patent
application process, certain claims may be rejected or be so limited as to
reduce the value of the patents. Further, there can be no assurance that any
patents obtained will afford adequate protection. In addition, any patents
procured by us may require that we work with other companies holding related
patents. A successful relationship may be difficult to conclude.

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<PAGE>

We are aware that at least three large biotechnology and pharmaceutical
companies have been issued patents and/or have filed patent applications in the
United States and abroad directed at the production of recombinant IGF-I by
various methods and its use in various clinical indications. The earliest date
of filing of these patent applications is April 25, 1983, but most are much
more recent--within the last five years. Unless and until all such applications
issue, it is not possible for us to determine the breadth of our competitors'
claims regarding processes for production of IGF-I or for the use of IGF-I for
particular indications. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed towards certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was previously granted in Europe,
which Celtrix successfully opposed. However, this large biotechnology and
pharmaceutical company has recently appealed the decision in Europe and there
can be no assurance that the appeal will not be successful, nor is it possible
to determine what, if any, claims will be reinstated or the breadth of such
claims. In addition, we expect our competitors to defend their patent positions
vigorously.

We have developed a new process for the production of IGF and BP3 that we do
not believe infringes other patents relating to recombinant protein production
in general or other patents relating to the production of IGF and BP3 in
particular, although there can be no assurance that our competitors will not
assert a contrary position. A large number of other companies have pending
patent applications and/or issued patents that claim certain methods of use of
IGF.

It may be necessary for us to undertake costly litigation to enforce any
patents issued or licensed to us or to determine the scope and validity of
another party's proprietary rights. There can be no assurance that a court of
competent jurisdiction would validate our issued or licensed patents. An
adverse outcome in litigation or an interference or other proceeding in a court
or patent office could subject us to significant liabilities to other parties,
require us to license disputed rights from other parties or require us to cease
using such technology, any of which could have a material adverse effect on our
business, financial condition and results of operations.

Third parties may claim that our products infringe on their proprietary rights
which may adversely affect our business, financial condition and results of
operations.

There can be no assurance that third parties will not claim that our
technology for IGF-I and INS-1, current or future products or manufacturing
processes infringe their proprietary rights. If other companies were to
successfully bring legal actions against us claiming patent or other
intellectual property infringements, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to use
the affected process or to manufacture or use the affected products, or
alternatively, we could be required to cease using such products or process if
enjoined by a court. Such a result may have an adverse effect on our business,
financial condition and results of operations. Any such claim, with or without
merit, could result in costly litigation or might require us to enter into
royalty or licensing agreements, all of which could delay or otherwise
adversely impact the development of our potential products for commercial use.
If any licenses are required, there can be no assurance that we will be able to
obtain them on commercially favorable terms, if at all, and if we do not obtain
such licenses, we might be prevented from pursuing the development of certain
of our potential products. Our breach of an existing license, our failure to
obtain, or our delay in obtaining a license to any technology that we require
to commercialize our products may have a material adverse impact on our
business, financial condition and results of operations.

The inability to compete successfully will harm our business, financial
condition and results of operations.

We are engaged in a business characterized by extensive research efforts,
rapid developments and intense competition. There can be no assurance that our
products will compete successfully or that research and development by others
will not render our products obsolete or uneconomical. Our failure to compete
effectively would have a material adverse effect on our business, financial
condition and results of operations. We expect that competition will be based,
among other things, on product efficacy, safety, reliability,

26
<PAGE>

availability, timing and scope of regulatory approval and price. We expect that
the relative speed with which we can develop products, complete the clinical
testing and regulatory approval processes and supply commercial quantities of
the product to the market to be important competitive factors. We expect
competition to increase as technological advances are made and commercial
applications broaden. In each of our potential product areas, competition from
large pharmaceutical, biotechnology and other companies, universities and
research institutions is substantial. Relative to us, most of these entities
have substantially greater capital resources, research and development staffs,
facilities and experience in conducting clinical trials and obtaining
regulatory approvals, as well as in manufacturing and marketing pharmaceutical
products. Many of our competitors may achieve product commercialization or
patent protection earlier than we will. Furthermore, we believe that our
competitors have used, and may continue to use, litigation to gain a
competitive advantage. Finally, our competitors may use different technologies
or approaches to the development of products similar to the products we are
seeking to develop.

Rapid technological change could make our products obsolete which could have a
material adverse effect on our business, financial condition and results of
operations.

Biotechnology and related pharmaceutical technology have undergone and are
subject to rapid and significant change. We expect that the technologies
associated with biotechnology research and development will continue to develop
rapidly. Our future will depend in large part on our ability to maintain a
competitive position with respect to these technologies. Any compounds,
products or processes that we develop may become obsolete before we recover any
expenses incurred in connection with developing these products. Rapid
technological change could make our products obsolete which could have a
material adverse effect on our business, financial condition and results of
operations.

We are dependent upon key personnel and others the loss of which could have a
material adverse effect on our business, financial condition and results of
operations.

We are highly dependent on the principal members of our scientific and
management staff, the loss of whose services might significantly delay or
prevent the achievement of research, development, or business objectives and
would have a material adverse effect on our business, financial condition and
results of operations. Our success is dependent, in large part, on our ability
to attract and retain qualified management, scientific and medical personnel,
and on our ability to develop and maintain important relationships with
commercial partners, leading research institutions and key distributors.
Competition for such personnel and relationships is intense. There can be no
assurance that we will be able to attract and retain such persons or maintain
such relationships.

We expect that our potential expansion into areas and activities requiring
additional expertise, such as further clinical trials, governmental approvals,
contract manufacturing and marketing, will place additional requirements on our
management, operational and financial resources. We expect these demands will
require an increase in management and scientific personnel and the development
of additional expertise by existing management personnel. The failure to
attract and retain such personnel or to develop such expertise could materially
adversely affect prospects for our success.

Our products involve the use of hazardous materials which could expose us to
damages which could have a material adverse effect on our business, financial
condition and results of operations.

Our research and development activities involve the use of hazardous
materials and chemicals, including the use of radioactive materials. We believe
that our procedures for handling hazardous materials comply with federal and
state regulations; however, there can be no assurance that accidental injury or
contamination from these materials will not occur. In the event of an accident,
we could be held liable for any damages, which could exceed our available
financial resources, including our insurance coverage. This could have a
material adverse effect on our business, financial condition and results of
operations.

We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products. These laws and regulations

27
<PAGE>

may require us to incur significant costs to comply with environmental laws and
regulations in the future which could have a material adverse effect on our
business, financial condition and results of operations.

We are subject to product liability claims that our insurance may not cover
which could have a material adverse effect on our business, financial condition
and results of operations.

In testing, manufacturing and marketing our products, we risk liability from
the failure of products to perform as expected. Such risks exist even with
respect to those potential products, if any, that receive regulatory approval
for commercial sale. Although we will seek to obtain product liability
insurance and indemnification from licensees of the products, such insurance or
indemnification may be inadequate, unobtainable or prohibitively expensive. Our
insurance policies provide coverage for product liability on a claims made
basis and general liability on an occurrence basis. These policies are subject
to annual renewal. Such insurance may not be available in the future on
acceptable terms or at all. If we cannot obtain sufficient insurance coverage
on reasonable terms, or otherwise protect ourselves against potential product
liability claims in excess of our insurance coverage, if any, our business,
financial condition and results of operations could be materially adversely
effected.

We cannot be certain that our present product liability insurance coverage
is adequate. Such existing coverage will not be adequate as we further develop
our products, and we cannot be certain that adequate insurance coverage against
potential claims will be available in sufficient amounts or at a reasonable
cost.

Computer failures in the Year 2000 may negatively impact our business.

Many of our existing computer programs and systems use only two digits to
identify the year in the date field. These programs may be unable to process
date/time information between the twentieth and twenty-first centuries. This
inability could cause the disruption or failure of such computer systems. We
have identified two main areas of our Year 2000 risk:

. Year 2000 computer problems could disrupt our internal computer systems,
causing an interruption or decrease in our ability to continue its
operations; and

. Year 2000 computer problems could disrupt the computer systems of third
parties with whom we regularly deal, including our suppliers, vendors,
utilities and financial institutions, causing an interruption or decrease
in our ability to continue its operations.

If the business of any third party, including suppliers, vendors, utilities
or financial institutions, is significantly disrupted because such party is not
Year 2000 compliant, such disruption could adversely affect our business. These
disruptions could include, among other things:

. a financial institution's inability to process checks drawn on our bank
accounts, accept deposits or process wire transfers;

. a client's, supplier's, vendor's or financial institution's business
failure;

. an interruption in deliveries of equipment and supplies from vendors;

. a loss of voice and data connections we will use to share information;

. a loss of electric power to our facilities; or

. other interruptions to the normal conduct of our business, the nature and
extent of which we cannot foresee.

We do not know whether or when any of the disruptions described above will
actually occur. Even if they do occur, we cannot predict the effect they will
have on our business.

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<PAGE>

We expect that our stock price will be volatile.

There is no current public market for our common stock. Immediately
following completion of the reorganizations, we will list our common stock for
trading on The Nasdaq SmallCap Market. Upon completion of the reorganizations,
it is likely that our common stock will experience the significant volatility
previously experienced by Celtrix common stock. The stock market, particularly
in recent years, has experienced volatility that has been especially acute with
respect to biopharmaceutical and biotechnology based stocks. The volatility of
biopharmaceutical and biotechnology based stocks has often been unrelated to
the operating performance of the companies represented by the stock. Factors
such as announcements of the introduction of new products or services by us or
our competitors, market conditions in the biotechnology sectors, rumors
relating to us or our competitors and litigation or public concern as to safety
of our potential products may have a significant impact on the market price of
our stock.

Celtrix and Insmed Pharmaceuticals have never paid dividends on their capital
stock and we do not anticipate paying any cash dividends in the foreseeable
future.

Each of Celtrix and Insmed Pharmaceuticals historically has not paid cash
dividends on Celtrix common stock or Insmed Pharmaceuticals common stock, as
the case may be. We currently intend to retain our future earnings, if any, to
fund the development and growth of our businesses and, therefore, we do not
anticipate paying any cash dividends in the foreseeable future.

Certain provisions of Virginia law, our Articles of Incorporation and Amended
and Restated Bylaws make a takeover by a third party difficult.

Certain provisions of Virginia law and our Articles of Incorporation and
Amended and Restated Bylaws could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of us. These provisions include:

. a provision allowing us to issue preferred stock with rights senior to
those of the common stock without any further vote or action by the
holders of the common stock. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to
the holders of common stock or could adversely affect the rights and
powers, including voting rights, of the holders of the common stock. In
certain circumstances, such issuance could have the effect of decreasing
the market price of the common stock;

. the existence of a staggered board of directors in which there are three
classes of directors serving staggered three-year terms, and thus
expanding the time required to change the composition of a majority of
directors and perhaps discouraging someone from making an acquisition
proposal for us;

. the Amended and Restated Bylaws' requirement that shareholders provide
advance notice when nominating our directors;

. the inability of shareholders to convene a shareholders' meeting without
the meeting first being called by the Chairman of the Board, the
President or a majority of the board of directors; and

. the application of Virginia law prohibiting us from entering into a
business combination with the beneficial owner of 10% or more of our
outstanding voting stock for a period of three years after the 10% or
greater owner first reached that level of stock ownership, unless we meet
certain criteria.

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A CAUTION ABOUT FORWARD-LOOKING STATEMENTS

The matters discussed throughout this joint proxy statement/prospectus that
are not historical facts are forward-looking and, accordingly, involve
estimates, projections, goals, forecasts, assumptions and uncertainties that
could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements.

These forward-looking statements may include, but are not limited to, future
capital expenditures, acquisitions (including the amount and nature of
acquisitions), future revenues, earnings, margins, costs, demand for new
pharmaceutical products, market trends in the pharmaceutical business,
inflation and various economic and business trends. You can identify forward-
looking statements by the use of words such as "expect," "estimate," "project,"
"budget," "forecast," "anticipate," "plan" and similar expressions. Forward-
looking statements include all statements regarding expected financial
position, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies or synergies, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing or
proposed products or services, plans and objectives of management, and markets
for stock of Insmed Incorporated, Celtrix and Insmed Pharmaceuticals.

Any forward-looking statement speaks only as of the date on which the
statement was made.

Examples of factors that you should consider with respect to any forward-
looking statements made throughout this joint proxy statement/prospectus
include, but are not limited to, the following:

. Legislative and regulatory initiatives that impact the provision of
pharmaceutical products and services;

. Market demand for pharmaceutical products and services, changes in the
economies of areas the companies serve and catastrophic natural
disasters;

. The ability of Celtrix, Insmed Pharmaceuticals, Insmed Incorporated,
their suppliers and customers to successfully address Year 2000 readiness
issues;

. Unanticipated changes in operating expenses and capital expenditures;

. General industry trends and the effects of vigorous competition in the
biotechnology, biopharmaceutical and pharmaceutical industries;

. Financial or regulatory accounting principles or policies the Financial
Accounting Standards Board, the Securities and Exchange Commission and
similar agencies with regulatory oversight impose;

. Employee workforce factors, including loss or retirement of key
executives and scientists;

. Technological developments resulting in competitive disadvantages and
creating the potential for impairment of existing assets;

. Unexpected costs or difficulties related to the integration of the
businesses of Celtrix and Insmed Pharmaceuticals;

. Regulatory delays or conditions regulatory bodies impose in approving the
reorganizations;

. General economic factors including inflation and capital market
conditions; and

. Adverse changes in the securities markets.

These factors are difficult to predict. They also contain uncertainties that
may materially affect actual results, and may be beyond the control of Celtrix,
Insmed Pharmaceuticals or Insmed Incorporated. New factors may emerge from time
to time and it is not possible for us to predict new factors, nor can we assess
the effect of any new factors on Celtrix, Insmed Pharmaceuticals or Insmed
Incorporated.

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<PAGE>

These forward-looking statements are found at various places throughout this
joint proxy statement/prospectus. We caution you not to place undue reliance on
these forward-looking statements, which speak only as of the date they were
made. None of Celtrix, Insmed Pharmaceuticals or Insmed Incorporated undertakes
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this joint
proxy statement/prospectus or to reflect the occurrence of unanticipated
events.

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THE MEETINGS

This joint proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of Celtrix common stock by the Celtrix
board of directors for use at the annual meeting of Celtrix stockholders, and
from the holders of Insmed Pharmaceuticals capital stock by the Insmed
Pharmaceuticals board of directors for use at the special meeting of Insmed
Pharmaceuticals shareholders. We are first mailing this joint proxy
statement/prospectus and accompanying forms of proxy to the stockholders of
Celtrix and Insmed Pharmaceuticals beginning on or about , 2000.

Times, Dates and Places

Celtrix. The annual meeting of Celtrix stockholders will be held at 10:00
a.m., local time, on [day of week], [date], 2000, at 2033 Gateway Place, Suite
600, San Jose, California 95110. It may be adjourned or postponed to another
date and/or place for proper purposes.

Insmed Pharmaceuticals. The special meeting of Insmed Pharmaceuticals
shareholders will be held at 1:00 p.m., local time, on [day of week], [date],
2000 at 800 East Leigh Street, Richmond, Virginia 23219. It may be adjourned or
postponed to another date and/or place for proper purposes.

Purpose of the Meetings

Celtrix Annual Meeting. At the annual meeting of Celtrix stockholders (and
any adjournment or postponement thereof), Celtrix stockholders will be asked:

. to consider and vote upon proposal to approve and adopt the
reorganization agreement;

. to elect directors of the board of directors to serve until the earlier
of the expiration of their term or completion of the reorganizations;

. to ratify the appointment of Ernst & Young LLP as Celtrix's independent
public accountants for the fiscal year ending March 31, 2000; and

. to transact such other matters as may properly come before the meeting.

The Celtrix stockholders also might be asked to vote upon a proposal to
adjourn or postpone the annual meeting for the purpose, among others, of
allowing additional time for the solicitation of additional votes to approve
the merger.

Insmed Pharmaceuticals Special Meeting. At the special meeting of Insmed
Pharmaceuticals shareholders (and any adjournment or postponement thereof),
Insmed Pharmaceuticals' shareholders will be asked:

. to consider and vote upon a proposal to approve and adopt the
reorganization agreement, including the related plan of exchange; and

. to transact such other matters as may properly come before the special
meeting.

The Insmed Pharmaceuticals shareholders also might be asked to vote upon a
proposal to adjourn or postpone the special meeting for the purpose, among
others, of allowing additional time for the solicitation of additional votes to
approve the reorganization.

Record Date; Voting Rights; Votes Required for Approval

Celtrix:

Record Date. Celtrix's board of directors has fixed the close of business on
March 27, 2000, as the record date for the determination of the Celtrix
stockholders entitled to receive notice of and to vote at the

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<PAGE>

annual meeting. A complete list of stockholders entitled to vote at the meeting
will be open to examination by the stockholders, during regular business hours,
for a period of ten days before the meeting at the principal executive offices
of Celtrix at 2033 Gateway Place, Suite 600, San Jose, California.

Voting Rights. Only holders of record of shares of Celtrix common stock on
the Celtrix record date are entitled to notice of and to vote at the annual
meeting. Each holder of record of Celtrix common stock as of the Celtrix record
date is entitled to cast one vote for each share of Celtrix common stock held
on the Celtrix record date with regard to the following proposals:

. adoption of the reorganization agreement;

. ratification of the appointment of Ernst & Young LLP as Celtrix's
independent public accountants; and

. each other matter that may properly come before the Celtrix annual
meeting.

A different voting structure applies to the election of directors. Every
Celtrix common stockholder voting for the election of directors may cumulate
such stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares held by
such stockholder, or distribute the stockholder's votes on the same principle
among as many candidates as the stockholder thinks fit, provided that votes
cannot be cast for more than five candidates. However, no Celtrix common
stockholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes. As of the record date, there
were 32,880,465 shares of Celtrix common stock outstanding, each of which is
entitled to five votes at the annual meeting for the election of directors.
Such votes may be cast for one nominee or distributed among two or more
nominees up to a maximum of five nominees. On all other matters, each share has
one vote.

Votes Required for Approval. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Celtrix common stock
entitled to vote constitutes a quorum at the annual meeting. The reorganization
proposal requires the affirmative vote of the holders of a majority of the
outstanding shares of Celtrix common stock, voting as a single voting group for
approval. Each nominee for election to the board of directors receiving the
greatest number of votes, up to five directors, will be elected directors.
Ratification of the selection of Ernst & Young LLP as the independent public
accountants of Celtrix requires the affirmative vote of the majority of the
shares of Celtrix common stock, voting as a single voting group, present in
person or by proxy at the annual meeting and entitled to vote.

Voting by Celtrix's Directors and Executive Officers. As of the record date,
the directors, executive officers and affiliates of Celtrix had voting power
with respect to a total of 15,263,381 shares of Celtrix common stock, or
approximately 46.4% of the shares of Celtrix common stock outstanding at that
date. Insmed Incorporated and Celtrix MergerSub have entered into a stockholder
agreement with the holders of approximately 13,754,630 shares or 41.8% of
Celtrix's outstanding common stock requiring such persons to vote their Celtrix
common stock "FOR" adoption of the reorganization proposal. One of the Celtrix
directors who is affiliated with a holder of 4.6% of the outstanding Celtrix
common stock has agreed to vote its shares in the same manner as are voted by a
majority of the remaining shares of Celtrix common stock. Celtrix currently
expects that all of its directors, executive officers and affiliates will vote
their shares of Celtrix common stock "FOR" the reorganization proposal. For
additional information on the ownership and voting of Celtrix common stock,
Celtrix directors and executive officers, see "Security Ownership of Certain
Beneficial Owners and Management of Celtrix" on page and for more information
on the parties to and terms of the Celtrix stockholder agreement, see "Celtrix
and Insmed Pharmaceuticals Stockholder Agreements" on page and the Celtrix
Stockholder Agreement which is attached as Annex G hereto.

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<PAGE>

Celtrix Common Stock Beneficial Ownership
(as of Record Date)

<TABLE>
<S> <C>
Directors, Officers and Affiliates.............................. 15,263,381
Total........................................................... 32,880,465
Percentage Ownership by Directors, Officers and Affiliates...... 46.4%
Shares Subject to Voting Agreement.............................. 13,754,630
Percentage of Stock Subject to Voting Agreement................. 41.8%*
</TABLE>
- --------

* An additional stockholder, who owns approximately 4.6% of the outstanding
Celtrix stock, has agreed to vote its shares in the same manner as the
majority of the remaining shares of Celtrix common stock.

Insmed Pharmaceuticals:

Record Date. Insmed Pharmaceuticals' board of directors has fixed the close
of business on March 27, 2000, as the record date for Insmed Pharmaceuticals'
shareholders entitled to notice of and to vote at the special meeting.

Voting Rights. Only holders of record of shares of Insmed Pharmaceuticals
common stock and Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock, on the Insmed Pharmaceuticals record
date, are entitled to notice of and to vote at the special meeting. Each holder
of record of Insmed Pharmaceuticals common stock, Series A Preferred Stock and
Insmed Pharmaceuticals Series B Preferred Stock, as of the Insmed
Pharmaceuticals record date, is entitled to cast one vote per share on the
following proposals:

. adoption of the reorganization agreement; and

. any other matter properly brought before the meeting

Votes Required for Approval. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Insmed Pharmaceuticals
common stock, Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock, each as separate voting groups,
constitutes a quorum at the special meeting. Approval of the reorganization
proposal requires the affirmative vote of the holders:

. of more than two-thirds of the outstanding shares of Insmed
Pharmaceuticals common stock, voting as a single voting group;

. of more than two-thirds of the outstanding shares of Insmed
Pharmaceuticals Series A Preferred Stock, voting as a single voting
group;

. of more than two-thirds of the Insmed Pharmaceuticals Series B Preferred
Stock, voting as a single voting group; and

. of more than two-thirds of the outstanding shares of Insmed
Pharmaceuticals capital stock.

With some exceptions, the transaction of other business properly brought
before the meeting requires the affirmative vote of the holders of a majority
of the outstanding shares of Insmed Pharmaceuticals common stock and Insmed
Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals Series B
Preferred Stock, present in person or by proxy at the meeting and entitled to
vote.

Voting of Insmed Pharmaceuticals' Directors and Executive Officers. As of
the record date, the directors, executive officers and affiliates of Insmed
Pharmaceuticals had voting power with respect to a total of 1,192,654 shares of
Insmed Pharmaceuticals common stock or approximately 28.1% of the voting shares
of the Insmed Pharmaceuticals common stock outstanding at that date, 4,034,876
shares or approximately 65.7% of the voting shares of the Insmed
Pharmaceuticals Series A Preferred Stock outstanding at that date and 2,136,411
shares or approximately 59.6% of the Insmed Pharmaceuticals Series B Preferred
Stock outstanding at that date. Celtrix has entered into a stockholder
agreement with the holders of approximately 843,885 shares

34
<PAGE>

or 19.9% of Insmed Pharmaceuticals' outstanding common stock, approximately
4,014,876 shares or 65.3% of Insmed Pharmaceuticals' outstanding Series A
Preferred Stock and 2,136,411 shares or 59.6% of outstanding Series B Preferred
Stock requiring such persons to vote their Insmed Pharmaceuticals capital stock
"FOR" approval of the reorganization agreement, including the related plan of
exchange. Insmed Pharmaceuticals currently expects that all of its directors,
executive officers and affiliates will vote their shares of Insmed
Pharmaceuticals capital stock "FOR" the proposal to approve the reorganization
agreement, including the related plan of exchange. For additional information
on the ownership of Insmed Pharmaceuticals capital stock by Insmed
Pharmaceuticals directors and executive officers, see "Security Ownership of
Certain Beneficial Owners and Management of Insmed Pharmaceuticals" on page
and for more information on the parties to and terms of the Insmed
Pharmaceuticals stockholder agreement, see "Celtrix and Insmed Pharmaceuticals
Stockholder Agreements" on page and the Insmed Pharmaceuticals Stockholder
Agreement which is attached as Annex E hereto.

Insmed Pharmaceuticals Stock Beneficial Ownership
(as of Record Date)

<TABLE>
<CAPTION>
Series A Series B
Common Stock Preferred Stock Preferred Stock
------------ --------------- ---------------
<S> <C> <C> <C>
Directors, Officers and
Affiliates................... 1,192,654 4,034,876 2,136,411
Total......................... 4,241,442 6,144,599 3,581,761
Percentage Ownership by
Directors, Officers and
Affiliates................... 28.1% 65.7% 59.6%
Shares Subject to Voting
Agreement.................... 843,885 4,014,876 2,136,411
Percentage of Stock Subject to
Voting Agreement............. 19.9% 65.3% 59.6%
</TABLE>

Proxies

All shares of Celtrix common stock, and Insmed Pharmaceuticals common stock,
Insmed Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals
Series B Preferred Stock, represented by properly executed proxies received
prior to or at the annual meeting of Celtrix stockholders or the special
meeting of Insmed Pharmaceuticals shareholders, as the case may be, and not
revoked, will be voted in accordance with the instructions indicated in those
proxies. If no instructions are indicated on a properly executed returned
proxy, Celtrix and Insmed Pharmaceuticals will vote such proxy "FOR" the
approval and adoption of the reorganization proposal and Celtrix will vote such
proxy "FOR" the proposals regarding election of directors and appointment of an
independent accountant.

Abstentions may be specified with respect to any of the proposals being
considered at the respective annual or special meetings, as the case may be. A
properly executed proxy marked "ABSTAIN" counts as present for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the meeting. Because the affirmative votes of a majority of the outstanding
shares of the Celtrix common stock are required for adoption of the
reorganization proposal, and in the case of Insmed Pharmaceuticals, the
affirmative vote of more than two-thirds of the outstanding shares of Insmed
Pharmaceuticals capital stock and a majority of the outstanding shares of
Insmed Pharmaceuticals Series A Preferred Stock and Series B Preferred Stock,
voting together as a single voting group, are required for approval of the
reorganization proposal, a proxy marked "ABSTAIN" with respect to the
reorganization proposal will have the effect of a vote "AGAINST" the
reorganization proposal. In addition, the failure of a stockholder of Celtrix
or Insmed Pharmaceuticals to return a proxy will have the effect of a vote
"AGAINST" the reorganization proposal. In addition, with regard to the other
matters to be voted on at the meetings, a proxy marked "ABSTAIN" will have the
same effect as a vote "AGAINST" a proposal.

Broker Voting. Under Nasdaq rules, brokers who hold shares in street name
for customers have the authority to vote on certain "routine" proposals when
they have not received instructions from beneficial

35
<PAGE>

owners. Such brokers are precluded from exercising their voting discretion with
respect to proposals for non-routine matters such as the reorganization
proposal. Thus, absent specific instructions from the beneficial owner of such
shares, brokers are not empowered to vote such shares with respect to the
approval and adoption of the reorganization proposal (i.e., "broker non-
votes"), but may vote the Celtrix shares with respect to the election of
directors and the appointment of an independent accountant. Since the
affirmative votes described above are required for approval of the
reorganization proposal, a "broker non-vote" with respect to the reorganization
proposal will have the effect of a vote "AGAINST" the reorganization proposal.

Revocation of Proxies

You may revoke your proxy at any time prior to its use by:

. delivering to the Secretary of Celtrix or the Secretary of Insmed
Pharmaceuticals, as the case may be, a signed notice of revocation or a
later-dated, signed proxy; or

. by attending the meeting and voting in person. Merely attending the
meeting does not mean you have revoked your proxy.

Solicitation of Proxies

The solicitation of proxies of Celtrix stockholders and Insmed
Pharmaceuticals shareholders is made by both the Celtrix board of directors and
the Insmed Pharmaceuticals board of directors and is being paid for equally by
Celtrix and Insmed Pharmaceuticals. In addition to solicitation by mail,
arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send the proxy materials to beneficial owners. Both Celtrix
and Insmed Pharmaceuticals will, upon request, reimburse such brokerage houses
and custodians for their reasonable expenses in so doing. Neither Insmed
Pharmaceuticals nor Celtrix expects to engage a firm to aid in the solicitation
of proxies; however, should it later be determined necessary, Insmed
Pharmaceuticals and Celtrix estimates that related fees will not exceed $10,000
(plus expenses). To the extent necessary in order to ensure sufficient
representation at the respective meetings, Celtrix or Insmed Pharmaceuticals,
as the case may be, or either company's respective proxy solicitor may request
the return of proxy cards by personal interview, mail, telephone, facsimile or
other means of electronic transmission. The extent to which this will be
necessary depends entirely upon how promptly proxy cards are returned. You are
urged to send in your proxy card immediately.

You should not send in any stock certificates with your proxy card. As soon
as practicable after the completion of the reorganizations, a transmittal form
will be sent to you with instructions for receiving Insmed Incorporated common
stock in exchange for your Celtrix stock or Insmed Pharmaceuticals stock, as
the case may be.

As of the date of this joint proxy statement/prospectus, neither the Celtrix
board of directors nor the Insmed Pharmaceuticals board of directors knows of
any business to be presented at the meetings other than the proposals above. If
any other matters should properly come before either meeting, it is intended
that the shares represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting such proxies.
Proxies voted "AGAINST" the reorganization proposal will not be used to vote
for any adjournment pursuant to this authority.

Availability of Accountants

Celtrix. A representative of Ernst & Young LLP, Celtrix's independent public
accountants, is expected to be present at the annual meeting of Celtrix's
stockholders and to be available to respond to appropriate questions. Such
representative will have the opportunity to make a statement at the annual
meeting if he or she so desires.

Insmed Pharmaceuticals. A representative of Ernst & Young LLP, Insmed
Pharmaceuticals' independent public accountants, is expected to be present at
the special meeting of Insmed Pharmaceuticals' shareholders and be available to
respond to appropriate questions. Such representative will have the opportunity
to make a statement at the special meeting if he or she so desires.

36
<PAGE>

THE REORGANIZATIONS

The following information relating to the reorganizations is not intended to
be a complete description of all the information relating to the
reorganizations but is intended to include the material terms of the
reorganizations. The discussion in this joint proxy statement/prospectus of the
reorganizations and the principal terms of the reorganization agreement is
subject to, and qualified in its entirety by reference to, the reorganization
agreement, which is attached to this joint proxy statement/prospectus as Annex
A and is incorporated by reference in this joint proxy statement/prospectus.
You are urged to read the reorganization agreement carefully for a complete
description of the terms of the reorganizations.

Results of the Reorganizations

The reorganization agreement provides that, as a part of the
reorganizations, each of Celtrix and Insmed Pharmaceuticals will become wholly-
owned subsidiaries of Insmed Incorporated. In the reorganizations, Celtrix
MergerSub, a wholly-owned subsidiary of Insmed Incorporated, will merge with
and into Celtrix with Celtrix as the surviving corporation and the separate
corporate existence of MergerSub will end. Celtrix will become a wholly-owned
subsidiary of Insmed Incorporated. In whole, Insmed Incorporated will issue
stock with an aggregate consideration of approximately $72 million for Celtrix.
Throughout this document, we refer to the merger of Celtrix MergerSub into
Celtrix as the merger. In addition, Insmed Pharmaceuticals and Insmed
Incorporated will conduct a share exchange by which non-dissenting Insmed
Pharmaceuticals shareholders will exchange their shares of capital stock of
Insmed Pharmaceuticals for shares of Insmed Incorporated capital stock.
Following the share exchange, Insmed Pharmaceuticals will become a wholly-owned
subsidiary of Insmed Incorporated. Throughout this document, we refer to the
exchange of Insmed Pharmaceuticals capital stock for Insmed Incorporated
capital stock as the share exchange, and we refer to the share exchange and the
merger collectively as the reorganizations. The reorganizations will become
effective on the later of, the date of filing of the certificate of merger with
the Secretary of State of the State of Delaware or, the date of receipt of the
certificate of exchange from the State Corporation Commission of the
Commonwealth of Virginia, or at such other time as the certificate of merger or
articles of exchange specifies. Immediately following completion of the
reorganizations:

. Celtrix and Insmed Pharmaceuticals will become wholly-owned subsidiaries
of Insmed Incorporated;

. Geoffrey Allan, Ph.D., Kenneth G. Condon, Graham K. Crooke, MB.BS,
Steinar J. Engelsen, M.D., and Edgar G. Engleman, M.D. will be directors
of Insmed Incorporated and Elan Corporation, plc will appoint an observer
to the Insmed Incorporated board of directors as described on page ;

. officers of Insmed Incorporated will include Geoffrey Allan, Ph.D., as
Chief Executive Officer and President and Michael D. Baer as Chief
Financial Officer;

. former Celtrix common and preferred stockholders will collectively own
approximately [39,956,123] shares of Insmed Incorporated common stock or
33.3% of Insmed Incorporated on a fully diluted basis;

. former Insmed Pharmaceuticals common and preferred shareholders will
collectively own approximately [53,616,563] shares of Insmed Incorporated
common stock or 44.6% of Insmed Incorporated on a fully diluted basis;

. the investors who purchase Insmed Pharmaceuticals common stock and Insmed
Incorporated warrants in connection with the financing described on page
just before the closing, will collectively own approximately
[26,615,717] shares of Insmed Incorporated common stock or 22.1% of
Insmed Incorporated on a fully diluted basis;

. Insmed Incorporated will issue approximately 1,304,510 shares of Insmed
Incorporated common stock upon the exercise of converted Celtrix options;
and

. Insmed Incorporated will issue approximately 4,729,256 shares of Insmed
Incorporated common stock upon the exercise of converted Insmed
Pharmaceuticals options.

37
<PAGE>

Celtrix and Insmed Pharmaceuticals Stockholder Agreements

The following information relating to the stockholder agreements is not a
complete description of all of the information relating to the stockholder
agreements, but includes the material terms of the stockholder agreements. This
description is qualified in its entirety by the stockholder agreements
themselves, the forms of which we attach to this joint proxy
statement/prospectus as Annex E and Annex G and incorporate by reference in
this joint proxy statement/prospectus. We encourage you to read both forms of
stockholder agreements in their entirety.

As a condition to the execution by Celtrix and Insmed Pharmaceuticals of the
reorganization agreement, some of the shareholders who are affiliates of Insmed
Pharmaceuticals, including certain members of management and the board of
directors, entered into stockholder agreements for the benefit of Celtrix and
some of the stockholders of Celtrix who are affiliates, including certain
members of management and the board of directors, entered into stockholder
agreements for the benefit of Insmed Pharmaceuticals.

Pursuant to the stockholder agreements, the stockholders agreed to vote
their shares of Celtrix or Insmed Pharmaceuticals capital stock, as the case
may be, in favor of adoption or approval of the reorganization agreement and
the transactions contemplated by it and to cause anyone to whom they
transferred their voting rights in the capital stock to do the same. The
obligations under the stockholder agreements terminate automatically upon the
termination of the reorganization agreement.

The following holders of Celtrix common stock, representing 13,754,630
shares or approximately 41.8% of its outstanding common stock are parties to
stockholder agreements for the benefit of Insmed Pharmaceuticals: Warburg,
Pincus Investors, L.P., Genzyme Corporation, Biotechnology Development Fund,
L.P., Biotechnology Development Fund, III, L.P., Veron International, Limited,
Andreas Sommer, Ph.D., Malcolm J. McKay, Ph.D. and Henry E. Blair. For more
information on these stockholders, see "Security Ownership of Certain
Beneficial Owners and Management" on page .

In addition, a holder of 1,508,751 shares of Celtrix common stock or
approximately 4.6% of its outstanding common stock has agreed to vote all of
its shares in the same manner as are voted by a majority of the remaining
shares of Celtrix common stock.

The following holders of Insmed Pharmaceuticals capital stock, representing
843,885, 4,014,876 and 2,136,411 shares or approximately 19.9%, 65.3% and 59.6%
of its outstanding common stock, outstanding Insmed Pharmaceuticals Series A
Preferred Stock and outstanding Insmed Pharmaceuticals Series B Preferred
Stock, respectively, are parties to stockholder agreements for the benefit of
Celtrix: Geoffrey Allan, Ph.D., Boston University Nominee Partnership,
Ticonderoga Associates III, L.L.C., Intersouth Associates III, LP, KS
Teknoinvest V, BioAsia Investment, LLC, (on behalf of Biotechnology Development
Fund, L.P. and Biotechnology Development Fund, III, L.P.) and Warburg Dillon
Read, LLC.

What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will Receive

Common and Preferred Stockholders. In connection with the reorganizations:

. each holder of Celtrix common stock will receive one (1) share of Insmed
Incorporated common stock for each outstanding share of Celtrix common
stock;

. each holder of Celtrix Series A Preferred Stock will receive shares
of Insmed Incorporated common stock for each outstanding share of Celtrix
Series A Preferred Stock;

. each shareholder of Insmed Pharmaceuticals will receive 3.5 shares of
Insmed Incorporated common stock for each outstanding share of Insmed
Pharmaceuticals common stock and Insmed Pharmaceuticals Series A
Preferred Stock and Insmed Pharmaceuticals Series B Preferred Stock; and

. Insmed Incorporated will pay cash instead of issuing fractional shares of
Insmed Incorporated common stock.

38
<PAGE>

Holders of Options, Warrants or Other Rights. At the effective time of the
reorganizations, each outstanding option or other right to purchase shares of
Celtrix common stock and each outstanding option, warrant or other right to
purchase shares of Insmed Pharmaceuticals common stock converts automatically
into a new option, warrant or other right to purchase the number of shares of
Insmed Incorporated common stock equal to the number of shares of Celtrix
common stock or Insmed Pharmaceuticals common stock, as the case may be,
issuable under the old option, warrant or other right multiplied by one (1) in
the case of Celtrix stock options or other rights, and 3.5 in the case of
Insmed Pharmaceuticals stock options, warrants or other rights, except that
Insmed Incorporated will pay cash instead of issuing options, warrants or other
rights to purchase fractional shares of Insmed Incorporated. The per share
exercise price of the new option, warrant or other right is divided by one (1)
in the case of Celtrix, or 3.5 (rounded up to the nearest tenth of a cent) in
the case of Insmed Pharmaceuticals stock options, warrants or other rights. For
more information on the designations and rights of the Insmed Incorporated
stock options, see "Insmed Incorporated 2000 Stock Option Plan" on page .

Cash Payments for Fractional Shares of Insmed Incorporated Common Stock

If any fractional shares of Insmed Incorporated result from the conversion
of Insmed Pharmaceuticals and Celtrix shares of common stock and preferred
stock, Insmed Incorporated will not deliver a fraction of a share of Insmed
Incorporated common stock. Rather than receiving a fraction of a share, former
Insmed Pharmaceuticals and Celtrix common and preferred stockholders will
receive a cash payment, without interest and subject to the payment of
applicable withholding taxes, based on the mean of the high and low sales
prices of Insmed Incorporated common stock as reported on The Nasdaq SmallCap
Market, on the first full day on which the Insmed Incorporated common stock
trades The Nasdaq SmallCap Market.

Similarly, if rights to purchase fractional shares of Insmed Incorporated
result from the conversion of Insmed Pharmaceuticals options, warrants or other
rights, Insmed Incorporated will not deliver any rights to purchase a
fractional share of common stock. Instead of receiving an option, warrant or
other right to purchase a fractional share of Insmed Incorporated common stock,
a holder of an Insmed Pharmaceuticals option, warrant or other right to
purchase Insmed Pharmaceuticals common stock will receive a check in an amount
equal to the difference between:

. the fractional share multiplied by the mean of the high and low sales
price of Insmed Incorporated common stock on the first full day of
trading on The Nasdaq SmallCap Market after completion of the
reorganizations; and

. the product of 3.5 multiplied by the exercise price per share of each
Insmed Pharmaceuticals option, warrant or other right to purchase common
stock.

Background and Negotiation of the Reorganizations

On October 5, 1998, the Celtrix board of directors held a regular meeting,
at which, among other matters, it discussed the possibility of merging Celtrix
with another biotechnology company as a corporate strategy to diversify the
product portfolio and gain broader access to financial resources. The board
recommended the retention of investment bankers to assist in these activities.

On November 2, 1998, Andreas Sommer, President and Chief Executive Officer
of Celtrix, and Thomas Dietz, a Managing Director of Pacific Growth Equities
(Pacific Growth), discussed the possibility of merging with another company.
The next day Drs. Sommer and Dietz discussed the formal engagement of Pacific
Growth and possible merger candidates.

At a meeting of the Insmed Pharmaceuticals' board of directors on November
18, 1998, Edgar Engleman, a member of the Insmed Pharmaceuticals board of
directors, discussed with Dr. Geoffrey Allan, Chairman and Chief Executive
Officer of Insmed Pharmaceuticals, whether Insmed Pharmaceuticals was
interested in acquiring Celtrix and another company in the BioAsia management
portfolios. After completing preliminary

39
<PAGE>

due diligence on that other company, Insmed Pharmaceuticals determined that the
companies' technology and business strategies were not complementary and
discontinued discussions with that company.

On November 20, 1998, Graham Crooke, a member of the Insmed Pharmaceuticals
board of directors, contacted Andreas Sommer to discuss the business strategies
and position of each company and the complementary nature of clinical programs.
These discussions did not include financial terms.

On November 23, 1998, Dr. Engleman discussed with Dr. Sommer the possibility
of a merger between the two companies. Later that day, Dr. Allan telephoned Dr.
Sommer to give a further description of Insmed Pharmaceuticals and discuss the
desirability of a merger between the two companies.

On November 28, 1998, Dr. Sommer and Donald Huffman, Vice President, Finance
and Administration and Chief Financial Officer of Celtrix met with a mid-size
public biotechnology company (Company A) to discuss the possible acquisition of
Celtrix. The companies concluded that research and development activities were
complementary and that each was interested in further discussions.

On November 30, 1998, Dr. Allan informed BancBoston Robertson Stephens that
Insmed Pharmaceuticals was considering the acquisition of two companies.

On December 3, 1998, Drs. Sommer, Allan and Crooke met at the offices of
Ticonderoga Capital in San Francisco to discuss the issues and opportunities
facing both Insmed Pharmaceuticals and Celtrix and the benefits of a business
combination of the two companies. These discussions included a review of
patents, manufacturing, cost of goods, business development and science, but
did not include any discussion of financial terms. The following day Dr. Allan
sent Dr. Sommer a financial overview of Insmed Pharmaceuticals. On the same
day, Dr. Allan met separately with representatives of the other company that
Dr. Engleman had mentioned at the board of directors meeting on November 18,
1998.

On December 7, 1998, the Celtrix board of directors held a regular meeting,
at which, among other matters, they discussed various merger possibilities,
including the interest of Insmed Pharmaceuticals and Company A in a
combination.

On December 11, 1998, Celtrix and Insmed Pharmaceuticals exchanged
confidentiality agreements. Dr. Allan sent a letter of interest to Celtrix that
outlined possible terms for an acquisition of Celtrix by Insmed
Pharmaceuticals. On December 14, 1998, Dr. Allan sent additional financial
information regarding Insmed Pharmaceuticals to Celtrix.

On December 14, 1998, the Insmed Pharmaceuticals board of directors
discussed both acquisition opportunities in a telephonic meeting.

On December 16, 1998, Celtrix engaged Pacific Growth as its financial
advisor to assist in the process of a comprehensive evaluation of all merger
possibilities. On the same day, Dr. Allan sent Dr. Sommer a copy of the Insmed
Pharmaceuticals Clinical Investigator's Brochure (CIB). The following day Dr.
Sommer provided a copy of the Celtrix CIB to Insmed Pharmaceuticals.

On January 7, 1999, a representative of Company A informed Mr. Huffman that
his firm had evaluated a number of acquisition candidates and that it had
decided to focus its efforts in a different area of business from that
discussed with Celtrix.

On January 8, 1999, George Milstein, a Managing Director of Pacific Growth
provided a list of potential merger partners to Celtrix. Also that day, Dr.
Allan of Insmed Pharmaceuticals met with representatives of BancBoston
Robertson Stephens to discuss acquisition strategies.

On January 11, 1999, Dr. Sommer visited Dr. Allan at Insmed Pharmaceuticals'
offices to discuss the clinical programs of each company.

40
<PAGE>

On January 14, 1999, Dr. Sommer, Mr. Huffman and Dr. Dietz and Mr. Milstein
of Pacific Growth met with representatives of a private, developmental stage
biotechnology company (Company B) at the offices of Pacific Growth in San
Francisco. The parties exchanged confidentiality agreements and had a
comprehensive discussion of the clinical programs, business opportunities and
strategies of each company. The companies agreed to have further discussions as
the clinical plans and overall business strategies of the companies appeared to
be complementary. After the meeting, Dr. Dietz of Pacific Growth provided an
updated list of potential merger partners to Celtrix.

On January 20, 1999, Dr. Sommer visited a public mid-size biotechnology
company (Company C) for discussions regarding the possibility of a merger of
the two companies.

On January 25, 1999, Dr. Allan again met with BancBoston Robertson Stephens
representatives to discuss acquisition strategies.

On January 28, 1999, Dr. Sommer met with representatives of Elan
Corporation, plc regarding the possibility of a corporate collaboration in the
area of osteoporosis.

On February 11, 1999, the Insmed Pharmaceuticals board of directors
discussed potential merger or acquisition candidates, including Celtrix.

On February 12, 1999, Dr. Allan spoke with representatives of Pacific Growth
and provided them with preliminary information regarding Insmed
Pharmaceuticals.

On February 16, 1999, Drs. Sommer and Allan met in the offices of Pacific
Growth for further discussions regarding the possible merger of the companies.

On February 26, 1999, Dr. Sommer and Dr. Desmond Mascarenhas, Director of
Research and Intellectual Property at Celtrix, gave a further presentation at
the Company B offices covering various topics including the patent positions of
both companies.

On March 9, 1999, Dr. Sommer met with Elan to discuss the possibility of a
corporate collaboration that involved funding of Celtrix's osteoporosis program
and an investment by Elan in Celtrix.

On March 10, 1999, Celtrix and Elan continued collaboration discussions.
Later that day representatives of Company B made a presentation of the
company's programs and business strategy to Dr. Sommer, Mr. Huffman, Dr.
Malcolm McKay, Vice President Regulatory Affairs and Quality Assurance and Dr.
Mascarenhas. The parties concluded that a business combination could benefit
both parties.

On March 12, 1999, Dr. Sommer visited Insmed Pharmaceuticals in Richmond,
Virginia and performed preliminary due diligence on Insmed Pharmaceuticals.

On March 16, 1999, the Celtrix board of directors held a regularly scheduled
meeting at which they reviewed the progress of discussions with Insmed
Pharmaceuticals and Company B. Mr. Milstein reviewed possible deal structures
and Dr. Dietz reviewed the business prospects of each company.

On March 18, 1999, Company C informed Dr. Sommer that, while there was
interest in a merger due to the attractiveness of Celtrix's technology, it
could not advance discussions in the near term (in 1999) because of other
corporate goals.

On March 30, 1999, Celtrix received nonbinding, general letters of intent
from Insmed Pharmaceuticals and Company B regarding their desire to merge with
Celtrix. Company B proposed a merger with Celtrix based on an unspecified
price. In addition, Company B's proposal was contingent on satisfactory
completion of due diligence by Company B, negotiation of a merger agreement and
Celtix not licensing out any rights to SomatoKine. Company B indicated that if
Celtrix were to conclude a corporate partnership with Elan, or any

41
<PAGE>

other firm, prior to completing a merger, it would potentially diminish their
desire to merge with Celtrix, because Company B wanted to retain full ownership
of all of Celtrix's indications for SomatoKine.

On March 30, 1999, Celtrix also received a detailed and very specific
proposal from Elan to purchase $2.5 million of Celtrix common shares and
provide additional funding to support a Phase IIb clinical trial in
osteoporosis.

On March 31, 1999, the board of directors of Celtrix held a special meeting
to evaluate the letters of intent from Insmed Pharmaceuticals and Company B and
the Elan proposal for collaboration. The board discussed the possibility of
completing a transaction with each company and Elan, the possible terms, the
status of discussions, timing and related matters. The board decided that it
was in the best interests of Celtrix to accept Elan's firm proposal to conclude
a partnership and executed a binding letter agreement with Elan.

In reaching this decision, the board assessed the financial resources of
Celtrix in terms of its ability to fund the company's development programs and
continue operations in both the short and long term, the likelihood of raising
additional funds on acceptable terms and the probability of completing a merger
transaction with Company B or Insmed Pharmaceuticals in the near term. The
board considered that Elan was willing to execute a binding letter agreement on
March 31, 1999, and that the proposed transaction had a high probability of
being completed. In addition, the transaction would meet the company's
objective of obtaining funding to advance a key clinical program and for
ongoing operations. Further, it considered that the letters of intent from
Company B and Insmed Pharmaceuticals were very uncertain, were not specific,
did not have specific pricing, would require lengthy negotiations, had numerous
conditions, and therefore had a lower likelihood of resulting in a completed
transaction.

On April 6, 1999, the Insmed Pharmaceuticals board of directors discussed
the acquisition of Celtrix and agreed that discussions and due diligence should
continue.

On April 21, 1999, Celtrix and Elan executed the definitive agreement
governing the Elan joint venture. We describe the material terms of the Elan
joint venture under "Business of Celtrix--Corporate Collaborations" on page .

On May 4, 1999, Dr. Sommer, Mr. Huffman, and Drs. McKay and Mascarenhas met
with representatives of a public biotechnology company (Company D) at their
offices to discuss a possible business combination.

On May 25, 1999, Dr. Sommer, Mr. Huffman, and Drs. McKay and Mascarenhas met
with representatives of a public, mid-size medical device company (Company E)
to discuss the possibility of a collaboration or merger.

On May 28, 1999, Company B reiterated its interest in Celtrix through Mr.
Milstein but again expressed concern that the partnership completed with Elan
diminished their desire to merge with Celtrix. Despite Company B's expression
of interest Company B did not follow up with any proposal or definitive terms.
Celtrix did not have any further discussions with Company B.

On June 3, 1999, Hany Awadalla, a Managing Director of BancBoston Robertson
Stephens, spoke with Mr. Milstein regarding the continued interest of Insmed
Pharmaceuticals to merge with Celtrix.

On June 7, 1999, Drs. Sommer and Allan met at Celtrix to resume discussions
regarding a merger.

On June 9, 1999, a representative of Company D called to inform Celtrix that
it was not prepared to proceed with merger discussions in the near term.
Further, that its interests in pursuing a merger in the longer term would now
depend upon the outcome of clinical trials in which it was currently involved.

On June 22, 1999, the Celtrix board of directors at its regularly scheduled
meeting discussed, among other matters, the status of possible merger partners
and in the case of Insmed Pharmaceuticals, terms and conditions of a merger.

42
<PAGE>

On June 24, 1999, a representative from Company E informed Celtrix that its
objectives were to continue to concentrate its efforts in the device area for
the foreseeable future.

On June 29, 1999, Drs. Sommer and Allan met in New York with Messrs.
Milstein and Awadalla to discuss an appropriate plan of action to proceed with
a merger.

Between July and August, Celtrix and Insmed Pharmaceuticals and their
respective financial advisors held numerous conversations regarding the
business opportunities of both companies.

On August 4, 1999, the Insmed Pharmaceuticals board of directors retained
BancBoston Robertson Stephens to act as Insmed Pharmaceuticals' exclusive
investment banker with respect to its acquisition of Celtrix.

On August 23, 1999, at its regularly scheduled meeting, the Celtrix board of
directors reviewed Insmed Pharmaceuticals' merger proposal including proposed
valuation, ratios and related terms. The board then instructed Mr. Milstein and
the officers of Celtrix to continue negotiations with Insmed Pharmaceuticals in
accordance with the board's instructions.

At the meeting of the Insmed Pharmaceuticals board of directors on September
14, 1999, BancBoston Robertson Stephens and Insmed Pharmaceuticals management
reviewed the terms of a proposed merger with Celtrix and Insmed Pharmaceuticals
management presented the results of its due diligence of Celtrix. The Insmed
Pharmaceuticals board of directors directed Insmed Pharmaceuticals management
to continue due diligence and to begin preparation of documents necessary to
effect the merger.

On September 20, 1999, at its regularly scheduled meeting, the Celtrix board
of directors discussed the proposed merger with Insmed Pharmaceuticals, its
proposed terms, certain other strategic and related matters. The board agreed
to continue negotiations with Insmed Pharmaceuticals, assuming that Insmed
Pharmaceuticals would complete a collaboration agreement with a major corporate
partner.

On September 28, 29 and 30, 1999, management representatives from Celtrix
and Insmed Pharmaceuticals together with their legal advisors met in Richmond,
Virginia to negotiate the terms of a definitive reorganization agreement.

In the month of October, Insmed Pharmaceuticals and Celtrix conducted due
diligence on each other.

On November 18, 1999, Dr. Allan informed Dr. Sommer that Insmed
Pharmaceuticals had decided not to pursue a collaboration agreement with a
major corporate partner at this time. Since the Celtrix decision to proceed
with the merger partially was based on Insmed Pharmaceuticals concluding such a
transaction, the Celtrix board discussed this situation at a telephonic meeting
held on November 23, 1999. The board then discussed the current status of
Celtrix's business and that of Insmed Pharmaceuticals as well as the strength
of the combined business, with or without a major collaboration at this time.
The board instructed management to continue discussions with Insmed
Pharmaceuticals regarding a merger, but at a reduced exchange ratio.

On November 23, 1999, following the Celtrix board meeting, Insmed
Pharmaceuticals learned of the Celtrix board's decision to request a
modification of the exchange ratio. Insmed Pharmaceuticals rejected the request
for the change but made a counter offer, which they conveyed to Celtrix.

On November 24, 1999, the Celtrix board had a telephonic meeting to discuss
the revised Insmed Pharmaceuticals proposal. It also discussed the financial
position of both companies and the ability of the combined companies to obtain
additional financing. The board instructed Pacific Growth to reiterate its
position to Insmed Pharmaceuticals on what it believed was a fair exchange
ratio.

On November 29, 1999, the board of Insmed Pharmaceuticals met in New York to
discuss the Celtrix transaction. The board of directors of Insmed
Pharmaceuticals approved the reorganizations at the exchange

43
<PAGE>

ratio proposed by Celtrix on November 24, 1999. After consideration and
discussions, other than one director who abstained solely because of a
potential conflict of interest as described on page , the Insmed
Pharmaceuticals board unanimously:

. determined that the terms of the reorganizations were desirable to Insmed
Pharmaceuticals;

. approved the terms of the reorganization agreement;

. authorized Insmed Pharmaceuticals' officers to undertake all acts
necessary or desirable to effectuate the reorganizations;

. ratified and approved all actions taken previously by any officer or
director of Insmed Pharmaceuticals in connection with the
reorganizations; and

. recommended approval of the reorganization agreement by the holders of
the Insmed Pharmaceuticals common stock and preferred stock.

Insmed Pharmaceuticals informed Celtrix of its decision to accept the
Celtrix board's revised exchange ratio. The Celtrix board met telephonically
later that day to discuss the proposed reorganizations. A representative from
Pacific Growth delivered its oral opinion (which was subsequently confirmed in
writing) that, as of such date, the consideration to be received by the holders
of Celtrix common stock and preferred stock pursuant to the terms of the
reorganization agreement was fair to such holders from a financial point of
view. Celtrix's financial advisor and legal counsel reviewed the final draft of
the reorganization agreement. After consideration and discussion of the
presentations of its financial and legal advisors, the Celtrix board
unanimously:

. determined that the terms of the reorganizations were fair to, and in the
best interests of, the holders of the Celtrix common stock from a
financial point of view;

. approved the terms of the reorganization agreement;

. authorized Celtrix's officers to undertake all acts necessary or
desirable to effectuate the reorganizations;

. ratified and approved all actions taken previously by any officer or
director of Celtrix in connection with the reorganizations; and

. recommended approval of the reorganization agreement by the holders of
the Celtrix common stock.

On November 30, 1999, the parties signed the reorganization agreement.

On January 13, 2000, Insmed Pharmaceuticals, Insmed Incorporated and the
several investors executed the purchase agreement with respect to the
financing.

On February 4, 2000, the Insmed Pharmaceuticals board of directors met
telephonically to discuss the proposed amendment and restatement of the
reorganization agreement. After consideration and discussions, other than one
director who abstained solely because of a potential conflict of interest as
described on page , the Insmed Pharmaceuticals board unanimously:

. determined that the terms of the reorganizations were desirable to Insmed
Pharmaceuticals;

. approved the terms of the amended and restated reorganization agreement;

. authorized Insmed Pharmaceuticals' officers to undertake all acts
necessary or desirable to effectuate the reorganizations;

. ratified and approved all actions taken previously by any officer or
director of Insmed Pharmaceuticals in connection with the
reorganizations; and

. recommended approval of the amended and restated reorganization agreement
by the holders of the Insmed Pharmaceuticals common stock and preferred
stock.

44
<PAGE>

On February 9, 2000, the Celtrix board of directors met telephonically to
discuss the proposed amendment and restatement of the reorganization agreement.
A representative from Pacific Growth delivered an updated written opinion that,
as of November 29, 1999, the consideration to be received by the holders of
Celtrix common stock and preferred stock pursuant to the terms of the amended
and restated reorganization agreement was fair to such holders from a financial
point of view. After consideration and discussion of the presentations of its
financial and legal advisors, the Celtrix board unanimously:

. determined that the terms of the reorganizations were fair to, and in the
best interests of, the holders of the Celtrix common stock from a
financial point of view;

. approved the terms of the amended and restated reorganization agreement;

. authorized Celtrix's officers to undertake all acts necessary or
desirable to effectuate the reorganizations;

. ratified and approved all actions taken previously by any officer or
director of Celtrix in connection with the reorganizations; and

. recommended approval of the amended and restated reorganization agreement
by the holders of the Celtrix common stock.

On February 9, 2000, the amended and restated reorganization agreement was
signed.

Celtrix's Reasons for the Reorganizations

In reaching its decision to approve the reorganization agreement, the
Celtrix board of directors consulted with Celtrix senior management about
strategic and operational matters. Celtrix also sought the advice of its legal
counsel and independent accountants regarding:

. the legal duties of the Celtrix board of directors;

. regulatory, tax and accounting matters;

. the terms of the reorganization agreement;

. the other definitive agreements contemplated by that agreement; and

. other relevant matters.

The board's primary motivation for the reorganizations is the risk
associated with Celtrix's singular focus. Celtrix is a single product company
with a valuation in early 1999 of less than $50 million. If Celtrix had chosen
not to merge, the risk associated with a single product company would remain
and would potentially have adverse effects on raising enough capital for
further development of SomatoKine. Celtrix would have to solicit corporate
partnerships for essentially all SomatoKine indications and in the process give
up large parts of the potential upside. Celtrix stockholders expect more upside
than what they could realize based on royalties. The market capitalization of
less than $50 million with a share price of approximately $1.00 leads to a
degree of illiquidity and prevents larger funds from investing. A merger of the
right companies can solve the problems illustrated above. Multiple product
companies are more diverse with respect to risk. Increased capitalization with
increased share price enhances access to capital so as to allow for development
of potential products without having to give up major rights.

The proposed merger of Celtrix with Insmed Pharmaceuticals would fulfill the
desired objectives as illustrated in the following table.

<TABLE>
<CAPTION>
Prior to Merger Projected
Celtrix Announcement Post-Merger
------- --------------- ------------
<S> <C> <C>
Cash......................................... <$2 million >$40 million
Products..................................... 1 2
Indications.................................. 3 4
</TABLE>

45
<PAGE>

The Celtrix board of directors also consulted with Pacific Growth Equities,
Inc. regarding the overall fairness from a financial point of view of the
aggregate consideration that Celtrix stockholders will receive pursuant to the
reorganization agreement. While the Celtrix board of directors did not assign
any relative weight to the various factors considered, the following were some
of the more important factors considered by Celtrix's board of directors in
approving the reorganization agreement:

. the fact that the consideration contained in the reorganization agreement
would enable Celtrix stockholders to hold approximately 43.2% of the
outstanding common stock of Insmed Incorporated on a fully diluted basis
(based on ownership prior to completion of the $34.5 million financing
described under "Recent Developments" on page );

. the opinion of Pacific Growth, dated as of February 9, 2000, the day the
amended and restated reorganization was executed, that as of November 29,
1999, the day before the original reorganization agreement was executed,
the consideration to Celtrix stockholders provided for in the amended and
restated reorganization agreement was fair to Celtrix stockholders from a
financial point of view. We attach a copy of that opinion, which states
certain important qualifications, assumptions made, matters considered,
areas of reliance on others and limitations as Annex B, and is included a
summary description of that opinion in "Opinion of Celtrix's Financial
Advisor" on page ;

. the consolidation taking place among biotechnology companies suggests
that large companies will be better able to compete in this industry and
that it is an attractive time for smaller companies to consider strategic
alternatives. For example, the Celtrix board believes it is beneficial
for Celtrix to be part of a larger organization with greater market
potential and offer its products as part of a broader range of products
for treating a variety of metabolic disorders;

. the value of Celtrix continuing as a stand-alone entity compared to the
prospects for a combined company. In this context, the following factors
were particularly compelling:

.. that the reorganizations offered a strategic fit between Celtrix's and
Insmed Pharmaceuticals' core businesses; and

.. that the reorganizations would afford Celtrix stockholders the chance,
as equity holders of Insmed Incorporated, to participate in the
continued growth of a more effective competitor with greater financial
resources, increased business opportunities and expanded earnings
potential than would be possible for Celtrix as an independent
company;

. the lack of any substantial impediments to the ability of the Celtrix
board to entertain alternative proposals for a business combination
transaction, negotiate and give information to third parties and
terminate the reorganization agreement in the event of an alternative
proposal, if the Celtrix board's fiduciary duties to its stockholders
requires;

. the opportunity to raise additional capital in order to continue clinical
trials for SomatoKine in existing indications;

. Celtrix management's assessment of possible strategic alternatives,
including remaining a separate company, entering joint ventures or
merging with a third party;

. the fact that, although Celtrix did not conduct a formal auction, the
Celtrix board believed that a more attractive offer would not be
available based on previous merger discussions with five other companies;

. the potential to pursue additional indications for Celtrix's main
product;

. the reduction of strategic risk inherent in an expanded product
portfolio;

. the opportunity for the combined entity to achieve potential cost
synergies, through consolidation and integration of certain
manufacturing, research, development, sales and administrative operations
and functions;

. recent and historical market prices of Celtrix common stock;

46
<PAGE>

. the larger market capitalizations of Insmed Incorporated compared to
Celtrix and the corresponding increase in trading liquidity of the Insmed
Incorporated common stock compared to the Celtrix common stock;

. the likelihood that the parties will complete the reorganizations,
including the likelihood of satisfying the conditions to completion of
the reorganizations, the experience, reputation and financial condition
of Insmed Pharmaceuticals and the risks to Celtrix if the reorganizations
are not completed; and

. the other terms and attributes of the reorganizations, including the tax-
free nature of the transaction with respect to Celtrix stockholders.

The Celtrix board also considered a number of potentially negative factors
in its deliberations concerning the reorganizations, including, but not limited
to:

. the loss of control over the future operations of Celtrix following the
merger and the resulting potential for disruption in operations arising
from the change in control of Celtrix, including the possible change to
or cessation of Celtrix's SomatoKine clinical and development programs;

. the benefits of the merger may be delayed or may not be achieved;

. the potential disruption of Celtrix's business that might result from
employee uncertainty and lack of focus following announcement of the
merger and during the combination of operations;

. the possibility that the merger would not be completed and the effect of
the public announcement of the merger on Celtrix's operations, its
ability to attract and retain employees and the effects on its public
stock price from the public announcement of a termination of the
reorganization agreement;

. the incurrance of substantial expenses in connection with the merger;

. the risk that key personnel may not remain employed by Insmed
Incorporated; and

. the other risks described under "Risk Factors" on page .

After due consideration, the Celtrix board concluded that the benefits of
the transaction to Celtrix and its stockholders outweighed the risks associated
with the foregoing factors.

The foregoing discussion of the information and factors considered by the
Celtrix board of directors is not exhaustive but we believe it includes all
material factors considered by the Celtrix board of directors.

Insmed Pharmaceuticals' Reasons for the Reorganizations

Other than one director who abstained solely because of a potential conflict
of interest as described on page , the Insmed Pharmaceuticals' board of
directors has unanimously approved the reorganizations and the reorganization
agreement. It believes the reorganizations are beneficial to Insmed
Pharmaceuticals and its shareholders for the following reasons:

. the reorganizations will increase our product development opportunities.
The combined entity will have a clinical stage product portfolio that
includes drugs for type 1 and type 2 diabetes, polycystic ovary syndrome,
hip fracture, osteoporosis, severe burns and wound healing. Insmed
Pharmaceuticals' board of directors believes that the expanded product
portfolio should increase business development activities and financial
results;

. the increased number of products increases the opportunity for commercial
success while decreasing the potential adverse financial impact that
could result from failure of individual products to perform successfully
in clinical development;

. the reorganizations will exchange illiquid shares of privately held
Insmed Pharmaceuticals for liquid shares of a publicly held company. The
shares in the new company will trade on The Nasdaq SmallCap Market
improving Insmed Pharmaceuticals shareholders' liquidity;

47
<PAGE>

. the reorganizations will enable the combined company to pursue a number
of potential product opportunities that Insmed Pharmaceuticals and
Celtrix could not otherwise pursue as stand-alone companies;

. the combined company may obtain better commercial terms in partnering and
other transactions due to its increased size, product development
portfolio and bargaining power;

. the reorganizations will enable the companies to combine their research
and development programs and should therefore enable the combined entity
to achieve greater operating synergies;

. the combined company will have greater financial resources to develop its
products than either individual company on a stand-alone basis;

. the core technologies of Insmed Pharmaceuticals and Celtrix are
complementary; and

. the combined company will have greater leverage in obtaining financing
for its operations.

The Insmed Pharmaceuticals board also considered a number of potentially
negative factors in its deliberations concerning the reorganizations,
including, but not limited to:

. the dilutive effects of the issuance of shares in the reorganizations;

. the potential disruption to the business of both companies following
announcement of the reorganizations, including the effects of employee
uncertainty, the possibility that key employees may leave Insmed
Pharmaceuticals or Celtrix, and the possibility that corporate partners
may not approve of the reorganizations or may decide to terminate their
relationship with the combined company;

. additional potential problems and costs associated with the integration
of both companies into a single enterprise;

. the possibility that the merger would not be completed; and

. the other risks described under "Risk Factors" on page .

After due consideration, the Insmed Pharmaceuticals' board concluded that
the benefits of the transaction to Insmed Pharmaceuticals and its shareholders
outweighed the risks associated with the foregoing factors.

The foregoing discussion of the information and factors considered by the
Insmed Pharmaceuticals board of directors is not exhaustive but we believe it
includes all material factors considered by the Insmed Pharmaceuticals board of
directors.

Recommendations of the Boards of Directors

Celtrix. In view of the wide variety of factors considered by the Celtrix
board, it did not find it practicable to quantify, or otherwise attempt to
assign relative weights to the specific factors considered in making its
determination. However, after taking into account all factors described above,
the Celtrix board of directors has unanimously approved and adopted the
reorganization agreement. The Celtrix officers and directors believe that the
reorganization agreement and the transactions related to it are advisable, fair
to and in the best interests of Celtrix and the Celtrix stockholders, and the
Celtrix board unanimously recommends that Celtrix stockholders vote "FOR"
adoption of the reorganization proposal. In approving and adopting the
reorganization proposal, the Celtrix board of directors took into account the
potential conflicts of interest of certain officers and directors of the
companies resulting from their future employment with Insmed Incorporated as
well as other interests that may be different from, or in addition to, their
rights as Celtrix stockholders. For a complete discussion of the potential
conflicts of interests that the Celtrix board of directors considered and the
measures the board took to minimize such potential conflicts, please see
"Interests of Common Stockholder and Director of Insmed Pharmaceuticals and
Insmed Incorporated" on page and "Interests of Certain Persons in the
Reorganizations" on pages to . Other than the measures we describe on pages
to , the Celtrix board of directors took no other measures to minimize the
potential conflicts of interests.

48
<PAGE>

Insmed Pharmaceuticals. In view of the wide variety of factors considered by
the Insmed Pharmaceuticals board, it did not find it practicable to quantify,
or otherwise attempt to assign relative weights to the specific factors
considered in making its determination. However, after taking into account all
factors listed above, other than one director who abstained solely because of a
potential conflict of interest as described on page , the Insmed
Pharmaceuticals board of directors has unanimously approved and adopted the
reorganization agreement. The Insmed Pharmaceuticals officers and directors
believe that the reorganization agreement and the transactions related to it
are advisable, fair to and in the best interests of Insmed Pharmaceuticals and
the Insmed Pharmaceuticals shareholders, and, other than one director who
abstained solely because of a potential conflict of interest as described on
page , the Insmed Pharmaceuticals board unanimously recommends that Insmed
Pharmaceuticals shareholders vote "FOR" approval of the reorganization
agreement, including the related plan of exchange. In approving the
reorganization agreement, the Insmed Pharmaceuticals board of directors took
into account the potential conflicts of interest of certain officers and
directors of the companies resulting from their future employment with Insmed
Incorporated as well as other interests that may be different from, or in
addition to, their rights as Insmed Pharmaceuticals' shareholders. For a
complete discussion of the potential conflicts of interests that the Insmed
Pharmaceuticals board of directors considered and the measures the board took
to minimize such potential conflicts, please see "Interests of Common
Stockholder and Director of Insmed Pharmaceuticals and Insmed Incorporated" on
page and "Interests of Certain Persons in the Reorganizations" on pages to
. Other than the measures we describe on pages to , the Insmed
Pharmaceuticals board of directors took no other measures to minimize the
potential conflicts of interests.

Opinion of Celtrix's Financial Advisors

Celtrix retained Pacific Growth Equities, Inc. to evaluate the terms of the
merger, as stated in the Agreement and Plan of Reorganization dated November
30, 19999 (the "Original Agreement") and render an opinion as to its fairness.
On November 29, 1999, Pacific Growth rendered its oral opinion (subsequently
confirmed in writing) to the board of directors of Celtrix to the effect that,
as of November 29, 1999, and based on and subject to matters stated in the
opinion, the terms of the merger are fair from a financial point of view to
Celtrix stockholders.

On February 9, 2000, Celtrix, Insmed Incorporated and Insmed Pharmaceuticals
executed an amended and restated form of the agreement and plan of
reorganization (the "Amended Agreement") and on the same day Pacific Growth
rendered its oral opinion, which was confirmed in writing that day to the
effect that as of November 29, 1999, the terms of the merger as reflected in
the Amended Agreement are fair from a financial point of view to Celtrix
stockholders.

The full text of Pacific Growth's revised written opinion dated February 9,
2000, which sets forth the assumptions made, matters considered, and
limitations on the review undertaken, is attached as Annex B and is
incorporated herein by reference. This summary is qualified in its entirety by
reference to the full text of such opinion. Holders of Celtrix common stock are
urged to, and should, read this opinion carefully in its entirety. Pacific
Growth has consented to the use of its fairness opinion in connection with this
joint proxy statement/prospectus. Pacific Growth's opinion addresses only the
fairness of the merger consideration from a financial point of view to Celtrix,
and it does not address any other aspect of the merger nor does it constitute a
recommendation to any holder of Celtrix common stock as to how to vote with
respect to the merger.

In connection with its opinion, Pacific Growth:

. reviewed certain publicly available financial information and other
information concerning Celtrix and Insmed Pharmaceuticals and certain
internal analyses and other information furnished to it by Celtrix and
Insmed Pharmaceuticals; and

. held discussions with the members of senior management of Celtrix and
Insmed Pharmaceuticals regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company.

49
<PAGE>

In addition, Pacific Growth:

. reviewed the historical reported prices and trading activity for Celtrix
common stock;

. compared certain financial information for both Celtrix and Insmed
Pharmaceuticals with similar information for selected companies whose
securities are publicly traded;

. compared certain stock market information and valuations for Celtrix and
Insmed Pharmaceuticals with similar information for certain companies
whose securities are publicly traded;

. analyzed and compared certain financial information for Insmed
Pharmaceuticals about certain public traded companies at time of their
initial public offering; and

. performed such other studies and analyses and considered such other
factors as it deemed appropriate.

In conducting its review and arriving at its opinion, Pacific Growth assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for the purposes of rendering its opinion. Pacific Growth
assumed, with the consent of Celtrix, that Insmed Pharmaceuticals would account
for the merger as a purchase of Celtrix by Insmed Pharmaceuticals and would be
a tax-free transaction for the stockholders of Celtrix for federal income tax
purposes, and that the parties will complete the merger in accordance with the
terms of the Amended and Restated Agreement and Plan of Reorganization dated
February 9, 2000. Pacific Growth did not make an independent evaluation or
appraisal of the assets of Celtrix or Insmed Pharmaceuticals nor was Pacific
Growth furnished with any such evaluations or appraisals. The Pacific Growth
opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of the opinion letter.

The following is a summary of the analyses performed and factors considered
by Pacific Growth in connection with rendering the Pacific Growth Opinion.

Historical Financial Position. In rendering its opinion, Pacific Growth
reviewed and analyzed the historical financial position of Celtrix and Insmed
Pharmaceuticals which included:

. an assessment of each of Celtrix's and Insmed Pharmaceuticals' recent
financial statements;

. an analysis of each of Celtrix's and Insmed Pharmaceuticals' revenue,
growth and operating performance trends; and

. an assessment of Celtrix's and Insmed Pharmaceuticals' balance sheet
information.

50
<PAGE>

Historical Stock Price Performance. Pacific Growth reviewed and analyzed the
daily closing per share market prices and trading volume for Celtrix common
stock from November 4, 1999 through November 24, 1999. Pacific Growth also
reviewed the daily closing prices per share of Celtrix common stock and
compared the movement of such daily closing prices with the movement of the
AMEX Biotechnology Index, Nasdaq Biotechnology Index and the S&P 500 Index for
the period November 1, 1998 through November 19, 1999.

Analysis of Comparable Publicly Traded Companies at the time of Initial
Public Offering. This analysis examines a company's valuation in the public
market as compared to the valuation in the public market of other comparable
publicly traded companies at the time of their respective initial public
offering. Pacific Growth compared the financial information, as described
below, relating to Insmed Pharmaceuticals to certain corresponding information
for a group of comparable publicly traded companies. The eight publicly traded
companies included in this analysis in alphabetical order were:

. Biomarin Pharmaceutical, Inc. (Nasdaq: BMRN);

. Biopure Corporation (Nasdaq: BPUR);

. Collateral Therapeutics, Inc. (Nasdaq: CLTX);

. Combichem, Inc. (Nasdaq: CCHM);

. Curagen Corporation (Nasdaq: CRGN);

. Immtech International, Inc. (Nasdaq: IMMT);

. Iomed, Inc. (NYSE: IOX); and

. Vaxgen, Inc. (Nasdaq: VXGN).

Such financial information included, among other things:

. share price at time of initial public offering; and

. common equity market capitalization at time of initial public offering.

51
<PAGE>

Insmed Pharmaceuticals
Public Company Comparables

<TABLE>
<CAPTION>
Share Shares
Stock Price Outstanding Market
Company Ticker at IPO at IPO Capitalization
------- ------ ------ ----------- --------------
(mm) ($ in mm)
<S> <C> <C> <C> <C>
Biomarin Pharmaceutical, Inc. ........ BMRN $13.00 34.1 $444
Biopure Corporation................... BPUR $12.00 22.3 $267
Collateral Therapeutics, Inc. ........ CLTX $ 7.25 10.5 $ 76
Combichem, Inc. ...................... CCHM $ 8.00 13.2 $106
Curagen Corporation................... CRGN $11.50 12.8 $148
Immtech International, Inc. .......... IMMT $10.00 4.9 $ 49
Iomed, Inc. .......................... IOX $ 7.50 7.2 $ 54
Vaxgen, Inc. ......................... VXGN $13.00 10.8 $140
Mean.................................. $160
Mean excluding high and low........... $132
</TABLE>

Pacific Growth noted that, based on the reported financial information, the
mean market capitalization of selected companies comparable to Insmed
Pharmaceuticals was $160 million, and the mean for those same companies,
excluding those comparable companies with the highest and lowest market
capitalizations, was $132 million. Pacific Growth concluded that this analysis
supports the view that the terms of the merger are fair from a financial point
of view to the stockholders of Celtrix.

Analysis of Comparable Publicly Traded Companies. This analysis examines a
company's valuation in the public market as compared to the valuation in the
public market of other comparable publicly traded companies. Pacific Growth
compared certain financial information and commonly used valuation measurements
described below relating to Celtrix to certain corresponding information for a
group of comparable publicly traded companies. Pacific Growth chose the
comparable companies on the following basis:

. the companies were publicly traded;

. the companies were in a similar stage of product development; and/or

. the companies focused on novel therapeutics for a variety of conditions
including age related disorders, autoimmune disorders, cardiovascular and
inflammatory diseases as well as diseases related to the skin and tissue.

The 17 publicly traded companies included in this analysis in alphabetical
order were:

. Advanced Tissue Sciences, Inc. (Nasdaq: ATIS);

. Alexion Pharmaceuticals, Inc. (Nasdaq: ALXN);

. Alteon, Inc. (Nasdaq: ALTNC);

. Amylin Pharmaceuticals, Inc. (Nasdaq: AMLN);

. Anika Therapeutics (Nasdaq: ANIK);

. AutoImmune, Inc. (Nasdaq: AIMM);

. Connetics Corporation (Nasdaq: CNCT);

. Corixa Corporation (Nasdaq: CRXA);

. Cubist Pharmaceuticals, Inc. (Nasdaq: CBST);

. Ergo Science Corporation (Nasdaq: ERGO);

52
<PAGE>

. GelTex Pharmaceuticals, Inc. (Nasdaq: GELX);

. Ligand Pharmaceuticals, Inc. (Nasdaq: LGND);

. Medarex, Inc. (Nasdaq: MEDX);

. Neurocrine Biosciences, Inc. (Nasdaq: NBIX);

. Noven Pharmaceuticals, Inc. (Nasdaq: NOVN);

. Regeneron, Inc. (Nasdaq: REGN); and

. Scios, Inc. (Nasdaq: SCIO).

Financial information for the comparable companies included, among other
things:

. common equity market capitalization;

. cash position;

. ratios adjusted for cash or technology value;

. ratios of market capitalization to cash;

. ratios of market capitalization to technology value; and

. discount of common stock market price relative to 52-week high per share
market price.

Celtrix Pharmaceuticals, Inc.
Selected Public Company Comparables

<TABLE>
<CAPTION>
Market
Market Market Capitalization/ Discount
Price Primary Market Net Cash/ Technology Capitalization/ Technology to 52 Week
Ticker 11/29/99 Shares Capitalization Cash Share Value Cash Value High
------ -------- ------- -------------- ---- --------- ---------- --------------- --------------- ----------
(mm) (mm)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Celtrix
Pharmaceutical.. CTRX 1 3/4 26.6 $ 46 $ 2 $0.08 $ 44 22.4 1.0 -41.1%
Advanced Tissue
Sciences....... ATIS 3 3/16 52.7 $168 $18 $0.33 $151 9.6 1.1 -46.9%
Alexion
Pharmaceuticals.. ALXN 17 11.3 $192 $28 $2.51 $163 6.8 1.2 -4.2%
Alteon, Inc..... ALTNC 31/32 19.2 $ 19 $24 $1.26 $ (6) 0.8 -3.4 -76.0%
Amylin
Pharmaceuticals.. AMLN 8 1/2 38.5 $327 $38 $1.00 $288 8.5 1.1 -11.7%
Anika
Therapeutics... ANIK 6 1/16 9.8 $ 59 $15 $1.53 $ 44 4.0 1.3 -32.6%
AutoImmune,
Inc............ AIMM 1 16.7 $ 17 $ 8 $0.50 $ 8 2.0 2.0 -76.5%
Connetics
Corporation.... CNCT 6 3/4 21.6 $146 $14 $0.63 $132 10.7 1.1 -34.1%
Corixa
Corporation.... CRXA 17 1/8 14.9 $256 $55 $3.71 $200 4.6 1.3 -5.5%
Cubist
Pharmaceuticals.. CBST 10 17.7 $177 $10 $0.55 $167 18.1 1.1 -10.1%
Ergo Science
Corporation.... ERGO 1 1/4 14.3 $ 18 $30 $2.13 $(13) 0.6 -1.4 -70.6%
Geltex
Pharmaceuticals.. GELX 11 16.9 $186 $62 $3.69 $123 3.0 1.5 -62.1%
Ligand
Pharmaceuticals.. LGND 11 47.7 $525 $46 $0.96 $479 11.4 1.1 -25.4%
Medarex, Inc.... MEDX 11 7/16 31.6 $361 $20 $0.64 $341 17.8 1.1 -0.5%
Neurocrine
Biosciences.... NBIX 14 7/16 19.1 $275 $49 $2.54 $227 5.7 1.2 -9.8%
Noven
Pharmaceuticals.. NOVN 13 21.5 $280 $10 $0.45 $270 29.0 1.0 -8.4%
Regeneron....... REGN 7 11/16 27.7 $213 $64 $2.31 $149 3.3 1.4 -24.1%
Scios........... SCIO 3 3/4 38.5 $144 $22 $0.57 $122 6.5 1.2 -70.0%
Mean............ $198 $30 $1.49 $168 8.4 0.8 -33.4%
Mean excluding
high and low... $188 $29 $1.42 $159 7.5 1.1 -32.2%
</TABLE>

53
<PAGE>

The financial information used in connection with the analysis provided
below with respect to Celtrix was based on publicly available information. In
the case of the publicly traded company comparables listed above the financial
information used in connection with the analysis provided below was based on
the most recent, as of November 29, 1999, publicly available income statement
and balance sheet information. Pacific Growth noted that, based on the reported
financial information and most recent common equity prices as of November 29,
1999:

. the multiple of market capitalization to cash was 22.4x for Celtrix
compared to the mean, excluding those comparable companies with the
highest and lowest multiple, of 7.5x for companies selected as comparable
to Celtrix;

. the multiple of market capitalization to technology value was 1.0x for
Celtrix compared to the mean, excluding those comparable companies with
the highest and lowest multiple, of 1.1x for companies selected as
comparable to Celtrix; and

. the discount to 52-week high was 41.1% for Celtrix compared to a mean,
excluding those comparable companies with the highest and lowest
discount, of 32.2% for companies comparable to Celtrix.

Analysis of Discounted Forward Revenues. Pacific Growth analyzed the
discounted forward revenues for Insmed Pharmaceuticals using financial and
operating data made available from the internal records of Insmed
Pharmaceuticals for projections of Insmed Pharmaceuticals for the fiscal years
1999 through 2008. Pacific Growth used a terminal multiple of eight times
revenue, based upon an analysis of publicly traded comparable companies and
discount rates from 30% to 40%. The implied value of the company based on this
valuation method was $92.2 million. Pacific Growth noted that this analysis
further supports the position that the terms of the merger are fair from a
financial point of view to the Celtrix stockholders.

Insmed--Discounted Revenue Multiple Analysis
($ in 000s)

2008 Projected Revenue x Revenue Multiple = Non-Discounted Terminal Value
$231,652 x 8 = $1,853,216

<TABLE>
<CAPTION>
Discount Rate Present Value
------------- -------------
<S> <C> <C>
30.0% $134,429
35.0% $ 92,170
40.0% $ 64,069
----- --------
Mean............ 35.0% $ 92,170
</TABLE>

No company used in the above analysis as a comparable company is identical
to Celtrix or Insmed Pharmaceuticals. Accordingly, our analyses take into
account differences in the financial and operating characteristics of the
selected comparable companies and other factors that would affect the public
trading value and acquisition value of those comparable companies.

While the foregoing summary describes analyses and factors that Pacific
Growth deemed material in its presentation to Celtrix's board, it is not a
comprehensive description of all analyses and factors considered by Pacific
Growth. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the applications of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Pacific Growth believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying Pacific Growth's
opinion. In performing its analyses, Pacific Growth considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of Celtrix and Insmed Pharmaceuticals. The analyses
performed by Pacific Growth are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable

54
<PAGE>

than those suggested by such analyses. Accordingly such analyses are subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be sold. Furthermore, no opinion is being expressed as to
the prices at which shares of Celtrix or Insmed common stock may trade at any
future time.

Pursuant to a letter agreement dated December 16, 1998, between Celtrix and
Pacific Growth, the fees payable to Pacific Growth for rendering the Pacific
Growth opinion shall, in the event the reorganizations described in the
reorganization agreement (or any other acquisition transactions described in
the Pacific Growth letter agreement) are completed, consist of a "performance
fee" equal to $450,000 plus 1% of the value of the acquisition transaction that
exceeds $15 million. Based on the reorganizations described in this joint proxy
statement/prospectus, the performance fee has been calculated to be $879,003 of
which $15,000 was paid as a retainer to Pacific Growth and of which $864,003
will be payable upon completion of the reorganizations. In addition to the fee
provided for above, Celtrix agreed to promptly reimburse Pacific Growth, upon
request, for all of Pacific Growth's reasonable and accountable out-of-pocket
expenses (including, without limitation, travel expenses, charges for public
reference documents and database services, statistical analysis data and legal
fees and expenses) incurred by Pacific Growth in connection with the
performance of its services pursuant to the letter agreement, up to a maximum
of $50,000. Celtrix has agreed to indemnify Pacific Growth and its directors,
officers, agents, employees and controlling persons, for certain costs,
expenses, losses, claims, damages and liabilities related to or arising out of
its rendering of services under its engagement.

The Celtrix board retained Pacific Growth based upon Pacific Growth's
qualifications, reputation, experience and expertise. Pacific Growth, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
public equity underwritings, private placements and valuations for corporate
and other purposes. Pacific Growth maintains a market in the common stock of
many publicly traded biotechnology and other companies and regularly publishes
research reports regarding the biotechnology industry and publicly traded
companies in the biotechnology industry.

Interests of Common Stockholder and Director of Insmed Pharmaceuticals and
Insmed Incorporated

Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed
Incorporated board of directors, is a General Partner of BioAsia Investments,
LLC. BioAsia is the general partner of Biotechnology Development Fund, L.P. and
Biotechnology Development Fund III, L.P. As of February 9, 2000, the
Biotechnology Fund(s) owned:

. 917,500 shares of Insmed Pharmaceuticals Series B Preferred Stock;

. 4,530,516 shares of Celtrix common stock;

.an option to purchase 75,000 shares of Celtrix common stock at an exercise
price of $2.438 per share which the Biotechnology Fund(s) exercised; and

.a warrant to purchase 615,258 shares of Celtrix common stock at an
exercise of $2.68 per share which the Biotechnology Fund(s) exercised.

In addition, BioAsia has the right to designate one person as a non-voting
observer to attend all meetings of the Celtrix board of directors. Since
November 1998 and through the date of this joint proxy statement/prospectus,
Dr. Engleman has attended nine of thirteen of Celtrix's board of directors
meetings as the BioAsia designee following the grant of board observer rights
to BioAsia. Dr. Engleman participated in a number of Celtrix board meetings in
an "observer" status, with no voting rights. Further, he acknowledged his
position as a director of Insmed Pharmaceuticals and any possible conflict of
interest as described on page , arising out of his association with both
companies by absenting himself from the process and discussions concerning the
proposed merger with Insmed Pharmaceuticals. At board meetings of Insmed
Pharmaceuticals and Insmed Incorporated, Dr. Engleman abstained on all voting
matters related to the reorganizations.

55
<PAGE>

Interests of Certain Persons in the Reorganizations

In considering the recommendation of the Celtrix board of directors and
Insmed Pharmaceuticals board of directors with respect to the reorganizations,
Celtrix stockholders and Insmed Pharmaceuticals shareholders should be aware
that certain directors and officers of Celtrix and Insmed Pharmaceuticals have
interests in respect of the reorganizations that are in addition to, or
different from, their interests as stockholders generally. In connection with
their approval of the reorganization agreement and the transactions
contemplated by that agreement, the Celtrix board of directors and the Insmed
Pharmaceuticals board of directors also considered the interests of Celtrix
management and directors and Insmed Pharmaceuticals management and directors
described below. See also "Interests of Common Stockholder and Director of
Insmed Pharmaceuticals and Insmed Incorporated" immediately preceding this
section.

Considerations of the Celtrix Board of Directors and Officers

. Celtrix has entered into a consulting agreement with Andreas Sommer,
Ph.D. under which Dr. Sommer would receive a monthly retainer of $6,000
for a period of eighteen months after the reorganizations;

. Insmed Incorporated has entered into an arrangement with Malcolm J.
McKay, Ph.D. under which he would receive 106.5% of the base salary he
currently receives from Celtrix for a period terminating on December 31,
2000, plus standard Insmed Incorporated employee benefits;

. upon closing of the reorganizations, Celtrix must pay a $50,000
transaction bonus to each of the current officers (and one former
officer) of Celtrix;

. indemnification and limitation of liability provisions covering Celtrix
directors and officers will remain substantially the same in all material
respects for Insmed Incorporated directors and officers after the
effective time of the reorganizations;

. immediately prior to the effective time of the reorganizations, all
outstanding options to purchase shares of Celtrix common stock, including
those options held by Celtrix officers and directors, shall become fully
vested and exercisable. As of December 31, 1999, there were outstanding
options to purchase 1,410,722 shares of Celtrix common stock, of which
802,767 were vested. Officers and directors hold options to purchase
1,130,000 of such shares, 603,199 of which were vested as of December 31,
1999; and

. at the effective time of the reorganizations, each outstanding and
unexercised option to purchase Celtrix common stock, including those held
by directors and officers, will convert into a new option to purchase a
number of shares of Insmed Incorporated common stock equal to the number
of Celtrix shares covered by the option immediately prior to the
reorganizations.

The board provided for the $50,000 transaction bonuses to current officers
(and one former officer, as additional severance) shortly after the company had
completed a major restructuring in the fall of 1998. The restructuring included
a 90% reduction in workforce. In providing for these bonuses, the board
considered the need to provide sufficient incentives to retain management
capable of accomplishing the company's primary objectives of advancing its
SomatoKine programs by either corporate collaboration and/or merger with an
entity to form an entity more able to advance the programs. From the time of
the implementation of the bonuses until the announcement of the proposed merger
with Insmed, Celtrix officers pursued more than 15 possible corporate
collaborations. The board considers the consulting and employment agreements
with several key Celtrix employees and severance packages and accelerated
vesting of options with all Celtrix employees to be necessary incentives for
employees to remain with the company through the transition period from the
announcement of the merger until effectiveness. Further, the board recognized
the need to provide an acquiring company with access to several key employees
after completion of the merger. As such, the board deemed these measures
essential to a successful transaction and essential in protecting the interests
of Celtrix stockholders.

The Celtrix board of directors did not take any other measures to minimize
the potential conflict of interests.

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<PAGE>

Considerations of the Insmed Pharmaceuticals Board of Directors

. under the terms of the reorganization agreement, Insmed Incorporated will
name Geoffrey Allan, Ph.D. Chief Executive Officer and President;

. under the terms of the reorganization agreement, Insmed Incorporated will
name Michael D. Baer Chief Financial Officer;

. upon completion of the reorganizations, Insmed Pharmaceuticals will pay a
transaction bonus of $120,000 to Geoffrey Allan, Ph.D., its President,
Chief Executive Officer and Chairman of the Board, and $50,000 to Michael
D. Baer, its Chief Financial Officer;

. under the terms of the reorganization agreement, Celtrix and Insmed
Pharmaceuticals agree to cause election of Geoffrey Allan, Ph.D., Kenneth
G. Condon, Graham K. Crooke, MB.BS, Steinar J. Engelsen, M.D. and Edgar
G. Engleman, M.D. to the Insmed Incorporated board of directors;

. indemnification and limitation of liability provisions covering Insmed
Pharmaceuticals directors and officers will remain substantially the same
in all material respects for Insmed Incorporated officers and directors
after the effective time of the reorganizations;

. the directors' and officers' outstanding and unexercised options to
purchase Insmed Pharmaceuticals common stock will convert into new
options or new warrants, as the case may be, to purchase Insmed
Incorporated common stock according to the reorganization exchange
formula; and

. directors and officers of Insmed Pharmaceuticals held options and
warrants to purchase 734,166 shares (363,331 of which are exercisable) of
Insmed Pharmaceuticals common stock as of December 31, 1999.

The compensation committee concluded that the transaction bonuses to Messrs.
Allan and Baer were essential to a successful transaction. In determining these
bonuses, the compensation committee considered the need to provide sufficient
incentives to retain these officers through the closing of the reorganizations
and the need for the diligent efforts of Messrs. Allan and Baer in completing
the reorganizations. The compensation committee consists solely of independent
outside directors of Insmed Pharmaceuticals.

The Insmed Pharmaceuticals board of directors did not take any other
measures to minimize the potential conflict of interests.

Material Federal Income Tax Consequences

The following discusses the material federal income tax consequences of the
merger to Celtrix stockholders or the share exchange to Insmed Pharmaceuticals
shareholders. This discussion and the legal opinions described below are based
on current law, which is subject to change at any time, possibly with
retroactive effect. This discussion and the legal opinions are not a complete
description of all tax consequences of the reorganizations and, in particular,
do not address all of the federal income tax consequences applicable to the
personal circumstances of Celtrix or Insmed stockholders or to taxpayers that
are subject to special treatment under federal income tax law including, but
not limited to, the Celtrix Series A Preferred stockholder to the extent it
receives Insmed Incorporated common stock in exchange for accrued but unpaid
dividends. In addition, this discussion and the legal opinions do not address
the tax consequences of the reorganizations under applicable state, local or
foreign laws. We encourage you to consult with your own tax advisor about the
tax consequences of the merger or the share exchange, as applicable, in light
of your particular circumstances, including the application of any state, local
or foreign law.

In the opinion of Venture Law Group, a Professional Corporation, counsel to
Celtrix, the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and subject to

57
<PAGE>

the limitations referred to above:

. Celtrix and Insmed Incorporated will not recognize gain or loss on
completion of the merger;

. a Celtrix stockholder will not recognize gain or loss on the exchange of
Celtrix stock for Insmed Incorporated common stock, except for the
receipt of cash for a fractional share;

. the aggregate basis of the Insmed Incorporated common stock received by a
Celtrix stockholder, including any fractional share will be the same as
the stockholder's aggregate basis in the Celtrix stock surrendered;

. the holding period of the Insmed Incorporated common stock received by a
Celtrix stockholder will include the stockholder's holding period for the
Celtrix stock surrendered, if the Celtrix stock is held as a capital
asset; and

. a Celtrix stockholder who receives cash for a fractional share of Insmed
Incorporated common stock will recognize gain or loss equal to the
difference between the cash received and his or her basis in the
fractional share.

In the opinion of Hunton & Williams, counsel to Insmed Pharmaceuticals, the
Insmed Pharmaceuticals shareholders' exchange of Insmed Pharmaceuticals stock
for Insmed Incorporated common stock will qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code or as part of an
exchange within the meaning of Section 351 of the Internal Revenue Code; and:

. Insmed Pharmaceuticals and Insmed Incorporated will not recognize gain or
loss on completion of the share exchange;

. an Insmed Pharmaceuticals shareholder will not recognize gain or loss on
the exchange of Insmed Pharmaceuticals stock for Insmed Incorporated
common stock, except for to the receipt of cash for a fractional share;

. the aggregate basis of the Insmed Incorporated common stock received by
an Insmed Pharmaceuticals shareholder, including any fractional share,
will be the same as the shareholder's aggregate basis in the Insmed
Pharmaceuticals stock surrendered;

. the holding period of Insmed Incorporated common stock received by an
Insmed Pharmaceuticals shareholder will include the shareholder's holding
period for the Insmed Pharmaceuticals stock surrendered, if the Insmed
Pharmaceuticals stock is held as a capital asset; and

. an Insmed Pharmaceuticals shareholder who receives cash for a fractional
share of Insmed Incorporated common stock will recognize gain or loss
equal to the difference between the cash received and his or her basis in
the fractional share.

Receipt by Celtrix of a tax opinion of Venture Law Group, a Professional
Corporation as of the closing date of the merger, and receipt by Insmed
Pharmaceuticals of a tax opinion of Hunton & Williams as of the closing date of
the share exchange are conditions to completion of each of the reorganizations.
The opinions of Venture Law Group, a Professional Corporation and Hunton &
Williams are based on, and the opinions to be given as of the respective
closing dates of the merger and the share exchange will be based on, customary
assumptions and representations made by Insmed Incorporated, Celtrix, and
Insmed Pharmaceuticals, including factual assumptions and representations
regarding the consideration exchanged in the merger and the share exchange,
Insmed Incorporated's future business plans for Insmed Pharmaceuticals and
Celtrix, and the prior and future dealings among Insmed Incorporated, Celtrix,
Insmed Pharmaceuticals and their respective shareholders. An opinion of counsel
represents counsel's best legal judgment and is not binding on the Internal
Revenue Service or any court, and we will not seek any rulings from the
Internal Revenue Service concerning the merger or the share exchange. If the
merger and the share exchange do not qualify as reorganizations within the
meaning of Section 368(a) of the Internal Revenue Code or as parts of an
exchange within the meaning of Section 351 of the Internal Revenue Code, the
exchange of Celtrix stock in the merger and the exchange of Insmed
Pharmaceuticals stock in the share exchange would be taxable to Celtrix
stockholders or Insmed

58
<PAGE>

Pharmaceuticals shareholders, as the case may be. In such case, stockholders
would recognize gain or loss in the same amount as if they had received cash in
the amount of the fair market value of the Insmed Incorporated common stock
received.

The receipt of cash pursuant to the exercise of dissenters' or appraisal
rights by a Celtrix stockholder or an Insmed Pharmaceuticals shareholder will
be a taxable transaction. We encourage any Celtrix stockholder or Insmed
Pharmaceuticals shareholder considering the exercise of dissenters' or
appraisal rights to consult a tax advisor to determine the tax consequences of
exercising his or her dissenters' or appraisal rights.

For federal income tax purposes, both Celtrix and Insmed Pharmaceuticals
have significant net operating loss carryforwards. Federal income tax law
restricts each corporation's ability to use its net operating loss
carryforwards after completion of the Celtrix merger and the Insmed
Pharmaceuticals share exchange. However, for financial accounting purposes,
neither Celtrix nor Insmed Pharmaceuticals has attributed any value to the
future use of its net operating loss carryforwards.

Accounting Treatment

For accounting purposes Insmed Pharmaceuticals, Inc. is the acquiring
company. Insmed Incorporated is a holding company formed by Insmed
Pharmaceuticals in order to facilitate the exchange of shares in accordance
with the reorganization agreement. The historical basis of Insmed
Pharmaceuticals assets and liabilities will carry over to Insmed Incorporated.
We expect to account for the acquisition of Celtrix by Insmed Incorporated
under the purchase method of accounting in accordance with generally accepted
accounting principles. We plan to allocate the purchase price among Celtrix's
consolidated assets and liabilities based on their estimated fair values.

Procedures for Exchange of Stock Certificates

Insmed Incorporated has appointed First Union National Bank as exchange
agent in connection with the reorganizations. Immediately prior to the
effective time of the reorganizations, Insmed Incorporated will deposit with
First Union National Bank, in trust for the benefit of former Celtrix
stockholders and former Insmed Pharmaceuticals shareholders, certificates
representing shares of Insmed Incorporated common stock to be issued and the
cash to be paid instead of fractional shares under the terms of the
reorganization agreement.

After the completion of the reorganizations, First Union National Bank will
send to each former stockholder of Celtrix and Insmed Pharmaceuticals a letter
and instructions for exchanging the stockholder's Celtrix or Insmed
Pharmaceuticals stock certificates for the stock certificates of Insmed
Incorporated. After the reorganizations become effective, shares of Celtrix
common and preferred stock and Insmed Pharmaceuticals common and preferred
stock will represent only the right to receive:

. certificates representing shares of Insmed Incorporated common stock into
which the stockholder's shares of Celtrix common stock or Celtrix
preferred stock or Insmed Pharmaceuticals common stock or Insmed
Pharmaceuticals preferred stock are converted; and

. a check for any fractional share interests and any dividends or
distributions as described below.

Each former Celtrix stockholder and each former Insmed Pharmaceuticals
shareholder will receive the Insmed Incorporated common stock certificates and
any checks on receipt by First Union National Bank of certificates representing
the stockholder's shares of Celtrix common stock or Celtrix preferred stock or
Insmed Pharmaceuticals common stock or Insmed Pharmaceuticals preferred stock,
along with a properly completed letter transmitting the certificates. If any of
the certificates of Celtrix common stock or Celtrix preferred stock or Insmed
Pharmaceuticals common stock or Insmed Pharmaceuticals preferred stock have
been lost, stolen or destroyed, the stockholder must deliver a bond reasonably
satisfactory to Insmed Incorporated and First Union National Bank. We will not
pay interest on any cash to be paid instead of fractional shares.

You should not send in your certificates representing Celtrix common stock
or Celtrix preferred stock or Insmed Pharmaceuticals common stock or Insmed
Pharmaceuticals preferred stock until you receive instructions from First Union
National Bank.

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<PAGE>

None of Celtrix, Insmed Pharmaceuticals, Insmed Incorporated or First Union
National Bank will be liable to any former Celtrix stockholder or former Insmed
Pharmaceuticals shareholder for any shares or cash delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.

Until their outstanding certificates representing Celtrix common stock or
Celtrix preferred stock or Insmed Pharmaceuticals common stock or Insmed
Pharmaceuticals preferred stock are surrendered, former stockholders of Celtrix
and former shareholders of Insmed Pharmaceuticals will not receive any
dividends payable to Insmed Incorporated shareholders for any period after the
reorganizations become effective. When Celtrix stockholders and Insmed
Pharmaceuticals shareholders surrender their certificates formerly representing
Celtrix common stock, Celtrix preferred stock and Insmed Pharmaceuticals common
stock and Insmed Pharmaceuticals preferred stock, the certificates will be
canceled and exchanged for certificates of Insmed Incorporated common stock and
cash representing fractional shares. In addition, when Insmed Incorporated
stock certificates are issued to former common and preferred stockholders of
Celtrix and Insmed Pharmaceuticals, Insmed Incorporated will promptly pay the
recipients any dividend declared by it with a record date for common
shareholders entitled to receive the dividend on or after the reorganizations
become effective and a date of payment prior to the date the Celtrix or Insmed
Pharmaceuticals certificates are surrendered. Insmed Incorporated will not pay
interest on these dividends.

First Union National Bank may deduct any amounts that federal, state, local
or foreign income tax laws require to be withheld from any shares of common
stock or cash payments made to a former Celtrix or Insmed Pharmaceuticals
shareholder. For federal income tax purposes, we will treat former Celtrix
stockholders and former Insmed Pharmaceuticals shareholders as having received
any amounts withheld by First Union National Bank.

Appraisal Rights

Celtrix. Celtrix is a Delaware corporation. Under Delaware law, certain
stockholders have appraisal rights with respect to a merger and the right to
receive payment in cash for their shares of common stock. A stockholder of a
Delaware corporation may receive an appraisal by the Court of Chancery of the
State of Delaware of the "fair value" of his or her shares in the event of the
completion of a merger or consolidation to which the corporation is a party,
provided that either one of the following is true:

. a merger or consolidation requires approval by the stockholders of the
corporation pursuant to Delaware law or the corporation's certificate of
incorporation and the stockholder may vote on adoption of such merger or
consolidation; or

. the corporation is a subsidiary merging with its parent or another
subsidiary of the parent pursuant to a particular provision under
Delaware law for such transactions and all of the stock of the
corporation is not owned by the parent corporation.

With respect to shares of any class or series listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the NASD or held by at least 2,000 record
stockholders, appraisal rights are not available to the holders of such shares
by reason of a merger or consolidation unless the holders thereof are required
by the terms of an agreement of merger or consolidation to accept for such
stock anything except the following types of consideration:

(1) cash in lieu of fractional shares;

(2) shares of the surviving corporation or shares of any other corporation
that are either listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system
by the NASD or held by more than 2,000 record stockholders; or

(3) a combination of (1) and (2).

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<PAGE>

Celtrix Stockholders. Celtrix stockholders have a statutory appraisal right
granted under Delaware law, as described above. A Celtrix stockholder who
desires to receive payment of the "fair value" of his shares must follow the
specific procedural requirements under Delaware law in order to maintain such
right and obtain such payment.

Section 262 of the Delaware General Corporation Law addresses stockholders'
appraisal rights and is reprinted in its entirety in Annex C to this joint
proxy statement/prospectus. The following discussion is a summary of the
material terms of the law relating to appraisal rights and is qualified in its
entirety by reference to Annex C. Celtrix stockholders should review this
discussion and Annex C carefully if they wish to exercise statutory appraisal
rights, or preserve their right to dissent because failure to comply with the
procedures stated in this discussion and in the statute will result in the loss
of appraisal rights.

A Celtrix stockholder who wishes to exercise appraisal rights generally must
dissent with respect to all of the shares he or she owns or over which he or
she has power to direct the vote. However, if a record stockholder is a nominee
for several beneficial stockholders, some of whom wish to dissent and some of
whom do not, then the record stockholder may dissent with respect to all the
shares beneficially owned by any one person by notifying Celtrix in writing of
the name and address of each person on whose behalf the record stockholder
asserts appraisal rights. A beneficial stockholder may assert appraisal rights
directly by submitting to Celtrix the record stockholder's written consent to
the dissent and by dissenting with respect to all the shares of which the
stockholder is the beneficial stockholder or over which the stockholder has
power to direct the vote.

A Celtrix stockholder wishing to exercise his or her appraisal rights must
deliver a written demand of appraisal to Celtrix before the taking of the vote
on the reorganization agreement at the annual meeting of Celtrix stockholders.
The written demand must:

(1) state the stockholder's desire to exercise his appraisal rights; and

(2) reasonably inform Celtrix of the stockholder's identity.

The written demand should be sent to the following address:

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
(408) 988-2500
Attn: Donald D. Huffman

If we complete the merger, Insmed Incorporated, as the parent company of
Celtrix, will, within 10 days after the effective date of the merger, deliver a
written notice to all stockholders who properly exercised their appraisal
rights. Within 120 days after the effective date of the merger, Insmed
Incorporated or any stockholder who properly exercised his or her appraisal
rights may file a petition in the Court of Chancery of the State of Delaware
demanding a determination of the value of the stock of all such stockholders. A
stockholder who properly exercised his or her appraisal rights may withdraw his
or her demand for appraisal rights and accept the reorganization consideration
at any time within 60 days of the effective date of the merger.

Within the 120-day period after the effective date of the merger, any
Celtrix stockholder who properly exercised his or her appraisal right may, by
written notice, request from Insmed Incorporated a statement setting forth the
aggregate number of shares of Celtrix stock not voted in favor of the merger
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Insmed Incorporated will mail the
requested information to the stockholders who requested the information within
10 days of receiving the written request or within 10 days after expiration of
the period, for delivery of demands for appraisal, whichever occurs later.

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If a stockholder files a petition with the Court of Chancery of the State of
Delaware to exercise his or her appraisal rights, a copy of the petition will
be served on Insmed Incorporated. Within 20 days of receiving service, Insmed
Incorporated will file a list of names and addresses of all Celtrix
stockholders seeking appraisal rights who have not settled with Insmed
Incorporated on a fair price for their shares.

If Insmed Incorporated, rather than a stockholder, files the petition with
the Court of Chancery of the State of Delaware, Insmed Incorporated will at the
same time provide the list of names and addresses of stockholders.

The Court of Chancery of the State of Delaware may order a hearing to be
held to determine the fair value of the Celtrix stock. Upon determination of
the fair price and the surrender to Insmed Incorporated of any Celtrix share
certificates still held by Celtrix stockholders, the Court of Chancery of the
State of Delaware shall order payment of the fair value of the shares, together
with interest, if any, by Insmed Incorporated to the stockholders entitled
thereto.

Insmed Pharmaceuticals. Insmed Pharmaceuticals is a Virginia corporation.
Under Virginia law, certain shareholders have the right to dissent from a
reorganization and receive payment in cash for their shares of common stock. A
shareholder of a Virginia corporation is entitled to an appraisal by the
Circuit Court of the "fair value" of his shares in the event of the completion
of a merger, consolidation or share exchange to which the corporation is a
party, provided that either one of the following is true:

. a merger, share exchange or sale of substantially all assets pursuant to
Virginia law or the corporation's articles of incorporation, bylaws or by
directors' resolution requires approval by the shareholders of the
corporation and the shareholder is entitled to vote; or

. the corporation is a subsidiary being merged with its parent or another
subsidiary of the parent pursuant to a particular provision under
Virginia law for such transactions and all of the stock of the
corporation is not owned by the parent corporation.

With respect to shares of any class or series that are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD or held by at least 2,000 record
shareholders, rights to dissent are not available to the holders of such shares
by reason of a merger, share exchange or sale of substantially all assets
unless the terms of an agreement of a merger, share exchange or sale of
substantially all assets require the holders to accept for such stock anything
except the following types of consideration:

(1) cash in lieu of fractional shares;

(2) shares of the surviving corporation or shares of any other corporation
that are listed on a national securities exchange or held by more than
2,000 record shareholders; or

(3) a combination of (1) and (2).

Insmed Pharmaceuticals Shareholders. Insmed Pharmaceuticals shareholders
have a statutory right to dissent granted under Virginia law, as described
above. An Insmed Pharmaceuticals shareholder who desires to receive payment of
the "fair value" of his shares must follow the specific procedural requirements
under Virginia law in order to maintain such right and obtain such payment.

Article 15 of the Virginia Stock Corporation Act addresses shareholders'
rights to dissent and is reprinted in its entirety in Annex D to this joint
proxy statement/prospectus. The following discussion is a summary of the
material terms of the law relating to rights to dissent and is qualified in its
entirety by reference to Annex D. Insmed Pharmaceuticals shareholders should
review this discussion and Annex D carefully if they wish to exercise their
statutory right to dissent, or preserve their right to dissent because failure
to comply with the procedures described in this discussion and in the statute
will result in the loss of the right to dissent to the reorganizations.

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An Insmed Pharmaceuticals shareholder who wishes to exercise rights to
dissent generally must dissent with respect to all of the shares he or she owns
or over which he or she has power to direct the vote. However, if a record
shareholder is a nominee for several beneficial shareholders, some of whom wish
to dissent and some of whom do not, then the record shareholder may dissent
with respect to all the shares beneficially owned by any one person by
notifying Insmed Pharmaceuticals in writing of the name and address of each
person on whose behalf the record shareholder asserts such rights to dissent. A
beneficial shareholder may assert their rights directly by submitting to Insmed
Pharmaceuticals the record shareholder's written consent to the dissent and by
dissenting with respect to all the shares of which the shareholder is the
beneficial shareholder or over which the shareholder has power to direct the
vote.

An Insmed Pharmaceuticals shareholder wishing to exercise his or her right
to dissent must deliver a written payment demand to Insmed Pharmaceuticals
before the taking of the vote on the reorganization proposal at the special
meeting of Insmed Pharmaceuticals shareholders. A shareholder who wishes to
assert dissenters' rights must:

(1) state the shareholder's intent to demand payment for his shares if the
proposed action is effectuated; and

(2) not vote such shares in favor of the proposed action.

The written demand should be sent to the following address:

Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attn: Michael D. Baer

If we complete the share exchange, Insmed Incorporated, as the parent
company of Insmed Pharmaceuticals, will, within 10 days after the effective
time of the share exchange, deliver a written notice to all shareholders who
properly exercised their rights. The notice delivered by Insmed Incorporated
will:

. state where payment demand is to be sent and where and when certificates
for the shares subject to the shareholders' dissent are to be deposited;

. supply a form for demanding payment that includes the date (December 1,
1999) of the first announcement to the news media of the share exchange,
and requires that the person asserting dissenters' rights certify whether
or not such person acquired beneficial ownership of such person's shares
subject to the shareholders' dissent before or after such date;

. set a date by which Insmed Incorporated must receive the payment demand,
which date may not be less than thirty nor more than sixty days after the
date of delivery of the dissenters' notice; and

. be accompanied by a copy of Article 15 of the Virginia Stock Corporation
Act.

A shareholder's dissenters' notice shall demand payment, certify that such
holder acquired beneficial ownership of such holder's shares of Insmed
Pharmaceuticals common stock before, on or after December 1, 1999, and deposit
the certificates representing such holder's shares of Insmed Pharmaceuticals
common stock in accordance with the dissenters' notice. A shareholder who
deposits such holder's shares as described in the dissenters' notice retains
all other rights as a holder of Insmed Pharmaceuticals common stock except to
the extent such rights are canceled or modified by the completion of the share
exchange. A shareholder who does not demand payment and deposit his share
certificates where required, each by the date stated in the dissenters' notice,
is not entitled to payment for such holder's shares under Article 15 of the
Virginia Stock Corporation Act.

Except as provided below with respect to after-acquired shares, within
thirty days after receipt of a payment demand, Insmed Incorporated shall pay
the dissenter the amount that Insmed Incorporated estimates

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as the fair value of the dissenter's shares, plus accrued interest. The
following may enforce the obligation of Insmed Incorporated to make such
payment:

. by the Circuit Court for the City of Richmond, Virginia; or

. at the election of any dissenter residing or having its principal office
in Virginia, by the circuit court in the city or county where the
dissenter resides or has such office.

The following items will accompany the payment by Insmed Incorporated:

. Insmed Pharmaceuticals' balance sheet as of the end of a fiscal year
ended not more than sixteen months before the effective time of the
reorganizations, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available
interim financial statements, if any;

. an explanation of how Insmed Incorporated estimated the fair value of the
shares and of how the company calculated the interest;

. a statement of the dissenter's right to demand payment as described
below; and

. a copy of Article 15 of the Virginia Stock Corporation Act.

Insmed Incorporated may elect to withhold payment from a dissenter unless
the dissenter was the beneficial owner of the shares subject to such rights to
dissent on December 1, 1999 in which case Insmed Incorporated will estimate the
fair value of such after-acquired shares, plus accrued interest, and will offer
to pay such amount to each dissenter who agrees to accept it in full
satisfaction of such dissenter's demand. Insmed Incorporated will send with
such offer an explanation of how it estimated the fair value of the shares and
of how the company calculated the interest, and a statement of the dissenter's
right to demand payment as described below.

Within thirty days after Insmed Incorporated makes or offers payment as
described above, a dissenter may notify Insmed Incorporated in writing of the
dissenter's own estimate of the fair value of the shares and the amount of
interest due, and demand payment of such estimate (less any payment by Insmed
Incorporated) or reject Insmed Incorporated's offer and demand payment of such
estimate.

If any such demand for payment remains unsettled, within sixty days after
receiving the payment demand, Insmed Incorporated will petition the Circuit
Court for the City of Richmond, Virginia to determine the fair value of the
shares and the accrued interest and make all dissenters whose demands remain
unsettled parties to such proceeding, or pay each dissenter whose demand
remains unsettled the amount demanded. Each dissenter made a party to such
proceeding may demand a judgment for:

. the amount, if any, by which the court finds that the fair value of the
shares, plus interest, exceeds the amount paid by Insmed Incorporated; or

. the fair value, plus accrued interest, of the dissenter's after-acquired
shares for which Insmed Incorporated elected to withhold payment.

The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court and
assess the costs against Insmed Incorporated, or against all or some of the
dissenters to the extent the court finds the dissenters did not act in good
faith in demanding payment.

The foregoing is only a summary of the rights of a dissenting holder of
Insmed Pharmaceuticals common stock. Any holder of Insmed Pharmaceuticals
common stock who intends to dissent from the reorganizations should carefully
review the text of the applicable provisions of Article 15 of the Virginia
Stock Corporation Act in Annex D to this joint proxy statement/prospectus and
should also consult with such holder's attorney.

The failure of a holder of Insmed Pharmaceuticals common stock to follow
precisely the procedures summarized above, and stated in Annex D, may result in
loss of dissenters' rights. We will not furnish any

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further notice of the events giving rise to dissenters' rights or any
associated steps to holders of Insmed Pharmaceuticals common stock, except as
indicated above or otherwise required by law.

In general, any dissenting shareholder who perfects such holder's right to
be paid the fair value of such holder's Insmed Pharmaceuticals common stock in
cash will recognize taxable gain or loss for federal income tax purposes upon
receipt of such cash. See "Certain Federal Income Tax Consequences."

Federal Securities Law Consequences; Resale Restrictions

All shares of Insmed Incorporated common stock that we distribute to
stockholders of Celtrix and Insmed Pharmaceuticals in the reorganizations will
be freely transferable, except for certain restrictions applicable to
"affiliates" of Celtrix and Insmed Pharmaceuticals. Shares of Insmed
Incorporated common stock received by persons who are deemed affiliates of
Celtrix or Insmed Pharmaceuticals may be resold by them only in transactions
permitted by the resale provisions of Rule 145 or as otherwise permitted under
the Securities Act of 1933. Persons who may be affiliates of Celtrix or Insmed
Pharmaceuticals generally include certain officers, directors and significant
stockholders of Celtrix and Insmed Pharmaceuticals. The reorganization
agreement requires Celtrix and Insmed Pharmaceuticals to cause each of their
affiliates to execute a written agreement to the effect that such persons will
not sell or dispose of any of the shares of Insmed Incorporated common stock
issued to them in the reorganizations unless the sale or disposition of such
shares is registered under the Securities Act of 1933, is in conformity with
Rule 145 or is otherwise exempt from the registration requirements under the
Securities Act of 1933.

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CERTAIN TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT

This section describes the material provisions of the amended and restated
reorganization agreement, dated as of February 9, 2000. Throughout this
document, we refer to the amended and restated reorganization agreement as the
reorganization agreement. This description does not purport to be complete and
we qualify it entirely by reference to the reorganization agreement, a copy of
which we attach to this joint proxy statement/prospectus as Annex A, and which
we incorporate in this document by reference. We urge all stockholders to read
the entire reorganization agreement carefully in its entirety.

The Reorganizations

Structure. In the reorganizations, Celtrix MergerSub, a wholly-owned
subsidiary of Insmed Incorporated, will merge with and into Celtrix, with
Celtrix as the surviving corporation, and the separate corporate existence of
MergerSub will end. As a result, Celtrix will become a wholly-owned subsidiary
of Insmed Incorporated. In addition, Insmed Pharmaceuticals and Insmed
Incorporated will conduct a share exchange by which non-dissenting Insmed
Pharmaceuticals shareholders will exchange their shares of Insmed
Pharmaceuticals capital stock for shares of Insmed Incorporated capital stock.
Following the share exchange, Insmed Pharmaceuticals will also become a wholly-
owned subsidiary of Insmed Incorporated.

Effective Time. The reorganizations will become effective on the later of,
the date of filing of certificate of merger relating to the merger with the
Secretary of State of the State of Delaware or, the date of receipt of the
certificate of exchange relating to the share exchange from the State
Corporation Commission of the Commonwealth of Virginia, or at such other date
and time as specified in the certificate of merger and articles of exchange. We
plan to file the certificate of merger and articles of exchange as soon as
practicable after the stockholders of Celtrix and Insmed Pharmaceuticals
approve the reorganization proposal and each corporation satisfies or waives
all of the other conditions listed in the reorganization agreement. Insmed
Pharmaceuticals and Celtrix anticipate that the effective time of the
reorganizations will occur in the second calendar quarter of 2000.

Share Conversion. Under the terms and subject to the conditions of the
reorganization agreement, each holder of Celtrix common stock will receive one
(1) share of Insmed Incorporated common stock in exchange for each share of
Celtrix common stock held and each holder of Celtrix Series A Preferred Stock
will receive shares of Insmed Incorporated common stock in exchange for
each share of Celtrix preferred stock held. Each Insmed Pharmaceuticals
shareholder will receive 3.5 shares of Insmed Incorporated common stock for
each share of Insmed Pharmaceuticals common stock and Insmed Pharmaceuticals
Series A Preferred Stock and Insmed Pharmaceuticals Series B Preferred Stock
held. Cash will be paid instead of issuing fractional shares of Insmed
Incorporated common stock.

Stock Options and Warrants. Each outstanding option to purchase Celtrix
common stock as of the effective time of the merger will become a new option to
acquire a number of shares of Insmed Incorporated common stock equal to the
number of shares purchasable under the Celtrix option at a per share price
equal to the exercise price under the Celtrix option. Each outstanding option
or warrant to purchase Insmed Pharmaceuticals common stock as of the effective
time of the exchange will become a new option or warrant, as the case may be,
to acquire a number of shares of Insmed Incorporated common stock equal to the
number of shares purchasable under the Insmed Pharmaceuticals option or warrant
multiplied by 3.5 at a per share price equal to the exercise price under the
Insmed Pharmaceuticals option or warrant, as the case may be, divided by 3.5
and rounded up to the nearest tenth of one cent. If the conversion of Insmed
Pharmaceuticals options and warrants would result in an option holder or
warrant holder the right to receive a fractional share of Insmed

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Incorporated common stock, that option holder or warrant holder will receive
cash in lieu of the option, warrant or other right that would have been
convertible into a fractional share. For more information on the designations
and rights of the Insmed Incorporated stock options, see "Insmed Incorporated
2000 Stock Option Plan" on page .

Certain Representations and Warranties

In the reorganization agreement, Insmed Pharmaceuticals and Celtrix make
customary representations and warranties to each other relating to, among other
things:

. organization and authority;

. capitalization;

. corporate authorization to effect the reorganizations;

. recommendation of the board of directors;

. consents and approvals required in connection with the reorganizations;

. absence of certain changes or events;

. legal actions and proceedings;

. employee benefit matters;

. labor matters;

. tax matters;

. compliance with applicable laws;

. absence of certain undisclosed liabilities and adverse changes;

. joint proxy statement and prospectus;

. absence of defaults under certain agreements;

. Year 2000 compliance;

. material contracts;

. absence of other reorganizations discussions;

. accounting and tax treatment of the reorganizations;

. certain business practices;

. no existing discussions;

. transactions with affiliates;

. vote required to approve the reorganizations;

. board approval;

. accuracy and delivery of financial statements;

. accuracy of information provided;

. absence of undisclosed liabilities;

. environmental laws and regulations;

. properties;

. intellectual property;

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. the applicability of state takeover statutes relating to the
reorganizations;

. insurance matters;

. accuracy and truth of representations and warranties; and

. fees and expenses of brokers and others.

In addition, Celtrix has made certain additional representations and
warranties to Insmed Pharmaceuticals in the reorganization agreement with
respect to, among other things, reports with the Securities and Exchange
Commission and receipt of an opinion of their financial advisor that the
consideration Celtrix stockholders receive is fair from a financial point of
view.

The representations and warranties in the reorganization agreement do not
survive the effective time of the reorganizations.

Certain Covenants

Interim Operations of Celtrix. From the date of signing the reorganization
agreement until the effective time of the reorganizations, Celtrix must conduct
its business in the ordinary course consistent with past practice, to seek to
preserve intact its current business organization, to keep available the
service of its current officers and employees and to preserve its relationships
with customers, suppliers and others with whom it does business. In addition,
Celtrix, its subsidiaries and the partnerships in which it has any interests
may not, subject to certain limited exceptions, take certain other actions
during this period, including the following:

. amend their certificates of incorporation or bylaws, partnership or joint
venture agreements;

. declare or pay any dividends;

. authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver any capital stock;

. redeem, recapitalize, split, combine or reclassify any of their capital
stock;

. purchase, redeem or otherwise acquire any shares of Celtrix's capital
stock;

. adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganizations
of Celtrix (other than the merger provided for in the reorganization
agreement);

. incur or assume any debt or issue any debt securities;

. assume, guarantee, endorse or otherwise become liable or responsible for
the obligations of any other person;

. make any loans, advances or capital contributions to, or investments in,
any other person;

. pledge or otherwise encumber shares of capital stock of Celtrix;

. mortgage or pledge any material assets or create any material liens on
the assets (other than tax liens for taxes not yet due);

. except as the law may require, enter into, adopt, amend or terminate any
employee benefit or similar plan, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any plan and arrangement as in effect on
the date of the reorganization agreement;

. acquire, sell, lease, sell/leaseback, license or dispose of any material
properties or assets or enter into any agreement to do so;

. except as a change in law or in GAAP may require, change any accounting
principles or practices or make any material change to financial
statements, or prepay any indebtedness, change

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depreciation or amortization methods, delay incurring budgeted expenses or
deviate from usual and customary terms with suppliers, lessors, customers
or buyers;

. revalue in any material respect any assets;

.. acquire any interest in any corporation, partnership or other business
organization;

.. enter into any contract or agreement which would be material to
Celtrix;

.. authorize any new capital expenditure or expenditures;

. settle or compromise any pending or threatened suit, action or claim
which relates to the reorganizations or which could have a material
adverse effect on Celtrix;

. commence any material research and development project or terminate any
material research and development project that is currently ongoing,
except pursuant to the terms of existing contracts;

. fail to conduct its business only in the ordinary course or fail to
maintain and preserve its organization, goodwill and properties;

. make or rescind any material election relating to taxes, settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
make any material change to any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
March 31, 1998, except as applicable law may require; and

. take, or agree to take any of the actions listed above which would make
any of the representations or warranties of Celtrix contained in the
reorganization agreement untrue or incorrect.

Interim Operations of Insmed Pharmaceuticals. From the date of signing the
reorganization agreement until the effective time of the reorganizations,
Insmed Pharmaceuticals must conduct its business in the ordinary course
consistent with past practice, seek preservation of its current business
organization, keep available the service of its current officers and employees
and preserve its relationships with customers, suppliers and others with whom
they do business. In addition, Insmed Pharmaceuticals, its subsidiaries and the
partnerships in which it has any interests may not, subject to certain limited
exceptions, take certain other actions during this period, including the
following:

. amend their articles of incorporation or bylaws, partnership or joint
venture agreements;

. authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver any capital stock;

. redeem, recapitalize, split, combine or reclassify any of their capital
stock;

. purchase, redeem or otherwise acquire any shares of Insmed
Pharmaceuticals' capital stock;

. adopt a plan of complete or partial liquidation, dissolution,
reorganizations, consolidation, restructuring, recapitalization or other
reorganizations of Insmed Pharmaceuticals (other than the share exchange
provided for in the reorganization agreement);

. settle or compromise any pending or threatened suit, action or claim
which relates to the reorganizations or which could have a material
adverse effect on Insmed Pharmaceuticals; and

. take, or agree to take any of the actions that would make any of the
representations or warranties of Insmed Pharmaceuticals contained in the
reorganization agreement untrue or incorrect.

Interim Operations with Respect to the Elan Joint Venture. From the date of
signing the reorganization agreement until the effective time of the
reorganizations, Celtrix, on behalf of the Elan joint venture, will not,
subject to limited exceptions, take certain actions during this period,
including the following:

. amend the agreement governing the Elan joint venture or other similar
governing instruments;

. adopt or agree to a budget for the Elan joint venture;

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. authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise)
any shares of Celtrix Series B Preferred Stock to provide capital to the
Elan joint venture;

. engage in any material undertakings with respect to the Elan joint
venture;

. consent to, or enter into on behalf of the Elan joint venture any
agreement or commitment as to clinical trials with respect to drugs under
development by the Elan joint venture;

. consent to, or enter into on behalf of the Elan joint venture, any
agreement, commitment or understanding that could reasonably be expected
to impose a liability on Celtrix or any of its subsidiaries of $25,000 or
more; and

. take or agree to take any of the actions listed above which would make
any of the representations or warranties of Celtrix contained in the
reorganization agreement untrue or incorrect.

No Solicitation. Neither Celtrix nor Insmed Pharmaceuticals may directly or
indirectly, institute, pursue, encourage or continue any discussions, or
negotiations or agreements relating to any public or private offering of
equity, or any merger, share exchange, acquisition, purchase or sale of a
significant amount of shares or assets or other business combination or change
in control of Celtrix or Insmed Pharmaceuticals, respectively, or a similar
transaction involving Celtrix or Insmed Pharmaceuticals. If either Celtrix or
Insmed Pharmaceuticals receives an unsolicited merger, share exchange,
acquisition or other offer, it must notify the other party as to the details of
the unsolicited offer.

Notwithstanding the preceding paragraph, the boards of directors of each of
Celtrix and Insmed Pharmaceuticals must comply with the state and federal laws
concerning an acquisition proposal. The Celtrix and Insmed Pharmaceuticals
boards also may furnish information or enter into negotiations regarding an
unsolicited proposal if they meet the following conditions:

. the board of directors of either company believes in good faith (after
consultation with its financial advisor) that the company may reasonably
complete such an acquisition on the terms proposed and, after taking into
account the strategic benefits derived from the reorganizations and the
prospects of Celtrix and Insmed Pharmaceuticals as a combined company,
would, if completed, result in a transaction more favorable to its
stockholders over the long term than the transactions contemplated by the
reorganization agreement and the board of directors determines in good
faith, taking into account the advice of outside counsel, that the
board's fiduciary duties require them to furnish information or enter
into negotiations with a third party;

. prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the board of
directors of the party receiving such proposal receives from such person
or entity an executed confidentiality and standstill agreement;

. the party receiving the proposal notifies the other party within 24 hours
after receipt by such party (or any of its advisors) of any acquisition
proposal or any request for nonpublic information in connection with an
acquisition proposal or for access to the properties, books or records of
such party by any person or entity that informs such party that it is
considering making, or has made, an acquisition proposal, the identity of
the person making the proposal and the party's intention to provide
information or commence discussions; and

. the party receiving the proposal keeps the other party informed of the
status of the discussions with the third party.

Confidentiality. Each party has agreed that it will hold, and will cause its
representatives to hold, in confidence, all information received in connection
with the transactions contemplated by the reorganization agreement. The parties
will not be subject to this obligation with respect to any information:

. that is or becomes generally available to the public other than as a
result of a disclosure of the party receiving the information in
connection with the reorganization agreement;

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. that was previously available to the party receiving the information on a
non-confidential basis; or

. that becomes available to the party on a non-confidential basis from an
outside source that is not known to the party receiving the information
to be contractually or legally prohibited from disclosing the
information.

If the parties terminate the reorganization agreement, each party will use its
best efforts to destroy or return the documents and other materials subject to
the confidentiality obligations.

Stockholders Meetings. Celtrix and Insmed Pharmaceuticals have agreed to
call, give notice of and hold the stockholders meetings as promptly as
practicable for the purpose of voting upon the approval and adoption of the
reorganization agreement and any related matters.

Indemnification. Insmed Incorporated has agreed to indemnify, defend and
hold harmless the directors, officers and employees of Celtrix and Insmed
Pharmaceuticals, and their subsidiaries, against all claims, damages,
liabilities or expenses arising out of the person's position within Celtrix,
Insmed Pharmaceuticals or any of their subsidiaries, or arising out of the
reorganizations or related transactions.

Nasdaq Listing. Insmed Incorporated will apply for listing on the Nasdaq
National Market under the trading symbol "INSM." Insmed Incorporated, Celtrix
and Insmed Pharmaceuticals have agreed to use all reasonable efforts to have
the Insmed Incorporated common stock approved for listing on the Nasdaq
National Market or, if such shares do not satisfy the necessary listing
requirements, then on The Nasdaq SmallCap Market, subject to official notice of
issuance, before the effective time of the reorganizations.

Stockholder Voting Agreements. Certain stockholders of Celtrix and Insmed
Pharmaceuticals have agreed to vote their shares of capital stock "FOR" the
approval and adoption of the reorganization proposal pursuant to letter
agreements executed before the effective time of the reorganizations. See
"Celtrix and Insmed Pharmaceuticals Stockholder Agreements" on page for more
information on the stockholder voting agreements.

Certain Other Covenants. Celtrix and Insmed Pharmaceuticals have agreed to
other customary covenants in the reorganization agreement, including covenants
relating to:

. obtaining necessary consents and approvals;

. cooperating with each other to obtain antitrust clearances;

. assisting in the preparation of this joint proxy statement/prospectus and
the filing of the registration statement by Insmed Incorporated;

. providing access to and furnishing information; providing notices of
certain events and consulting with each other regarding public statements
and filings;

. obtaining opinions from each of the parties' accountants;

. obtaining agreements from affiliates relating to stock trading; and

. certain employee and employee benefits matters.

Conditions to the Reorganizations

Conditions to Each Party's Obligations. The obligations of Celtrix and
Insmed Pharmaceuticals to complete the reorganizations are subject to the
satisfaction of the conditions stated in the reorganization agreement,
including:

. approval of the reorganization agreement by the Celtrix stockholders and
the Insmed Pharmaceuticals shareholders as the law requires;

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. the absence of any order, ruling, injunction, decree or other legal
restraint from any governmental entity preventing the completion of the
reorganizations;

. receipt of all required governmental and other consents and approvals;

. effectiveness of the registration statement filed by Insmed Incorporated
of which this document is a part and obtaining all necessary state
securities and blue sky law authorizations;

. approval for listing of the Insmed Incorporated common stock to be issued
pursuant to the reorganization agreement on the Nasdaq National Market or
The Nasdaq SmallCap Market; and

. receipt by each of Celtrix and Insmed Pharmaceuticals of written
agreements from certain affiliated persons imposing restrictions on their
disposition of Insmed Incorporated common stock received in the
reorganizations.

Additional Conditions to Obligations of Celtrix. The obligations of Celtrix
to complete the merger are subject to the satisfaction or waiver by Celtrix at
or before the effective time of the reorganizations of the following additional
conditions:

. receipt of certificates by Celtrix from Insmed Pharmaceuticals certifying
the truth of representations and warranties made by Insmed
Pharmaceuticals in the reorganization agreement and certifying the
performance of covenants made by Insmed Pharmaceuticals in the
reorganization agreement;

. receipt of listing approval from the Nasdaq National Market or The Nasdaq
SmallCap Market for Insmed Incorporated shares to be issued to Celtrix
stockholders in the merger;

. receipt by Celtrix of a favorable tax opinion from Venture Law Group, a
Professional Corporation, opining that

.. treatment of the merger for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986 or as part of an exchange described in Section
351 of the Internal Revenue Code, and

.. Celtrix, Insmed Incorporated and Celtrix stockholders will not
recognize gain or loss for federal income tax purposes, other than for
cash received by a Celtrix stockholder in lieu of a fractional share
of Insmed Incorporated stock except that no opinion needs to be
expressed with respect to any Insmed Incorporated shares received by
the Celtrix Series A Preferred stockholder with respect to accrued but
unpaid dividends on such preferred stock;

. receipt by Insmed Pharmaceuticals of all necessary consents, approvals,
actions, registrations and filings;

. the absence of any events that could have a material adverse effect on
Insmed Pharmaceuticals; and

. the reasonable satisfaction of Celtrix and Celtrix's counsel with the
proceedings and documents executed by Insmed Pharmaceuticals concerning
the reorganizations.

Additional Conditions to Obligations of Insmed Pharmaceuticals. The
obligations of Insmed Pharmaceuticals to complete the share exchange are
subject to the satisfaction or waiver by Insmed Pharmaceuticals at or before
the effective time of the reorganizations of the following additional
conditions:

. the receipt of a certificate by Insmed Pharmaceuticals from Celtrix
certifying the truth of representations and warranties made by Celtrix in
the reorganization agreement and certifying the performance of covenants
made by Celtrix in the reorganization agreement;

. receipt of listing approval from the Nasdaq National Market or The Nasdaq
SmallCap Market for Insmed Incorporated shares issued to Insmed
Pharmaceuticals shareholders in the share exchange;

. receipt by Insmed Pharmaceuticals of a favorable tax opinion from Hunton
& Williams on

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.. treatment of the share exchange for U.S. federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986 or as part of an exchange described in
Section 351 of the Internal Revenue Code, and

.. Insmed Pharmaceuticals, Insmed Incorporated and Insmed Pharmaceuticals
shareholders will not recognize gain or loss for federal income tax
purposes, except for cash received by an Insmed Pharmaceuticals
shareholder in lieu of a fractional share of Insmed Incorporated
stock;

. receipt by Celtrix of all necessary consents, approvals, actions,
registrations and filings;

. the absence of any events that could have a material adverse effect on
Celtrix; and

. the reasonable satisfaction of Insmed Pharmaceuticals and Insmed
Pharmaceuticals' counsel with the proceedings and documents executed by
Celtrix concerning the reorganizations.

Unless prohibited by law, either Celtrix or Insmed Pharmaceuticals could
elect to waive a condition that the other party has not satisfied and complete
the reorganizations. If either party waives any condition relating to tax
opinions or any other material condition, we will amend this joint proxy
statement/prospectus and resolicit shareholder approval of the reorganizations.

Termination of the Reorganization Agreement

Rights to Terminate. At any time before the effective time of the
reorganizations, either Celtrix or Insmed Pharmaceuticals may terminate the
reorganization agreement and abandon the transactions as follows (the party
possessing the right may waive any of the following rights):

. by the mutual written consent of Celtrix and Insmed Pharmaceuticals; and

. by either Celtrix or Insmed Pharmaceuticals if:

.. any court or other governmental authority has issued an order, decree
or ruling permanently enjoining, restraining or otherwise prohibiting
the reorganizations; or

.. the parties have not completed the reorganizations by May 31, 2000,
unless the failure to close the reorganizations by that time has been
caused by or is the result of the failure to fulfill any obligation
under the reorganization agreement by the party seeking to terminate
the reorganization agreement; and

. by Celtrix if:

.. the Insmed Pharmaceuticals' shareholders vote on the transactions
contemplated in the reorganization agreement at a meeting duly
convened therefore, and the votes are not sufficient to approve the
reorganization agreement;

.. there has been a material breach by Insmed Pharmaceuticals or Insmed
Incorporated of any representation, warranty, covenant or agreement
listed in the reorganization agreement, which Insmed Pharmaceuticals
or Insmed Incorporated do not cure the breach within ten business days
following receipt by the breaching party of notice of such breach;

.. the board of directors of Insmed Pharmaceuticals should fail to
recommend to its shareholders approval of the transactions
contemplated by the reorganization agreement or withdraw such
recommendation; or

.. Celtrix,

... based on the advice of its outside legal counsel and financial
advisors;

... after notice to Insmed Pharmaceuticals; and

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... after an opportunity by Insmed Pharmaceuticals to amend the
reorganization agreement, enters into a binding written agreement
concerning a superior transaction to the transaction contemplated
by the reorganization agreement; and

. by Insmed Pharmaceuticals if:

.. the Celtrix's stockholders vote on the transactions contemplated in
the reorganization agreement at a meeting duly convened therefore, and
the votes are not sufficient to approve the reorganization agreement;

.. there has been a material breach by Celtrix of any representation,
warranty, covenant or agreement listed in the reorganization
agreement, which Celtrix does not cure the breach within ten business
days following receipt by the breaching party of notice of such
breach;

.. the board of directors of Celtrix should fail to recommend to its
stockholders approval of the transactions contemplated by the
reorganization agreement or to withdraw such recommendation; or

.. Insmed Pharmaceuticals,

... based on the advice of its outside legal counsel and financial
advisors;

... after notice to Celtrix; and

... after an opportunity by Celtrix to amend the reorganization
agreement, enters into a binding written agreement concerning a
superior transaction to the transaction contemplated by the
reorganization agreement.

Effect of Termination

If the parties terminate the reorganization agreement and fail to complete
the reorganizations, the reorganization agreement will become void and have no
effect, without any liability on the part of either of Celtrix or Insmed
Pharmaceuticals or their directors, officers or stockholders, except that
termination of the reorganization agreement will not:

. terminate the obligations of the parties in the reorganization agreement
regarding confidentiality;

. terminate the obligations of the parties in the reorganization agreement
regarding the payment of fees and expenses associated with the
reorganizations and the termination of the reorganization agreement; or

. relieve a breaching party from liability for any breach of the
reorganization agreement.

Termination Fees; Expenses

Except as described below, whether or not the parties complete the
reorganizations or other transactions contemplated by the reorganization
agreement, the party incurring such costs or expenses will pay all costs and
expenses incurred in connection with the reorganization agreement and the
transactions contemplated by it. Except as described below, however, Insmed
Pharmaceuticals and Celtrix will each be responsible for 50% of the
registration fees and printing costs incurred in connection with this joint
proxy statement/prospectus.

Payment of Termination Fee by Celtrix. Celtrix will pay Insmed
Pharmaceuticals a termination fee of $2,500,000 and shall reimburse Insmed
Pharmaceuticals for all out of pocket expenses not to exceed $250,000 if:

. Insmed Pharmaceuticals terminates the reorganization agreement because
the Celtrix stockholders fail to adopt the reorganization agreement;

. there has been a material breach by Celtrix of any representation,
warranty, covenant or agreement stated in the reorganization agreement,
which breach has not been cured within ten business days following
receipt by the breaching party of notice of such breach;

. the board of directors of Celtrix should fail to recommend to its
stockholders approval of the reorganization agreement or withdraws such
recommendation;

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. Celtrix terminates the reorganization agreement to pursue a superior
proposal for Celtrix as described above; or

. Celtrix fails to obtain certain shareholder affiliate letters; and

. in each of the above cases, Celtrix does not have to pay the termination
fee in the event that:

.. Insmed Pharmaceuticals shareholders have failed to adopt the
reorganization agreement;

.. there has been a material breach by Insmed Pharmaceuticals or Insmed
Incorporated of any representation, warranty, covenant or agreement
listed in the reorganization agreement, which Insmed Pharmaceuticals
or Insmed Incorporated does not cure within ten business days
following receipt by the breaching party of notice of such breach; or

.. the board of directors of Insmed Pharmaceuticals has failed to
recommend to its shareholders approval of the transactions
contemplated by the reorganization agreement or withdraws such
recommendation.

Payment of Termination Fee by Insmed Pharmaceuticals. Insmed Pharmaceuticals
will pay Celtrix a termination fee of $2,500,000 and shall reimburse Celtrix
for all out of pocket expenses not to exceed $250,000 if:

. Celtrix terminates the reorganization agreement because the Insmed
Pharmaceuticals shareholders fail to adopt the reorganization agreement;

. there has been a material breach by Insmed Pharmaceuticals or Insmed
Incorporated of any representation, warranty, covenant or agreement
stated in the reorganization agreement, which Insmed Pharmaceuticals or
Insmed Incorporated does not cure the breach within ten business days
following receipt by the breaching party of notice of such breach;

. the board of directors of Insmed Pharmaceuticals should fail to recommend
to its shareholders approval of the reorganization agreement or withdraws
such recommendation;

. Insmed Pharmaceuticals terminates the reorganization agreement to pursue
a superior proposal for Insmed Pharmaceuticals as described above; or

. Insmed Pharmaceuticals shall fail to obtain certain shareholder affiliate
letters; and

. in each of the above cases, Insmed does not have to pay the termination
fee in the event that:

.. Celtrix stockholders have failed to adopt the reorganization
agreement;

.. the board of directors of Celtrix has failed to recommend to its
stockholders approval of the transactions contemplated by the
reorganization agreement or withdraws such recommendation.

Amendments; No Waiver

The parties may amend or waive any provision of the reorganization
agreement, in writing, before the effective time of the reorganizations. If
either party waives any condition relating to tax opinions or any other
material condition, we will amend this joint proxy statement/prospectus.
Following the approval of the reorganization agreement by the stockholders of
Celtrix, no amendment or waiver will be made that by applicable law would
require the further approval of the stockholders of Celtrix without first
obtaining approval from the stockholders of Celtrix. Following the approval of
the reorganization agreement by the shareholders of Insmed Pharmaceuticals, no
amendment or waiver will be made that by applicable law would require the
further approval of the shareholders of Insmed Pharmaceuticals without first
obtaining approval from the shareholders of Insmed Pharmaceuticals. No failure
of any party to exercise a right or privilege under the reorganization
agreement operates as a waiver of that right or privilege.

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DESCRIPTION OF INSMED INCORPORATED CAPITAL STOCK

We qualify this summary of the characteristics of Insmed Incorporated's
capital stock in all respects by reference to the Insmed Incorporated Articles
of Incorporation and Amended and Restated Bylaws, copies of which we attach to
this joint proxy statement/prospectus as Annex H and Annex I, and incorporate
herein by reference.

General

Presently the authorized capital stock of Insmed Incorporated consists of
500,000,000 shares of Insmed Incorporated common stock and 200,000,000 shares
of Insmed Incorporated preferred stock. There are 100 shares of Insmed
Incorporated common stock outstanding, all of which the sole shareholder of
Insmed Incorporated, Insmed Pharmaceuticals, owns. No shares of Insmed
Incorporated preferred stock are outstanding. Assuming completion of the
proposed financing described in "Recent Developments" on page , immediately
prior to the effectiveness of the reorganizations there shall be outstanding
warrants to purchase 6,901,344 shares of Insmed Incorporated common stock at a
price of $2.25 per share.

Immediately following the effective time of the reorganizations, but before
giving effect to the proposed financing described in "Recent Developments" on
page , former holders of Celtrix common stock and Celtrix preferred stock
collectively will hold approximately 42.7% of the outstanding shares of Insmed
Incorporated common stock on a fully diluted basis; and former holders of
Insmed Pharmaceuticals common stock and Insmed Pharmaceuticals preferred stock
collectively will hold approximately 57.3% of the outstanding shares of Insmed
Incorporated common stock on a fully diluted basis.

Assuming we complete the proposed financing, immediately prior to the
effective time of the reorganizations, the new investors, the former holders of
Celtrix common and preferred stock and options exercisable into Celtrix common
stock and the former holders of Insmed Pharmaceuticals' common and preferred
stock and options and warrants to purchase Insmed Pharmaceuticals' common stock
will hold 22.1%, 33.3% and 44.6%, respectively, of the outstanding common stock
of Insmed Incorporated on a fully diluted basis.

Common Stock

Each share of Insmed Incorporated common stock entitles the holder to one
vote in the election of directors and on all other matters submitted to a vote
of shareholders. Holders of Insmed Incorporated common stock have no conversion
or redemption rights and no preemptive or other rights to subscribe for
securities of Insmed Incorporated. Holders of Insmed Incorporated common stock
have no right to cumulate votes in the election of directors. Holders of Insmed
Incorporated common stock are entitled to receive dividends when, as and if
declared by the Insmed Incorporated board of directors out of funds legally
available for distribution. Upon the liquidation of Insmed Incorporated,
holders of Insmed Incorporated common stock will be entitled, subject to the
rights of the holders of any outstanding Insmed Incorporated preferred stock,
to receive pro rata all assets, if any, of Insmed Incorporated available for
distribution after payment of necessary expenses and all prior claims.

Insmed Incorporated has applied to have its common stock listed on The
Nasdaq SmallCap Market under the trading symbol "INSM."

Preferred Stock

Insmed Incorporated may issue the preferred stock, from time to time in one
or more series, and the Insmed Incorporated board of directors, without further
approval of the shareholders, is authorized to fix the dividend rights and
terms, redemption rights and terms, liquidation preferences, conversion rights,
voting rights and sinking fund provisions applicable to each such series of
preferred stock. If Insmed Incorporated issues a

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series of preferred stock in the future that has voting rights or preferences
over Insmed Incorporated common stock with respect to the payment of dividends
and upon Insmed Incorporated's liquidation, dissolution or winding up, this
issuance may adversely affect the rights of the holders of Insmed Incorporated
common stock offered hereby. Insmed Incorporated may amend from time to time
the Insmed Incorporated Articles of Incorporation to increase the number of
authorized shares of preferred stock. This type of amendment would require the
approval of the holders of a majority of the outstanding shares of each series
of preferred stock, if any, that the amendment adversely affects, voting
separately by group and the approval of more than two-thirds of all the voting
capital stock of Insmed Incorporated, voting as a single voting group. The
issuance of shares of preferred stock could be utilized, under certain
circumstances, in an attempt to prevent an acquisition of Insmed Incorporated.
As of the date of this joint proxy statement/prospectus, Insmed Incorporated
has no shares of preferred stock outstanding.

Change of Control Provisions

Other provisions that affect any attempted change of control in Insmed
Incorporated govern the rights of Insmed Incorporated shareholders.

Board of Directors. Celtrix and Insmed Pharmaceuticals agreed in the
reorganization agreement to provide for three classes of directors of Insmed
Incorporated. One-third of the directors will be in each class, and one class
of directors would be up for election at each annual meeting.

Advance Notice Requirements for Shareholder Proposals. The Insmed
Incorporated Amended and Restated Bylaws require a shareholder desiring to
bring a proposal before an annual meeting of Insmed Incorporated shareholders
to give proper written notice to the Secretary of Insmed Incorporated. Notice
is proper if, in case of the 2001 annual meeting, the shareholder delivers it
by November 6, 2000, and in case of subsequent annual meetings, he or she
delivers it not later than 90 days nor more than 120 days before the first
anniversary of the date of mailing of the Insmed Incorporated proxy statement
in connection with the last preceding year's annual meeting. The written notice
delivered to the Secretary must include certain information and be in the
proper form as specified in the Insmed Incorporated Amended and Restated
Bylaws.

Advance Notice Requirements for Nomination of Directors. The Insmed
Incorporated Amended and Restated Bylaws require a shareholder desiring to
nominate a director for election at an annual meeting of Insmed Incorporated
shareholders to give proper written notice to the Secretary of Insmed
Incorporated. Notice is proper if the shareholder gives notice not later than
90 days nor more than 120 days prior to the first anniversary date of the
previous year's annual meeting. The written notice delivered to the Secretary
must include certain information and be in the proper form as specified in the
Insmed Incorporated Amended and Restated Bylaws.

Meetings of Shareholders. The Insmed Incorporated Amended and Restated
Bylaws permit the President, a majority of the board of directors, or the
Chairman of the Board of Insmed Incorporated to call a special meeting of
shareholders. The Amended and Restated Bylaws specifically deny the
shareholders the right to convene a special meeting of shareholders.

Amendment of Articles of Incorporation or Bylaws. Subject to Virginia law,
the holders of a majority of the outstanding votes entitled to be cast by each
voting group entitled to vote generally may amend the Insmed Incorporated
Articles of Incorporation by their affirmative vote. However, the holders of 75
percent of the outstanding votes entitled to be cast by each voting group
entitled to vote may only amend or repeal certain provisions of the Articles of
Incorporation by their affirmative vote. A majority of the board of directors,
unless otherwise required by the Articles of Incorporation or Virginia law, may
amend the Insmed Incorporated Amended and Restated Bylaws by their affirmative
vote. If an amendment to the Bylaws requires shareholder voting, 75 percent of
the then outstanding stock voting together as a single voting group must vote
in the affirmative to approve the amendment.

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Certain Business Combinations. Certain provisions of Virginia law will make
takeover of Insmed Incorporated more difficult. See "Comparison of
Stockholders' Rights--Anti-takeover Statutes" on page .

Transfer Agent and Registrar

The transfer agent and registrar for the Insmed Incorporated common stock
is First Union National Bank.

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COMPARISON OF STOCKHOLDERS' RIGHTS

Insmed Incorporated and Insmed Pharmaceuticals are incorporated under the
laws of the Commonwealth of Virginia. Celtrix is incorporated under the laws of
the State of Delaware. Insmed Pharmaceuticals shareholders, whose rights are
currently governed by Virginia law and the Insmed Pharmaceuticals Articles of
Incorporation and Bylaws, will, on completion of the share exchange, become
shareholders of Insmed Incorporated, and as such Virginia law and Insmed
Incorporated's Articles of Incorporation and Bylaws will govern their rights.
Celtrix stockholders, whose rights are currently governed by Delaware law and
the Celtrix Certificate of Incorporation and Bylaws, will, on completion of the
share exchange, become shareholders of Insmed Incorporated, and as such
Virginia law, the Insmed Incorporated Articles of Incorporation and Amended and
Restated Bylaws will govern their rights.

Described below are the material differences between the rights of Celtrix
stockholders under Celtrix's Certificate of Incorporation, Bylaws and Delaware
law, and Insmed Pharmaceuticals shareholders and Insmed Incorporated
shareholders under their respective Articles of Incorporation, Bylaws and under
Virginia law. The description below summarizes the material differences that
may affect the rights of stockholders of Celtrix and Insmed Pharmaceuticals but
does not purport to be a complete statement of all such differences. Celtrix
stockholders and Insmed Pharmaceuticals shareholders should read the relevant
provisions of the laws and documents discussed below, including the Insmed
Incorporated Articles of Incorporation and Amended and Restated Bylaws which we
attach to this joint proxy statement/prospectus as Annex H and Annex I in their
entirety.

Authorized Capital

Insmed Incorporated. We describe Insmed Incorporated authorized capital
under "Description of Insmed Incorporated Capital Stock" on page .

Celtrix. Celtrix has 70,000,000 shares of authorized capital stock,
consisting of 60,000,000 shares of common stock and 10,000,000 shares of
preferred stock, 10,000 shares of which are Celtrix Series A Preferred Stock
and 9,000 shares of which are Celtrix Series B Preferred Stock.

Insmed Pharmaceuticals. Insmed Pharmaceuticals has 37,000,000 shares of
authorized capital stock consisting of 20,000,000 shares of common stock and
17,000,000 shares of preferred stock, 7,000,000 shares of which are Insmed
Pharmaceuticals Convertible Participating Preferred Stock, Series A and
5,000,000 shares of which are Insmed Pharmaceuticals Convertible Preferred
Stock, Series B.

Special Meetings of Stockholders

Celtrix. Under Delaware law, unless provided in the Certificate of
Incorporation or Bylaws of a corporation, stockholders of a public corporation
do not have the right to call a special meeting of stockholders. The Celtrix
Bylaws provide that the board of directors, the Chairman of the Board, the
President or a stockholder holding ten percent or more of the aggregate number
of shares entitled to vote at the special meeting may call a special meeting of
Celtrix stockholders for any purpose.

Insmed Pharmaceuticals. Under Virginia law, unless provided in the Articles
of Incorporation or Bylaws of the corporation, the shareholders of a
corporation do not have a right to call a special meeting of shareholders. The
Insmed Pharmaceuticals Bylaws provide that the President or a majority of the
board of directors may call a special meeting of the shareholders for any
purpose at any time.

Insmed Incorporated. Under Virginia law, unless provided in the articles of
incorporation or Bylaws of a corporation, shareholders of a public corporation
do not have the right to call a special meeting of shareholders.

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The Insmed Incorporated Amended and Restated Bylaws provide that the President,
the Chairman of the Board or a majority of the board of directors may call a
special meeting of Insmed Incorporated shareholders for any purpose.

Stockholder Meetings

Celtrix. On any issue for determination at any meeting of stockholders, each
Celtrix common stockholder receives one vote for each share of common stock
owned by the stockholder, and each holder of preferred stock receives the
number of votes equal to the number of shares of common stock that the holder
would have received if the holder had converted the preferred stock into common
stock immediately prior to the vote. Holders of Celtrix preferred stock are not
entitled to vote; except that holders of Celtrix Series A Preferred Stock are
entitled to vote as a separate voting group upon any amendment to the
Certificate of Incorporation that would create any series of stock senior to
the Celtrix Series A Preferred Stock or would change the rights of the holders
of the Celtrix Series A Preferred Stock. In all elections of directors, an
affirmative vote of the holders of the plurality of the shares present or
represented by proxy and entitled to vote in the election of directors will
approve the director nominees, unless there is cumulative voting. The Celtrix
Certificate of Incorporation permits cumulative voting with respect to the
election of directors. Cumulative voting means that each share is entitled to a
number of votes equal to the number of directors up for election. Such votes
may be cast for one nominee or distributed among two or more nominees. Thus
each nominee for election to the board of directors receiving the greatest
number of votes, up to the number of directors up for election, will become the
new directors of Celtrix. Except as specifically provided in the Celtrix
Certificate of Incorporation, Bylaws or Delaware law, other actions requiring
stockholder approval generally require the vote of a majority of common shares
represented at a meeting and entitled to vote at a meeting at which a quorum
exists.

Insmed Pharmaceuticals. On any issue for determination at any meeting of
shareholders, each Insmed Pharmaceuticals common shareholder receives one vote
for each share of common stock owned by such shareholder, and each holder of
preferred stock receives the number of votes equal to the number of shares of
common stock that the holder would have received if the holder had converted
the preferred stock into common stock immediately prior to the vote. Holders of
Insmed Pharmaceuticals preferred stock vote together with the holders of common
stock, including in the election of directors; except that the holders of the
preferred stock vote together as a single voting group on certain matters,
including, but not limited to, the redemption, creation or change in the rights
of any series of preferred stock not junior to the Insmed Pharmaceuticals
Series A Preferred Stock and Insmed Pharmaceuticals Series B Preferred Stock.
The Insmed Pharmaceuticals Articles of Incorporation does not permit cumulative
voting. In all elections of directors, the holders of the plurality of the
shares entitled to vote in the election of directors at a meeting at which a
quorum exists elect directors by an affirmative vote. Except as specifically
provided in the Insmed Pharmaceuticals Articles of Incorporation, Bylaws or
Virginia law, other actions requiring shareholder approval, generally need the
vote of a majority of shares represented at a meeting and entitled to vote at a
meeting at which a quorum exists for approval.

Insmed Incorporated. Insmed Incorporated common shareholders have one vote
per share on all matters voted on by shareholders. The Insmed Incorporated
Articles of Incorporation does not permit cumulative voting. Except as
specifically provided in the Insmed Incorporated Articles of Incorporation or
Virginia law, other actions requiring shareholder approval generally require
the vote of a majority of shares represented at a meeting and entitled to vote
at a meeting at which a quorum exists. In all elections of directors, the
affirmative vote of the holders of the plurality of the shares entitled to vote
in the election of directors at a meeting at which a quorum exists determines
the company's directors.

Advance Notice of Nominations of Directors

Celtrix. Celtrix stockholders can nominate candidates for the Celtrix board
of directors if the stockholders follow the advance notice provisions contained
in the Celtrix Bylaws. The Celtrix Bylaws require stockholder nominations in
writing and delivered to or mailed and received by the Secretary of the
corporation

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not less than 60 nor more than 90 days prior to the meeting of stockholders;
provided, however, that if the meeting is called upon less than 60 days'
notice, the Secretary of the corporation must receive the stockholder
nomination not less than 10 days after the notice of the meeting was mailed or
public disclosure of the meeting was made. The stockholder nomination must
provide the specific information about the candidate and the stockholder
described in the Bylaws. If a stockholder nomination of a candidate for
director does not comply with the applicable provisions of the Bylaws, the
chairman of the meeting shall declare that the nomination was not made in
accordance with the Celtrix Bylaws and is null, void and of no effect.

Insmed Pharmaceuticals. The Insmed Pharmaceuticals Bylaws do not have
special procedures for shareholders' submissions of nominations of candidates
for the board of directors.

Insmed Incorporated. Insmed Incorporated shareholders can nominate
candidates at an annual meeting for the Insmed Incorporated board of directors
if the shareholder follows the advance notice provisions contained in the
Insmed Incorporated Amended and Restated Bylaws. The Insmed Incorporated
Amended and Restated Bylaws require shareholder nominations in writing and
delivery to the Secretary of Insmed Incorporated not later than 90 days nor
more than 120 days before the anniversary of the date of the first mailing of
Insmed Incorporated's proxy statement for the immediately preceding year's
annual meeting. The shareholder nomination must provide the specific
information about the candidate and the shareholder described in the Bylaws. If
a shareholder nomination of a candidate for director does not comply with the
applicable provisions described in the Bylaws, the chairman of the board of
directors shall have the power and duty to declare that the nomination does not
comply with the Insmed Incorporated Amended and Restated Bylaws and he shall
disregard such defective proposal.

Merger, Share Exchanges and Sales of Assets

Celtrix. Delaware law generally requires approval by the affirmative vote of
the majority of the issued and outstanding shares of each voting group entitled
to vote, for any merger, share exchange or sale of all or substantially all the
assets of a corporation not in the ordinary course of business unless the
Certificate of Incorporation or Bylaws requires a different vote. The
Certificate of Incorporation of Celtrix does not specifically address mergers,
share exchanges or sales of assets; therefore, the merger requires an
affirmative vote of the majority of the issued and outstanding shares of common
stock, which is the only class of voting stock.

Insmed Pharmaceuticals and Insmed Incorporated. Virginia law generally
requires approval of any merger or share exchange by an affirmative vote of
more than two-thirds of all the issued and outstanding shares of stock of each
voting group entitled to vote, unless the Articles of Incorporation requires a
different vote; provided, however, that shareholder action by the acquiring
corporation in a share exchange is normally not required. The Articles of
Incorporation of Insmed Incorporated do not specifically address mergers and
share exchanges; therefore, the Insmed Incorporated sole shareholder need not
vote. The Insmed Pharmaceuticals Articles of Incorporation provide for separate
class voting in the event of a merger or consolidation. Accordingly, approval
of the share exchange with Insmed Pharmaceuticals requires an affirmative vote
of more than two-thirds of the outstanding Insmed Pharmaceuticals' common
stock, the Insmed Pharmaceuticals' Series A Preferred Stock, Insmed
Pharmaceuticals' Series B Preferred Stock, and Insmed Pharmaceuticals'
outstanding capital stock, each voting as separate voting groups.

Anti-takeover Statutes

Celtrix. Delaware law contains certain provisions that may have the effect
of delaying or discouraging a hostile takeover. Delaware law prohibits a
Delaware corporation from entering into a business combination with the
beneficial owner of 15% or more of the corporation's outstanding voting stock,
or its affiliates, for a period of three years after the 15% beneficial owner
achieved this level of ownership. Delaware law permits a business combination
with a 15% beneficial owner if:

. prior to the date the stockholder becomes a 15% beneficial owner, the
board of directors of the corporation approves either the business
combination or the transaction that will result in the person or entity
becoming a 15% beneficial owner;

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. the interested stockholder acquires at least 85% of the corporation's
outstanding voting stock (excluding shares owned by persons who are
directors, officers and by certain employee stock plans) in the same
transaction in which the stockholder becomes a 15% beneficial owner; or

. on or subsequent to the date of the transaction by which the stockholder
becomes a 15% beneficial owner, the board of directors approves the
business combination and the holders of two-thirds of the corporation's
outstanding voting stock approve the transaction (not including shares
owned by the 15% beneficial owners).

In general, a Delaware corporation must specifically elect, through an
amendment to its Bylaws or Certificate of Incorporation, not to be governed by
these provisions. Celtrix has not made such an election and, therefore, is
currently subject to these provisions of the Delaware law.

Insmed Pharmaceuticals and Insmed Incorporated. Virginia law contains two
statutory provisions that may delay or discourage a hostile takeover. Under the
first statutory provision, if a person acquires 10% or more of the stock of a
Virginia corporation without the prior approval of the corporation's board of
directors, the statute deems the person an "interested shareholder" and that
person may not engage in certain transactions with the corporation (including a
merger and a sale or exchange of greater than 5% of the corporation's net
worth) for a period of three years, and then only with the specified
supermajority shareholder vote, disinterested director approval or fair price
and procedural protections. The three year prohibition on an affiliated
transaction does not apply if prior to the affiliated transaction, a majority
of the disinterested directors and holders of at least two-thirds of the
outstanding voting shares other than shares beneficially owned by the
interested person approve the transaction. Virginia law permits a corporation
to exempt itself from this statutory provision by placing a statement to that
effect in its Articles of Incorporation. Furthermore, this statutory provision
regarding affiliated transactions does not apply to corporations with fewer
than 300 shareholders. Neither the Insmed Pharmaceuticals Articles of
Incorporation nor the Insmed Incorporated Articles of Incorporation
specifically address the Virginia statute regarding affiliated transactions;
therefore, the statute governs transactions involving both corporations.

Under the second statutory provision, Virginia law requires an interested
person who acquires a threshold percentage of stock in the target corporation
to obtain the approval of disinterested shareholders before the interested
person may exercise its voting rights with respect to the acquired shares.
Under the Virginia statute, the interested shareholder must follow certain
notice and informational filing requirements and special shareholder voting and
meeting procedures prior to completing the purchase of stock that will provide
the interested shareholder with the power to vote in excess of 20%, 33% or 50%
of the outstanding voting stock of the company. Assuming compliance with notice
and information filing requirements, the purchased stock will not provide the
interested purchaser with any voting rights with respect to the stock until a
majority of the outstanding disinterested shares vote to restore the voting
rights to the purchased stock. The Insmed Pharmaceuticals Articles of
Incorporation do not specifically address the Virginia statute regarding
control share acquisitions; therefore, affiliated transactions with Insmed
Pharmaceuticals must comply with this provision. The Insmed Incorporated
Articles of Incorporation, however, provide that this second statutory
provision does not apply to Insmed Incorporated; therefore, affiliated
transactions with Insmed Incorporated are exempt from this provision.

Amendments to Charter

Celtrix. Delaware law provides generally, unless otherwise provided in the
Certificate of Incorporation, that the board of directors and the holders of a
majority of the outstanding shares entitled to vote on the matter may amend a
Delaware corporation's Certificate of Incorporation. The Celtrix Certificate of
Incorporation does not specifically address amendments to the Certificate of
Incorporation; therefore, the Celtrix Certificate of Incorporation may be
amended as provided under Delaware law.

Insmed Pharmaceuticals. Virginia law provides generally that, unless
otherwise specified in a corporation's Articles of Incorporation, a Virginia
corporation's board of directors may amend the Articles of

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Incorporation for certain minor alterations. All other amendments to a
corporation's Articles of Incorporation require the recommendation of the board
of directors and the affirmative vote of the holders of more than two-thirds of
the outstanding shares of each voting group entitled to vote on the matter,
provided that any voting group affected in a substantially similar way by the
proposed amendment vote together as a single voting group, unless otherwise
specified by the Articles of Incorporation. An amendment to the Insmed
Pharmaceutical Articles of Incorporation requires an affirmative vote of more
than two-thirds of the issued and outstanding shares of the Insmed
Pharmaceuticals Convertible Participating Preferred Stock, Series A, the Insmed
Pharmaceuticals Convertible Preferred Stock, Series B and the Insmed
Pharmaceuticals common stock entitled to vote, voting together as a single
voting group; provided however, that if the amendment does not affect all the
voting groups in a substantially similar way, a class vote is required. The
Insmed Pharmaceuticals Articles of Incorporation also provides that amendments
specific to the rights, preferences and interests of the preferred stock must
also be approved by at least a majority of the Insmed Pharmaceuticals' Series A
Preferred Stock and Insmed Pharmaceuticals' Series B Preferred Stock voting
together as a single voting group.

Insmed Incorporated. Virginia law provides generally that, unless otherwise
specified in a corporation's Articles of Incorporation, a Virginia
corporation's Articles of Incorporation may be amended by the board of
directors and by the affirmative vote of the holders of more than two-thirds of
the outstanding shares of each voting group entitled to vote on the matter. The
Articles of Incorporation of Insmed Incorporated provide that a majority of the
issued and outstanding shares of each voting group entitled to vote is required
to amend the Articles of Incorporation.

Amendments to Bylaws

Celtrix. Delaware law provides that the board of directors of a corporation
may amend the Bylaws of the corporation if such authority is granted in the
Certificate of Incorporation. The Celtrix Certificate of Incorporation does not
grant the power to amend the Bylaws to the board of directors.

Insmed Pharmaceuticals. The Insmed Pharmaceuticals Bylaws provide generally
for amendment by the Insmed Pharmaceuticals board of directors; provided,
however, that any provision of the Insmed Pharmaceuticals Bylaws adopted or
required to be adopted pursuant to Virginia law, by the shareholders of Insmed
Pharmaceuticals, may only be amended by the affirmative vote of the majority of
the holders of the outstanding capital stock of Insmed Pharmaceuticals entitled
to vote thereon.

Insmed Incorporated. The Insmed Incorporated Articles of Incorporation and
Amended and Restated Bylaws provide generally that the Insmed Incorporated
Bylaws may be amended by the Insmed Incorporated board; provided, however, that
any provision of the Insmed Incorporated Bylaws adopted or required to be
adopted pursuant to Virginia law by the shareholders of Insmed Incorporated,
may only be amended by the affirmative vote of at least 75 percent of the
holders of the outstanding capital stock of Insmed Incorporated entitled to
vote thereon, voting as a single voting group.

Appraisal Rights

Celtrix. Celtrix is a Delaware corporation. Under Delaware law, certain
stockholders have a right to dissent from a merger or reorganization and
receive payment in cash for their shares of common stock. However, dissenters'
rights (sometimes referred to as "appraisal rights") are not available to
stockholders of a corporation whose securities are listed on a national
securities exchange or held by at least 2,000 record stockholders and in a
transaction in which stockholders must accept in exchange for their stock stock
of another corporation listed on a national securities exchange and cash in
lieu of fractional shares. Because Celtrix stock does not trade on a national
securities exchange or on the Nasdaq National Market and no more than 2,000
record stockholders hold Celtrix common stock, Celtrix stockholders will have
appraisal rights with respect to the reorganizations. To exercise their
appraisal rights, Celtrix stockholders must follow specific procedural
requirements under Delaware law as described under "Dissenters' Rights" on page
.

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Insmed Pharmaceuticals. Insmed Pharmaceuticals is a Virginia corporation.
Under Virginia law, shareholders have a right to dissent from, and receive
payment of the fair value of their shares in case of a merger, share exchange
or similar corporate event if the shareholders have the right to vote with
respect to the corporate action. Dissenters' rights are not available, however,
to shareholders of a corporation whose securities are listed on a national
securities exchange or on the Nasdaq National Market or are held by at least
2,000 record shareholders, unless the shareholders must accept in exchange for
their stock something other than cash or stock of the surviving corporation or
any other corporations that are either listed on a national securities exchange
or held by at least 2,000 record shareholders. Because Insmed Pharmaceuticals
stock does not trade on a national securities exchange or on the Nasdaq
National Market and at least 2,000 record shareholders do not hold its stock,
Insmed Pharmaceuticals shareholders will have appraisal rights with respect to
the share exchange. To exercise their appraisal rights, Insmed Pharmaceuticals
shareholders must follow the specific procedural requirements under Virginia
Law as described under "Dissenters' Rights" on page .

Transfer Restrictions

Insmed Incorporated, Celtrix and Insmed Pharmaceuticals. Each of the Insmed
Incorporated Articles of Incorporation, the Celtrix Certificate of
Incorporation and the Insmed Pharmaceuticals Articles of Incorporation does not
establish transfer restrictions on the original issuance or transfer of shares
of Insmed Incorporated common stock, Celtrix common stock or Insmed
Pharmaceuticals common stock, as the case may be.

With respect to the Insmed Pharmaceuticals common stock, however, there is
no public trading market. The shares of Insmed Pharmaceuticals common stock are
not registered under the Securities Act of 1933 or under other applicable
federal and state securities laws. Shareholders may not transfer Insmed
Pharmaceuticals common stock in the absence of an effective registration
statement under the Securities Act and any applicable state securities laws or
an opinion of counsel acceptable to Insmed Pharmaceuticals that the transfer of
Insmed Pharmaceuticals common stock is exempt from state and federal
registration requirements.

All shares of Insmed Incorporated common stock to be distributed to
stockholders of Celtrix and Insmed Pharmaceuticals in the reorganizations will
be freely transferable, except for certain restrictions applicable to
"affiliates" of Celtrix and Insmed Pharmaceuticals. Shares of Insmed
Incorporated common stock received by persons deemed affiliates of Celtrix or
Insmed Pharmaceuticals may be resold by them only in transactions permitted by
the resale provisions of Rule 145 or as otherwise permitted under the
Securities Act of 1933. Persons deemed affiliates of Celtrix or Insmed
Pharmaceuticals generally include certain officers, directors and significant
stockholders of Celtrix and Insmed Pharmaceuticals. The reorganization
agreement requires Celtrix and Insmed Pharmaceuticals to cause each of their
affiliates to execute a written agreement to the effect that such persons will
not sell or dispose of any of the shares of Insmed Incorporated common stock
issued to them in the reorganizations unless the sale or disposition of such
shares is registered under the Securities Act of 1933, conforms with Rule 145
or is otherwise exempt from the registration requirements under the Securities
Act of 1933.

Stockholder Action by Written Consent

Celtrix. The Bylaws of Celtrix permit the stockholders to take any action
required to be taken or that may be taken at any annual or special meeting of
stockholders by written consent without a meeting. The written consent must be
signed by the stockholders owning not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.

Insmed Pharmaceuticals. The Bylaws of Insmed Pharmaceuticals permit the
shareholders to take any action required to be taken or that may be taken at
any annual or special meeting of shareholders by written consent without a
meeting. The written consent must be signed by all of the shareholders entitled
to vote on the action.

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Insmed Incorporated. Pursuant to Virginia law, any action required to be
taken or that may be taken at any annual or special meeting of Insmed
Incorporated, may be taken by written consent without a meeting. All of the
shareholders entitled to vote on the action must sign the written consent.

Board of Directors

Celtrix. The Celtrix board of directors currently consists of five
directors. The Celtrix Bylaws provide that there shall be five directors on the
board of the company. Celtrix directors stand for reelection at each annual
meeting. Under Delaware law, directors are elected by a plurality of the shares
present in person or represented by proxy at a meeting at which a quorum is
present, and entitled to vote on the election of directors, unless there is
cumulative voting. The Certificate of Incorporation and Bylaws of Celtrix
provide for cumulative voting in the election of directors. Cumulative voting
allows each stockholder to multiply the number of votes that the stockholder
has the right to cast by the number of directors for whom the stockholder is to
vote and cast all of the votes for a single nominee or distribute the votes
amongst the nominees. Under Celtrix's Bylaws, a majority of the board of
directors then in office, even if less than a quorum, or a sole remaining
director shall fill any vacancy, whether occurring as a result of death,
resignation, retirement, disqualification, removal from office for cause or an
increase in the number of directors. The term of any director elected to fill a
vacancy shall be the same remaining term as that of his or her predecessor. The
stockholders of Celtrix may remove a director, with or without cause, upon the
affirmative vote of the majority of the shares entitled to vote at an election
of directors; provided, however, that if less than the entire board is removed,
no director may be removed without cause if the votes cast against such
director's removal would be sufficient to elect such director if then
cumulatively voted at an election of the entire board of directors.

Insmed Pharmaceuticals. The Insmed Pharmaceuticals board currently consists
of seven directors. The Articles of Incorporation and Bylaws provide that the
board of directors may increase or decrease the number of directors by a number
that is 30% or less of the number of directors last elected by shareholders.
Insmed Pharmaceuticals directors stand for reelection at each annual meeting. A
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present
elects the directors. Under both Virginia law and Insmed Pharmaceuticals'
Bylaws, the remaining members of the board of directors, even if less than a
quorum, may fill vacancies, whether occurring by resignation, death or removal
or because of an increase in the size of the board. A director elected to fill
a vacancy will serve until the next shareholders' meeting at which directors
are elected. Insmed Pharmaceuticals' Bylaws provide that directors may be
removed with or without cause by the vote of a majority of the shares of the
voting groups that elected such director entitled to vote at an election of
directors.

Insmed Incorporated. Under the Insmed Incorporated Articles of Incorporation
and Amended and Restated Bylaws, the board will consist of seven directors.
Insmed Incorporated directors stand for reelection at each annual meeting.
Directors are elected by a plurality of the votes cast by the holders of shares
entitled to vote in the election of directors at a meeting of shareholders at
which a quorum is present. Under Virginia law, the remaining members of the
board of directors, although less than a quorum, may fill vacancies, whether
occurring by resignation, death or removal or because of an increase in the
size of the board. A director elected to fill a vacancy will serve until the
next shareholders' meeting at which shareholders will elect directors. Virginia
law provides that the vote of a majority of the shares of the voting groups
that elected such director entitled to vote at an election of directors may
remove directors with or without cause.

Limitation of Director Liability

Insmed Incorporated and Insmed Pharmaceuticals. The Articles of
Incorporation of Insmed Incorporated and Insmed Pharmaceuticals contain
provisions that limit the liability of the directors and officers of Insmed
Incorporated and Insmed Pharmaceuticals as Virginia law permits. The provisions
eliminate the liability of the Insmed Incorporated directors and officers to
Insmed Incorporated or its shareholders and eliminate the liability of the
Insmed Pharmaceuticals directors and officers to Insmed Pharmaceuticals and its
shareholders for monetary damages for negligent or grossly negligent acts or
omissions in their capacity as directors or officers, as the case may be. The
provisions in the Articles of Incorporation of Insmed Incorporated and Insmed

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Pharmaceuticals do not, however, eliminate or limit the liability of a director
or officer resulting from such person's willful misconduct or knowing violation
of the criminal law or any federal or state securities law.

Pursuant to the Articles of Incorporation of Insmed Incorporated and Insmed
Pharmaceuticals, any amendment or repeal of the applicable provisions in the
Articles of Incorporation of Insmed Incorporated or Insmed Pharmaceuticals, as
the case may be, will not affect the limitation of liability of directors and
officers.

Celtrix. The Certificate of Incorporation of Celtrix contains a provision
that limits the liability of Celtrix's directors for breaches of fiduciary duty
as Delaware law permits. The provision eliminates the liability of a director
to Celtrix or its stockholders for monetary damages to the fullest extent
permitted by Delaware law.

Pursuant to the Certificate of Incorporation, any amendment of the
Certificate of Incorporation will not limit or eliminate the directors'
exculpation from liability.

Indemnification of Directors, Officers and Employees

Celtrix. Delaware law permits corporations to indemnify their directors,
officers and employees for liabilities incurred by them because of service as
directors, officers or employees of their corporations or of other corporations
and entities at the request of their corporations. Celtrix has entered into
separate indemnification agreements with each of its directors and executive
officers that may require Celtrix, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers, to advance their expenses as incurred as a result of
any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' liability insurance if available on reasonable
terms. Delaware law permits indemnification if the indemnitee acted in good
faith and in a manner the person reasonably believed in the corporation's best
interest, and in a criminal proceeding, had no reasonable cause to believe that
the conduct was unlawful. The Certificate of Incorporation and Bylaws of
Celtrix provide that Celtrix shall indemnify the directors, officers and
employees of Celtrix to the fullest extent Delaware law requires or permits.
Delaware law does not permit indemnification in the following circumstances:

. breach of a director's duty of loyalty to a corporation or its
stockholders;

. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;

. unlawful distributions; and

. transactions from which a director received an improper personal benefit.

Insmed Incorporated and Insmed Pharmaceuticals. Virginia law permits a
corporation to provide indemnification of reasonable expenses for officers,
directors, employees or agents of the corporation (or any such person serving
in such capacities for another entity at the request of the corporation) who
are parties or are threatened to be made parties to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
against expenses, judgments, fines and amounts paid in settlement that are
actually and reasonably incurred. Virginia law permits indemnification in all
instances, except in the case of willful misconduct or knowing violation of the
criminal law. Each of the Insmed Incorporated and Insmed Pharmaceuticals
Articles of Incorporation provides for the indemnification of liabilities of
each person incurred by reason of serving as a director, officer, employee or
agent or by reason of serving as a director, officer, trustee, or in some
similar capacity, of another corporation in all instances, except, in the case
of Insmed Pharmaceuticals, in a criminal proceeding unless the indemnitee had
no reasonable cause to believe that the conduct was unlawful and in the case of
Insmed Incorporated, where the indemnitee engaged in willful misconduct or a
knowing violation of the criminal law. Virginia law does not permit
indemnification in the following circumstances:

. proceedings by and in the right of the corporation, in which the director
is liable to the corporation; and

. transactions from which a director received an improper personal benefit.

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MANAGEMENT AND OPERATION OF INSMED INCORPORATED AFTER THE REORGANIZATIONS

Insmed Incorporated Board of Directors

We expect that the Insmed Incorporated board, at the effective time of the
reorganizations, will consist of the five individuals listed below. The Insmed
Incorporated board will consist of three classes, with the initial term of
office of the first, second and third classes expiring at the first, second and
third annual meetings of the shareholders of Insmed Incorporated, respectively.
The three classes of directors will be as nearly equal in number as possible.

<TABLE>
<CAPTION>
Class
Name Age (expiration of term) Position
---- --- -------------------- --------
<C> <C> <C> <S>
Geoffrey Allan, Ph.D...... 46 III (2003) President, Chief Executive
Officer, and Chairman,
board of directors
Kenneth G. Condon......... 52 I (2001) Member, board of directors
Graham K. Crooke, MB.BS... 41 II (2002) Member, board of directors
Steinar J. Engelsen, M.D.. 49 I (2001) Member, board of directors
Edgar G. Engleman, M.D.... 54 II (2002) Member, board of directors
</TABLE>

Geoffrey Allan, Ph.D., will be President, Chief Executive Officer and
Chairman of the board of directors of Insmed Incorporated. Dr. Allan has been
President, Chief Executive Officer and director of Insmed Pharmaceuticals since
1994. Dr. Allan joined Insmed Pharmaceuticals in January 1994 and has 20 years
of experience in pharmaceutical drug development, most recently prior to
joining Insmed Pharmaceuticals as Vice President, Drug Development at Whitby
Research, Inc. Dr. Allan has extensive experience in pre-clinical and clinical
drug development and the new drug approval process. While at Whitby Research,
Dr. Allan was responsible for building a drug development division in the areas
of Clinical Research, Regulatory Affairs and Pharmaceutical Sciences. Before
his association with Whitby Research, Dr. Allan was the Head of the
Cardiovascular Section at Wellcome Research Laboratories, where he was
responsible for building a Cardiovascular Research Department. Dr. Allan holds
several patents and has over seventy publications in the area of cardiovascular
research and therapeutic drug development. Dr. Allan received his Ph.D. in
Pharmacology from Cornell University Medical College.

Kenneth G. Condon, will be a director of Insmed Incorporated. Mr. Condon has
been a director of Insmed Pharmaceuticals since 1997. Mr. Condon serves as the
Vice President for Financial Affairs and Treasurer at Boston University, a
position he has held from 1986 to present. He is also a Trustee and the
Chairman of Audit/Finance Committee of Newbury College and Chairman of the
Educational and Cultural Division of the United Way Mass Bay. He was formerly
Chairman of the Board of BayFunds, a $1.8 billion mutual fund family, a former
director of BayBank Harvard Trust, a former member of the BankBoston Advisory
Board, a former director of the BayBank Trust Board, a former director of
Seragen, Inc., a biotechnology firm, and former director, Chapter Secretary,
Treasurer and President of the Financial Executives Institute of Massachusetts.
Before 1975, Mr. Condon was a Senior Accountant with the CPA firm of Arthur
Anderson & Co. in Boston. He received his B.A. degree in Economics and
Mathematics from Tufts University, and an MBA in Finance from the Wharton
School of Finance, University of Pennsylvania. Mr. Condon is both a Certified
Public Accountant and a Certified Financial Planner.

Graham K. Crooke, MB.BS, will be a director of Insmed Incorporated. Dr.
Crooke has been a director of Insmed Pharmaceuticals since 1996. Dr. Crooke is
a consultant to Ticonderoga Capital, Inc., formerly Dillon Read Venture
Capital, a venture capital firm. He served as a principal of Ticonderoga
Capital, Inc. from September 1997 until March 2000. From April 1992 to
September 1997, Dr. Crooke held various positions with Dillon Read Venture
Capital, most recently as Vice President. Dr. Crooke serves on the board of
directors of Centaur Pharmaceuticals, Inc., a biopharmaceutical company.
Dr. Crooke is also a director of several privately held companies. Dr. Crooke
earned his medical degree from the University of Western Australia and an
M.B.A. from the Stanford Graduate School of Business.

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Steinar J. Engelsen, M.Sc., M.D., will be a director of Insmed Incorporated.
Dr. Engelsen has been a director of Insmed Pharmaceuticals since 1998. Since
November 1996, Dr. Engelsen has been a partner of Teknoinvest Management AS, a
venture capital firm based in Norway. From 1989 until September 1996,
Dr. Engelsen held various management positions within Hafslund Nycomed AS, a
pharmaceutical company based in Europe, and affiliated companies. He was
responsible for therapeutic research and development, most recently serving as
Senior Vice President, Research and Development of Nycomed Pharma AS from
January 1994 until September 1996. Effective January 1, 2000, Dr. Engelsen was
appointed acting chief executive officer of Centaur Pharmaceuticals, Inc., a
biopharmaceutical company. Dr. Engelsen also serves as chairman of the board of
directors of Centaur. Dr. Engelsen is also a director of several privately-held
companies. Dr. Engelsen received an M.Sc. in nuclear chemistry and an M.D. from
the University of Oslo, and is a Certified European Financial Analyst.

Edgar G. Engleman, M.D., will be a director of Insmed Incorporated. Dr.
Engleman has been a director of Insmed Pharmaceuticals since 1999. Dr. Engleman
joined BioAsia Investments in 1997 and is currently a General Partner of
BioAsia Investments, L.L.C., a venture investment company investing in life
sciences and healthcare information companies. Dr. Engleman has been a
Professor of Medicine and Pathology of the Stanford University School of
Medicine since 1990. He is a co-founder of Cetus Immune, Inc., Genelabs
Technologies, Inc., National Medical Audit, Dendreon Corporation, and CellGate
Technologies, LLC. Dr. Engleman serves on the board of directors of InterMune
Pharmaceuticals, Inc., a public biopharmaceutical company, Pepgen Corporation,
a private biopharmaceutical company and Med-e-Commerce, a private medical
supply company, Advanced Pathology Systems, Inc., a private biotechnology
company, GlycoDesign, Inc., (formerly Vascular Therapeutics Inc.), a private
biopharmaceutical company, Phoenix Pharmacologies, Inc., a private
biopharmaceutical company, and CellGate, Technologies, LLC, a private wireless
IP service provider. He received his B.S. from Harvard University, and an M.D.
from Columbia University School of Medicine. Dr. Engleman completed post-
graduate training at the University of California, San Francisco and the
National Institutes of Health. Dr. Engleman is trained as an internist and
immunologist. A holder of multiple patents, he is credited as the inventor of
the first generation AIDS test for use in screening blood donors, and the
discoverer of the therapeutic agents for systemic lupus, AIDS, and malignant
tumors which are currently in clinical trials.

Board Observer

Pursuant to a letter agreement dated November 30, 1999, Insmed Incorporated
granted Elan Corporation, plc power to appoint an observer to attend meetings
of the board of directors in which the activities of the joint venture between
Celtrix and Elan would be discussed. See "Corporate Collaborations" on page
for more information on the joint venture. Those observer rights extend until
completion of the clinical trials conducted by the joint venture and for a
reasonable period of not more than six months thereafter to analyze the trial
data.

Committees

The board of directors of Insmed Incorporated will have an executive
committee, an audit committee, a compensation committee and a governance
committee.

The executive committee will consist of the Chairman of the Board and at
least two directors free of any material business or professional relationship
with the company or its management, also known as outside directors. The
committee will have all powers of the board of directors except that it will
not be authorized to:

. approve or recommend shareholder action;

. fill vacancies on the board of directors or committees;

. amend the Articles of Incorporation;

. amend or repeal the Bylaws;

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. approve a plan of merger;

. approve a distribution; or

. approve the sale or determine the rights or designations of stock.

The board of directors will appoint the members of the executive committee
after the effective date of the reorganizations.

The audit committee will consist of not less than three outside directors.
The committee will primarily:

. recommend the selection of independent accountants and auditors;

. review the scope of the accountants' audit and approval of any non-audit
services to be performed by the independent accountants; and

. review annual audits and accounting practices.

The initial members of the audit committee will be Messrs. Condon (Chair),
Graham and Engelsen.

The compensation committee will consist of not less than two outside
directors. This committee will review and make recommendations to the board of
directors regarding the compensation and benefits of all officers of Insmed
Incorporated and will review policy matters relating to compensation and
benefits of employees of Insmed Incorporated. The initial members of the
compensation committee will be Messrs. Crooke (Chair) and Engleman.

The governance committee shall consist of not less than three outside
directors and the Chairman of the Board. The committee will primarily:

. review the composition of the board of directors to insure that there is
a balance of appropriate skills and characteristics reflected on the
board including age, diversity and experience;

. develop criteria for director searches and make recommendations to the
board of directors for the addition of any new board members after proper
search and investigation;

. review in consultation with the Chairman of the Board, each director's
continuation on the board every three years prior to that director's
standing for re-election;

. monitor procedures for corporate decision-making;

. evaluate shareholder proposals;

. review public policy issues which affect the image of Insmed Incorporated
within its customer service areas;

. recommend actions to increase the board's effectiveness; and

. review annually the format used by the corporation's management to report
to the board of directors.

The initial members of the governance committee will be appointed by the
board after the effective date of the reorganizations.

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Management

The principal officers of Insmed Incorporated at the effective time of the
reorganizations will be as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Geoffrey Allan, Ph.D. ........................ 46 President, Chief Executive
Officer, and Chairman of the
board of directors
Michael D. Baer............................... 55 Chief Financial Officer
</TABLE>

For biographical information on Geoffrey Allan, Ph.D. see page .

Michael D. Baer, will be Chief Financial Officer of Insmed Incorporated. Mr.
Baer has been Chief Financial Officer of Insmed Pharmaceuticals since May 1999
and in such capacity oversees all financial activities at Insmed
Pharmaceuticals. He has more than 25 years experience in financial management,
most recently as Controller, Vice President and Chief Financial Officer of
InSite Vision Incorporated, a biopharmaceutical company, from 1995 to 1998.
Before that position, he served as Chief Financial Officer for the U.S.
operations of Simsmetal Limited, a publicly-held Australian recycling company,
from 1993 to 1994, as the regional Financial and Administrative Officer for the
public accounting firm, Deloitte & Touche from 1990 to 1993, and as the partner
in charge of the Sacramento office of Deloitte, Haskins & Sells from 1984 to
1990. He is a Certified Public Accountant and holds an MBA in Finance from the
University of California, Berkeley.

The Insmed Incorporated board may elect other officers after completion of
the reorganizations.

Headquarters

Insmed Incorporated's corporate offices are located at 800 East Leigh
Street, Richmond, Virginia 23219 and main telephone number is (804) 828-6893.

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INSMED INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following Pro Forma Condensed Consolidated Financial Statements reflect
the accounting for the acquisition of Celtrix by Insmed Pharmaceuticals in
accordance with generally accepted accounting principles. Insmed Incorporated
is a holding company formed by Insmed Pharmaceuticals in order to facilitate
the reorganizations in accordance with the reorganization agreement. The
reorganization agreement provides that:

. each share of issued and outstanding common and preferred stock of Insmed
Pharmaceuticals will be exchanged for 3.5 shares of Insmed Incorporated
common stock;

. each outstanding share of common stock of Celtrix will be exchanged for
one share of Insmed Incorporated common stock; and

. each share of Celtrix Series A Preferred Stock, including accrued
dividends, will be exchanged on an as converted basis, by applying the
conversion ratio of $2.006 specified in the Celtrix Certificate of
Incorporation into one share of Insmed Incorporated common stock.

The Unaudited Pro Forma Condensed Consolidated Financial Statements are
based upon and should be read in conjunction with the historical consolidated
financial statements of Insmed Pharmaceuticals and Celtrix, including the notes
thereto, which are attached beginning on page F-1 in this joint proxy
statement/prospectus.

The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December
31, 1999, gives effect to the acquisition of Celtrix by Insmed Pharmaceuticals
and related transactions as if they occurred on December 31, 1999. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the
exchange of shares described above and in note 1, reflects the expected
allocation of the purchase price described in note 2, the formation of Insmed
Incorporated and the $34.5 million equity financing described in "Recent
Developments" on page .

The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999 gives effect to the acquisition of Celtrix by
Insmed Pharmaceuticals and related transactions as if such transactions had
occurred on January 1, 1999. Celtrix's fiscal year end is March 31, 1999.
Therefore, for the purpose of the historical data included in the Unaudited Pro
Forma Condensed Consolidated Statement of Operations for the Year Ended
December 31, 1999, the unaudited financial data from the nine months ended
December 31, 1999, was combined with the unaudited financial data for the three
months ended March 31, 1999. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations does not (a) purport to represent what the results of
operations actually would have been if the acquisition of Celtrix by Insmed
Pharmaceuticals and the other transactions described below had occurred as of
the date indicated or what such results will be for any future periods or (b)
give effect to certain nonrecurring charges expected to result from the
transaction.

The historical basis of Insmed Pharmaceuticals assets and liabilities will
carry over to Insmed Incorporated. The acquisition of Celtrix will be accounted
for using the purchase method of accounting, so the total purchase costs of the
acquisition will be allocated to the tangible and intangible assets and
liabilities acquired based upon their estimated fair values. The preliminary
purchase price allocation is based on an independent third-party valuation.
This valuation has not yet been finalized. Therefore the preliminary purchase
price allocation is subject to change. Upon completion of the reorganization
the amount of purchase price allocated to tangible assets acquired, in process
research and development and liabilities assumed, could differ from the amounts
and allocation discussed in Note 2. Insmed Pharmaceuticals and Celtrix are not
aware of any significant unrecorded obligations or contingencies, and do not
believe that the final purchase price allocation will differ materially from
that included in the pro forma financial information contained herein. The
final allocation of the purchase price will be made based upon valuations and
other studies that have not been completed.

91
<PAGE>

In addition, Insmed Pharmaceuticals and Celtrix expect to incur
approximately $2.0 million and $1.5 million, respectively, in costs directly
attributable to the reorganizations. The $2.0 million of transaction costs
Insmed Pharmaceuticals expects to incur have been included in the determination
of the preliminary purchase price. The $1.5 million Celtrix expects to incur
will be expensed as incurred and have not been reflected in the Unaudited Pro
Forma Condensed Statement of Operations as they are nonrecurring charges.

We expect that Insmed Incorporated will incur certain expenses as a result
of combining the companies; however, the unaudited pro forma earnings per share
data does not reflect any of these anticipated expenses.

92
<PAGE>

INSMED INCORPORATED

Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1999
(in thousands)

<TABLE>
<CAPTION>
Pro Forma
Financing Reorgani-
Historical Pro Forma References Insmed Historical zation References Pro
Insmed Adjustments (Note 2) as Adjusted Celtrix Adjustments (Note 2) Forma
---------- ----------- ---------- ----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 317 $32,600 (G) $ 32,917 $ 1,243 $34,160
Investments............ 4,318 4,318 -- 4,318
Prepaids and other
current assets........ 43 43 159 202
-------- ------- --------- --------- ---------- -------
Total current assets... 4,678 32,600 37,278 1,402 -- 38,680
Property and equipment,
net.................... 242 242 75 317
Assets held for sale.... -- -- 349 349
Goodwill................ 15,954 (J) 15,954
Other assets............ 376 376 2,581 1,624 (A)
(2,581) (H)
(2,000) (I) --
-------- ------- --------- --------- ---------- -------
Total assets........... $ 5,296 $32,600 $ 37,896 $ 4,407 $ 12,997 $55,300
======== ======= ========= ========= ========== =======
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable and
other liabilities..... $ 834 $ 834 $ 693 $ 1,624 (A) $ 3,151
-------- ------- --------- --------- ---------- -------
Total current
liabilities........... 834 -- 834 693 1,624 3,151
Exchangable preferred
stock.................. -- -- 7,948 (7,948) (B) --
Stockholders' equity:
Preferred Stocks....... 97 97 -- (97) (C) --
Common Stocks
(99,305,641 pro forma 39 56 (G) 95 272 41 (B)
shares outstanding)... 340 (C)
245 (D) 993
Additional capital...... 27,181 32,544 (G) 59,725 136,141 8,188 (B)
(243) (C)
(245) (D)
(140,928) (E)
54,433 (F)
(2,581) (H)
(2,000) (I)
15,954 (J) 128,444
Cumulative preferred
stock dividend......... -- -- 281 (281) (B) --
Notes receivable from
stock sale............. (64) (64) -- -- (64)
Accumulated deficit..... (22,780) (22,780) (140,928) 140,928 (E)
-- (54,433) (F) (77,213)
Accumulated other
comprehensive loss..... (11) (11) -- -- (11)
-------- ------- --------- --------- ---------- -------
Total stockholders'
equity (deficiency).... 4,462 32,600 37,062 (4,234) 19,321 52,149
-------- ------- --------- --------- ---------- -------
Total liabilities and
stockholders' equity.. $ 5,296 $32,600 $ 37,896 $ 4,407 $ 12,997 $55,300
======== ======= ========= ========= ========== =======
</TABLE>

93
<PAGE>

INSMED INCORPORATED

Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1999
(in thousands, except per share data)

<TABLE>
<CAPTION>
Historical
----------------- Pro Forma References Pro Forma
Insmed Celtrix Adjustments (Note 2) Combined
------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues............ $ 663 $ 763 $ -- $ 1,426
Costs and expenses:
Research and develop-
ment................... 6,349 1,027 7,376
General and administra-
tive................... 2,445 1,953 4,398
------- -------- ----- --------
8,794 2,980 11,774
------- -------- ----- --------
Operating loss............ (8,131) (2,217) -- (10,348)
Equity in loss from joint
venture.................. (8,973) (8,973)
Amortization of goodwill.. -- -- (798) (J) (798)
Interest income, net...... 338 85 423
Proceeds from settlement
agreement................ -- 600 600
------- -------- ----- --------
Net loss.................. $(7,793) $(10,505) $(798) $(19,096)
======= ======== ===== ========
Net loss per share--basic
and diluted.............. $ (2.16) $ (0.40) $ (0.19)
======= ======== ========
Shares used in computing
basic and diluted net
loss per share........... 3,606 26,176 99,306
======= ======== ========
</TABLE>

94
<PAGE>

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

Note 1

The unaudited pro forma condensed consolidated financial statements reflect
the conversion of all of the outstanding shares of Celtrix and Insmed
Pharmaceuticals common and preferred stock into Insmed Incorporated common
stock as follows:

<TABLE>
<CAPTION>
Shares of
Insmed
Number of Conversion Incorporated
Company Stock Type Shares Ratio to be Issued
------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Insmed Pharmaceuticals.. Series A Preferred 6,144,599 3.5 21,506,097
Insmed Pharmaceuticals.. Series B Preferred 3,581,761 3.5 12,536,164
Insmed Pharmaceuticals.. Common Stock 3,872,453 3.5 13,553,586
Celtrix
Pharmaceuticals........ Series A Preferred 8,010 1.0(1) 4,133,050
Celtrix
Pharmaceuticals........ Common Stock 27,862,372 1.0 27,862,372
Insmed Pharmaceuticals.. Common Stock 5,632,678(2) 3.5 19,714,373
----------
Number of Pro Forma Shares Outstanding at December 31, 1999.... 99,305,641
==========
</TABLE>
- --------
(1) As of December 31, 1999, there are 8,010 shares of Series A Preferred Stock
outstanding. These shares have a par value of $1,000 per share. Dividends
accreted and unpaid related to this stock were $280,899 at December 31,
1999. The aggregate par value and dividends are convertible into Celtrix
common stock at a price of $2.006 per share, which would provide for the
issuance of 4,133,050 shares of Insmed Incorporated common stock if the
transaction occurred on December 31, 1999.
(2) These shares represent common stock of Insmed Pharmaceuticals issuable upon
closing the $34.5 million equity financing. This transaction is fully
described in "Recent Developments" on page .

The above table is based on the respective companies' capitalization at
December 31, 1999, using the conversion ratio of 1 share of Insmed Incorporated
common stock for each share of Celtrix common stock and 3.5 shares of Insmed
Incorporated common stock for each share of Insmed Pharmaceuticals stock. No
exercise of options or warrants outstanding at December 31, 1999 was assumed.

In connection with the purchase of Celtrix, Insmed Incorporated expects
approximately $54.4 million of the purchase price to be allocated to in-process
research and development. Insmed Pharmaceuticals management has engaged an
independent third-party appraisal company to perform a valuation of the
intangible assets acquired. The valuation is expected to be completed at
closing. It is expected that Insmed Incorporated will enter into various
corporate collaborations and agreements to manufacture, market, distribute, and
develop the in-process research and development acquired in the purchase of
Celtrix. The terms and conditions of these agreements could differ
substantially from the assumptions made by management. It is also likely that
the terms and conditions of existing corporate collaboration agreements could
be amended or terminated, which could also significantly effect the assumptions
associated with the in-process projects.

The value assigned to purchased in-process research and development was
determined by estimating the costs to develop the purchased in-process research
and development into commercially viable products; estimating the resulting net
cash flows from such projects; and discounting the net cash flows back to their
present value.

The nature of the efforts to develop the purchased in-process research and
development into commercially viable products, principally relates to the
completion and/or acceleration of existing development programs, including the
mandatory completion of several phases of clinical trials and the general and
administrative costs necessary to manage the projects and trials. Assuming the
approval of the drug by the FDA, costs related to the wide scale manufacturing,
distribution, and marketing of the drugs are included in the projection. The
resulting net cash flows from such projects are based on Insmed Incorporated
management's estimates of revenues, cost

95
<PAGE>

of sales, research and development costs, sales and marketing, general and
administrative, and the anticipated income tax effect.

The discounting of net cash flows back to their present value is based on
the weighted average cost of capital (WACC). The WACC calculation produces the
average required rate of return of an investment in an operating enterprise,
based on various required rates of return from investments in various areas of
that enterprise. The discount rates utilized in discounting the net cash flows
from purchased in-process research and development range from 33% to 45%. These
discount rates may be higher than the WACC due to the inherent uncertainties
surrounding the successful development of the purchased in-process research and
development.

The forecast data employed in the analyses was based upon internal product
level forecast information maintained by Celtrix management in the ordinary
course of managing its business. Insmed Incorporated management has reviewed
and challenged the forecast data and related assumptions and utilized the
information in analyzing in-process research and development. The forecast data
and assumptions are inherently uncertain and unpredictable. However, based upon
the information available at this time Insmed Incorporated management believes
the forecast data and assumptions to be reasonable. These assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the forecasted results. Any such variance may result in a material adverse
effect on Insmed Incorporated's financial condition and results of operations.

In the allocation of purchase price to the IPR&D, the concept of alternative
future use was specifically considered for each the programs under development.
The acquired IPR&D consists of Celtrix's work to complete each of the
identified programs. The programs are very specific to the disease and market
for which they are intended. There are no alternative uses for the in-process
programs in the event that the programs fail in clinical trials or are
otherwise not feasible. The development effort for the acquired IPR&D does not
possess an alternative future use for Insmed Incorporated as defined by
generally accepted accounting principles.

Below is a brief description of in-process research and development projects
including an estimation of when management believes Insmed Incorporated may
realize revenues from the sale of these products in the respective application.

SomatoKine: Diabetes

Diabetes is typically characterized by the inadequate production or
utilization of insulin. Insulin is a vital hormone needed by the body for
normal control of blood glucose levels. The findings from a Phase II study in
12 patients to treat patients with Type-I diabetes suggests that SomatoKine is
a potential therapeutic for improving insulin sensitivity in both Type-I and
Type-II diabetes and helping patients to manage their disease, thus avoiding
the complications which ultimately accompany the disease. Several additional
studies will be required to develop the product for this indication. We expect
to resume Phase II trials immediately.

The valuation of this program assumes that Phase II studies will continue
until 2003, that Phase III studies will be completed by 2005, and that the
product will launch in 2006. We estimate future costs for this program will be
about $3 million a year through 2005. A discount rate of 35% was utilized in
discounting these estimated cash flows.

SomatoKine: Severe Osteoporosis

Osteoporosis is a chronic, debilitating disorder in which the bones become
increasingly porous, brittle and subject to fracture. Management believes the
findings from a Phase II feasibility study in hip fracture patients present an
argument for further development of SomatoKine for the treatment of severe
osteoporosis. The Phase II study suggests that a relatively short period of
treatment with SomatoKine offers the potential to restore the patient's bone
mineral density and improve supportive muscle strength as opposed to current
treatments which are used primarily to prevent further bone loss. We expect to
begin a second Phase II study later this year.

96
<PAGE>

The valuation of this program assumes that Phase II studies will continue
until 2003, that Phase III studies will be completed by 2006, and that sales
will be made in 2007. The future costs of this program are estimated to be
about $4 million a year through 2006. A discount rate of 34% was utilized in
discounting these estimated cash flows.

SomatoKine: Protein Wasting and Severe Burns

Many critically ill patients suffer from serious protein wasting conditions,
which contribute to physical weakness and increase their risk of morbidity and
mortality. The results for the Phase II study conducted in burn patients
demonstrates potential efficacy for SomatoKine to treat serious medical
conditions associated with muscle and weight loss, and provides further
evidence supporting the use of SomatoKine to treat wasting diseases associated
with cancer cachexia, AIDS and advanced kidney failure. A discount rate of 45%
was utilized in discounting these estimated cash flows.

In persons suffering from traumatic burns over at least 20% of their body
surface, very low levels of IGF-I, along with major tissue damage are
associated with the disruption of biological processes that are essential for
healing and protections from burn complications. In a Phase II study conducted
within this population patients who received SomatoKine through two skin graft
cycles indicated substantial improvement in restoring the balance between
protein synthesis and degradation which is a prerequisite for accelerated wound
healing and reduced hospital stay. A discount rate of 33% was utilized in
discounting these estimated cash flows.

The valuation of these programs assumes that sales of SomatoKine could begin
in 2003 to treat severe burns and in 2006 to treat protein wasting. We estimate
the aggregate future costs to develop these indications will be $30 million.
Because the value of protein wasting and severe burn indications is low in
relation to diabetes and severe osteoporosis, we will defer further trials in
these indications until we obtain additional data from the planned studies for
the more valuable indications.

TGF-beta-2: Dermal Ulcer

Celtrix entered into a product development, license and marketing agreement
with Genzyme in June 1994 for TGF-beta-2. The objective is to commercialize
this product for tissue repair and treatment of systemic applications. Under
the terms of the agreements, Genzyme assumed responsibility for all costs
related to developing TGF-beta-2 for these indications. Celtrix is entitled to
receive milestone payments and royalties if such development is successful. The
valuation of this program is based on receipt of milestone payments of
$2.5 million between 2001 and 2004, and royalties beginning in 2005. A discount
rate of 34% was utilized in discounting these estimated cash flows.

Management has budgeted approximately $5.0 million in 2000 to continue the
development and clinical trial studies of SomatoKine for its applications in
diabetes and severe osteoporosis. The results of these trials will dictate the
amount of future funds and company resources that may be ultimately dedicated
to these projects. These results may lead management to conclude to continue
development, revise or postpone development plans, or possibly terminate the
pursuit of SomatoKine commercialization for one or both of these applications.

The total acquisition cost is estimated to be approximately $71.5 million,
determined as follows (in thousands):

<TABLE>
<S> <C>
Fair value of Insmed Incorporated shares(1)......................... $59,823
Fair value of Insmed Incorporated Stock Options(2).................. 9,697
Insmed Pharmaceuticals transaction costs, consisting primarily of
financial advisory, legal and accounting fees(3)................... 2,000
-------
$71,520
=======
</TABLE>

97
<PAGE>

- --------
(1) The fair value per share was calculated by averaging the Celtrix closing
price for the five days prior to and subsequent to the signing of the
definitive reorganization agreement on November 30, 1999. The result of
this calculation is $1.94886 which was multiplied by the shares outstanding
on an as converted basis as of November 30, 1999 of 30,646,461.
(2) Options and warrants outstanding at November 30, 1999 of 10,244,113 were
multiplied by the fair value of each grant. The fair value of these
options and warrants were estimated as of November 30, 1999 using the
Black-Scholes pricing method assuming a risk free interest rate of 6.0%,
no dividends, a volatility factor of .801, and a weighted average exercise
price of .33 to .50 years. The application of this method resulted in a
fair value per option and warrant between $0.01 and $1.41.
(3) Under purchase accounting the $2.0 million in transaction costs Insmed
Pharmaceuticals expects to incur are included in the determination of the
purchase price. The $1.5 million in transaction costs Celtrix expects to
incur will be expensed as incurred.

Based upon preliminary estimate of the valuation of tangible and intangible
assets acquired and liabilities assumed, Insmed Pharmaceuticals has allocated
the total cost of the purchase to the net assets of Celtrix, as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Tangible assets acquired:
Cash............................................................ $ 1,243
Receivables and other current assets............................ 159
Property and Equipment.......................................... 75
Assets held for sale............................................ 349
In-process research and development............................. 54,433
Goodwill........................................................ 15,954
Liabilities assumed............................................. (693)
-------
$71,520
=======
</TABLE>
The Celtrix research and development programs currently in process were
valued as follows:

<TABLE>
<S> <C>
SomatoKine: Diabetes................................................ $36,122
SomatoKine: Osteoporosis............................................ 12,650
SomatoKine: Severe Burns............................................ 1,224
SomatoKine: Protein Wasting......................................... 3,169
TGF-beta-2: Dermal Ulcer............................................ 1,268
-------
$54,433
=======
</TABLE>

The in-process research and development has been written off against the
consolidated accumulated deficit. Because the charge is nonrecurring, it has
not been reflected in the pro forma condensed consolidated statement of
operations.

Note 2

The pro forma condensed consolidated balance sheet includes the adjustments
necessary to give effect to the reorganizations as if the reorganizations had
occurred on December 31, 1999 and to reflect the allocation of the acquisition
cost to the fair value of tangible and intangible assets acquired and
liabilities assumed as noted above, including a charge to accumulated deficit
for acquired in-process research and development and the elimination of Celtrix
and Insmed Pharmaceuticals' equity accounts. Adjustments included in the pro
forma condensed consolidated balance sheet are summarized as follows (in
thousands except share and per share amounts):

(A) Increase the accrual for Insmed Pharmaceuticals' estimated transaction-
related costs to $2,000 principally for investment banking, legal and
accounting services. Approximately $376 has been incurred through
December 31, 1999.

98
<PAGE>

(B) The exchange of Celtrix preferred stock and cumulative dividends on an
as converted basis into 4,133,050 shares of Insmed Incorporated common
stock at the exchange ratio prescribed in the Celtrix Certificate of
Incorporation.

(C) Conversion of Insmed Pharmaceuticals Convertible Participating
Preferred Stock, Series A and Convertible Preferred Stock, Series B
into 34,042,260 shares of Insmed Incorporated common stock.

(D) Conversion of Insmed Pharmaceuticals and Celtrix common stock into
61,130,331 shares of Insmed Incorporated common stock.

(E) Elimination of Celtrix accumulated deficit.

(F) Charge to operations for in-process research and development of
$54,433.

(G) Sale of 5,632,678 shares of Insmed Pharmaceuticals common stock, before
the merger, and sale of warrants to purchase 6,901,344 shares of common
stock of Insmed Incorporated. Proceeds, net of estimated transaction
costs of $1.9 million, are expected to approximate $32.6 million.

(H) Adjustment of net assets based upon purchase price allocation.

(I) Reclassification of the estimated transaction costs incurred by Insmed
Pharmaceuticals to reflect their inclusion in the determination of the
preliminary purchase price.

(J) Record amount allocated to goodwill of $15,954 in the Unaudited
Proforma Condensed Consolidated Balance Sheet and amortization expense
of $798 in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations based on an amortization period of twenty years.

Note 3

Pro forma basic and diluted net loss per share amounts for the year ended
December 31, 1999, are based upon the estimated weighted-average number of
shares expected to be outstanding subsequent to the reorganizations. The
determination of the pro-forma weighted-average shares outstanding used in the
calculation of pro forma basic and diluted net loss per share is included in
the table in Note 1 on page . The impact of outstanding options and warrants,
including Insmed Pharmaceuticals and Celtrix options converted, is not included
in the calculation of basic and diluted net loss per share as the effect would
be antidilutive.

99
<PAGE>

MARKET PRICES AND DIVIDEND INFORMATION

Celtrix. Celtrix common stock is traded on The Nasdaq SmallCap Market under
the symbol "CTRX." The table below lists the high and low quarterly sales
prices for the common stock of Celtrix as reported in published financial
sources for each fiscal quarter during the last three years.

<TABLE>
<CAPTION>
Celtrix
------------
<S> <C> <C>
Fiscal Year 2001 High Low
First Quarter (through April 12, 2000)....................... $ 8.50 $5.00
Fiscal Year 2000 High Low
Fourth Quarter............................................... $12.25 $2.50
Third Quarter................................................ 3.00 1.13
Second Quarter............................................... 1.81 1.13
First Quarter................................................ 1.63 0.81
Fiscal Year 1999 High Low
Fourth Quarter............................................... $ 2.00 $0.91
Third Quarter................................................ 2.97 0.50
Second Quarter............................................... 2.19 1.00
First Quarter................................................ 3.75 1.75
Fiscal Year 1998 High Low
Fourth Quarter............................................... $ 3.88 $1.72
Third Quarter................................................ 2.63 1.66
Second Quarter............................................... 2.94 2.00
First Quarter................................................ 3.00 2.00
</TABLE>

On November 30, 1999, the last full trading day before the joint public
announcement by Insmed Pharmaceuticals and Celtrix of the signing of the
reorganization agreement, the closing sale price per share of Celtrix common
stock as reported by The Nasdaq SmallCap Market was $1.563. On , 2000, the
closing sale price per share of Celtrix common stock as reported by The Nasdaq
SmallCap Market was $ .

Celtrix has never declared or paid any cash dividends on its common stock.
Insmed Incorporated currently intends to retain future earnings, if any, to
fund the development and growth of its businesses and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any future
decision concerning the payment of dividends on common stock of Insmed
Incorporated will depend upon the results of operations, financial condition
and capital expenditure plans of Insmed Incorporated, as well as such other
factors as the Insmed Incorporated board of directors, in its sole discretion,
may consider relevant.

The number of Celtrix stockholders is approximately 6,000.

Insmed Pharmaceuticals. There is no public market for Insmed Pharmaceuticals
common stock.

Insmed Pharmaceuticals has never declared or paid any cash dividends on its
common stock. Insmed Incorporated currently intends to retain all of its
earnings, if any, for the future operation and expansion of its business and
does not contemplate distributing any dividends to stockholders. Any future
decision concerning the payment of dividends on the common stock of Insmed
Incorporated will depend upon the results of operations, financial condition
and capital expenditure plans of Insmed Incorporated, as well as such other
factors as the Insmed Incorporated board of directors, in its sole discretion,
may consider relevant.

Insmed Incorporated. There is not yet a public market for Insmed
Incorporated common stock. However, following the reorganizations, Insmed
Incorporated common stock will trade on, The Nasdaq SmallCap Market, and
Celtrix common stock will no longer trade on The Nasdaq SmallCap Market and
will represent only the right to receive Insmed Incorporated common stock under
the reorganization agreement. Insmed Incorporated has applied with The Nasdaq
SmallCap Market to be traded on The Nasdaq SmallCap Market under the symbol

"INSM."

100
<PAGE>

Insmed Incorporated currently intends to retain all of its earnings, if any,
for the future operation and expansion of its business and does not contemplate
distributing any dividends to stockholders. Any future decision concerning the
payment of dividends on the common stock of Insmed Incorporated will depend
upon the results of operations, financial condition and capital expenditure
plans of Insmed Incorporated, as well as such other factors as the Insmed
Incorporated board of directors, in its sole discretion, may consider relevant.

101
<PAGE>

ELECTION OF DIRECTORS OF CELTRIX

Nominees

At the Celtrix annual meeting, five directors are up for election to serve
until the earlier of the expiration of their term or the completion of the
reorganizations. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for Celtrix's five nominees named below, all of whom
are currently directors of Celtrix. In the event that any nominee of Celtrix is
unable or declines to serve as a director at the time of the Celtrix annual
meeting, the proxy holders will vote for any nominee who the Celtrix board of
directors has designated to fill the vacancy. The proxy holders intend to vote
all proxies received by them in accordance with cumulative voting as will
assure the election of as many of the nominees listed below as possible. If
cumulative voting is necessary, the proxy holders will determine for which
nominees to vote. Celtrix expects that each nominee will serve as a director.
Assuming a quorum is present, the five nominees for director receiving the
greatest number of votes cast at the Celtrix annual meeting will become the
directors.

The nominees' names and ages as of December 31, 1999, and certain
information about them are:

<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
--------------- --- -------------------- --------------
<C> <C> <S> <C>
Henry E. Blair.......... 56 Chairman and Chief Executive 1995
Officer of Dyax Corporation; Co-
Founder and Consultant, Genzyme
Corporation and Director of
Celtrix
Stuart D. Sedlack....... 35 Director of Corporate Business 1999
Development, Elan Corporation,
plc
Barry M. Sherman, M.D... 57 Executive Vice President and 1997
Chief Medical Officer, Pain
Therapeutics, Inc. and Director
of Celtrix
Andreas Sommer, Ph.D.... 58 Chief Executive Officer, 1994
President and Director of
Celtrix
James E. Thomas......... 39 Chairman of the board of 1993
directors of Celtrix; Managing
Director of E.M. Warburg, Pincus
& Co., Inc.
</TABLE>

There are no family relationships among the directors or executive officers
of Celtrix.

Henry E. Blair. Since April 1997, Mr. Blair has served as Chairman and Chief
Executive of Dyax Corporation. He was a co-founder of Genzyme Corporation in
1981 and served as Genzyme's Senior Vice President, Manufacturing, Research and
Development until 1988. He continues to serve on Genzyme's Board of Directors
and as a consultant. He is also a director of Genzyme Transgenic Corporation,
DynaGen Inc. and several privately-held companies.

Stuart D. Sedlack. Mr. Sedlack has served as Director of Corporate Business
Development of Elan Corporation, plc, since June 1997, and from July 1994 until
May 1997, he served as Director, Licensing and Technology Development of the
University of Maryland Medical School in Baltimore, Maryland. Previously, from
November 1991 until June 1994, Mr. Sedlack served as Vice President, Natho
Corporation, Paris, France.

Barry M. Sherman, M.D. Dr. Sherman currently serves as Executive Vice
President and Chief Medical Officer of Pain Therapeutics Inc., and has been a
Clinical Professor of Internal Medicine at Stanford University since 1986.
Previously, Dr. Sherman served as President and Chief Executive Officer of
Anergen, Inc. and Senior Vice President and Chief Medical Officer at Genentech,
Inc.

Andreas Sommer, Ph.D. Dr. Sommer was appointed Chief Executive Officer and
President of Celtrix in April 1995 and has served as a director of Celtrix
since May 1994. Previously, Dr. Sommer served as Senior Vice President of
Celtrix since July 1993 and as Vice President, Research of Celtrix since 1992,
following Celtrix's merger with BioGrowth, Inc. From 1989 to 1991, Dr. Sommer
served as Vice President, Research and Development of BioGrowth.

James E. Thomas. Mr. Thomas was elected Chairman of the Board of Celtrix in
April 1995 and has served as a director of Celtrix since November 1993. He has
been a Managing Director of E.M. Warburg,

102
<PAGE>

Pincus & Co., Inc. since January 1994 and has held various other positions at
Warburg since 1989. He is also a director of Menley & James Laboratories, Inc.,
Scientific Learning Company, Transkaryotic Therapies, Inc., and several
privately-held companies.

Celtrix Board of Directors Meetings and Committees

The board of directors of Celtrix held a total of nine meetings during the
year ended March 31, 1999. The Celtrix board of directors has an audit
committee and a compensation committee. It does not have a nominating committee
or a committee performing the functions of a nominating committee.

The audit committee of the Celtrix board of directors currently consists of
directors Blair and Thomas, the chairman of the Celtrix audit committee. The
Celtrix audit committee held no meetings during fiscal 1999. The Celtrix audit
committee recommends engagement of Celtrix's independent auditors, and approves
the services performed by Celtrix's independent auditors and reviews and
evaluates Celtrix's accounting principles and its system of internal accounting
controls.

The compensation committee of the Celtrix board of directors currently
consists of directors Thomas and Blair, the chairman of the Celtrix
compensation committee. Dr. Sommer attends Celtrix compensation committee
meetings in an unofficial capacity. The Celtrix compensation committee held two
meetings during fiscal 1999. The Celtrix compensation committee sets and
administers the policies for executive compensation, Celtrix's 1991 Stock
Option Plan and Celtrix 1991 Employee Stock Purchase Plan and short-term and
long-term incentive programs.

In fiscal 1999, no incumbent director attended fewer than 75% of the
aggregate number of meetings of the board of directors and meetings of the
committees of the board of directors on which he serves.

Compensation of Celtrix Directors

Celtrix reimburses directors for out-of-pocket travel expenses associated
with their attendance at board meetings. During fiscal 1999, Celtrix paid
independent non-employee directors Blair and Sherman a fee of $1,500 for each
meeting of the board of directors attended.

Independent non-employee directors holding less than 2% of Celtrix's common
stock participate in Celtrix's 1991 Directors' Option Plan. Celtrix
automatically grants these directors options to purchase shares of common stock
on the terms and conditions stated in the Celtrix directors' plan.
Additionally, the board may grant non-employee directors option grants under
the Celtrix 1991 Stock Option Plan. During the year ended March 31, 1999,
Celtrix granted the following:

<TABLE>
<CAPTION>
Options Exercise
Name Granted Price
---- ------- --------
<S> <C> <C>
Harry E. Blair........................................... 3,333 $2.875
40,000 $1.688
10,001 $2.875
Barry M. Sherman......................................... 40,000 $1.688
5,000 $2.875
</TABLE>

Except for the option grant of 3,333 shares to director Blair, the options
granted under the Celtrix directors' plan during the fiscal year ended March
31, 1999, are exercisable with respect to 1/4th of the shares granted on the
first anniversary of the grant date, and 1/48th per month thereafter. The 3,333
options granted to director Blair under the Celtrix directors' plan are
exercisable on the third anniversary of the grant date. Options granted under
the Celtrix 1991 Stock Option Plan are exercisable with respect to 12% of the
shares granted six months after the grant date, and 2% per month thereafter.

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Immediately prior to the effective time of the reorganizations, all
outstanding options to purchase shares of Celtrix common stock, including those
options held by Celtrix officers and directors, will be fully vested and
exercisable. Officers and directors hold options to purchase 1,130,000 shares
of Celtrix common stock, 603,199 shares of which were vested as of December 31,
1999.

The board of directors recommends a vote for all of the nominees listed
above to serve as directors until the earlier of either (1) the ensuing one
year term and until a successor is elected and qualified or (2) the completion
of the reorganizations.

Celtrix Compensation Committee Report On Executive Compensation

The Celtrix compensation committee of the board of directors sets and
administers the policies for executive salaries and short-term and long-term
incentive programs. The committee currently consists of Henry E. Blair and
James E. Thomas, non-employee directors of Celtrix. Andreas Sommer, Celtrix's
President and CEO, attends meetings of the Celtrix compensation committee in an
unofficial capacity.

Compensation Philosophy. Celtrix designs the executive compensation program
to motivate and retain executives of outstanding ability who contribute to the
long-term success of Celtrix and is based on the following guiding principles:

. Integrate executives' compensation with accomplishment of Celtrix's
strategic plan and business objectives.

. Provide a compensation package that is competitive with comparable
companies in the biotechnology industry.

. Assure that executives are focused on the enhancement of stockholder
value.

Compensation Program. Celtrix bases compensation for Celtrix's Chief
Executive Officer and other officers on individual performance as measured
against clearly defined corporate objectives. The board of directors approves
corporate objectives at the beginning of the fiscal year and reviews progress
throughout the year. The Celtrix compensation committee determines executive
compensation based on the accomplishment of those objectives. The Celtrix board
identified corporate objectives for fiscal 1999 in the areas of product
development, strategic corporate alliances, and financing milestones.
Executives' performance was measured against these specific objectives.

The primary components of executives' compensation are:

. base salary,

. long-term equity incentives,

. cash bonus.

The Celtrix compensation committee's goal in setting annual base salaries is
to be at the median salary level for similar positions in companies of
comparable size, geographic location (San Francisco Bay Area) and industry
sector (biopharmaceuticals) within the biotechnology industry. To determine
these levels, the committee refers to compensation survey data from a select
group of companies participating in the Radford Biotechnology Salary Survey.
All of these companies are also in the Nasdaq Pharmaceutical Stocks Index used
in Celtrix's stock price performance graph described in the section entitled
"Celtrix Performance Graph" on page . Each year, the list of companies
participating in the survey is reviewed, and additions or deletions are made to
the select group of companies based on the three criteria used (size,
geographic location, industry sector).

Stock option awards are intended to align the interests of the executives
with those of the stockholders and provide significant incentive to meet
Celtrix's long-term goals and enhance stockholder value. Stock options are
granted at fair market value and vest over a 50-month period. In determining
the size of the option grants,

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several factors are considered: size of previous awards made to executives,
competitive practices at similar companies within the industry and perceived
long-term contribution.

In addition to the award of stock options, the Celtrix compensation
committee also awarded cash bonuses to the officers of Celtrix in April 1998 in
recognition of each individual's unique contribution with respect to attainment
of certain corporate and individual milestones. When evaluating and deciding on
cash bonuses, the Celtrix compensation committee gives consideration to the
individual's contribution towards Celtrix's success and for progress made
towards the development of pharmaceutical products. Accordingly, in March 1998,
the Celtrix compensation committee approved cash bonuses to officers and
certain senior managers for their achievement of company objectives during
fiscal 1998; the bonuses were paid in April 1998. There were no cash bonuses
paid to officers in the fiscal year ended March 31, 1999.

Compensation of the Celtrix Chief Executive Officer. Celtix determines the
CEO's compensation based on a number of factors, including comparative salaries
of CEOs of the select group of companies identified above, the CEO's individual
performance and Celtrix's performance as measured against the stated objectives
discussed above. Current base salary for the CEO is in line with the median for
similarly situated executives in other companies of comparable size in the
biotechnology industry. The CEO's total compensation package includes stock
option grants and cash bonus with the goal of motivating leadership for long-
term company success and providing significant reward upon achievement of
company objectives and enhancing stockholder value. As with other executives,
Celtix also bases the size of option grants on a review of competitive survey
data.

Deductibility of Executive Compensation. The Celtrix compensation committee
has considered the impact of Section 162(m) of the Internal Revenue Code
adopted under the Omnibus Budget Reconciliation Act of 1993, which section
disallows a deduction for any publicly-held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and the four
other most highly compensated executive officers, unless this compensation
meets the requirements for the performance-based exception to the general rule.
We expect the cash compensation paid by Celtrix to each of its executive
officers to be well below $1 million and the committee believes that options
granted under the Celtrix 1991 Stock Option Plan will meet the requirements for
the "performance-based" exemption of Section 162(m), the committee believes
that this section will not affect the tax deductions available to Celtrix. It
will be the Celtrix compensation committee's policy to qualify, to the extent
reasonable, the executive officers' compensation for deductibility under
applicable tax law.

From the members of the Compensation Committee of Celtrix:

COMPENSATION COMMITTEE

Henry E. Blair--Chairman
James E. Thomas

Compensation Committee Interlocks And Insider Participation

Dr. Sommer, Celtrix's President and CEO, while not a member of Celtrix's
Compensation Committee, attends all meetings of the Compensation Committee in
an unofficial capacity. He does not vote on any matters on which the
Compensation Committee is taking action.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires Celtrix's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of Celtrix's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Celtrix common stock and other equity securities of
Celtrix. Officers, directors and greater than ten percent stockholders are
required by SEC regulations to furnish Celtrix with copies of all Section 16(a)
forms they file.

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To Celtrix's knowledge, based solely upon review of the copies of such
reports furnished to Celtrix and written representations from officers and
directors that no other reports were required, during the fiscal year ended
March 31, 1999, all officers, directors and greater than ten percent
stockholders complied with all Section 16(a) filling requirements.

Celtrix Performance Graph

The following graph summarizes cumulative total stockholder return data
(assuming reinvestment of dividends) for the period commencing on March 31,
1994 and ending on March 31, 1999. The graph assumes an investment of $100 on
March 31, 1994 (1) in the common stock of Celtrix Pharmaceuticals, Inc. at a
price per share of $7.38, (2) in the Center for Research in Securities Prices
Total Return Index for the Nasdaq Stock Market (U.S. Companies) and (3) in the
Nasdaq Pharmaceutical Stocks Index. The stock price performance shown on the
following graph does not necessarily indicate future stock price performance.

Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting

Any proposal that a stockholder intends to present at Celtrix's 2000 Annual
Meeting of Stockholders must be received by Celtrix no later than June 15,
2000, in order for it to be included in the proxy statement and form of proxy
relating to that meeting.

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DESCRIPTION OF INSMED INCORPORATED

Business Overview

Insmed Incorporated is a newly formed Virginia corporation that has not, to
date, conducted any activities other than those incident to its formation, its
execution of the reorganization agreement and related documents, its
preparation of this joint proxy statement/prospectus, the adoption of the
Insmed Incorporated 2000 Stock Incentive Plan and the Insmed Incorporated 2000
Stock Purchase Plan described below and the negotiation and execution of the
financing described under "Recent Developments" on page . Because of the
reorganizations, Insmed Incorporated will become a holding company for Celtrix
and Insmed Pharmaceuticals such that Celtrix and Insmed Pharmaceuticals will
become wholly-owned subsidiaries of Insmed Incorporated and each of Celtrix and
Insmed Pharmaceuticals will continue to conduct the businesses that they
currently conduct. Insmed Incorporated's headquarters will be at 800 East Leigh
Street, Richmond, Virginia 23219 and its telephone number will be (804) 828-
6893.

The Stock Incentive Plan

The board of directors of Insmed Incorporated has adopted and the sole
shareholder of Insmed Incorporated has approved the Insmed Incorporated 2000
Stock Incentive Plan, subject to the approval of the reorganizations by the
Insmed Pharmaceuticals shareholders and the Celtrix stockholders and completion
of the reorganizations. The purpose of the Stock Incentive Plan is to attract
and retain executive officers, key employees, non-employee directors and other
non-employee advisors and service providers, and to align more closely the
interests of those persons with the interests of shareholders.

The following paragraphs summarize the principal features of the Stock
Incentive Plan. This summary is subject, in all respects, to the terms of the
Stock Incentive Plan. Insmed Incorporated will provide promptly, upon request
and without charge, a copy of the full text of the Stock Incentive Plan to any
recipient of a copy of this joint proxy statement/prospectus.

Summary of the Stock Incentive Plan

Administration. The Insmed Incorporated board of directors and the Insmed
Incorporated compensation committee (or such other committee of the Insmed
Incorporated board of directors composed solely of persons who satisfy the
"non-employee director" and "outside director" requirements of Rule 16b-3 under
the Exchange Act and Section 162(m) of the Code) administers the Stock
Incentive Plan. The Insmed Incorporated board of directors, the Insmed
Incorporated compensation committee or such other committee may delegate its
authority and responsibilities under the Stock Incentive Plan to one or more
officers of Insmed Incorporated, but the Insmed Incorporated board of
directors, the Insmed Incorporated compensation committee or such other
committee may not delegate authority with respect to grants and awards to
individuals subject to Section 16 of the Exchange Act. As used in this summary,
the term "Administrator" means the Insmed Incorporated board of directors, the
Insmed Incorporated compensation committee or such other committee or a
delegate, as appropriate. The Administrator generally has the authority, within
limitations described in the Stock Incentive Plan:

. to establish rules and policies concerning the Stock Incentive Plan;

. to determine the persons who may receive stock options, awards of Insmed
Incorporated common stock and performance shares;

. to fix the number of shares of Insmed Incorporated common stock for each
award;

. to set the terms of each award; and

. to accelerate, upon a change of control or at such other time as the
administrator determines in its discretion,the times for exercise,
transfer, forfeit and settlement of options.

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Eligibility. Each employee of Insmed Incorporated or a subsidiary
corporation of Insmed Incorporated, including an employee who is a member of
Insmed Incorporated's board of directors, each non-employee member of the
Insmed Incorporated board of directors, and each other non-employee advisor or
service provider of Insmed Incorporated or a subsidiary corporation may
participate in the Stock Incentive Plan. The Administrator selects the
individuals who will participate in the Stock Incentive Plan. Under the Stock
Incentive Plan, no Stock Incentive Plan participant may receive, in any
calendar year, options for more than 1,000,000 shares of Insmed Incorporated
common stock. Further, no Stock Incentive Plan participant may receive, in any
calendar year, an award of more than 500,000 shares of Insmed Incorporated
common stock or an award of more than 500,000 performance shares.

Options. A stock option entitles a Stock Incentive Plan participant to
purchase shares of Insmed Incorporated common stock from Insmed Incorporated at
the option price. The participant may pay the option price in cash, with shares
of Insmed Incorporated common stock, with a combination of cash and shares of
Insmed Incorporated common stock, or by instructing a broker to deliver the
exercise price to Insmed Incorporated through the sale of shares of Insmed
Incorporated common stock purchased under the option. The Administrator fixes
the option price at the time the company grants the option, but the price
cannot be less than the shares' fair market value on the date of grant in the
case of an option intended to qualify as an incentive stock option under
Section 422 of the Code. Options granted under the Stock Incentive Plan may be
ISOs or nonqualified options. The differences between these two types of
options are discussed below under "Federal Income Taxes."

If provided in the option agreement, the Administrator may grant
nonqualified options that are transferable to a Stock Incentive Plan
participant's spouse, children or grandchildren, to trusts for the benefit of
such persons, or to partnerships in which those persons are the only partners,
or to such other persons or entities as the Administrator may permit, on such
terms and conditions as permitted from time to time under Rule 16b-3 of the
Securities Exchange Act of 1934, as amended. The same terms and conditions will
govern the option following the transfer, and no such transferee may transfer
the option other than by will or the laws of descent and distribution.

Stock Awards. Stock Incentive Plan participants may receive shares of
restricted Insmed Incorporated common stock and stock awards not subject to
restrictions. A Stock Incentive Plan participant's rights in a restricted stock
award are nontransferable or forfeitable or both unless the participant or the
company, as the case may be, satisfies certain conditions prescribed by the
Administrator, in its discretion. These conditions may include, for example:

. continued employment or service with Insmed Incorporated or a subsidiary
corporation for a specified period;

. achievement by Insmed Incorporated or a subsidiary corporation of
performance-related objectives such as those measured with respect to:

.. fair market value of Insmed Incorporated common stock;

.. Insmed Incorporated common stock price appreciation;

.. gross revenues, operating profit or net earnings before or after
taxes,

.. return on equity;

.. earnings per share;

.. total earnings;

.. earnings growth;

.. return on capital;

.. return on assets,

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.. return on sales;

.. cash flow per share;

.. book value per share;

.. market share;

.. economic value added;

.. market value added;

.. productivity;

.. level of expenses;

.. new product development;

.. peer group comparisons of any of the foregoing; or

.. other measures the Administrator may select.

Performance Share Awards. The Stock Incentive Plan also provides for the
award of performance shares. A performance share award entitles the Stock
Incentive Plan participant to receive a payment equal to the fair market value
of a specified number of shares of Insmed Incorporated common stock if certain
standards are met. The Administrator prescribes the requirements before a
participant earns a performance share award. The Administrator may base the
requirements on:

. the fair market value of Insmed Incorporated common stock;

. Insmed Incorporated common stock price appreciation;

. gross revenues, operating profit, or net earnings before or after taxes;

. return on equity;

. earnings per share;

. total earnings;

. earnings growth;

. return on capital;

. return on assets;

. return on sales;

. cash flow per share;

. book value per share;

. market share;

. economic value added;

. market value added;

. productivity;

. level of expenses;

. new product development;

. peer group comparisons of any of the foregoing or

. other measures as the Administrator may select.

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To the extent an individual earns performance shares, the employee may settle
his or her obligation:

. in cash;

. in shares of Insmed Incorporated common stock; or

. a combination of the two.

If provided in the performance shares agreement, the Administrator may also
grant transferable performance shares, subject to the same general conditions
described above under "Options."

Share Authorization. Written agreements between Insmed Incorporated and the
Stock Incentive Plan participant describe the plan awards. The maximum number
of shares of Insmed Incorporated common stock issuable under the Stock
Incentive Plan upon its adoption by the board of directors of Insmed
Incorporated is 12,000,000 shares. That maximum will increase each January 1
during the term of the Stock Incentive Plan by a number of shares equal to 1.0%
of the number of shares of Insmed Incorporated common stock outstanding on the
preceding December 31. In no event, however, may the annual increases cause the
maximum number of shares issued under the Stock Incentive Plan to exceed
25,000,000 shares. The Administrator will have discretion to adjust the maximum
share authorization, the individual annual award limits, and the terms of
outstanding awards in the event of a stock dividend, stock split, combination,
reclassification, recapitalization, reorganization or similar event.

Termination and Amendment. No award may be granted under the Stock Incentive
Plan more than ten years after the earlier of the date of adoption of the plan
by Insmed Incorporated's board of directors or the date of approval of the plan
by Insmed Incorporated's sole shareholder. Insmed Incorporated's board of
directors may amend or terminate the Stock Incentive Plan at any time, but an
amendment will not become effective without shareholder approval if the
amendment materially increases the aggregate number of shares of Insmed
Incorporated common stock issuable under the Stock Incentive Plan (other than
equitable adjustments on certain corporate transactions).

Awards. Shares issued under the Stock Incentive Plan will include those
issued pursuant to Insmed Incorporated's assumption of the obligations of
Insmed Pharmaceuticals and Celtrix under stock options outstanding immediately
prior to the completion of the reorganizations. In connection with the
reorganizations, Insmed Pharmaceuticals and Celtrix will amend their
outstanding options to provide that those options are exercisable for Insmed
Incorporated common stock following the completion of the reorganizations. For
information on the Celtrix option plans, see "Description of Celtrix--Stock
Option Plans" on page . For information on the Insmed Pharmaceuticals option
plan, see "Description of Insmed Pharmaceuticals--Stock Option Plans." The
company may issue up to 7,373,091 shares of Insmed Incorporated common stock on
the exercise of former Insmed Pharmaceuticals and Celtrix options.

Federal Income Taxes. A Stock Incentive Plan participant does not recognize
income at the time the company grants an option. If the option is an incentive
stock option (ISO), the participant will not recognize income upon exercise of
the option. A Stock Incentive Plan participant recognizes income when he
disposes of shares acquired under an ISO. The company may grant ISOs only to
employees of Insmed Incorporated and its subsidiaries. The exercise of a
nonqualified option generally is a taxable event that requires the Stock
Incentive Plan participant to recognize, as ordinary income, the difference
between the shares' fair market value and the option price.

A Stock Incentive Plan participant will recognize income on account of a
stock award on the first day that the shares become either transferable or not
subject to a substantial risk of forfeiture. The amount of income recognized by
the Stock Incentive Plan participant equals the fair market value of the shares
of Insmed Incorporated common stock received on that date.

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A Stock Incentive Plan participant will recognize income on account of the
settlement of a performance share award. A Stock Incentive Plan participant
will recognize income equal to any cash paid and the fair market value of
shares of Insmed Incorporated common stock (on the date that the shares are
first transferable or not subject to a substantial risk of forfeiture)
received in settlement of the award.

The employer, either Insmed Incorporated or a subsidiary corporation, may
claim a federal income tax deduction on account of the exercise of a
nonqualified option, the vesting of a stock award and the settlement of a
performance share award. The amount of the deduction equals the ordinary income
recognized by the Stock Incentive Plan participant. The employer may not claim
a federal income tax deduction on account of the grant or the exercise of an
ISO. The employer may not claim a federal income tax deduction on account of
certain dispositions of shares of Insmed Incorporated common stock acquired
upon the exercise of an ISO.

The Stock Purchase Plan

The board of directors of Insmed Incorporated has adopted and the sole
shareholder of Insmed Incorporated has approved the Insmed Incorporated 2000
Stock Purchase Plan. Under the Stock Purchase Plan, eligible employees of
Insmed Incorporated and its subsidiary corporations, other than certain
employees who are also shareholders, may purchase Insmed Incorporated common
stock directly from the company. Purchases may be made through payroll
deduction, with an annual limit on purchases equal to the lesser of 15% of an
employee's base salary or a number of shares with a fair market value (at the
time the right to purchase shares is made available) of $25,000. The price per
share purchased under the Stock Purchase Plan will be the lesser of 85% of the
fair market value of a share of Insmed Incorporated common stock at the
beginning of each annual offering period, or 85% of the fair market value on
the date the purchase is made. Employees will not recognize income at the time
Insmed Incorporated common stock is purchased under the Stock Purchase Plan,
but the employee may recognize ordinary income, and the employer may claim a
corresponding federal income tax deduction, on account of certain dispositions
of shares acquired under the Stock Purchase Plan. Employees may purchase a
maximum of 1,000,000 shares of Insmed Incorporated common stock under the Stock
Purchase Plan.

Financing Activity

On January 13, 2000 Insmed Incorporated and Insmed Pharmaceuticals entered
into a purchase agreement with certain investors which provides that, subject
to certain conditions, the investors will purchase 5,632,678 shares of Insmed
Pharmaceuticals common stock and 6,901,344 warrants, with each warrant
exercisable into one share of Insmed Incorporated common stock at a price of
$2.25 per share. Insmed Incorporated and Insmed Pharmaceuticals will receive an
aggregate consideration of $34.5 million as a result of this financing. See
"Recent Developments" on page for more information on the financing.

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DESCRIPTION OF CELTRIX

Business Overview

. severe osteoporosis, including hip fracture surgery in the elderly;

. diabetes; and

. acute traumatic injury, as in severe burns.

Other potential development programs may target:

. protein wasting diseases (involving deterioration or degeneration of body
tissue) associated with cancer;

. AIDS;

. advanced kidney failure; and

. comparable life-threatening conditions.

Celtrix's leading drug candidate is SomatoKine, a naturally occurring
complex comprised of the tissue-producing, or anabolic, hormone insulin-like
growth factor-I (IGF-I) and its primary binding protein, BP3. IGF-I plays a
major role in diverse biological processes, including bone and muscle
formation, tissue repair, and endocrine regulation. However, IGF-I does not
naturally exist in quantity free of its binding proteins, and there are
limitations associated with administering free IGF-I therapeutically. Early
studies, using free IGF-I without the benefit of the binding protein present in
SomatoKine, were complicated by side-effects brought on by the use of the free
form of the molecule. When IGF-I is bound to BP3, as in nature, it does not
display these acute limitations. BP-3 is critical in regulating the
availability of IGF-I to the body's cells.

Celtrix completed a Phase II clinical feasibility study in December 1998
using SomatoKine to treat severely osteoporotic patients recovering from hip
fracture surgery. Final results from the Phase II study suggest that SomatoKine
has the potential to amplify bone metabolism and reverse the loss of bone
mineral density which usually occurs following a hip fracture and improves the
patient's functional independence. In April 1999, Celtrix established a
corporate partnership with Elan Corporation, plc and Elan International
Services, Ltd. to form a new jointly owned subsidiary that will continue global
development of SomatoKine for treatment of severe osteoporosis, including
recovery from hip fracture surgery.

Celtrix has also conducted a Phase II feasibility study in patients with
severe burns. Data from the study show that SomatoKine has a normalizing effect
on protein metabolism and patients treated with SomatoKine recorded
improvements in several measures of their immune systems and heart functions.
Celtrix believes that SomatoKine has the potential to provide severely burned
patients with critical protection from serious infection, and it may speed
their recovery and reduce their hospital stay. Recently, the United States Food
and Drug Administration notified Celtrix that SomatoKine qualifies for orphan
drug status in treatment of severe burns. Orphan drug status guarantees Celtrix
seven years of market exclusivity in the United States following the FDA
approval of SomatoKine for the treatment of severe burns.

In January 1999, Celtrix completed a Phase II study in patients with Type I
diabetes. Final data revealed that average daily insulin requirements for
patients who received SomatoKine decreased significantly and these patients'
average daily glucose levels declined. Based on such findings, Celtrix believes
that SomatoKine has potential to improve insulin sensitivity, help diabetics
manage their disease, and avoid complications which ultimately accompany
diabetes.

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Celtrix also has a product development, license and marketing agreement with
Genzyme Corporation for TGF-beta-2. Genzyme currently develops TGF-beta-2 for
tissue repair and the treatment of systemic indications.

As part of Celtrix's corporate restructuring announced in September 1998,
Celtrix discontinued manufacturing SomatoKine at its Santa Clara facility.
Currently, Celtrix has sufficient quantities of the drug to conduct clinical
trials through the remainder of Year 2000. Celtrix believes that its future
requirements for SomatoKine, beyond the amount of drug substance already on
hand, can be met by third parties through contract manufacturing. Celtrix can
transfer the necessary technology to a contract manufacturer to supply
SomatoKine.

Celtrix's principal executive offices are located at 2033 Gateway Place,
Suite 600, San Jose 95110 and Celtrix's telephone number is (408) 988-2500.

Background: Medical Need

By binding to specific cells to modulate their function, regulatory
proteins, such as growth factors, cytokines, and protein hormones control many
of the body's physiological functions, including growth of bone and muscle,
tissue healing, immune processes and endocrine functions. When the body
produces appropriate levels of these proteins and when the target cells respond
properly, the body functions normally. When the body encounters adverse
situations such as trauma, infection, or chronic disease, the production and
regulation of these factors can become unbalanced. Normally, the body has the
ability to naturally modulate the production of these regulating proteins to
return to the body to a balanced physiological state, also called homeostasis.
However, when the body's ability to make these changes is impaired, a number of
undesirable consequences can result, including, but not limited to, poor
nutritional status, an impaired ability to maintain and repair tissues and
organs normally, and impaired immune and endocrine functions. Celtrix, alone or
in collaboration with others, develops biopharmaceuticals based on such
naturally occurring, regulating proteins.

SomatoKine

SomatoKine is a human recombinant equivalent to the naturally occurring
complex formed by insulin-like growth factor-I (IGF-I) and its primary binding
protein (BP3). The potential use of SomatoKine to treat certain medical
conditions stems from a variety of demonstrated bioactivities involving IGF-I,
including:

. Bone formation;

. Muscle formation;

. Prevention of muscle degradation;

. Tissue and organ repair;

. Nutrient utilization;

. Hormonal regulation of insulin and growth hormone;

. Immune system stimulation; and

. Neurotrophic activity.

The metabolic activities of IGF-I suggest that SomatoKine may provide a safe
and effective therapeutic approach to treating debilitating conditions
associated with adverse metabolic, immune and hormonal functions. Clinical and
preclinical studies have demonstrated that circulating IGF-I levels are often
lower than normal in a variety of conditions including aging, chronic disease,
and severe trauma. Low levels of IGF-I are often associated with destructive
metabolic processes, known as catabolism, causing bone and muscle loss,
delaying healing, and increasing the patient's risk of life-threatening
complications and infections. Low levels of IGF-I

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may also exacerbate immunocompromised and diabetic conditions. The overall
development of SomatoKine focuses on elevating the circulating reservoir of
IGF-I thus overcoming these destructive metabolic processes.

Once in the bloodstream, the SomatoKine complex attaches to a third
naturally occurring protein known as an acid labile subunit, or ALS. The
resulting larger complex emulates what occurs in nature: safely storing and
transporting IGF-I throughout the patient's body with an extended half life
compared to free IGF-I. The BP3 contains important biological information used
by the body in regulating IGF-I bioavailability and biodistribution. In
addition, IGF-I can separate from this circulating reservoir and bind to target
cells whenever the body needs it. Through its specific receptor, IGF-I then
stimulates essential metabolic activities important for regeneration of bone
and muscle, tissue repair, regulation of blood glucose levels and other
critical biological processes.

Although other biopharmaceutical companies may have development programs
involving IGF-I, Celtrix does not believe that any other company is currently
developing the IGF-BP3 (SomatoKine) complex. This complex is of key importance
because most naturally occurring IGF-I does not circulate in its free form, but
is bound to its primary binding protein, BP3. Celtrix believes the natural
association of the two molecules is of fundamental biological significance.

Preclinical experimentation, including toxicology studies, indicates that
SomatoKine substantially improves IGF-I safety and efficacy. In addition,
SomatoKine demonstrates a variety of biological effects that could not be
demonstrated upon the administration of IGF-I alone. Celtrix believes this
phenomenon relates to the observation that SomatoKine significantly removes the
known dose limitations associated with free (unbound) IGF-I. By removing dosage
limitations and improving safety while still providing the benefits of IGF-I,
SomatoKine has the potential to serve as a superior IGF-I therapeutic
composition for a wide range of applications.

Although pursued by several companies over the past years, a number of
limitations mainly associated with the administration of IGF-I in its free form
have hampered realization of the therapeutic potential of IGF-I. As
demonstrated in preclinical and clinical studies, SomatoKine given over a range
of doses is well tolerated, whereas equivalent doses of IGF-I without BP3 can
cause serious side effects, such as hypoglycemia, joint pain and swelling and
parotid discomfort. Human clinical studies with IGF-I, administered without
BP3, have shown that IGF-I by itself must be administered in low-dose daily
injections in order to avoid acute side effects and this, in turn, may limit
the observed clinical efficacy. In contrast, Celtrix's Phase I clinical data
suggested that injectable, higher doses of SomatoKine are feasible and provide
the benefits of IGF-I without dose-limiting side effects. The higher safety
margins of SomatoKine, in combination with potentially less frequent dosing,
should make it possible to use SomatoKine to treat a variety of conditions that
may prove difficult to treat successfully with IGF-I alone.

Because IGF-BP3 is involved in a variety of essential biological processes,
Celtrix believes that SomatoKine therapy could have broad range potential.
Preclinical laboratory and animal and clinical studies conducted by Celtrix's
scientists and other academic collaborators support the potential of
SomatoKine.

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Products Under Research And Development

The following table summarizes potential products currently under research
and development, alone and in collaboration with others.

CELTRIX PRODUCT PORTFOLIO: SOMATOKINE(R)

<TABLE>
<CAPTION>
Population
Patient Indication Biological Action Status (U.S./world)
------------------ ----------------- ------ ------------
<S> <C> <C> <C>
Diabetes Improve glycemic control Phase IIA Study 9,100,000(2)/
Reduce insulin usage Completed 1/99 57,000,000
(increase insulin
sensitivity)
Severe Osteoporosis Build bone and muscle Assessing bone formation 1,500,000(1)/
strength & muscle strength in hip 5,000,000
fracture study
Completed 12/98
(See Corporate Partners)
Recovery from Hip Build bone and muscle Phase IIA Study 300,000/
Fracture Surgery Prevent muscle loss Completed 12/98 1,700,000
(See Corporate Partners)
Severe Burns Reverse catabolic Phase IIA Study 10,000/
condition Stimulate Completed 9/98 30,000
tissue repair
<CAPTION>
Indication
(Corporate Partners) Product (Delivery) Biological Action Status
-------------------- ------------------ ----------------- ------
<S> <C> <C> <C>
Severe Osteoporosis SomatoKine Build bone and muscle Phase IIB
(Elan Corporation, plc) (subcutaneous infusion) strength Clinical Trial
Prevent loss of bone
mineral density
Dermal Ulcers TGF-beta-2 in a collagen Stimulate local tissue Phase II--
(Genzyme Corporation) matrix (local) repair; accelerate Clinical Trial
healing
</TABLE>
- --------

(1) Among the estimated 24 million people in the United States with
osteoporosis, an estimated 1.5 million fractures occur per year as a result
of the disease.

(2) This population size represents the diagnosed cases of Type I and Type II
diabetes.

Clinical Development

Recovery from Hip Fracture Surgery. Celtrix's initial treatment targets are
elderly patients who have undergone hip fracture surgery, a subset of the
severe osteoporosis patient population. Each year approximately 300,000
patients in the United States (1.7 million worldwide) undergo hip surgery to
repair fractures of the femur that have occurred during falls. Studies show
that blood levels of IGF-I drop significantly following hip fracture surgery.
These osteoporotic elderly patients begin to rapidly lose even further bone and
lean body mass. These losses can prolong patient immobility, further threaten
recovery and survival, interfere with quality of life and add to the high cost
of hip repair and rehabilitation. Celtrix's goal is to provide SomatoKine as a
short-term therapeutic treatment to prevent bone loss, improve muscle strength,
restore mobility, and increase the patient's functional independence.

In January 1997, Celtrix initiated a multi-center Phase II clinical
feasibility study in osteoporotic women (ages 65-90) who have undergone hip
fracture surgery. This study, performed in Belgium, evaluated approximately 26
patients (approximately eight patients per dose group), who received either
SomatoKine or a

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placebo over a period of eight weeks. We tested with multiple dosage levels.
End points evaluated included change in the patient's body composition such as:

. bone;

. lean mass and fat mass;

. muscle function as measured by grip strength;

. trends in measures of daily activity such as ADL (activities of daily
living scores); and

. bone metabolism markers.

Results from this Phase II study demonstrated important trend information.
Hip fracture patients typically suffer an accelerated loss (5-9%) of hip bone
mineral density. In fact, at six months following fracture, the hip bone
mineral density of placebo-treated patients had declined approximately 6% from
baseline value. Following an initial characteristic loss, SomatoKine-treated
patients who were administered drug for eight weeks at 1.0 mg/kg per day,
regained a substantial portion of their hip bone mineral density. At the six-
month time point (four months post-treatment), SomatoKine-treated patients
showed a hip bone mineral density average decrease of less than 2% from
baseline value. Hip bone mineral density is a strong predictor of fracture risk
because loss of hip bone mineral density predisposes hip fracture patients to a
high risk of refracture. Population studies show that a 5% decrease in hip bone
mineral density increases the risk of fracture by approximately 25%.

Results also demonstrated that hand grip strength improved approximately 10%
from baseline value for patients treated with 1.0 mg/kg dose of SomatoKine,
versus an approximately 10% loss for those receiving the placebo. Whether
improved grip strength and the anabolic effects of SomatoKine on muscle are
related has not yet been determined. Preclinical studies, however, suggest
SomatoKine has an effect on building lean body mass. We also noted a positive
trend in parameters indicative of functional independence.

Based on findings from Celtrix's Phase II clinical feasibility study,
Celtrix established a joint venture with Elan Corporation, plc in April 1999 to
continue the global development of SomatoKine for osteoporosis and recovery
from hip fracture surgery. The joint venture brings together Celtrix"s drug
technology and Elan"s MEDIPAD(TM) delivery system. MEDIPAD is a state of the
art, disposable micro-infusion pump, worn by the patient in a manner similar to
a transdermal patch, that will facilitate the administration of SomatoKine to
this indication.

Severe Osteoporosis. Osteoporosis is a chronic, debilitating disorder in
which the bones become increasingly porous, brittle and subject to fracture.
Severe osteoporosis as defined by the number of patients suffering osteoporotic
fractures, affects approximately 1.5 million elderly people in the United
States, and 5 million worldwide. Celtrix believes the findings from the Phase
II feasibility study in hip fracture patients present a strong argument for
development of SomatoKine for the short-term treatment of severe osteoporosis.
This patient population consists largely of post-menopausal women who already
have lost a substantial quantity of bone and are at high risk of fractures of
the hip, wrist or spine. In fact, studies estimate that 25% of all women over
age 60 will suffer an osteoporosis-related fracture. While doctors currently
prescribe estrogens, calcitonins, bisphosphonates and other therapies for
osteoporosis, these treatments concentrate primarily on preventing further bone
loss rather than forming new bone in this population. Celtrix believes a
relatively short period of treatment with SomatoKine has potential to
substantially restore the patient's bone mineral density and improve supportive
muscle strength, thus reducing fracture risk and improving the patient's
strength and mobility. SomatoKine could provide a much needed therapeutic
complement to the existing preventative therapies. Celtrix has established a
corporate collaboration with Elan Corporation, plc for continued global
development of SomatoKine for the treatment of severe osteoporosis, including
recovery from hip fracture surgery.

Diabetes. Diabetes is typically characterized by the inadequate production
or utilization of insulin, a vital hormone needed by the body for normal
control of blood glucose levels. It afflicts over 5% of the populations of
Europe, Japan and North America. In the United States alone, an estimated 9.1
million people have been

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diagnosed with diabetes. The endocrine activities of IGF-I suggest that
SomatoKine may provide an effective therapeutic approach to treating diabetes
patients. A number of clinical studies conducted by other researchers have
shown that administration of free IGF-I can significantly increase insulin
sensitivity and glucose tolerance in patients with diabetes. IGF-I treatment
also substantially reduced the requirement for injected insulin and improved
glycemic control. In a number of studies, the use of free IGF-I, however,
without its primary binding protein (BP3), resulted in substantial side effects
that limited the therapeutic value of the molecule.

Celtrix conducted a Phase II study in 12 patients to determine whether the
SomatoKine complex provided similar beneficial therapeutic effects on glycemic
control as free IGF-I without its limiting side effects. The study began in
July 1998 for patients with Type I diabetes. These patients typically produce
little or no insulin of their own, and although they require frequent insulin
injections, their tissue may become partially resistant to insulin over time.
They also have low blood levels of IGF-I due to lack of normal insulin
secretion. Celtrix completed the Phase II study in patients with Type I
diabetes in January 1999. Final data revealed significant treatment results in
several key measurements. In treated patients, the average daily insulin
requirements decreased 49% and average daily blood glucose levels decreased by
23%. Serum growth hormone decreased by 77% and cholesterol levels decreased by
12% in treated patients. These findings suggest that SomatoKine is a potential
therapeutic for improving insulin sensitivity in both Type-I and Type-II
diabetes and may help patients manage their disease, thus avoiding the
complications that ultimately accompany the disease. Celtrix intends to find a
corporate partner(s) for the continued worldwide development of SomatoKine for
the treatment of diabetes.

Severe Burns. Traumatic burns is another treatment target. Annually,
approximately 10,000 people in the United States (30,000 worldwide) suffer from
traumatic burns over greater than 20% of their body surface. Very low IGF-I
levels, along with major tissue damage, are associated with disruption of
biological processes that are essential for efficient and successful healing
and protection from burn complications. Furthermore, the length of time spent
in a burn trauma center and the time required to conduct the skin grafting
required to heal the burn wound are directly related. Research has shown that
IGF-I plays a significant role in tissue repair and that IGF-I supplementation
can potentially promote the healing process and reduce hospital stay.

In July 1997, Celtrix initiated a Phase II feasibility trial in severely
burned patients, collaborating with leaders in burn care at key burn trauma
centers throughout the United States. In addition to their standard burn care,
approximately 60 patients, both children and adults, received systemic
SomatoKine and/or placebo through two skin graft cycles.

Data provided evidence supporting the use of SomatoKine to attenuate the
degradation of muscle tissue (protein wasting) that is associated with severe
trauma such as burn injury. In burn patients, the balance between protein
synthesis and degradation shifts toward degradation, leading to muscle and
weight loss that in turn leads to delayed wound healing. The shift towards
protein degradation also increases infectious complications and mortality. Data
obtained from SomatoKine treated patients indicate substantial improvement in
restoring the balance between protein synthesis and degradation, which is a
prerequisite for accelerated wound healing and reduced hospital stay.

Additionally, data indicate that SomatoKine may have a positive effect on
the immune system of severely burned patients. After severe burn, patients
typically experience immune system effects that impair their ability to resist
infection as shown by an adverse shift in cytokines produced by T-cell
lymphocytes. However, lymphocytes collected from six severely burned
SomatoKine-treated patients (ages 2-18) showed an approximately 280% increase
in the production of interleukin-2, and a 25-90% increase in the production of
interferon gamma, both vital immune system proteins.

SomatoKine appears to have a normalizing effect on immune functions and
protein synthesis which offers the potential to provide critical protection
from serious infection and protein wasting response that occur in severe burn
patients.

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Corporate Collaborations

Elan Corporation, plc. In April 1999, Celtrix entered into an agreement with
Elan Corporation, plc to establish a joint venture for the development of
SomatoKine to treat osteoporosis using Elan's MEDIPAD Delivery System. As part
of the agreement, Elan purchased $8 million of Celtrix Series A Convertible
Exchangeable Preferred Stock. Celtrix used the proceeds of the Celtrix Series A
Convertible Exchangeable Preferred Stock sale to fund its share of the joint
venture's initial capitalization and to cover research and development costs.
Celtrix may also issue up to $4.8 million of Series B Convertible Preferred
Stock to Elan to fund its share of the joint venture's ongoing research and
development costs. Elan has agreed to commit $1.2 million of additional funds
to the joint venture to support its share of operating costs.

The joint venture is initially 80.1% owned by Celtrix and 19.9% by Elan and
Elan, at its option, has the right either to convert the Celtrix Series A
Convertible Exchangeable Preferred Stock it purchased into Celtrix common stock
or exchange it into additional ownership in the new joint venture. Elan may
convert shares of Series B Convertible Preferred Stock into common shares of
Celtrix.

The joint venture paid a license fee to Elan for the use of the MEDIPAD
technology while Celtrix will have an 80% share in any future proceeds related
to the further development and commercialization of the osteoporosis product
(e.g. upfront payments, milestones or royalties) received by the joint venture,
regardless of ownership, until it receives $10 million from the joint venture.
Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interest. In a separate transaction, in April
1999 Celtrix issued 1,508,751 shares of common stock to Elan International
Services, Ltd. at a price of $1.657 per share, for a total of $2.5 million.

Genzyme Corporation. In June 1994, Celtrix entered into a product
development, license and marketing agreement with Genzyme on TGF-beta-2 which
included equity investments, milestone payments and potential royalties to
Celtrix. The objective was to commercialize TGF-beta-2 for tissue repair and
treatment of systemic applications. Genzyme has exclusive commercialization
rights for all systemic applications and select local applications of TGF-beta-
2. The agreement is effective through the expiration of the licensed patents.
Currently, the longest patent term extends to October 2014, and may extend
beyond that date due to ongoing prosecution of additional patents which, if
issued, will be included in the agreement. The agreement includes a
"termination for breach" provision. Each party agrees to undertake development
activities and assume patent prosecution costs assigned to it under the
agreement. Celtrix licenses TGF-beta technology to Genzyme. Genzyme agrees to
make milestone payments plus royalties based on product sales to Celtrix.
Genzyme agrees to fund development activities. As part of the agreement,
Celtrix sold to Genzyme 1,550,388 shares of Celtrix common stock in June 1994
for $9.9 million and subsequently, in December 1995 Celtrix exercised the
option to receive an additional investment by Genzyme for 1,472,829 shares of
Celtrix common stock resulting in $4.4 million of net proceeds to Celtrix.

In December 1997, under amended terms, Celtrix granted Genzyme expanded
territory rights to TGF-beta-2 to include Japan, China, Korea and Taiwan. In
exchange, Genzyme released Celtrix from research and service obligations and
royalties which Celtrix would owe a third party. Celtrix has retained all
rights to applications of TGF-beta-2 concerning ophthalmic disease and has the
option to reacquire rights to other product applications not pursued by
Genzyme. Genzyme has completed a 15-center, double-blinded, randomized Phase II
clinical study to evaluate the treatment of approximately 177 diabetic patients
suffering from neurotrophic diabetic foot ulcers. This amendment is effective
until the expiration of the term of the related licensed patents. Currently,
the longest related patent term extends to July 2015, and may extend beyond
that date due to ongoing prosecution of additional patents which, if issued,
will be included in the agreement. The Agreement also includes termination
provisions in the event of bankruptcy, insolvency or breach. Genzyme agrees to
pay royalties and bear patent prosecution costs.

Additionally, in December 1997, under a separate license agreement, Celtrix
granted Genzyme a worldwide royalty-bearing license to TGF-beta antibodies and
receptor technology. Under the terms of the

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agreement, Genzyme will assume the licensing and royalty obligations of Celtrix
related to TGF-beta receptor. In October 1999, the parties amended the
agreement to indicate that the receptor technology sublicense expires at the
end of the full term(s) for which the patent rights are issued.

Genentech, Inc. In March 1993, Celtrix entered into a cross-license
agreement with Genentech. Under the terms of the agreement, Genentech granted
Celtrix rights to process patents that may have application in the
manufacturing of TGF-beta-2 and TGF-beta receptors, in return for a $4.0
million licensing fee and future product royalties. Genzyme has assumed
Celtrix's obligations to make these royalty payments pursuant to the 1997
license agreement discussed in the immediately preceding paragraph. The term of
the longest related patent ends July 2015, and may extend beyond that date due
to ongoing prosecution of additional patents which, if issued, will become part
of the agreement.

Celtrix granted Genentech patent rights to TGF-beta for use in any
pharmaceutical formulation or product in exchange for future product royalties.
In exchange, Genentech purchased 572,450 shares of newly issued Celtrix common
stock for a total value of $4.0 million, resulting in a non-cash transaction.

Research And Development

Celtrix has substantial accumulated or retained expertise with IGF-I and
BP3. Through an extensive collaboration program with leading scientists
worldwide, research and development efforts focus on demonstrating the safety
and effectiveness of SomatoKine (IGF-I in combination with BP3) in human
clinical studies that are relevant to the indications evaluated. Celtrix
currently conducts studies to evaluate optimal formulations, doses and dosing
frequencies to aid in the development of SomatoKine. These collaborative
efforts have effectively contributed to Celtrix's understanding of the
underlying causes and potential treatment strategies for conditions leading to
muscle and bone loss and other catabolic conditions. Celtrix continues to
expand collaborations into other fields the company believes SomatoKine therapy
may benefit.

Advances by Celtrix's research staff in the development of a novel protein
expression technology for SomatoKine provided Celtrix with a proprietary
manufacturing method that could position Celtrix for large-scale commercial
manufacturing. Efforts in this area will continue to focus on ways that this
technology can advance the SomatoKine program. Celtrix believes that this
technology not only provides benefits to Celtrix programs, but also offers a
potential option to other biopharmaceutical companies in need of novel protein
expression technology. Celtrix intends to evaluate its options to license such
technology to other biopharmaceutical companies in the future.

Manufacturing

Celtrix manufactured human recombinant SomatoKine according to current Good
Manufacturing Practices (cGMP) at its Santa Clara location. Since Celtrix
believed it has a supply of SomatoKine sufficient for future, large scale Phase
II studies, it ceased manufacturing as part of its September 1998
restructuring. When Celtrix needs larger-scale manufacturing, we will arrange
to resume manufacturing efforts through collaborative relationships or contract
manufacturers.

Intellectual Property

Proprietary protection for Celtrix's potential products is important to
Celtrix's business. Celtrix's policy is to protect its technology by filing
patent applications for technology that it considers important to the
development of its business. Celtrix intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Celtrix currently holds a total of 29
United States and 42 worldwide issued or allowed patents related to the
composition, production, antibodies and methods of use for SomatoKine:

. including one patent with claims to a BP3 composition-of-matter;

. 12 therapeutic use patents for SomatoKine, IGF-I or BP3;

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. nine patents regarding novel expression and production methods which we
may use for the manufacture of SomatoKine; and

. two issued patents relating to methods of predicting drug response.

Celtrix has 23 families of applications, pending in the U.S. or abroad,
regarding the therapeutic use of BP3, antibodies to BP3 and their uses, and
therapeutic uses and production of the complex, SomatoKine. These applications
are in various stages of review. In Europe, Celtrix has an issued patent with
claims to (1) a BP3 composition-of-matter, (2) certain therapeutic uses of that
BP3, and (3) and certain therapeutic uses of a complex of IGF and the claimed
BP3. Celtrix has received a European patent with claims to recombinantly
produced BP3, therapeutic uses of BP3 and therapeutic uses of the complex,
SomatoKine. Another company has opposed this patent.

Celtrix also owns or co-owns 27 issued patents regarding the composition-of-
matter, methods of purification, and therapeutic uses of TGF-beta-2 and
antagonists of TGF-beta-2. Celtrix also owns the rights to a patent application
relating to therapeutic uses of TGF-beta antagonists.

Celtrix seeks patent protection for its inventions and discoveries which
Celtrix believes are patentable in the United States and, in most instances, in
at least Australia, Canada, Japan and various countries in Europe. As with any
pending patent application, there can be no assurance that any of these
applications will be issued in the United States or foreign countries, nor can
there be any assurance that any United States or foreign patents issuing from
any of these applications will not later be held invalid or unenforceable.

At least three large biotechnology and pharmaceutical companies with
substantial financial and legal resources have patent applications on file in
the United States and abroad directed at the production of recombinant IGF-I by
various methods. The earliest date of filing of these patent applications is
April 25, 1983. Unless and until these applications issue in the United States,
it is not possible to determine the breadth of these claims regarding a process
for IGF-I production. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed toward certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was granted in Europe and was
successfully opposed by Celtrix. However, this large biotechnology and
pharmaceutical company has recently appealed the decision. The appeal could be
successful, and if it is successful, it is not possible to determine what, if
any, claims will be reinstated or the breadth of such claims. In addition, this
large biotechnology company has been issued a patent directed toward the
subcutaneous bolus administration of IGF-BP3 for certain limited areas of use.
Celtrix expects that each of these companies will vigorously defend their
patent positions.

Celtrix has developed a new process for the production of IGF and BP3 which
it does not believe will infringe on other patents relating to recombinant
protein production in general or on other patents relating to the production of
IGF and BP3 in particular, although there can be no assurance that another
person or company will not assert a contrary position. A large number of other
companies have pending patent applications and/or issued patents that claim
certain methods of use of IGF.

Government Regulation

Numerous governmental authorities in the United States and other countries
substantially regulate the research and development, production and marketing
of Celtrix's products. The regulatory process, which includes preclinical
testing and clinical trials of each compound in order to establish its safety
and efficacy, can take many years and requires the expenditure of substantial
resources.

In the United States, the Food and Drug Administration rigorously regulates
pharmaceutical products. The Federal Food, Drug and Cosmetic Act and the
underlying regulations, as well as other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, storage,

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record-keeping, approval, advertising and promotion of Celtrix's potential
products. The steps required before a company may market a pharmaceutical
product in the United States include:

. preclinical laboratory and animal tests;

. submission to the FDA of an investigational new drug application, which
must become effective before human clinical trials may commence;

. conduct of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug product for its intended
indications;

. submission to the FDA of a new drug application for pharmaceuticals; and

. FDA approval of the new drug application prior to any commercial shipment
or sale of the product.

Although SomatoKine is a DNA-derived protein complex and is manufactured
using biotechnology techniques, the FDA has indicated to Celtrix that products
containing SomatoKine will fall into the category of hormones and thus the FDA
will review them as a drug. The FDA assigned this review to the Division of
Endocrine and Metabolism Products, Center for Drug Evaluation and Research.
Before marketing, the FDA will base its approval of products containing
SomatoKine on submission of a new drug application containing the results of
preclinical and clinical studies, and complete manufacturing and controls
information. Furthermore, new drug application approval requires preapproval
inspection by the FDA of the proposed commercial manufacturing facilities to
assess compliance with manufacturing regulations.

Before the commencement of clinical trials for its potential products,
Celtrix must conduct preclinical tests of its products, which include
laboratory characterization of the products and the conduct of animal studies
for preliminary assessment of the safety and pharmacological effect of the
products. Celtrix must conduct the preclinical safety tests in compliance with
FDA regulations regarding good laboratory practices. Celtrix must submit the
results of preclinical tests to the FDA as part of the investigational new drug
application. The FDA then reviews the tests and determines whether the clinical
trials described in the investigational new drug application may commence.
There is no certainty that submission of an investigational new drug
application will result in FDA authorization to commence clinical trials.

Clinical trials involve the administration of the investigational compound
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail the objectives of the study, the parameters for
monitoring safety and the pertinent efficacy criteria. Celtrix must submit each
protocol to the FDA as part of the investigational new drug application.
Further, Celtrix must conduct each clinical study under the auspices of an
independent Institutional Review Board at the institution at which Celtrix
conducts the study. Celtrix must obtain an informed consent from each clinical
subject.

Clinical trials of drug products are typically conducted in three phases,
but the phases may overlap. In Phase I, the Company tests the product for
safety (adverse effects) which may include dosage tolerance, metabolism,
distribution, excretion and clinical pharmacology. Phase II involves studies in
a limited patient population to:

. determine the efficacy of the product for specific, targeted indications;

. determine dosage tolerance and optimal dosage; and

. identify possible adverse effects and safety risks.

If a pharmaceutical company determines that a compound is effective and has
an acceptable safety profile in Phase II evaluations, the company will
generally undertake Phase III trials to further confirm clinical efficacy and
to further test for safety within an expanded patient population at
geographically dispersed clinical study sites. Clinical studies can take
several years to complete and are often abandoned when results indicate low

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efficacy or poor safety. Celtrix may not be able to successfully complete Phase
I, Phase II or Phase III testing within any specified time period or at all.
Furthermore, Celtrix or the FDA may suspend clinical trials at any time if it
is felt that the subjects or patients are being exposed to an unacceptable
health risk or if the results indicate low efficacy.

Celtrix would then submit the results of the product development efforts,
preclinical studies and clinical studies to the FDA in the form of a new drug
application for approval to permit marketing and commercial shipment and sales
of the pharmaceutical product. The testing and approval process will likely
require substantial time and effort. The FDA may not grant approval on a timely
basis, or at all. The FDA may deny a new drug application if the drug does not
satisfy applicable regulatory criteria, requires additional testing or
information or if the FDA does not view the new drug application as containing
adequate evidence of the safety and efficacy of the product. The FDA may also
require post-marketing testing and surveillance to monitor the safety of
Celtrix's products. Even if a company attempts to comply with all of the FDA
requirements and requests, the FDA may ultimately decide that the application
does not satisfy its regulatory criteria for approval. Finally, the FDA may
withdraw product approvals if a company does not maintain compliance with
regulatory standards or if problems occur following initial marketing.

The manufacturer's manufacturing procedures and quality control must comply
with the FDA regulations as published in the current good manufacturing
practices regulations, as well as any additional standards or guidelines issued
for specific drug or biological products. The FDA monitors compliance with
these requirements by requiring all drug manufacturers to register with the
FDA, which subjects them to biennial FDA inspections of manufacturing
facilities. In addition, a precondition for new drug application approval is
that the FDA conduct an inspection of the manufacturing facility and determine
that it complies with all applicable regulatory requirements. In order to
assure compliance with those requirements, manufacturers must continue to
expend time, resources and effort in the areas of production and quality
control to ensure full technical compliance.

For marketing outside the United States, Celtrix is also subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. Celtrix has conducted clinical trials in Europe and the
considerations described above also apply to European clinical trials. For
example, Celtrix must conduct clinical trials in several phases. Celtrix may
not be able to successfully complete testing in Europe within any specified
time period, if at all. Although the new drug approval process has been
centralized for the European Union, clinical research is still controlled at
the national level. For clinical trials in certain European countries, Celtrix
must give simple notification but provide no substantive submission. Other
European countries may require the submission of a clinical trial exemption,
which is the equivalent of the United States IND and which must be effective
before human clinical trials may be commenced. Once submitted, the review and
approval process typically takes three months. However, an approval could take
a longer time or may never be obtained.

For the marketing and commercial shipment and sales of new biotechnology
products, the European Union has centralized the process for new drug approval.
The centralized approval process involves the submission of a marketing
application, the equivalent of a United States new drug application, to the
European Medicines Evaluation Authority. The authority uses the centralized
scientific body of reviewers from the Committee for Proprietary Medicinal
Products to assess the new drug product and obtains a recommendation whether or
not to approve the new product. A single approval from the centralized
authority is typically applicable to the entire European Community.

Because Celtrix intends to have its products marketed in certain foreign
countries in the future, Celtrix will likely need to obtain approval by these
countries' regulatory authorities. The approval procedures vary from country to
country, and the time required for approval may be longer or shorter than that
required for FDA approval. Even after Celtrix obtains foreign approvals Celtrix
could encounter further delays before it could market products. For example,
many countries require additional government approval for price reimbursement
under national health systems. Such approvals can be critical to any extensive
marketing of drug products in such countries.

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Insurance; Product Liability

Celtrix currently has in force general liability and product liability
insurance. Celtrix's insurance policies provide coverage for product liability
and general liability on a claims made and on an occurrence basis,
respectively. These policies are subject to annual renewal.

Competition

Celtrix faces competition from larger pharmaceutical companies,
biotechnology companies, universities and other research institutions in all
areas Celtrix targets. Most of these entities have greater capital resources,
research and development staffs and facilities, experience in conducting
clinical trials and obtaining regulatory approvals, and manufacturing and
marketing of pharmaceutical products capacities than Celtrix.

Employees and Properties

As of December 31, 1999, Celtrix employed seven full-time employees. Since
the September 1998 restructuring, Celtrix utilizes consultants as necessary to
assist in various research and development activities. Celtrix plans to add
staff as necessary to manage the clinical and related activities planned by the
Celtrix/Elan joint venture.

Celtrix is highly dependent on the principal members of its management and
scientific staff as well as consultants. Its future success depends in large
part upon its ability to attract and retain highly qualified scientific and
management personnel. Celtrix faces significant competition for such personnel
from other companies, academic institutions, government entities and other
organizations. Celtrix may not be successful in hiring or retaining requisite
personnel.

Celtrix leases administrative offices at 2033 Gateway Place, San Jose,
California 95110. In the fourth calendar quarter of 1998, Celtrix ceased
manufacturing operations and administrative functions at its Santa Clara
facility. The Santa Clara facility was designed to address Celtrix's
anticipated manufacturing needs to provide its initial drug supply for clinical
studies. In the future, Celtrix plans to subcontract its manufacturing
operations to supply drugs for Phase III clinical studies and
commercialization. Celtrix or any other party may not be able to arrange to
manufacture any of its current or future products on a commercial scale, or at
a cost or in quantities sufficient to make commercially viable products.

Legal Proceedings

As of the date hereof, there are no legal proceedings involving Celtrix or
its assets that, in the opinion of management, could result in a materially
adverse change in the business or financial condition of Celtrix.

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Selected Historical Financial Data

The following results of operations and balance sheet data as of and for the
end of fiscal years 1995, 1996, 1997, 1998 and 1999 have been derived from
Celtrix's audited consolidated financial statements. The selected financial
data as of and for the nine months ended December 31, 1998 and 1999 have been
derived from unaudited consolidated financial statements of Celtrix. The
information below should be read in conjunction with Celtrix's consolidated
financial statements and related notes and other financial information in this
joint proxy statement/prospectus.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
-------- ------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Total revenues.......... $ 2,200 $ 1,750 $ 658 $ 661 $ 131 $ 79 $ 712
Operating expenses:
Cost of sales.......... 134 31 5 1 -- -- --
Research and
development........... 18,091 10,990 11,999 13,006 6,830 6,432 629
General and
administrative........ 3,459 2,063 1,814 1,985 2,272 1,725 1,424
Restructuring costs.... 2,108 -- -- 5,160 5,178 --
-------- ------- -------- -------- -------- -------- --------
Total operating
expenses............... 23,792 13,084 13,818 14,992 14,262 13,335 2,053
-------- ------- -------- -------- -------- -------- --------
Operating loss.......... (21,592) (11,334) (13,160) (14,331) (14,131) (13,256) (1,341)
Equity loss in joint
venture............... -- -- -- -- -- -- (8,973)
Interest income, net... 843 625 464 681 132 121 74
Gain on sale of
investment............ -- 3,463 -- 737 -- -- --
Proceeds from
settlement agreement.. -- -- -- 600 -- --
-------- ------- -------- -------- -------- -------- --------
Net loss................ $(20,749) $(7,246) $(12,696) $(12,913) $(13,399) $(13,135) $(10,240)
======== ======= ======== ======== ======== ======== ========
Basic and diluted net
loss per share:
Net loss............... $ (1.57) $ (0.51) $ (0.83) $ (0.61) $ (0.58) $ (0.59) $ (0.39)
Weighted average
shares................ 13,255 14,161 15,238 21,004 22,941 22,235 26,548
<CAPTION>
March 31, December 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Balance Sheet
Data:
Cash, cash equivalents
and investments........ $ 19,929 $17,643 $ 5,788 $ 7,913 $ 1,258 $ 1,780 $ 1,243
Total assets............ 35,024 30,145 16,956 17,876 4,501 5,312 4,407
Long-term obligations... 828 238 -- -- -- -- --
Convertible/exchangeable
preferred stock........ -- -- -- -- -- -- 7,948
Stockholders' equity
(deficiency)........... 29,436 26,786 14,210 14,744 3,280 3,568 (4,234)
</TABLE>

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<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Nine Months Ended December 31, 1999, Compared to the Nine Months Ended
December 31, 1998

General. On December 1, 1999, Celtrix announced that it had entered into a
definitive agreement for Insmed Pharmaceuticals to acquire Celtrix. The
following discussion is presented on the basis of Celtrix as an independent
entity. References to future activities are subject to change based upon
completion of the reorganizations.

Celtrix is a biopharmaceutical company developing novel therapeutics for the
treatment of seriously debilitating, degenerative conditions primarily
associated with severe trauma, chronic diseases or aging. Celtrix's focus is on
regenerating lost tissue and metabolic processes essential for the patient's
health and quality of life. Ongoing product development programs target severe
osteoporosis (recovery from hip fracture surgery) and diabetes. Other potential
indications include traumatic burns and protein wasting diseases associated
with cancer, AIDS, advanced kidney failure and other life-threatening
conditions.

Celtrix's development focus is on SomatoKine, a naturally occurring complex
comprised of the anabolic hormone insulin-like growth factor-I (IGF-I) and its
primary binding protein, BP3. IGF-I is known to play a major role in diverse
biological processes, including muscle and bone formation, tissue repair and
endocrine regulation. However, limitations associated with administering free
IGF-I therapeutically have proven significant because IGF-I does not naturally
exist in quantity free of its binding proteins. SomatoKine delivers IGF-I
complexed with BP3, which contains biological information important for the
body's natural regulation of IGF-I bioavailability and biodistribution, and the
resulting complex does not display the acute limitations seen in free IGF-I
administration.

Results from Celtrix's three earlier Phase I studies demonstrated that the
repeated or continuous administration of SomatoKine safely delivers IGF-I at
substantially higher dosage levels than have ever been achievable with free
IGF-I, increasing the peak blood concentration of IGF-I up to 35-times its
normal level. Furthermore, the elevated levels substantially stimulated bone
and connective tissue metabolism.

In early 1997, Celtrix initiated a Phase II clinical feasibility study using
SomatoKine to treat severe osteoporosis patients recovering from hip fracture
surgery. Following the trauma of hip fracture, patients typically suffer an
accelerated loss of hip bone mineral density (BMD) which predisposes them to a
high risk of refracture. Final data from this Phase II clinical feasibility
study reveal significant treatment results in several key measurements
including hip bone mass and tests of functional ability. The results suggest
that SomatoKine amplifies the body's natural bone metabolism and that short-
term treatment with SomatoKine appears to have sustained effects. The findings
suggest the potential usefulness of SomatoKine for the treatment of
osteoporosis.

Based on these promising findings, in April 1999 Celtrix entered into an
agreement with Elan Corporation, plc to establish a joint venture company for
the development of SomatoKine to treat osteoporosis using Elan's MEDIPAD
Delivery System. The joint venture company is initially owned 80.1% by Celtrix
and 19.9% by Elan. The joint venture company has licensed SomatoKine technology
from Celtrix and MEDIPAD technology from Elan. Celtrix initially invested $8.01
million in the joint venture and Elan invested $1.99 million. At the time of
closing, Elan International Services, Ltd. (EIS) purchased $8.01 million of
Celtrix Series A Convertible/Exchangeable Preferred Stock, which, with all
accrued and unpaid dividends, is convertible into Celtrix common stock at a
price of $2.006 per share or exchangeable for an incremental 30.1% ownership in
the joint venture to a total of 50.0%. If the exchange right is exercised, the
Series A Convertible/Exchangeable Preferred Stock will be cancelled. Celtrix
anticipates the Series A Convertible/Exchangeable Preferred Stock will be
converted to Insmed Incorporated common stock, in accordance with the terms of
the agreement with Elan, at the time of the proposed reorganizations. The
Series A Convertible Exchangeable Preferred Stock pays a 5% annual in-kind
dividend. Although Celtrix owns 80.1% of the joint venture the joint venture is
accounted for under the equity method of accounting because Elan has
substantive participating rights that give them the ability to block
significant decisions proposed by Celtrix. In addition, Elan actively
participates in directing and carrying out the operating and capital activities
of the joint venture's business.

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<PAGE>

The agreement with Elan also provides at Celtrix's option for EIS to
purchase from time to time Series B Convertible Preferred Stock up to an amount
of $4.8 million, the proceeds from which sale Celtrix will use to fund its
share of the joint venture's operating expenses. The joint venture will
reimburse Celtrix and Elan for research and development and administrative work
performed on behalf of the joint venture. The Series B Convertible Preferred
Stock is convertible into Celtrix common stock at a price of $2.006 per share
and pays a 9% annual in-kind dividend. Currently, there are no shares of
Celtrix Series B Convertible Preferred Stock outstanding.

Elan received a $10 million license payment from the joint venture for the
use of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until Celtrix is paid $10
million. Thereafter, Celtrix and Elan will share the joint venture's proceeds
in accordance with their ownership interests.

In April 1999, in a separate transaction, Celtrix issued 1,508,751 shares of
common stock to Elan International Services, Ltd. at a price of $1.657 per
share, amounting to $2.4 million (net of expenses).

In mid-1997, Celtrix began a Phase II clinical feasibility study in severely
burned patients. Severe burns patients typically have low IGF-I levels which
may be connected to the disruption of the biological processes that are
essential for efficient and successful healing and protection from
complications. Results provided evidence that SomatoKine improved the metabolic
processes involved in maintaining muscle protein. In addition, SomatoKine
appeared to have a positive effect on the heart function and immune system of
these severely burned patients. Clinical findings from this study may be used
to establish corporate partnership(s) for future development of SomatoKine in
severe burns.

Based upon the results of this Phase II clinical feasibility study in
severely burned patients, Celtrix applied for orphan drug status to the Food
and Drug Administration (FDA). In July 1999, Celtrix received notification from
the FDA that SomatoKine qualified for orphan designation for the treatment of
major burns that require hospitalization.

Other potential indications include protein wasting conditions associated
with cancer cachexia, AIDS, advanced kidney failure, and other life-threatening
conditions. Celtrix plans to pursue the use of SomatoKine in these areas
through corporate collaborations. SomatoKine's anabolic effects offer the
potential to preserve and restore muscle strength and mobility which are
important for these patients' survival and quality of life.

In July 1998, Celtrix initiated a Phase II feasibility study in diabetes.
This 12-patient study investigated SomatoKine's potential to increase
sensitivity to insulin and improve blood glucose control. In a cross-over
study, patients served as their own control group. All patients reacted
positively to SomatoKine. On average, while using SomatoKine, patients reduced
exogenous insulin by 49% and recorded a 23% reduction in blood sugar levels,
while improving glycemic control.

Celtrix has a product development, license and marketing agreement with
Genzyme Corporation for TGF-beta-2, a potential pharmaceutical based on a
naturally occurring compound which appears to play an important role in
regulating healthy cell functions. In December 1997, under amended terms,
Celtrix granted Genzyme Corporation expanded territory rights to TGF-beta-2 to
include Japan, China, Korea and Taiwan. Additionally, under a separate license
agreement, Genzyme Corporation was granted a worldwide royalty-bearing license
to TGF-beta antibodies and receptor technology. In October 1999, this agreement
was amended to indicate that the receptor technology sublicense is effective
until the end of the full term(s) for which the patent rights are issued.
Genzyme Corporation is conducting a Phase II clinical study in dermal ulcers;
Celtrix is not currently pursuing an in-house TGF-beta-2 program.

Celtrix has not earned substantial revenues from product sales since
inception and at December 31, 1999, had an accumulated deficit of $141.0
million. Celtrix's revenues to date consist principally of licensing and

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<PAGE>

milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix continues its development activities, including clinical
trials.

In November 1998, Celtrix received notice from the Nasdaq Stock Market that
it failed to comply with two Nasdaq Stock Market continued listing
requirements--the minimum net tangible assets requirement and the minimum bid
price requirement. In January 1999, Nasdaq Stock Market officials confirmed
that Celtrix had regained compliance with the minimum bid price requirement,
but that it would be subject to delisting if it failed to comply with the
minimum net tangible assets requirement. In response, Celtrix requested an oral
hearing before a Nasdaq Listing Qualifications Panel to present its plan to
regain compliance with the minimum net tangible assets requirement. Such plan
was presented at an oral hearing on April 1, 1999, and on July 6, 1999, the
Nasdaq Listing Qualifications Panel informed Celtrix that its listing would be
moved from the Nasdaq National Market to The Nasdaq SmallCap Market effective
July 8, 1999, subject to its continued compliance with The Nasdaq SmallCap
Market listing requirements.

There can be no assurance that Celtrix will ever achieve either significant
revenues from product sales or profitable operations. To achieve profitable
operations, Celtrix, alone or with others, must successfully develop, obtain
regulatory approval for and market its potential products. No assurance can be
given that Celtrix's product development efforts will be successfully
completed, that required regulatory approvals will be obtained, or that any
products, if developed and introduced, will be successfully marketed or achieve
market acceptance.

Results of Operations. Celtrix incurred a net loss of $1.1 million and $10.2
million for the three- and nine-month periods ended December 31, 1999, compared
to $1.1 million and $13.1 million for the same periods in 1998. Net loss per
share was $0.04 for the three-month periods ended December 31, 1999 and 1998.
The reduction of operating expenses in the three-month period ended December
31, 1999 was offset by Celtrix's share of losses attributable to the joint
venture company formed by Celtrix and Elan Corporation, plc in April 1999. Net
loss per share decreased to $0.39 per share for the nine-month period ended
December 31, 1999, compared to $0.59 for the same period in 1998. The decrease
in net loss and basic and diluted net loss per share for the nine-month period
ended December 31, 1999 reflects both the reduction of operating expenses since
the September 1998 restructuring of Celtrix, and the absence of one-time
restructuring charges associated with that event. The decrease in net loss for
the nine-month period ended December 31, 1999 is partially offset by Celtrix's
80.1% share of the joint venture company's losses, including the $10 million
one-time license fee paid by the joint venture company to Elan for the use of
Elan's MEDIPAD Delivery System technology.

Revenues increased to $622,000 and $712,000 for the three- and nine-month
periods ended December 31, 1999 from $21,000 and $79,000 for the same periods
in 1998. The increase is due primarily to related party revenue from the joint
venture formed by Celtrix and Elan Corporation, plc. These revenues cover
services performed on behalf of the joint venture and $550,000 for the
reimbursement, at Celtrix's production cost, of the anticipated total amount of
SomatoKine drug substance provided by Celtrix to the joint venture for use in
the clinical trial currently planned by the joint venture. Celtrix does not
expect further revenues during 2000 from the sale of SomatoKine from the
clinical supply of drug substance on hand.

Operating expenses decreased to $779,000 and $2.1 million for the three- and
nine-month periods ended December 31, 1999 from $1.1 million and $13.3 million
for the same periods in 1998. The decrease results from the restructuring plan
implemented by Celtrix in September 1998, which included the discontinuation of
manufacturing and a reduction of workforce.

Net interest income increased to $21,000 for the three-months ended December
31, 1999 from $14,000 for the same period in 1998, and decreased to $74,000 for
the nine-months ended December 31, 1999 from $121,000 for the same period in
1998, due primarily to the increase and decrease, respectively, in average
cash, cash equivalent and short-term investment balances.

In September 1998, Celtrix announced a restructuring of Celtrix to focus on
the clinical development of SomatoKine, and to significantly reduce its cash
burn rate. Since sufficient clinical grade SomatoKine has been

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<PAGE>

manufactured for the conduct of clinical trials over the next two years,
Celtrix discontinued its manufacturing operations. As part of the
restructuring, Celtrix reduced its work force by 69 employees, or approximately
90%, by the end of calendar year 1998. The reduction in work force affected all
levels of staff in manufacturing and other functions. Celtrix terminated its
69,000 square foot facility lease in November 1998, and relocated to offices in
San Jose, California to support ongoing clinical and business development
activities.

As a result of the restructuring, Celtrix recognized a $5.2 million one-time
charge in the quarter ended September 30, 1998, which included a net $4.5
million non-cash charge for the write-off of leasehold improvements, $358,000
for severance and benefit expenses, $250,000 related to certain operating lease
obligations and $75,000 in other restructuring-related charges.

Fiscal Year Ended March 31, 1999 Compared to the Fiscal Year Ended March 31,
1998

Results of Operations. Celtrix incurred net losses of $13.4 million, $12.9
million, and $12.7 million in fiscal 1999, 1998, and 1997, respectively. Basic
and diluted net losses per share for these years were $0.58, $0.61, and $0.83,
respectively. Celtrix has not earned substantial revenues from product sales
since inception and at March 31, 1999 had an accumulated deficit of $130.4
million. Celtrix's revenues to date consist principally of licensing and
milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix continues its development activities, including clinical
trials.

Revenues consist of licensing revenue and miscellaneous product sales.
Revenues were $131,000, $661,000 and $658,000 in fiscal 1999, 1998 and 1997,
respectively. The 80% decrease in revenues from 1998 to 1999 is due primarily
to loss of licensing revenue resulting from the termination of the Yoshitomi
license agreement.

Operating expenses decreased 5% to $14.3 million in 1999 from $15.0 million
in 1998 due to the reduction of expenses since the September 1998 restructuring
of Celtrix, offset by the one-time restructuring charge of $5.2 million
recorded in September 1998. At year-end, Celtrix had reduced its expenditure
level to approximately $2.4 million per year, and it expects to maintain this
rate of expenditure for its corporate activities for the next 12 months.
Clinical and administrative expenditures anticipated by the Celtrix/Elan joint
venture are the responsibility of each party in proportion to their ownership
shares. The joint venture agreement provides for Celtrix to obtain funds for
its share of such expenditures through the sale of additional equity securities
to Elan. Operating expenses increased 9% to $15.0 million in 1998 from $13.8
million in 1997 due primarily to increased costs associated with the Phase II
clinical trials, and additional staffing to support increased SomatoKine
manufacturing and clinical activities.

Interest income, net of interest expense, decreased 81% to $132,000 in 1999
from $681,000 in 1998 due primarily to the lower average cash, cash equivalents
and short-term investment balances in 1999. Net interest income increased 47%
to $681,000 in 1998 from $464,000 in 1997 primarily because of an increase in
average cash, cash equivalents and short-term investments resulting from net
proceeds received from Celtrix's April 1997 private equity financing of
approximately $13.3 million. Interest expense was $1,000, $24,000, and $89,000
in 1999, 1998, and 1997, respectively.

In 1999, Celtrix received a $600,000 payment from Yoshitomi, as a settlement
related to the termination of the Green Cross license agreement. In 1998,
Celtrix reported a gain on investment of $737,000 from the sale of preferred
stock in Prograft Medical, Inc. (Prograft), held by Celtrix since 1993.

At March 31, 1999, Celtrix had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $127.7 million
and $4.3 million, respectively, expiring in the years 2006 through 2019. Due to
ownership changes as defined by the Internal Revenue Code, Celtrix's
utilization of its net operating loss carryforwards and tax credits is subject
to substantial annual limitations. Celtrix has determined

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<PAGE>

that a valuation allowance for deferred tax assets of $51.2 million and $45.8
million at March 31, 1999 and 1998, respectively, is required to reduce the
deferred tax assets to the amount realizable, zero, based upon Celtrix's
earnings history of losses.

In September 1998, Celtrix announced a restructuring to focus on the
clinical development of SomatoKine, and to significantly reduce its cash burn
rate. Since Celtrix believes that sufficient clinical grade SomatoKine has been
manufactured for the conduct of clinical trials over the next two years, it
discontinued its manufacturing operations. As part of the restructuring,
Celtrix reduced its work force by 59 employees, or approximately 80%, in
September 1998. Celtrix further reduced its work force by the end of the
calendar year, for a total reduction of approximately 90%. The reduction in
work force affected all levels of staff in manufacturing and other functions.
Celtrix terminated its 69,000 square foot facility lease effective November 30,
1998, and relocated to offices in San Jose, California to support ongoing
clinical and business development activities.

As a result of the restructuring, Celtrix recognized a $5.2 million one-time
charge in the quarter ended September 30, 1998, which included a net $4.5
million non-cash charge for the write-off of leasehold improvements, $358,000
for severance and benefit expenses, $250,000 related to certain non-cancelable
operating lease obligations and $75,000 in other restructuring-related charges.

Fiscal Year Ended March 31, 1998 Compared to the Fiscal Year Ended March 31,
1997

General. Celtrix has not earned substantial revenues from product sales
since inception and at March 31, 1998 had an accumulated deficit of $117.0
million. Celtrix's revenues to date consist principally of licensing and
milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix expands its development activities, including clinical trials
and manufacturing.

Results of Operations. Celtrix incurred net losses of $12.9 million, $12.7
million, and $7.2 million in fiscal 1998, 1997, and 1996, respectively. Basic
and diluted net losses per share for these years were $0.61, $0.83, and $0.51,
respectively. Revenues, consisting of licensing revenue from Yoshitomi and
miscellaneous product sales, were $661,000 and $658,000, respectively, for 1998
and 1997. Operating expenses increased 9% to $15.0 million in 1998 from $13.8
million in 1997 due primarily to increased costs associated with the Phase II
feasibility clinical trials, and additional staffing to support increased
SomatoKine manufacturing and clinical activities.

Interest income, net of interest expense, increased 47% to $681,000 in 1998
from $464,000 in 1997 due primarily to an increase in average cash, cash
equivalents and short-term investments resulting from net proceeds received
from Celtrix's April 1997 private equity financing of approximately $13.3
million. Net interest income decreased 26% in 1997 from $625,000 in 1996 due
primarily to the lower average cash, cash equivalents and short-term investment
balances, partly offset by lower interest expense. Interest expense was $24,000
and $89,000 in 1998 and 1997, respectively.

In 1998, Celtrix reported a gain on investment of $737,000 from the sale of
preferred stock in Prograft Medical, Inc. (Prograft), held by Celtrix since
1993. At March 31, 1998, Celtrix had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $113.4 million
and $4.1 million, respectively, expiring in the years 2006 through 2013. Due to
ownership changes as defined by the Internal

129
<PAGE>

Revenue Code, Celtrix's utilization of its net operating loss carryforwards and
tax credits is subject to substantial annual limitations. Celtrix has
determined that a valuation allowance for deferred tax assets of $45.8 million
and $41.0 million at March 31, 1998 and 1997, respectively, is required to
reduce the deferred tax assets to the amount realizable, zero, based upon
Celtrix's earnings history of losses.

Liquidity and Capital Resources. Celtrix has funded its activities with
proceeds from private offerings, research and development revenues from
collaborative arrangements, lease and debt financing arrangements, proceeds
from liquidating its equity investments and, to a lesser extent, other revenues
and product sales.

Celtrix's cash and cash equivalents were approximately $1.2 million at both
December 31, 1999 and March 31, 1999. Net proceeds of $10.7 million received
from the issuance of common stock and preferred stock and proceeds from the
sale of fixed assets were offset by cash outlays which included $9.2 million
used for investing activities, primarily in connection with the joint venture
company formed with Elan in April 1999, and $1.5 million used in operating
activities.

In April 1999, in connection with the closing of a joint venture agreement
with Elan Corporation, plc, Elan International Services, Ltd. purchased
1,508,751 shares of Celtrix common stock at a purchase price of $1.657 per
share, resulting in net proceeds to Celtrix of $2.4 million, which is included
in the $10.7 million described above.

In February 2000, an investor in the $14.0 million April 1997 private
placement financing exercised 820,344 warrants at an exercise price of $2.6818
per share, which generated approximately $2.2 million in additional cash for
Celtrix.

At December 31, 1999, Celtrix had working capital of $0.7 million and an
accumulated deficit of $141.0 million, and incurred a net loss of $1.1 million
for the quarter ended December 31, 1999. Celtrix has reduced its burn rate to
approximately $200,000 per month not including reimbursable expenditures
attributed to the joint venture formed by Celtrix and Elan Corporation, plc.
Accordingly, Celtrix expects its working capital, plus $2.2 million in proceeds
from the February 2000 exercise of warrants from the April 1997 private
placement financing, will be sufficient to fund operations into the first half
of 2001. Celtrix will be required to seek additional funds to finance
operations beyond that period. The joint venture transaction with Elan
Corporation, plc provides, at Celtrix's option, for the purchase by Elan of
additional Celtrix equity securities, the proceeds from which will be used to
fund Celtrix's share of anticipated clinical expenses associated with the joint
venture's large-scale trial in osteoporosis (recovery from hip fracture
surgery).

To minimize future dilution to stockholders from additional equity
financing, Celtrix plans to concentrate on establishing additional corporate
partner arrangements and other opportunities that will enable the continued
development of SomatoKine. Merger opportunities that are consistent with
Celtrix's clinical development of SomatoKine will also be considered. There can
be no assurance that Celtrix will be able to raise additional funds or enter
into further collaborative arrangements on terms favorable to Celtrix.
Notwithstanding the foregoing, on December 1, 1999, Celtrix announced its
intention to merge with Insmed Pharmaceuticals.

Celtrix anticipates that it will be necessary to expend significant capital
resources to support further clinical development. Capital resources may also
be required for the acquisition of complementary businesses, products or
technologies. Celtrix's future capital requirements will depend on many
factors, including progress with its clinical trials, the time and costs
involved in obtaining regulatory approvals, the time and costs involved in
filing, prosecuting, enforcing and defending patent claims, competition in
technological and market developments, the establishment of and changes in
collaborative relationships and the cost of commercialization activities and
arrangements. Celtrix anticipates that it will be required to raise substantial
additional capital over a period of several years in order to continue its
clinical development programs and to prepare for commercialization. Raising
additional funds may result in further dilution to then-existing shareholders.
No assurance can be given that such additional funds will be available on
reasonable terms, or at all. The unavailability of such financing could delay
or prevent the development and marketing of Celtrix's potential products.

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<PAGE>

Impact of Year 2000. Many computer systems experience problems handling
dates beyond the year 1999. Therefore, some computer hardware and software has
been upgraded or modified before the Year 2000 in order to remain functional.
Celtrix has assessed the impact of Year 2000 on its existing software and
systems. Celtrix implemented successfully the systems and software changes
necessary to address the Year 2000 issues, and does not believe that the costs
of such actions will have a material effect on Celtrix's results of operations
or financial condition. However, it is unknown the extent, if any, of the
impact of the Year 2000 on other systems and equipment of third parties with
which Celtrix does business. There can be no assurance that third parties will
address the Year 2000 issue in a timely fashion, or at all. Any Year 2000
compliance problem or delay of either Celtrix, its suppliers, its clinical
research organizations, or its collaborative partners could have a material
adverse effect on Celtrix's business, operating results and financial
conditions.

Quantitative and Qualitative Disclosures About Market Risk

Celtrix invests its excess cash in investment grade, interest-bearing
securities. At December 31, 1999, Celtrix had $1,211,652 invested in money
market mutual funds. While a hypothetical decrease in market interest rates by
10 percent from the December 31, 1999 levels would cause a decrease in interest
income, it would not result in a loss of the principal. Additionally, the
decrease in interest income would not be material.

Directors and Officers

The following describes information with respect to the current directors
and executive officers of Celtrix and their ages as of December 31, 1999:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Andreas Sommer, Ph.D...... 58 President, Chief Executive Officer and Member,
board of directors
Donald D. Huffman......... 53 Vice President, Finance and Administration,
Chief Financial Officer and Assistant Secretary
Malcolm J. McKay, Ph.D. .. 43 Vice President, Regulatory Affairs and Quality
Assurance
James E. Thomas........... 39 Chairman, board of directors
Henry E. Blair............ 56 Member, board of directors
Stuart D. Sedlack......... 35 Member, board of directors
Barry M. Sherman, M.D..... 57 Member, board of directors
</TABLE>

The board of directors elects Celtrix's officers and such officers serve at
the discretion of the board. There are no family relationships among the
directors or executive officers of Celtrix.

For biographical information on Andreas Sommer, Ph.D., James E. Thomas,
Stuart D. Sedlack, Barry M. Sherman, M.D. and Henry E. Blair, see "Election of
Directors of Celtrix" on page .

Donald D. Huffman. The Celtrix board appointed Mr. Huffman Vice President of
Finance and Administration and Chief Financial Officer of Celtrix in October
1997. Previously, he was Vice President and Chief Financial Officer of
Endosonics Corporation from July 1995 to October 1997 and served in the same
capacity at Qualimatrix, Inc. from October 1990 to June 1995. Mr. Huffman has
an extensive background in finance and strategic planning for Fortune 200, mid-
size and emerging growth companies. He received an MBA from State University of
New York at Buffalo and a B.S. from Pennsylvania State University.

Malcolm J. McKay, Ph.D. The Celtrix board appointed Dr. McKay Vice President
of Regulatory Affairs and Quality Assurance in August 1996. He was formerly a
director of quality assurance and quality control at COR Therapeutics from
September 1995 until August 1996. Previously, he served as director of quality
assurance at Celtrix from April 1991 to September 1995, and he oversaw this
function at Triton Biosciences from March 1989 to April 1991. In addition, he
served as group leader of technical support at Abbott Laboratories. Dr. McKay
received his Ph.D. in biochemistry at the University of London and was a
postdoctoral fellow at the Medical College of Virginia.

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<PAGE>

Executive Officer Compensation

Summary Compensation Table. The following table shows the compensation
received by (a) Celtrix's Chief Executive Officer, (b) the most highly
compensated executive officers (other than the Chief Executive Officer) who
were serving as executive officers of Celtrix as of March 31, 1999 and whose
total compensation for the year exceeded $100,000, (c) the most highly
compensated individual who would have been included under item (b) above but
for the fact that he was no longer serving as an executive officer of Celtrix
as of March 31, 1999, and the compensation received by each such individual for
Celtrix's two prior fiscal years.

<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation(1) Awards(1)
----------------- ------------
Name and Principal Fiscal Options/SARS All Other
Position Year Salary(2) Bonuses Granted Compensation(1)
------------------ ------ --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Andreas Sommer..........
Chief Executive 1999 $269,315 -- -- $81,277(3)
Officer, President & 1998 $251,100 $56,250(4) 170,000 --
Director 1997 $212,925 $40,000(5) -- --
Donald D. Huffman(6)....
Vice President, Finance
& Administration, Chief
Financial Officer & 1999 $156,504 -- -- --
Assistant Secretary 1998 $ 68,874 $19,893(4) 165,000 --
Malcolm J. McKay........
Vice President, 1999 $155,535 -- -- --
Regulatory Affairs & 1998 $144,242 $21,750(4) 80,000 --
Quality Assurance 1997 $ 78,587 $25,000(5) 50,000 --
David M. Rosen.......... 1999 $ 87,804 -- -- $41,293(7)
Senior Vice President, 1998 $154,074 $23,250(4) 100,000 --
Research & Development 1997 $136,463 $25,000(5) -- --
</TABLE>
- --------
(1) Except as disclosed in the table, there was no other cash compensation,
long-term incentive plan or restricted stock award that required
disclosure.
(2) Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Celtrix's retirement savings plan ("the 401(k)
Plan").
(3) Consists of forgiveness of loan principal and accrued interest.
(4) Includes amounts earned as of March 31, 1998 related to achieving certain
corporate milestones during fiscal year 1998. The awards were paid in April
1998.
(5) Includes amounts earned as of March 31, 1997 related to meeting certain
corporate milestones. The awards were paid in April 1997.
(6) Celtrix hired Mr. Huffman in October 1997 as Vice President of Finance and
Administration and Chief Financial Officer.
(7) Consists of severance payment to Dr. Rosen upon termination of his
employment in September 1998. Dr. Rosen's salary, on an annualized basis,
would have been $175,000.

Stock Option Grants in Last Fiscal Year. There were no stock option grants
for the named executive officers made during the fiscal year ended March 31,
1999.

Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values. The following table sets forth information for the named executive
officers with respect to exercises, during the fiscal year ended March 31,
1999, of options to purchase common stock of Celtrix, and the number and value
of unexercised options at fiscal year end.

<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Value Options at Fiscal Year-End Options at Fiscal Year-End
Name On Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ----------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Andreas Sommer.......... 0 $ 0 316,850/128,150 -- (1)
Donald Huffman.......... 0 $ 0 54,900/110,100 -- (1)
Malcolm McKay........... 0 $ 0 60,800/69,200 -- (1)
David Rosen............. 0 $ 0 0/0 -- (1)
</TABLE>
- --------
(1) The fair market value of Celtrix's common stock as reported on the Nasdaq
National Market System at the close of business on March 31, 1999 was
$1.094. The exercise price of all stock options held by the named officers
was above the market value of Celtrix's common stock on March 31, 1999.

132
<PAGE>

Stock Option Plans

The 1991 Stock Option Plan. Under the Celtrix 1991 Stock Option Plan, the
Celtrix compensation committee may grant options to officers, key employees,
non-employee directors and consultants of Celtrix. The Celtrix compensation
committee administers the 1991 Stock Option Plan to satisfy the requirements of
section 162(m) of the Internal Revenue Code and Rule 16b-3 under the Securities
Exchange Act of 1934. The compensation committee establishes the terms of
option grants made under the 1991 Stock Option Plan, subject to the provisions
of the Plan. No participant in the Celtrix 1991 Stock Option Plan may receive
options for more than 500,000 shares of Celtrix common stock during any year
(subject to equitable adjustment on certain corporate transactions).

The compensation committee may grant be either options intended to qualify
as ISOs under section 422 of the Code, or options not intended to qualify. No
income is recognized by a Celtrix Stock Option Plan participant at the time an
option is granted. If the option is an ISO, no income will be recognized on
exercise of the option. Income is recognized on disposition of shares acquired
under an ISO. The exercise of a nonqualified option generally is a taxable
event that requires the participant to recognize, as ordinary income, the
difference between the shares' fair market value and the option price. Celtrix
is entitled to claim a federal income tax deduction on account of the exercise
of a nonqualified option. Celtrix will not be entitled to a federal income tax
deduction on account of the grant or the exercise of an ISO, but may claim a
federal income tax deduction on account of certain dispositions of shares
acquired upon the exercise of an ISO.

The exercise price of an ISO may not be less than the fair market value of a
share of Celtrix common stock on the date of grant of the option. The exercise
price of nonqualified options may not be less than 85% of the fair market value
of a share of Celtrix common stock on the date of grant of the option. The
option holder may pay the exercise price in the form of consideration
determined by the compensation committee, which may vary for each option. An
option holder must exercise the option within ten years after the date the
option is granted and may not transfer the option other than by will or the
laws of descent and distribution.

The compensation committee will adjust the number of shares available for
issuance and the number, class, and price of shares subject to outstanding
options as it deems appropriate in the event of a stock dividend, stock split
or other transaction that does not involve receipt of consideration by Celtrix.
The Celtrix board of directors voted to have all outstanding options vest
immediately prior to the effective time of the reorganizations. The
Reorganization Agreement provides that all unexercised Celtrix options will be
converted into options to purchase Insmed Incorporated common stock. The 1991
Stock Option Plan will terminate in 2001 or on any earlier date determined by
the board of directors of Celtrix.

The 1991 Directors' Stock Option Plan. Under the Celtrix Pharmaceuticals,
Inc. 1991 Directors' Stock Option Plan, non-employee directors who own less
than 2% of the outstanding common stock of Celtrix receive options for 40,000
shares of Celtrix common stock when they join the board of directors of
Celtrix. These directors receive another option for 40,000 shares of Celtrix
common stock every four years. Options become exercisable for one-fourth of the
shares subject to the option on the first anniversary of the date of grant, and
for 1/48 of the shares remaining each month thereafter. Certain limitations on
exercise apply following a termination of service on the board of directors.

Certain Transactions

In November 1998, Celtrix sold 4,000,000 shares of common stock in a private
placement at $0.50 per share, which resulted in net proceeds to Celtrix of
approximately $1.9 million. Additionally, Celtrix issued three-year warrants to
purchase 6,000,000 shares of Celtrix common stock at $0.55 per share.
Purchasers in the offering included the following holders of more than 5% of
Celtrix's outstanding common stock: Biotechnology Development Fund and Veron
International, Ltd.

In January 1997, Celtrix entered into a two-year employment agreement with
Andreas Sommer which provides in pertinent part for annual compensation of
$215,000 as subsequently adjusted by the Compensation

133
<PAGE>

Committee, and up to 18 months severance, in the event of termination of
employment under certain circumstances. In January 1999, Celtrix executed a
one-year extension of the employment agreement with Dr. Sommer.

In January 1992, Celtrix loaned Dr. Sommer $60,000 to pay income taxes
associated with Dr. Sommer's exercise of his options to purchase BioGrowth
common stock. Celtrix secured the loan by Dr. Sommer's Celtrix stock and the
loan bore interest at the rate of 5.12% per annum. In September 1998, the
Celtrix board forgave the loan principal and accrued interest totaling $81,277.
In December 1998, Celtrix paid withholding taxes of $28,813 due from Dr. Sommer
upon forgiveness of the loan and Celtrix established a receivable in that
amount.

Celtrix has entered into separate indemnification agreements with each of
its directors and executive officers that may require Celtrix, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
as incurred as a result of any proceeding against them as to which they could
be indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.

Celtrix believes that the transactions described above are on terms no less
favorable to Celtrix than could have been obtained from unaffiliated third
parties. All future material transactions, including loans, between Celtrix and
its officers, directors, principal stockholders and affiliates will be approved
by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to Celtrix than could be obtained from
unaffiliated third parties.

Security Ownership Of Certain Beneficial Owners And Management

The following table sets forth the beneficial ownership of Celtrix's common
stock as of April 1, 2000, as to:

. each person who is known by Celtrix to beneficially own more than five
percent of Celtrix's common stock,

. each of Celtrix's current directors,

. each of the executive officers of Celtrix named in the Summary
Compensation Table on page ,

. all current directors and executive officers of Celtrix as a group.

134
<PAGE>

<TABLE>
<CAPTION>
5% Stockholders, Directors, Named
Executive Officers, Shares Beneficially Owned(1)
and Directors and Executive Officers as a ----------------------------------
Group Number Percent(2)
----------------------------------------- ----------------- ----------------
<S> <C> <C>
Biotechnology Development Fund, L.P.(3) 5,220,774 15.4%
575 High Street, Suite 201
Palo Alto, CA 94301
Elan Pharmaceuticals Investments, Ltd.(4) 5,727,468 15.1%
102 St. James Court
Flatts, Smiths Parish
Bermuda, FL 04
Warburg, Pincus Investors, L.P.(5) 3,181,732 9.4%
466 Lexington Avenue, Tenth Floor
New York, NY 10017
Veron International, Limited 2,990,887 8.8%
Chinachem Golden Plaza
77 Mody Road
Tsiu Sha Tsui East
Kowloon, Hong Kong
Genzyme Corporation 3,023,217 8.9%
One Kendall Square
Cambridge, MA 02139
Henry E. Blair(6) 3,063,396 9.0%
One Kendall Square
Cambridge, MA 02139
Donald D. Huffman(7) 116,100 *
Malcolm J. McKay, Ph.D.(7) 114,017 *
Stuart D. Sedlack(8) 5,727,468 15.1%
Elan Corporation, plc
345 Park Avenue
New York, NY 10154
Barry M. Sherman, M.D.(9) 31,878 *
250 E. Grand Avenue
South San Francisco, CA 94080
Andreas Sommer, Ph.D.(7) 438,261 1.3%
James E. Thomas(10) 3,181,732 9.4%
466 Lexington Avenue, 10th Floor
New York, NY 10017
All directors and executive officers as a 12,672,852 32.7%
group (7 persons)(11)
</TABLE>
- --------
*Less than 1%.

(1) Information with respect to beneficial ownership is based upon information
furnished by each director and officer or contained in filings made with
the Securities and Exchange Commission. Except as indicated in the
footnotes to this table, the stockholders named in the table have sole
voting and investment power with respect to all shares of Celtrix common
stock shown as beneficially owned by them, subject to community property
laws where applicable.

(2) Percentage of ownership is based on 33,843,770 shares of Celtrix common
stock outstanding on April 1, 2000. The number of shares of common stock
beneficially owned includes the shares issuable upon

135
<PAGE>

conversion of Celtrix Series A Preferred Stock and/or pursuant to stock
options that are exercisable within 60 days after April 1, 2000. Shares
issuable pursuant to conversion of Celtrix Series A Preferred Stock and/or
pursuant to the exercise of warrants and stock options are deemed
outstanding for computing the percentage of the person holding such Celtrix
Series A Preferred Stock and/or options but are not outstanding for
computing the percentage of any other person.

(3) Includes shares held by affiliated entities.

(4) Includes 8,010 shares of Celtrix Series A Preferred Stock convertible
into 4,218,717 shares of Celtrix common stock within 60 days after April
1, 2000.

(5) Warburg, Pincus Investors, L.P. (WPI) is a Delaware limited partnership
whose sole general partner is Warburg, Pincus & Co., a New York general
partnership (WP). E. M. Warburg, Pincus & Co., LLC, a New York limited
liability company (EMW LLC), manages WP. The members of EMW LLC are
substantially the same as the partners of WP. Lionel I. Pincus is the
managing partner of WP and the managing member of EMW LLC and may be
deemed to control both WP and EMW LLC. WP, as the sole general partner of
WPI, has a 20% interest in the profits of WPI. Mr. James E. Thomas,
Chairman of the board of directors of Celtrix, is a Managing Director and
member of EMW LLC and a general partner of WP. As such, Mr. Thomas may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934) in an indeterminable
portion of the shares beneficially owned by WPI and WP.

(6) 3,023,217 of the shares indicated as owned by Mr. Blair are owned directly
by Genzyme Corporation and are included because Mr. Blair is a member of
the board of directors of Genzyme. Mr. Blair disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Also, includes 35,179 shares issuable
upon exercise of options exercisable within 60 days after April 1, 2000.

(7) As to each of Mr. Huffman, Dr. McKay, and Dr. Sommer, includes 116,100,
112,200, and 416,800 shares, respectively, issuable upon exercise of
options exercisable within 60 days after April 1, 2000 .

(8) All of the shares indicated as owned by Mr. Sedlack are owned directly by
Elan International Services, Ltd., an affiliate of Elan Corporation, plc,
of which Mr. Sedlack serves as Director of Corporate Business Development.
Mr. Sedlack disclaims beneficial ownership of these shares within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934.

(9) Represents 31,878 shares issuable upon exercise of options exercisable
within 60 days after April 1, 2000.

(10) All of the shares indicated as owned by Mr. Thomas are owned directly by
Warburg, Pincus Investors (WPI) and are included because Mr. Thomas may
be deemed to have an indirect pecuniary interest (within the meaning of
Rule 16a-1 under the Securities Exchange Act of 1934) in an
indeterminable portion of the shares beneficially owned by WPI and WP.
Mr. Thomas disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest in such funds within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.

(11) Includes 4,930,874 shares issuable upon exercise of options held by
officers and directors exercisable within 60 days after April 1, 2000,
including shares issuable upon exercise of options held by the officers
and directors named in the foregoing table.

136
<PAGE>

DESCRIPTION OF INSMED PHARMACEUTICALS

Business Overview

Insmed Pharmaceuticals develops drugs to treat metabolic and endocrine
diseases. Its current programs address treatments for type 2 diabetes and
polycystic ovary syndrome (PCOS). The Company was incorporated in Virginia in
September 1988. As of December 31, 1999:

. Insmed Pharmaceuticals has raised $25,828,000 from the sale of its equity
and $1,634,000 from sponsored research and other operating revenues; and

. Insmed Pharmaceuticals has spent $17,478,000 for research and development
expenses, $7,800,000 for general and administrative expenses and $608,000
to purchase equipment.

The Company's lead product is INS-1, a naturally occurring insulin
sensitizer. Unlike insulin, INS-1 achieves significant concentrations in the
bloodstream following oral administration. The Company has conducted more than
twenty pre-clinical studies of INS-1 and, as of December 31, 1999, has
completed seven clinical trials with five additional clinical trials in
progress. In Phase II clinical trials, INS-1 has demonstrated efficacy both in
patients with type 2 diabetes and in women suffering from PCOS. In both pre-
clinical and clinical studies, it has been tolerated well and shown no evidence
of organ toxicity. Seven new trials are expected to begin in 2000.

Insmed Pharmaceuticals currently has 13 U.S.-issued patents covering use and
methods of manufacture. Certain of the patents are licensed exclusively to
Insmed Pharmaceuticals under a license agreement with the University of
Virginia Patent Foundation. See "License Agreement" on page for a more
detailed description of the license agreement.

Medical Background

Diabetes. Diabetes is a metabolic disorder characterized by an inability to
properly store and use glucose and is caused by either a deficiency of insulin
or a failure of insulin to produce "insulin mediator" which regulates and
coordinates the effects of insulin inside the cell. In the United States,
diabetes is the fourth leading cause of death by disease and is estimated to
afflict 16 million people with around 800,000 new cases diagnosed annually.
Each year, 200,000 Americans die from diabetes-related complications.

Many tissues of the body normally rely on glucose, a form of sugar, as a
source of metabolic energy. Most cells store significant amounts of glucose as
glycogen, but certain tissues, especially the brain, depend upon the blood to
deliver a continuous supply of glucose. The concentration of glucose in the
bloodstream must be controlled within a relatively tight range to maintain
normal health. If blood glucose drops too low, causing hypoglycemia, the brain
and nervous system stop working properly. This can cause faintness, weakness,
tremulousness, headache, confusion, and personality changes. Severe
hypoglycemia can progress to convulsions, coma, and death. If blood glucose
rises too high, causing hyperglycemia, there may be excess urine production,
thirst, weight loss, fatigue, and in the most severe cases, dehydration, coma,
and death. Moreover, hyperglycemia causes damage from chemical reactions
between the excess glucose and proteins in cells, tissues, and organs. Over
long periods, episodes of hyperglycemia are thought to lead to diabetic
complications, including blindness, kidney failure, impotence and increased
susceptibility to infection.

To control the storage and metabolism of blood glucose, the pancreas makes
hormones that signal either removal or addition of glucose to the blood,
depending on the need. Insulin is a pancreatic hormone that lowers blood
glucose levels. Glucagon is a pancreatic hormone that raises blood glucose
levels. Although certain other hormones affect blood glucose levels, insulin
and glucagon are considered the principal regulators of glucose metabolism
associated with eating. When the concentration of glucose in the bloodstream is
not controlled within a relatively tight range, severe complications result.
Diabetes is the principal disease associated with abnormal glucose metabolism,
which is defined by the presence of elevated blood glucose levels.

137
<PAGE>

Over the last 20 years, scientists have generally accepted that there are
several distinct subclasses of diabetes, the two most important of which are
Type 1 diabetes and Type 2 diabetes. Type 1 diabetes typically begins during
childhood or early adulthood. Type 1 diabetes results from a lack of insulin,
causing deficient hormonal control of glucose metabolism and abnormally high
blood glucose levels. Estimates exceed 1 million Type 1 diabetics in the United
States, and doctors diagnose about 45,000 new cases each year.

Type 2 diabetes is much more prevalent and typically begins during or after
middle age. In type 2 diabetes, the problem is not a lack of insulin but rather
an inability of insulin to produce "insulin mediator" and regulate blood
glucose levels, a phenomenon known as insulin resistance. As a consequence,
even though the pancreas continues to secrete insulin, blood glucose is poorly
controlled. Over time, the resulting episodes of hyperglycemia are thought to
cause widespread tissue damage, including possible damage to insulin secretion
mechanisms in the pancreas. Experts estimate that 20% of the population have
some degree of insulin resistance, 11% have impaired glucose tolerance, a
condition characterized by normal blood glucose levels before eating but a
tendency toward hyperglycemia afterward, and 6% have type 2 diabetes. Each
year, the cost of diabetes management in the United States exceeds $100
billion.

Polycystic Ovary Syndrome. Polycystic ovary syndrome, commonly known as
PCOS, is a major women's health disorder that affects approximately 6% of women
of reproductive age. PCOS is characterized by hyperandrogenism and the absence
of ovulation and is the leading cause of female infertility in the United
States. Recent studies suggest that insulin resistance accompanied by
compensatory hyperinsulinemia is a common feature of PCOS with excessive
insulin secretion responsible in part for the hyperandrogenism of the disorder.
Clinical studies have demonstrated that excess testosterone concentrations
decrease when drugs or diet reduce insulin resistance. This result suggests
that correcting the underlying insulin resistance is an important target for
clinical intervention for patients suffering from PCOS. Women with this
disorder are often overweight, have excess facial hair and menstrual
irregularities. The long-term dangers of PCOS arise from the various medical
complications that occur as a consequence of the underlying disease. When
compared to their normal counterparts, women with PCOS have a four-fold
increase in the risk of developing hypertension, a seven-fold increase in the
risk of developing type 2 diabetes and a seven-fold increase in the risk of
having a heart attack. In addition, women with PCOS have a higher risk of
developing endometrial cancer.

Scientific Background

Insmed Pharmaceuticals' core technology is based on more than 20 years of
research at the University of Virginia School of Medicine on the biochemistry
of insulin resistance. Insulin resistance is an important metabolic disorder
that precedes type 2 diabetes, PCOS and other conditions. A defect in the
body's ability to respond properly to insulin causes insulin resistance, a
condition thought to exist in 20% of the United States population.

Insulin is the primary hormone that circulates in the bloodstream to
regulate blood glucose. When released from the pancreas, insulin circulates in
the bloodstream and binds to receptors on the outer surface of various organs
and tissues, such as the liver, skeletal muscle and fat. After it binds to a
surface receptor on a normal cell, an "insulin mediator" is produced that
regulates and coordinates the effects of the hormone inside the cell. Work at
the University of Virginia has demonstrated that defects in the production of
this mediator contribute to the severity of insulin resistance.

Insmed Pharmaceuticals' lead product candidate, INS-1, is a component of
this mediator. Insmed Pharmaceuticals believes that administration of INS-1
will act as a building block to enhance replacement of the missing mediator,
and has the potential to enhance the metabolic effects of insulin in the body
and improve clinical management of insulin resistance.

Emerging Product Profile for INS-1. Insmed Pharmaceuticals believes that
INS-1 has several features that make it a desirable pharmaceutical product:

. Efficacy Profile. In phase II clinical studies, INS-1 has demonstrated
efficacy in patients with type 2 diabetes and women suffering from PCOS.

138
<PAGE>

. Toxicity Profile. In both pre-clinical and clinical studies, INS-1 has
been well-tolerated with no evidence of toxicity.

. Oral Product. INS-1, unlike insulin, achieves significant concentrations
in the bloodstream following oral administration. This facilitates a
patient's compliance with the recommended dosing regimen.

. Manufacturing and Product Stability. INS-1 is a simple molecule with an
excellent stability profile. It can be synthesized using readily
available raw materials.

Current Treatment and Market Opportunities

There are few therapeutic options available for treatment of the diabetic
patient. The mainstay therapies consist primarily of injectable insulin
replacement, particularly in the type 1 diabetic, and oral hypoglycemic agents
for the type 2 diabetic who has failed dietary modification. Experts estimate
that one-third of all diabetic patients use insulin and an additional one-third
use prescribed oral agents. The current marketplace consists of three key
classes of oral drugs: biguanides (metformin), thiazolidinediones
(troglitazone, rosiglitazone and pioglitazone) and the sulfonylureas (glyburide
and glipizide). Oral antidiabetic agents currently generate pharmaceutical
revenues in excess of $2 billion dollars in the United States with sales of
troglitazone and metformin contributing in excess of $1.5 billion. Industry
analysts predict that the introduction of newer thiazolidinediones will
increase the U.S. market considerably in the next several years.

While these therapies service a multi-billion dollar market, they have
limitations. The risk of hypoglycemia, which can precipitate coma, convulsion
and death, is the primary fear associated with intensive insulin use. Doctors
prescribe oral sulfonylurea drugs to control hyperglycemia in type 2 diabetics;
however, these drugs are not universally effective and carry the risk of
increased cardiovascular mortality with their use. The use of troglitazone has
been associated with liver injury and death, and the FDA recommends intensive
liver monitoring while using this therapy. The use of troglitazone has been
disallowed in Europe.

Currently, there are no therapies approved to treat PCOS. Treatments target
symptoms rather than the underlying cause and include the use of fertility
agents such as clomiphene and human gonadotropins, oral contraceptives for
menstrual regulation and weak anti-androgens for the treatment of hirsutism and
acne. In addition, drugs such as metformin and troglitazone, which are
indicated for the treatment of type 2 diabetes, are prescribed off-label for
the treatment of PCOS.

Clinical Development and Regulatory Program for INS-1

Summary of Ongoing and Completed Studies. Insmed Pharmaceuticals has
completed several pre-clinical toxicology studies and phase I/II clinical
studies in support of the development of INS-1 for both type 2 diabetes and
PCOS indications. As of December 31, 1999, twelve clinical studies have been
performed or are in progress with 394 subjects exposed to INS-1, the longest
exposure for 8 weeks.

139
<PAGE>

Summary of INS-1 Clinical Trials

<TABLE>
<CAPTION>
Study Number of
Number Design Subjects Status Purpose
- ------ ------ --------- ------ -------
<S> <C> <C> <C> <C>
INS- Randomized, double- 18 obese male Completed. Safety and
1/1 blind, placebo- volunteers pharmacodynamic/
controlled, 2- pharmacokinetic profile.
period crossover
INS- Randomized, 4- 12 healthy male Completed. Safety and
1/2 period, open-label, volunteers pharmacokinetic profile.
crossover
INS- Randomized, 2- 14 healthy male Completed. Safety and
1/3 period, open-label, volunteers pharmacokinetic profile.
crossover, food
interaction
INS- Randomized, open- 9 healthy male Completed. Safety and
1/4 label volunteers pharmacokinetic profile.
INS- Randomized, open- 9 subjects with Completed. Safety and efficacy.
1/5 label impaired glucose
tolerance, 10
subjects with
normal glucose
tolerance
INS- Randomized, double- 104 subjects with Completed. Safety and efficacy.
1/6 blind, parallel, PCOS
placebo-controlled
INS- Randomized, double- 133 subjects with Completed. Safety and efficacy.
1/9 blind, placebo- type 2 diabetes
controlled, multi-
center
INS- Randomized, double- 220 obese women In Safety and efficacy.
1/10 blind, placebo- with PCOS progress.
controlled, multi-
center
INS- Open-label 24 pre-pubertal or In Safety and
1/11 late-adolescent progress. pharmacokinetic profile.
males and females
INS- Randomized, double- 60 subjects with In Safety and efficacy.
1/12 blind, placebo- impaired glucose progress.
controlled, multi- tolerance or
center impaired fasting
glucose
INS- Randomized, double- 80 patients with In Safety and efficacy.
1/14 blind, placebo- type 2 diabetes progress.
controlled currently on
sulfonylureas
INS- Randomized, double- 80 women with PCOS In Safety and efficacy.
1/16 blind, placebo- (comparison with progress.
controlled metformin)
</TABLE>

In all seven of the completed clinical studies, INS-1 was well-tolerated
with no evidence of clinically relevant adverse events. The drug was well-
absorbed in a dose-dependent manner and the absorption rate and magnitude was
not affected by food or repeated administration. In the PCOS population, the
drug was well-tolerated and showed statistically significant improvement in
ovulation and in the biochemical markers of this condition. The results of the
first part of the study (covering 44 patients) were reported in the April 29,
1999, issue of the New England Journal of Medicine. In patients with type 2
diabetes, the drug was well-tolerated and showed a statistically significant
improvement in glycemic and lipid profiles without weight gain. This data was
presented at the June 1999 annual meeting of the American Diabetes Association.

Future Studies. Insmed Pharmaceuticals plans to conduct several phase II/III
trials to document the safety and efficacy of the product in both type 2
diabetes and PCOS to support world-wide product registration.

Business Strategy

The key elements of Insmed Pharmaceuticals' business strategy for
establishing a leading position in the development and marketing of drugs to
treat endocrine and metabolic diseases and disorders are:

. Obtain regulatory approvals for INS-1 in the treatment of PCOS. After
successful completion of its development program, Insmed Pharmaceuticals
intends to file for U.S. regulatory approval.

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<PAGE>

. Retain commercial rights and market products in selected markets. Insmed
Pharmaceuticals intends to retain market and distribution of INS-1 for
PCOS in the United States. For type 2 diabetes and for territories
outside of the United States, Insmed Pharmaceuticals will seek to
establish corporate partnerships.

. Acquire and in-license additional products and technologies. Insmed
Pharmaceuticals intends to expand its product portfolio in metabolic and
endocrine disorders by acquiring, in-licensing and commercializing
additional products.

Competition

Any product that Insmed Pharmaceuticals may develop will compete directly
with products developed and marketed by other companies. In addition, other
institutions, including pharmaceutical companies, universities, government
agencies and public and private research organizations are attempting to
develop and patent products that could compete with our products. These
companies and institutions also compete with Insmed Pharmaceuticals in
recruiting and retaining qualified scientific personnel. Many of Insmed
Pharmaceuticals' competitors and potential competitors have substantially
greater scientific research and product development capabilities, as well as
financial, marketing and human resources, than Insmed Pharmaceuticals has.

Virtually all of Insmed Pharmaceuticals' competitors and potential
competitors have greater research and development capabilities, experience,
manufacturing, marketing, sales, financial and managerial resources than Insmed
Pharmaceuticals now has. Insmed Pharmaceuticals' competitors may develop
competing technologies, and obtain regulatory approval for products more
rapidly than Insmed Pharmaceuticals will. This may allow them to obtain greater
market acceptance of their products. Developments by others may render some or
all of Insmed Pharmaceuticals' proposed products or technologies uncompetitive
or obsolete.

Currently, the majority of new drug development in the field of diabetes
focuses on managing the established disease state and associated complications,
including renal disease, blindness, ulcerations and neuropathic disease. Insmed
Pharmaceuticals believes that, by focusing its research and development on the
insulin-resistant condition, it is uniquely positioned to identify and treat
people before they develop these disorders.

Drugs in research and development indicated specifically for the chronic
treatment of type 2 diabetes fall into two major classes:

. newer insulins and peptides improving insulin release or action; and

. improved oral hypoglycemic agents.

New Insulins. Insulin is the primary therapy for diabetic patients. Albeit
successful, insulin therapy has limitations. Long-term treatment relies on
frequent subcutaneous injection of the hormone. The kinetics of absorption from
injection sites are slower than, and do not mimic, the normal physiological
release and distribution profile of naturally secreted insulin. Although
potency and duration of action can be pre-selected, the risk of hypoglycemia
resulting from overdosage or mismatching of peak insulin delivery to food
intake always poses a problem. The results of a study conducted in 1994 by the
National Institute of Diabetes and Digestive and Kidney Diseases demonstrated
that the more vigorous the attempts to achieve normal blood glucose levels, the
more frequent the episodes of hypoglycemia.

Improved Oral Hypoglycemic Agents. There are numerous products which are
approved for use in the treatment of type 2 diabetes in place of or in addition
to insulin therapy. These products include the following:

. Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company
that doctors use to improve diabetic patients' ability to control glucose
without increasing serum insulin levels. Research indicates that
Glucophage(R) works, at least in part, by reducing glucose output from
the liver.

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<PAGE>

. Arcabose(R) is a proprietary product sold in the United States by Bayer
Corporation. The product is sold in Europe under the tradename
Glucobay(TM). Acarbose reduces blood glucose levels primarily after meals
by slowing down the digestion of carbohydrates and lengthening the time
it takes for carbohydrates to convert to glucose.

. Avandia(R) and Actos(R) are proprietary products sold by Smith Kline
Beecham plc and Eli Lilly and Company, respectively, and belong to a
class of compounds referred to as glitazones. The products are believed
to work in part by increasing the body's sensitivity to insulin.
Rezulin(R), another glitazone manufactured by Parke-Davis, a Warner
Lambert Company division, was withdrawn from the market on March 22,
2000, after being linked to liver poisoning.

. Prandin(TM) is a proprietary product sold by Novo Nordisk A/S and
Schering-Plough Corporation which has been approved by the FDA for
certain diabetic patients. The product is believed to act via calcium
channels to stimulate insulin secretion.

License Agreement

The license agreement between the UVA Patent Foundation and Insmed
Pharmaceuticals grants to Insmed Pharmaceuticals the worldwide, exclusive right
and license, including the right to grant sublicenses, to use and practice
certain patent rights and all processes, techniques, modifications,
enhancements, variations and alterations, including continuations-in-part to
these inventions. The license extends for the full term of the patents.

The license agreement obligates Insmed Pharmaceuticals to pay minimum annual
licensing fees of $100,000 as well as patent costs through the expiration of
the patent rights. Insmed Pharmaceuticals must pay the foundation a royalty on
the net sales of therapeutic drugs covered by the license agreement. Royalties
earned by the foundation will reduce licensing fees and, in case of patent
infringement, Insmed Pharmaceuticals may use 50% of royalties payable to the
foundation to cover expenses it incurs to defend the patents.

In addition to payments by Insmed Pharmaceuticals to UVA Patent Foundation
pursuant to the license agreement, Insmed Pharmaceuticals issued the foundation
common stock equal to 3% of the total outstanding stock of all classes issued
by Insmed Pharmaceuticals. The license agreement requires Insmed
Pharmaceuticals to issue shares of its common stock each time shares of any
class of stock are issued so that the foundation at all times has a 3%
undiluted interest in Insmed Pharmaceuticals. As of December 31, 1999, the
foundation had received 395,244 shares of common stock under the license
agreement. These issuances have been recorded at their estimated fair value at
the time of the respective transaction. Related expenses of $110,921 in 1999,
$165,016 in 1998, $112,817 in 1997 and $1,053,218 on a cumulative basis since
inception have been included in research and development expense in the
accompanying consolidated statements of operations. The foundation's right to
receive shares of capital stock of Insmed Pharmaceuticals will terminate on the
date immediately preceding the date the SEC declares effective this joint proxy
statement/prospectus.

Patents

Insmed Pharmaceuticals has 13 U.S.-issued patents. Ten of the issued patents
are exclusively licensed from the University of Virginia, and three are the
sole property of Insmed Pharmaceuticals. Insmed Pharmaceuticals also has four
pending patent applications covering defined compounds and their use in the
diagnosis and treatment of insulin resistance. Patent applications have been
filed in major international markets.

The issued patents cover use of compounds to treat insulin resistance in
type 2 diabetes, use of compounds to screen individuals for insulin resistance
associated with type 2 diabetes, compositions and methods for treating
metabolic disorders, processes by which compounds are manufactured and the
purification, character and function of certain compounds. Pending applications
cover broader claims for use of compounds in the treatment of insulin
resistance.

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<PAGE>

Our patents expire at various times between May 2001 and January 2018. Our
most significant patent "Dietary supplement for Insulin Resistant Diabetics"
does not expire until 2009. The Waxman-Hatch Act provides that patent terms may
be extended during the FDA regulatory review period for the related product.
This period is generally one-half the time between the effective date of an
investigational new drug application and the submission date of a new drug
application, plus the time between the submission date of a new drug
application and the approval of that application, subject to a maximum
extension of five years. Similar patent term extensions are available under
European laws. The following is a table which lists each of Insmed
Pharmaceuticals patents and their expiration date.

PATENTS

<TABLE>
<C> <S>
Insulin Mediator
Substance
Patent Number 4,446,064
Expiration Date 05/01/01
</TABLE>
<TABLE>
<C> <S>
Method for Detecting
Insulin Resistance
Patent Number 5,750,348
Expiration Date 07/08/11
- ------------------------------------
Immunoassay for Inositols
Patent Number 5,525,526
Expiration Date 02/02/14
- ------------------------------------

Purified Insulin
Mediatiors and
Purification Process for
Same
Patent Number 5,122,603
Expiration Date 03/08/06

Method of Producing D-
Chiroinositol
Patent Number 5,406,005
Expiration Date 04/15/14
- ------------------------------------
Dietary supplement for
Insulin Resistant
Diabetics
Patent Number 5,124,360
Expiration Date 06/23/09

Method of Producing D-
Chiroinositol
Patent Number 5,516,950
Expiration Date 04/15/14
- ------------------------------------
Method of Reducing
Elevated Blood Sugar in
Humans
Patent Number 5,428,066
Expiration Date 06/23/09

Screening Method for
Diabetic Condition
Patent Number 5,427,956
Expiration Date 02/02/10
Method for Treating
Defective Glucose
Metabolism Using
Synthetic Insulin
Substances
Patent Number 5,652,221
Expiration Date 07/29/14
- ------------------------------------

Quantitative Analysis for
Diabetic Condition
Predictor Involving
Chiro-Inositol
Patent Number 5,183,764
Expiration Date 02/02/10
Compositions and Methods
for Treating Metabolic
Diseases Characterized by
Hyperandrogenism, and/or
Anovulation
Patent Number 5,906,979
Expiration Date 01/27/18
- ------------------------------------
</TABLE>

Method of Producing
Chiro-Inositol
Patent Number 5,091,596
Expiration Date 12/20/10

Government Regulation

Government authorities in the United States and other countries extensively
regulate the research, development, testing, manufacture, promotion, marketing
and distribution of drug products. Drugs are subject to rigorous regulation by
the FDA in the United States and similar regulatory bodies in other countries.
The steps ordinarily required before a new drug may be marketed in the United
States, which are similar to steps required in most other countries, include:

. Preclinical laboratory tests, preclinical studies in animals and
formulation studies and the submission to the FDA of an investigational
new drug application for a new drug or antibiotic;

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<PAGE>

. Adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;

. The submission of a new drug application to the FDA; and

. FDA review and approval of the new drug application before any commercial
sale or shipment of the drug.

Preclinical tests include laboratory evaluation of product chemistry
toxicity and formulation, as well as animal studies. The results of preclinical
testing are submitted to the FDA as part of an investigational new drug
application. A 30-day waiting period after the filing of each investigational
new drug application is required before beginning clinical tests in humans. At
any time during this 30-day period or at any time thereafter, the FDA may halt
proposed or ongoing clinical trials until the FDA authorizes trials under
specified terms. The investigational new drug application process may be
extremely costly and substantially delay development of Insmed Pharmaceuticals'
products. Moreover, positive results of preclinical tests will not necessarily
indicate positive results in clinical trials.

Clinical trials to support new drug applications are typically conducted in
three sequential phases, but the phases may overlap. During Phase I, the
initial introduction to the drug into healthy human subjects or patients, the
drug is tested to assess metabolism, pharmacokinetics and pharmacological
actions and safety, including side effects associated with increasing doses.

Phase II usually involves studies in a limited patient population to:

. Assess the efficacy of the drug in specific, targeted indications;

. Assess dosage tolerance and optimal dosage; and

. Identify possible adverse effects and safety risks.

If a compound is found to be potentially effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials, also called pivotal
studies, major studies or advanced clinical trails, are undertaken to further
demonstrate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical study sites.

After successful completion of the required clinical testing, generally a
new drug application is submitted. The FDA may request additional information
before accepting a new drug application for filing, in which case the
application must be resubmitted with the additional information. Once the
submission has been accepted for filing, the FDA has 180 days to review the
application and respond to the applicant. The review process is often
significantly extended by FDA requests for additional information or
clarification. The FDA may refer the new drug application to an appropriate
advisory committee for review, evaluation and recommendation as to whether the
application should be approved, but the FDA is not bound by the recommendation
of an advisory committee.

If FDA evaluations of the new drug application and related manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter. An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new drug
application and authorization of commercial marketing of the drug for certain
indications. The FDA may refuse to approve the new drug application or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information.

If regulatory approval of any of Insmed Pharmaceuticals' products is
granted, it will be limited to certain disease states or conditions. The
manufacturers of approved products and their manufacturing facilities will be
subject to continual review and periodic inspections. Because Insmed
Pharmaceuticals intends to contract with third parties for manufacturing of its
products, its control of compliance with FDA requirements will be

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<PAGE>

incomplete. In addition, identification of certain side effects or the
occurrence of manufacturing problems after any of its drugs are on the market
could cause subsequent withdrawal of approval, reformulation of the drug,
additional preclinical testing or clinical trials, and changes in labeling of
the product.

Outside the United States, Insmed Pharmaceuticals' ability to market its
products will also be contingent upon receiving marketing authorizations from
the appropriate regulatory authorities. The foreign regulatory approval process
includes all of the risks associated with FDA approval described above. The
requirements governing the conduct of clinical trials and marketing
authorization vary widely from country to country. At present, foreign
marketing authorizations are applied for at a national level, although within
Europe procedures are available to companies wishing to market a product in
more than one EU member state.

Under a new regulatory system in the EU, one may submit marketing
authorizations at either a centralized, a decentralized or a national level.
The centralized procedure is mandatory for the approval of biotechnology
products and high technology products and available at the applicant's option
for other products. The centralized procedure provides for the grant of a
single marketing authorization that is valid in all EU member states. The
decentralized procedure is available for all medicinal products not subject to
the centralized procedure. The decentralized procedure provides for mutual
recognition of national approval decisions, changes existing procedures for
national approvals and establishes procedures for coordinated EU actions on
products, suspensions and withdrawals. Under this procedure, the holder of a
national marketing authorization for which mutual recognition is sought may
submit an application to one or more EU member states, certify that the dossier
is identical to that on which the first approval was based or explain any
differences and certify that the company will submit identical dossiers to all
member states in which the company seeks recognition. Within 90 days of
receiving the application and assessment report, each EU member state must
decide whether to recognize approval. The procedure encourages member states to
work with applicants and other regulatory authorities to resolve disputes
concerning mutual recognition. Lack of objection of a given country within 90
days automatically results in approval of the EU country.

Insmed Pharmaceuticals will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. However,
the chosen regulatory strategy may not secure regulatory approvals or approvals
of the chosen product indications. Insmed Pharmaceuticals intends to secure
European regulatory approval for the use of INS-1 in parallel with its United
States and Canadian regulatory filings.

Legal Proceedings

Insmed Pharmaceuticals is not involved in any legal proceedings nor, to
Insmed Pharmaceuticals' knowledge, is any litigation threatened against Insmed
Pharmaceuticals.

Properties and Employees

As of December 31, 1999, Insmed Pharmaceuticals had 28 full-time employees
and leased 8,400 square feet of office and laboratory space at an annual cost
of approximately $221,000. During 2000, Insmed Pharmaceuticals plans to hire 23
additional people and lease another 5,500 square feet of office space.

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<PAGE>

Selected Historical Financial Data

The following results of operations and balance sheet data for and as of the
end of fiscal years 1995, 1996, 1997, 1998 and 1999 have been derived from
Insmed Pharmaceuticals' audited consolidated financial statements. The
information below should be read in conjunction with Insmed Pharmaceuticals'
consolidated financial statements and related notes and other financial
information in this joint proxy statement/prospectus.

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Total revenues................... $ 380 $ 146 $ -- $ 100 $ 663
Operating expenses:
Research and development....... 877 1,302 2,604 3,769 6,349
General and administrative..... 666 943 979 1,626 2,445
------- ------- ------- ------- -------
Total operating expenses..... 1,543 2,245 3,583 5,395 8,794
------- ------- ------- ------- -------
Operating loss................... (1,163) (2,099) (3,583) (5,295) (8,131)
Interest income, net............. (43) 11 103 486 338
------- ------- ------- ------- -------
Net loss......................... $(1,206) $(2,088) $(3,480) $(4,809) $(7,793)
======= ======= ======= ======= =======
Basic and diluted net loss per
share:
Net loss....................... $ (0.75) $ (0.87) $ (1.22) $ (1.47) $ (2.16)
Weighted average shares........ 1,607 2,399 2,854 3,278 3,606
<CAPTION>
December 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and
investments..................... $ 60 $ 2,106 $ 2,050 $11,677 $ 4,635
Total assets..................... 173 2,386 2,365 11,938 5,296
Convertible participating
preferred stock................. -- 5,294 -- -- --
Stockholders' equity
(deficiency).................... (1,512) (3,093) 2,151 11,661 4,462
</TABLE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion also should be read in conjunction with the
Consolidated Financial Statements and notes thereto.

Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998

Results of Operations. For the year ended December 31, 1999, revenues were
$663,000, compared with $100,000 for 1998. Revenues for both periods consist
primarily of grants under the Small Business Innovation Research Program
(SBIR). The revenue recorded in 1999 relates to a SBIR grant to fund a phase II
study in PCOS subjects. The revenue recorded in 1998 relates to an SBIR grant
to fund a phase I study in PCOS subjects. Research and development expense was
$6.3 million for the year ended December 31, 1999 compared to $3.8 million for
the year ended December 31, 1998. The $2.5 million (66%) increase was caused by
higher clinical trial costs. General and administrative expenses increased
$819,000 or 50% to $2.4 million for the year ended December 31, 1999. The
increase can be attributed to costs expended to obtain patent protection for
technology in various countries, expenses incurred to develop strategic
relationships for Insmed Pharmaceuticals, salary and benefits for the chief
financial officer hired in May, and increases in travel and office expenses.
The increase is also related to the recognition of $285,000 of stock-based
compensation. The primary component of this charge relates to the exercise by
the Chief Executive Officer of options for 295,834 shares of common stock
purchased with the proceeds from a non-recourse note. This option grant is a
variable award for which the change in the fair market value of the underlying
stock is recognized as compensation

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<PAGE>

expense. Based on the sale of stock to Taisho Pharmaceuticals Co., Ltd. on
March 28, 2000, at $28.10 per share, the fair market value of the Insmed
Pharmaceuticals common stock increased approximately $27 per share for the
first quarter of 2000. The company will record non-cash compensation expense of
about $8 million for the quarter ended March 31, 2000. Interest income declined
$148,000 to $338,000 for the year ended December 31, 1999. Lower average cash
balances caused this decrease in 1999 compared to 1998.

Year Ended December 31, 1998 compared to Year Ended December 31, 1997

Results of Operations. Insmed Pharmaceuticals recorded revenues of $100,000
for the year ended December 31, 1998. No revenue was recorded in 1997. The 1998
revenue related to a SBIR grant to fund a phase I study in PCOS subjects. For
the year ended December 31, 1998, Insmed Pharmaceuticals expended $3.8 million
on research and development. This was an increase of $1.2 million or 46% from
the year ended December 31, 1997, in which $2.6 million was expended. In 1998,
additional development personnel were hired to manage and conduct an increasing
number of clinical trials. The number of pre-clinical toxicology studies
increased significantly over the prior year. Additional lab space was necessary
to accommodate the increase in activity and Insmed Pharmaceuticals utilized
outside scientific consultants. General and administrative expenses increased
$647,000 to $1.6 million from $979,000 for the year ended December 31, 1997.
The two primary components of the increase were additional salary and wages
associated with an increase in personnel and expenditures on investor
relations. In June 1998, Insmed Pharmaceuticals received net proceeds of $14.0
million from the sale of its Series B Preferred Stock. This influx of cash
caused an increase in the average cash balance in 1998 resulting in interest
income of $486,000 for the year ending December 31, 1998, an increase of
$383,000 over 1997.

Liquidity and Capital Resources. Since Insmed Pharmaceuticals' inception in
1988, we have financed our operations primarily through the private placement
of preferred and common stock aggregating approximately $26.0 million through
December 31, 1999. Our last private placement of stock occurred in June 1998
and generated net proceeds of $14 million. At December 31, 1999, our cash and
investments were about $4.6 million. These funds are invested in money market
instruments and investment grade corporate debt. Investments in both fixed and
floating rate instruments carry interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to rises in interest rates,
while floating rate securities may produce less income than expected if
interest rates fall. Insmed Pharmaceuticals does not expect changes in interest
rates to have a material impact on the results of operations.

We expect research and development costs in 2000 to increase $16.8 million
over 1999, of which approximately $5.0 million is associated with the
development of the in process research and development acquired from Celtrix.
In addition, general and administrative expenses will increase approximately
$1.0 million annually as a result of costs associated with operating as a
publicly-held company.

In January 2000, Insmed Pharmaceuticals entered into an agreement to sell
5,632,678 shares of its common stock and warrants to purchase 6,901,344 shares
of common stock of Insmed Incorporated for aggregate consideration of $34.5
million. The warrants are exercisable for five years at a price of $2.25. Such
sale is contingent on the completion of the merger with Celtrix. On March 28,
2000 Taisho purchased 106,758 shares of Insmed Pharmaceuticals common stock at
a price of $28.10 per share. See "Recent Developments" on page for more
information on the agreement.

If we complete the $34.5 million financing, we believe that we will have
adequate cash to meet the needs of the combined companies for at least two
years. Our business strategy contemplates selling additional equity and
entering into agreements with corporate partners to fund research and
development, and provide milestone payments, license fees and equity
investments to fund operations. We will need to raise substantial additional
funds to continue development and commercialization of our products. There can
be no assurance that adequate funds will be available when we need them, or on
favorable terms. If at any time we are unable to obtain sufficient additional
funds, we will be required to delay, restrict or eliminate some or all of our
research or development programs, dispose of assets or technology, or cease
operations.

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<PAGE>

Impact of Year 2000

Insmed Pharmaceuticals replaced and upgraded much of its information
technology in the normal course of business during 1999. Year 2000 failures
have not had, and Insmed Pharmaceuticals does not believe they will have, a
material adverse impact. The incremental costs of the project were not
significant.

Quantitative and Qualitative Disclosures About Market Risk.

Insmed Pharmaceuticals invests its excess cash in investment grade,
interest-bearing securities. At December 31, 1999, Insmed Pharmaceuticals had
$4.3 million invested in fixed rate securities. Insmed Pharmaceuticals'
investments in fixed rate securities are subject to interest rate and credit
risk. Based on Insmed Pharmaceuticals' policy of investing in highly rated
securities whose maturities at December 31, 1999 are all less than one year
minimizes the risk associated with Insmed Pharmaceuticals' investment in fixed
rate securities. While a hypothetical decrease in market interest rates by 10
percent from the December 31, 1999 levels would cause a decrease in interest
income, it would not result in a loss of the principal. Additionally, the
decrease in interest income would not be material.

Directors and Officers

Directors and Executive Officers. The names, ages and positions and a brief
description of the business experience of Insmed Pharmaceuticals' directors and
executive officers, as of December 31, 1999 are listed below. All directors
hold office until the next annual meeting of shareholders and until their
successors are duly elected and qualified.

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Geoffrey Allan, Ph.D.................... 46 President, Chief Executive Officer,
and Chairman of the board of
directors
Michael D. Baer......................... 55 Chief Financial Officer
Kenneth G. Condon....................... 52 Member, board of directors
Gustav A. Christensen................... 52 Member, board of directors
Graham K. Crooke, MB.BS................. 40 Member, board of directors
Dennis J. Dougherty..................... 51 Member, board of directors
Steinar J. Engelsen, M.D. .............. 49 Member, board of directors
Edgar G. Engleman, M.D.................. 54 Member, board of directors
</TABLE>

The officers serve at the pleasure of the board and the board appoints
officers on an annual basis following the annual meeting of Insmed
Pharmaceuticals' shareholders. There are no family relationships among any of
the directors or officers of Insmed Pharmaceuticals. For a description of the
business experience of Insmed Pharmaceuticals' directors, other than Mr.
Christensen and Mr. Dougherty, see "Management and Operation of Insmed
Incorporated After the Reorganizations--Insmed Incorporated Board of Directors"
on page , and for a description of the business experience of Michael D. Baer,
see "Management and Operation of Insmed Incorporated After the
Reorganizations--Management" on page .

Gustav A. Christensen was a director of Insmed Pharmaceuticals from 1996
until his resignation on March 27, 2000. Mr. Christensen is Chairman of
Primedica, Corporation, an international preclinical contract research
organization and subsidiary of Genzyme Transgenic Corp. From 1992 to 1999,
Mr. Christensen served as Chairman of Alpha-Beta Technology, Inc., a
biotechnology company. On January 28, 1999, Alpha-Beta Technology, Inc.
announced pursuit of an out-of-court liquidation conducted by a common law
Assignment for the Benefit of Creditors. Before 1990, Mr. Christensen served as
President and Chief Executive Officer of ImmuLogic Pharmaceutical Corporation,
as Vice President Business Development and Senior Vice President Commercial
Affairs at Genetics Institute, and as Vice President of Operations at Baxter
Travenol Laboratories. Mr. Christensen is a founder and director of Phytera,
Inc., a private biotechnology research company, and serves on the Advisory
Board of BioVentures Investors, L.P. Mr. Christensen formerly served on the
board of

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<PAGE>

Diatide, Inc., a biotechnology company which was recently acquired by Schering
A.G. He received a Cand. Oecon. Degree in Economics from the University of
Aarhus (Denmark) and a Master's degree in Business Administration from Harvard
University.

Dennis J. Dougherty was a director of Insmed Pharmaceuticals from 1996 until
his resignation on April 5, 2000. Mr. Dougherty is a general partner of
Intersouth Partners, a venture capital investment firm which he founded in
1985. Mr. Dougherty manages the life science portfolio for Intersouth. Mr.
Dougherty was formerly Office Partner-in-Charge with Touche Ross (Deloitte &
Touche) and director of Small Business Services for Raleigh/Durham. Before
entering the field of accounting and finance, Mr. Dougherty worked in marketing
with UNOCAL in Chicago, for industrial products and chemicals. Mr. Dougherty
currently serves on the boards of directors of Biolex, Inc., a private protein
manufacturing company, Cogent Neuroscience, Inc., a private neurological target
and drug discovery company, Encelle Inc., an emerging biotechnology company,
Paradigm Genetics, Inc., a private agricultural biotechnology company, Xanthon,
Inc., a private geonomics technology company, Concept Fabrics, Inc., a private
fabric manufacturing company and Structure House, Inc. He has previously served
on the boards of five public companies and a number of private companies. Mr.
Dougherty received his B.S. in Marketing from Oklahoma City University in 1970.

Executive Officer Compensation

Summary Compensation Table: The following table shows the compensation
received by each person serving as an executive officer of Insmed
Pharmaceuticals as of December 31, 1999 and the compensation received by each
such individual for each of the two prior fiscal years.

<TABLE>
<CAPTION>
Annual Long Term
Compensation(1) Compensation Awards
----------------- -----------------------
Name and Principal Fiscal All Other
Position Year Salary(2) Bonuses Options/SARS Granted(1) Compensation(7)
------------------ ------ --------- ------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
Geoffrey Allan.......... 1999 $210,000 $90,000(3) 100,000 $1,470
Chairman of the board 1998 $200,000 $50,000(4) 250,000 $1,475
of directors, Chief 1997 $176,667 $30,000(5) -- $ --
Executive Officer and
President
Michael D. Baer(6)...... 1999 $103,125 $30,000(3) 90,000 $9,850
Chief Financial Officer
</TABLE>
- --------
(1) Except as disclosed in the table, there was no other cash compensation,
long-term incentive plan or restricted stock award that required
disclosure.
(2) Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Insmed Pharmaceuticals' retirement savings plan
("the 401(k) Plan").
(3) In addition to the amounts indicated, the board of directors has agreed to
pay $120,000 to Dr. Allan, and $50,000 to Mr. Baer if and when the
reorganizations close.
(4) Includes amounts earned as of December 31, 1998 for achieving certain
corporate milestones during fiscal year 1998. The award was paid in April
1999.
(5) Includes amounts earned as of December 31, 1997, for achieving certain
corporate milestones during fiscal year 1997. The award was paid in
December 1998.
(6) Insmed Pharmaceuticals hired Mr. Baer in May 1999 as Chief Financial
Officer.

(7) Relates to personnel use of a vehicle provided by Insmed Pharmaceuticals to
Dr. Allan and life insurance premiums for coverage in excess of $50,000.
Mr. Baer's other compensation relates to relocation expenses paid by Insmed
Pharmaceuticals on his behalf and life insurance premiums for coverage in
excess of $50,000.

149
<PAGE>

Stock Option/SAR Grants in Last Fiscal Year. Each of the following options
relates to Insmed Pharmaceuticals common stock and does not include a related
SAR.

<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
% of
Total Options
Granted to Exercise Grant date
Options Employees in or Base Expiration present
Name Granted(#) Fiscal Year Price($) Date value(2)
- ---- ---------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Geoffrey Allan.......... 100,000(1) 18.8% $0.80 1/01/2005 $87,000
Michael D. Baer......... 90,000(1) 16.9% $0.80 5/16/2005 $78,300
</TABLE>
- --------
(1) Options vest and become exercisable in equal monthly amounts over a four
year period.

(2) No market currently exists for Insmed Pharmaceuticals common stock. We have
utilized the fair market value of Celtrix's common stock as reported on The
Nasdaq SmallCap Market at the close of business on December 31, 1999, of
$2.875 as a basis for determining whether the options granted to Dr. Allan
and Mr. Baer are in the money. By applying the exchange ratio, of 3.5 to 1,
dictated in the reorganization agreement, applicable to the Insmed
Pharmaceuticals common stock to the Celtrix market value per share it
implies a market value of $10.06 for Insmed Pharmaceuticals common stock.
Based on this methodology we have classified all the options granted to Dr.
Allan and Mr. Baer as in the money. The fair value of the stock options was
estimated at the date of grant using the Black-Scholes pricing method
assuming a risk free interest rate of 6.0%, no dividends, a volatility
factor of 25%, and a weighted average exercise life of four years. The
application of this method resulted in a fair value per option between
$0.87 and $1.38.

Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values. The following table sets forth information for the named executive
officers with respect to exercises, during the year ended December 31, 1999, of
options to purchase common stock of Insmed Pharmaceuticals, and the number and
value of unexercised options at fiscal year end.

<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised In-the-Money
Acquired Value Options at Fiscal Year-End Options at Fiscal Year-End
Name On Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ---- ----------- -------- --------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Geoffrey Allan.......... 0 $ 0 295,206/273,960 359,331/297,918(1)
Michael D. Baer......... 0 $ 0 13,125/76,875 11,419/66,881(1)
</TABLE>
- --------

(1) No market currently exists for Insmed Pharmaceuticals common stock. We have
utilized the fair market value of Celtrix's common stock as reported on The
Nasdaq SmallCap Market at the close of business on December 31, 1999, of
$2.875 as a basis for determining whether the options granted to Dr. Allan
and Mr. Baer are in the money. By applying the exchange ratio, of 3.5 to 1,
dictated in the reorganization agreement, applicable to the Insmed
Pharmaceuticals common stock to the Celtrix market value per share it
implies a market value of $10.06 for Insmed Pharmaceuticals common stock.
Based on this methodology we have classified all the options granted to Dr.
Allan and Mr. Baer as in the money. The fair value of the stock options was
estimated at the date of grant using the Black-Scholes pricing method
assuming a risk free interest rate of 6.0%, no dividends, a volatility
factor of 25%, and a weighted average exercise life of four years. The
application of this method resulted in a fair value per option between
$0.87 and $1.38.

Stock Option Plans

The 1994 Stock Option Plan. Under the Insmed Pharmaceuticals, Inc. 1994
Stock Option Plan (the Insmed Pharmaceuticals 1994 Plan) the company may select
officers, key employees, non-employee directors and consultants of Insmed
Pharmaceuticals to receive options to purchase common stock of Insmed
Pharmaceuticals. The board of directors of Insmed Pharmaceuticals administers
the Insmed Pharmaceuticals 1994 Plan but it may delegate some of its authority
to a compensation committee appointed by the Insmed Pharmaceuticals board of
directors. The board of directors or the compensation committee selects
individuals

150
<PAGE>

who will participate in the Insmed Pharmaceuticals 1994 Plan, and establishes
the terms of option grants made under the Insmed Pharmaceuticals 1994 Plan,
subject to the provisions of the Insmed Pharmaceuticals 1994 Plan.

Under the Insmed Pharmaceuticals 1994 Plan the company may grant either
options intended to qualify as "incentive stock options" under section 422 of
the Internal Revenue Code, or options not intended to so qualify. At the time
an option is granted the recipient recognizes no income. If the option is an
ISO, no income will be recognized upon exercise of the option. An Insmed
Pharmaceuticals 1994 Plan participant recognizes gain when he disposes of
shares acquired under an ISO. The exercise of a nonqualified option generally
is a taxable event that requires the Insmed Pharmaceuticals 1994 Plan
participant to recognize, as ordinary income, the difference between the
shares' fair market value and the option price. Insmed Pharmaceuticals may
claim a federal income tax deduction on account of the exercise of a
nonqualified option. Insmed Pharmaceuticals may not claim a federal income tax
deduction on account of the grant or the exercise of an ISO, but may claim a
federal income tax deduction on account of certain dispositions of shares
acquired upon the exercise of an ISO.

The price per share purchased on exercise of an option granted under the
1994 stock option plan may not be less than the fair market value of a share of
Insmed Pharmaceuticals common stock on the date of grant of the option, and
must be paid either by certified or bank check. No option may be exercised more
than ten years after the date the option is granted, nor may any option be
transferred other than by will or the laws of descent and distribution. Certain
limitations on exercise of options granted under the Insmed Pharmaceuticals
1994 Plan apply following an employee's, director's or consultant's termination
of employment of service.

The number of shares available for issuance under the Insmed Pharmaceuticals
1994 Plan and the number, class, and price of shares subject to outstanding
options shall be adjusted by the Insmed Pharmaceuticals board of directors or
the compensation committee as it deems appropriate in the event of a stock
dividend, recapitalization, merger, consolidation, split-up, share exchange, or
similar event. The Insmed Pharmaceuticals 1994 Plan will terminate on December
31, 2003 or on any earlier date determined by the Insmed Pharmaceuticals board
of directors.

Certain Transactions

Since October 1988, W. McIlwaine Thompson, Jr., of counsel to Woods, Rogers
& Hazlegrove P.L.C., has provided legal assistance to Insmed Pharmaceuticals
and Insmed Diagnostics, Inc., a wholly-owned subsidiary of Insmed
Pharmaceuticals, on various matters. During 1999, Insmed Pharmaceuticals paid
Woods, Rogers & Hazlegrove P.L.C. $38,806 for legal services rendered during
the year.

Dr. Allan has been granted options to purchase a total of 865,000 shares of
Insmed Pharmaceuticals common stock: 500,000 at a price of $0.15 per share;
250,000 at a price of $0.50 per share, 100,000 at a price of $0.80 per share
and 15,000 at a price of $3.00 per share. On October 15, 1997, Insmed
Pharmaceuticals loaned Dr. Allan $44,375.10 which he used to purchase 295,834
shares of Insmed Pharmaceuticals common stock pursuant to vested options. Of
his remaining 569,166 options, 295,206 were vested and exercisable as of
December 31, 1999. Mr. Baer has been granted options to purchase 90,000 shares
at a price of $0.80 per share vesting monthly at a rate of 1,875 shares per
month over 48 months commencing May 1999.

Security Ownership of Certain Beneficial Owners and Management

As of March 27, 2000, there were 287 shareholders of Insmed Pharmaceuticals.
The following table sets forth certain information regarding the beneficial
ownership of Insmed Pharmaceuticals' capital stock as of March 27, 2000, as
adjusted to assume the conversion of all outstanding shares of Insmed
Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals Series B
Preferred Stock into shares of common stock and with respect to all officers
and directors of Insmed Pharmaceuticals, all officers and directors as a group
and each shareholder owning more than 5% of Insmed Pharmaceuticals' capital
stock, including shares to be issued upon the exercise of outstanding warrants
and options.

151
<PAGE>

<TABLE>
<CAPTION>
Shares of Insmed
Pharmaceuticals
Common Stock Beneficially Owned
-------------------------------------
Number of Shares
Name & Address Beneficially Owned(1) Percent
- -------------- ---------------------- -----------
<S> <C> <C>
Graham K. Crooke...................... 2,867,531(2) 20.5%
Ticonderoga Capital
Suite 4360
555 California St.
San Francisco, CA 94101
Steinar J. Engelsen................... 1,010,000(3) 7.2%
Teknoinvest Management AS
Grev Wedels, Plass 5
P.O. Box 556 Sentrum
Oslo, Norway 0105
Dennis J. Dougherty................... 929,605(4) 6.7%
Intersouth Partners III, L.P.
1000 Park Forty Plaza, Suite 290
Durham, NC 27713
Edgar G. Engleman..................... 927,500(5) 6.6%
BioAsia Investments, L.L.C.
575 High Street
Suite 201
Palo Alto, CA 94301
Duncan C. McCallum.................... 921,036(6) 6.6%
One Liberty Fund III, L.P.
One Liberty Square
Boston, MA 02109
Kenneth G. Condon..................... 862,381(7) 6.2%
Boston University Nominee Partnership
147 Bay State Road
Boston, MA 02215
Geoffrey Allan........................ 683,401(8) 4.9%
800 E. Leigh Street
Richmond, VA 23219
W. M. Thompson, Jr.................... 290,019(9) 2.1%
1 Apple Tree Lane
Charlottesville, VA 22903
Gustav A. Christensen................. 60,000(10) *
3 Idylwilde Road
Lexington, MA 02421
Michael D. Baer....................... 24,375(11) *
800 E. Leigh Street
Richmond, VA 23219
Officers & Directors As A Group (9 7,654,812(12) 54.8%
persons).............................
</TABLE>
- --------
* Less than 1%.

(1) Shares subject to options and warrants that are currently exercisable or
exercisable within 60 days of March 27, 2000, are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person. In calculating

152
<PAGE>

ownership percentages, the UVA Patent Foundation's guaranteed 3% ownership
percentage has not been taken into account. When an individual actually
exercises his options and warrants, additional shares must be issued to the
UVA Patent Foundation to maintain its holding at 3%. This will have the
effect of slightly reducing the individual's percentage holding below what
appears in the preceding chart. The Foundation's right to maintain its
ownership of 3% will terminate on the date immediately preceding the date
the SEC declares effective this joint proxy statement/prospectus.

(2) Dr. Crooke, a director of Insmed Pharmaceuticals, has the right to
purchase 15,000 shares upon exercise of options. The number of shares
listed opposite Dr. Crooke's name also includes 2,424,285 shares owned by
Ticonderoga Partners III, LP, of which Ticonderoga Associates III, LLC is
the General Partner. Dr. Crooke is currently a consultant to Ticonderoga
Associates, III, LLC and was a principal of that firm from September 1997
until March 2000. Also included are 14,520 shares beneficially owned by
Dr. Crooke, which shares are held by Warburg Dillon Read LLC, as agent
for Dr. Crooke, 389,034 shares held by Warburg Dillon Read LLC, as agent,
for certain other current and former employees of Warburg Dillon Read LLC
and 24,692 shares held by Lexington Partners IV, LP an investment
partnership formed for the benefit of certain other current and former
employees of Warburg Dillon Read LLC. Dr. Crooke disclaims beneficial
ownership of these shares except to the extent of his proportional
interest and except as indicated above as owned directly by him.
(3) Dr. Engelsen, a director of Insmed Pharmaceuticals, has the right to
purchase 10,000 shares upon exercise of options. The number of shares
listed opposite Dr. Engelsen's name also includes 1,000,000 owned by
Teknoinvest Management AS. Dr. Engelsen disclaims beneficial ownership of
these shares except to the extent of his proportional interest.

(4) Mr. Dougherty, a director of Insmed Pharmaceuticals until his resignation
in April 2000, has the right to purchase 15,000 shares upon exercise of
options. The number of shares listed opposite Mr. Dougherty's name also
includes the shares owned by Intersouth Partners III, L.P. of which Mr.
Dougherty is a General Partner. Mr. Dougherty disclaims beneficial
ownership of these shares except to the extent of his proportional
partnership interest therein.

(5) Dr. Engleman was appointed as a director of Insmed Pharmaceuticals as of
June 15, 1999 and has the right to purchase 10,000 shares upon exercise
of options. The number of shares listed opposite Dr. Engleman's name
includes the shares owned by BioAsia Investments, L.L.C. of which Dr.
Engleman is a general partner. Dr. Engleman disclaims beneficial
ownership of these shares except to the extent of his proportional
partnership interest therein.
(6) Mr. McCallum resigned as a director of Insmed Pharmaceuticals as of June
14, 1999. The number of shares listed opposite Mr. McCallum's name
includes the shares owned by One Liberty Fund III, L.P. of which Mr.
McCallum is a senior associate and Gilde International BV as to which One
Liberty Fund III, L.P. has a power of attorney to vote and dispose. Mr.
McCallum disclaims beneficial ownership of these shares.
(7) Kenneth G. Condon, a director of Insmed Pharmaceuticals, has the right to
purchase 15,000 shares upon exercise of options. The number of shares
listed opposite Mr. Condon's name also includes 847,381 shares owned by
Boston University Nominee Partnership of which he is a partner. Mr.
Condon disclaims beneficial ownership of these shares.

(8) Includes 195,554 shares issuable upon exercise of options, which options
are exercisable within 60 days of March 27, 2000.
(9) Includes 41,830 shares of stock owned by Krusen-Thompson Interests, a
general partnership in which Mr. Thompson is a 50% owner, and 15,000
shares issuable upon exercise of options. Also includes 10,000 shares
owned by Mr. Thompson's mother, Alice J. Thompson, over which Mr.
Thompson has a power of attorney to vote and dispose and 78,220 shares
owned by the Alice Jones Thompson 1984 Trust of which Mr. Thompson is a
co-trustee and as to which Mr. Thompson disclaims beneficial ownership.

(10) Mr. Christensen, a director of Insmed Pharmaceuticals until March 2000,
owns directly 60,000 shares of Insmed Pharmaceuticals' common stock.

(11) Includes 5,625 shares issuable upon exercise of options, which options
are exercisable within 60 days of March 27, 2000.
(12) Represents the shares referenced in footnotes (2)-(5) and (7)-(11).

153
<PAGE>

LEGAL MATTERS

Venture Law Group will pass on certain tax consequences of the merger for
Celtrix. Hunton & Williams will pass on certain tax consequences of the share
exchange for Insmed Pharmaceuticals and the validity of the Insmed Incorporated
common stock offered by this joint proxy statement/prospectus.

EXPERTS

Insmed Pharmaceuticals, Inc.

Ernst & Young LLP, independent auditors, have audited Insmed
Pharmaceuticals' consolidated financial statements at December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999, as
set forth in their report. We have included our financial statements in this
joint proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.

Celtrix Pharmaceuticals, Inc.

Ernst & Young LLP, independent auditors, have audited Celtrix's consolidated
financial statements at March 31, 1999 and 1998, and for each of the three
years in the period ended March 31, 1999, as set forth in their report. We have
included our financial statements in the this joint proxy statement/prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Celtrix

Celtrix is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance with the Exchange Act files
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information Celtrix files at the Security and Exchange
Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549, Seven World Trade Center, New York, New York 10048 and 500 West Madison,
14th Floor, Chicago, Illinois 60661. Please call the Securities and Exchange
Commission at 1-800-SEC-0300 for further information on the public reference
rooms. Celtrix SEC filings also are available to the public from commercial
document retrieval services and at the world wide web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. You may also inspect
such reports, proxy statements and other information concerning Celtrix at the
offices of The Nasdaq SmallCap Market, 9801 Washingtonian Boulevard,
Gaithersburg, Maryland, 20878.

Insmed Incorporated has filed the Insmed Incorporated registration statement
on Form S-4 with the Securities and Exchange Commission to register the Insmed
Incorporated common stock to be issued in the reorganizations. This joint proxy
statement/prospectus will be a part of the Insmed Incorporated registration
statement and will constitute a prospectus of Insmed Incorporated in addition
to being a proxy statement of Celtrix for the annual meeting and a proxy
statement of Insmed Pharmaceuticals for the special meeting.

As allowed by Securities and Exchange Commission rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
Insmed Incorporated registration statement or the exhibits to the Insmed
Incorporated registration statement.

If you are a stockholder of Celtrix, you may have already received some of
these documents referred to above, but you can obtain them from Celtrix or the
Securities and Exchange Commission. Documents are

154
<PAGE>

available from Celtrix without charge, excluding exhibits. Stockholders may
obtain documents referred to in this joint proxy statement/prospectus by
requesting them in writing or by telephone at the following address:

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
Attn: Donald D. Huffman
(408) 988-2500

If you would like to request documents from Celtrix, please do so by ,
2000 to receive them before the annual meeting.

You should rely only on the information contained in this joint proxy
statement/prospectus in connection with deciding your vote upon the approval of
the reorganization agreement and the reorganizations. Celtrix has not
authorized anyone to provide you with information different from what is
contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated , 2000. You should not assume that the
information contained in this joint proxy statement/prospectus is accurate as
of any date other than such date, and neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of Insmed Incorporated
common stock in the reorganizations shall create any implication to the
contrary.

Insmed Pharmaceuticals

Insmed Pharmaceuticals is not a public company and is not subject to the
reporting requirements of the Securities Exchange Act. Shareholders of Insmed
Pharmaceuticals may, however, request additional information about Insmed
Pharmaceuticals by contacting Insmed Pharmaceuticals at the following address
and telephone number:

Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attn: Michael D. Baer
Telephone: (804) 828-6893

If you would like to request documents from Insmed Pharmaceuticals, please
do so by , 2000 to receive them before the special meeting.

You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus in connection with deciding
your vote upon the approval of the reorganizations. Insmed Pharmaceuticals has
not authorized anyone to provide you with information different from what is
contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated , 2000. You should not assume that the
information contained in this joint proxy statement/prospectus is accurate as
of any date other than such date, and neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of Insmed Incorporated
common stock in the reorganizations shall create any implication to the
contrary.

155
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Insmed Pharmaceuticals, Inc.
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3
Consolidated Statements of Operations for the years ended December 31,
1999, 1998, 1997 and Period from September 21, 1988 (inception) to
December 31, 1999....................................................... F-4
Consolidated Statement of Stockholders' Equity for the Period from
September 21, 1988 (inception) to December 31, 1999..................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, 1997 and Period from September 21, 1988 (inception) to
December 31, 1999....................................................... F-8
Notes to Consolidated Financial Statements............................... F-10
Celtrix Pharmaceuticals, Inc.
Report of Ernst & Young LLP, Independent Auditors........................ F-17
Consolidated Balance Sheets as of March 31, 1999 and 1998................ F-18
Consolidated Statements of Operations for the years ended March 31, 1999,
1998 and 1997........................................................... F-19
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1999, 1998 and 1997................................................. F-20
Consolidated Statements of Cash Flows for the years ended March 31, 1999,
1998, and 1997.......................................................... F-21
Notes to Consolidated Financial Statements............................... F-22
Condensed Consolidated Balance Sheets as of March 31, 1999 and December
31, 1999 (unaudited).................................................... F-30
Condensed Consolidated Statements of Operations for the three and nine
month periods ended December 31, 1999 and 1998 (unaudited).............. F-31
Condensed Consolidated Statements of Cash Flows for the nine month
periods ended December 31, 1999 and 1998 (unaudited).................... F-32
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-33
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Insmed Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Insmed
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1999 and
1998 and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1999 and the
consolidated statements of operations, stockholders' equity, and cash flows for
the period from September 21, 1988 (inception) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Insmed
Pharmaceuticals, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 and for the period from September 21, 1988
(inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

Richmond, Virginia
January 13, 2000

F-2
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1999 1998
------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 316,901 $ 11,677,084
Marketable securities..... 4,318,273 --
Prepaids and other current
assets................... 43,207 15,499
------------ ------------
Total current assets.... 4,678,381 11,692,583
Property and equipment:
Research and development
equipment................ 335,758 262,328
Furniture and equipment... 167,876 161,582
------------ ------------
503,634 423,910
Accumulated depreciation.. (262,267) (178,554)
------------ ------------
241,367 245,356
Other assets.............. 375,784 --
------------ ------------
Total assets............ $ 5,295,532 $ 11,937,939
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......... $ 746,682 $ 186,133
Other current
liabilities.............. 87,259 65,352
Notes Payable............. -- 25,919
------------ ------------
Total current
liabilities............ 833,941 277,404
Stockholders' equity:
Series A Convertible
Participating Preferred
Stock, $.01 par value:
authorized shares,
7,000,000; issued and
outstanding shares,
6,144,599 in 1999 and
1998; aggregate
liquidation preference,
$8,713,212............... 61,446 61,446
Series B Convertible
Preferred Stock, $.01 par
value: authorized shares,
5,000,000; issued and
outstanding shares,
3,581,761 in 1999 and
1998; aggregate
liquidation preference,
$14,327,044.............. 35,818 35,818
Common Stock, $.01 par
value: authorized shares,
20,000,000; issued and
outstanding shares,
3,872,453 in 1999 and
3,587,699 in 1998........ 38,725 35,877
Additional capital........ 27,181,327 26,562,158
Notes receivable from
stock sales.............. (64,079) (47,139)
Deficit accumulated during
the development stage.... (22,780,309) (14,987,625)
Accumulated other
comprehensive loss....... (11,337) --
------------ ------------
Total stockholders'
equity................. 4,461,591 11,660,535
------------ ------------
Total liabilities and
stockholders' equity... $ 5,295,532 $ 11,937,939
============ ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period from
Sept. 21,
1988
Year Ended December 31, (inception)
------------------------------------- to Dec. 31,
1999 1998 1997 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sponsored research and
other operating
revenues................ $ 663,162 $ 99,819 $ -- $ 1,634,443
Operating expenses:
Research and
development........... 6,348,541 3,768,752 2,604,818 17,477,732
General and
administrative........ 2,444,873 1,625,941 978,615 7,800,470
----------- ----------- ----------- ------------
Total operating
expenses............ 8,793,414 5,394,693 3,583,433 25,278,202
----------- ----------- ----------- ------------
Operating loss....... (8,130,252) (5,294,874) (3,583,433) (23,643,759)
Other (income) expenses:
Interest expense....... -- -- -- 167,684
Interest income........ (337,568) (486,180) (103,485) (980,299)
Minority interest in
losses of subsidiary.. -- -- -- (50,835)
----------- ----------- ----------- ------------
(337,568) (486,180) (103,485) (863,450)
----------- ----------- ----------- ------------
Net loss................. $(7,792,684) $(4,808,694) $(3,479,948) $(22,780,309)
=========== =========== =========== ============
Basic and diluted:
Net loss per share..... $ (2.16) $ (1.47) $ (1.22)
Weighted average
shares................ 3,606,094 3,277,966 2,854,359
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from September 21, 1988 (inception) to December 31, 1999

<TABLE>
<CAPTION>
Convertible
Series A Preferred Deficit
Convertible Series B Stock Notes Accumulated Accumulated
Participating Convertible ------------- Receivable During the Other
Preferred Preferred Series Series Common Additional from Stock Development Comprehensive
Stock Stock B A Stock Capital Sales Stage Loss Total
------------- ----------- ------ ------ ------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
430,000 shares
of common stock
for cash....... $ -- $ -- $ -- $ -- $ 4,300 $ 791 $ -- $ -- $ -- $ 5,091
Issuance of
55,000 shares
of common stock
in exchange for
services....... -- -- -- -- 550 10,450 -- -- -- 11,000
Issuance of
15,000 shares
of common stock
to licensor.... -- -- -- -- 150 2,850 -- -- -- 3,000
Net loss for the
period from
September 21,
1988
(inception) to
December 31,
1988........... -- -- -- -- -- -- -- (36,036) -- (36,036)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1988........... -- -- -- -- 5,000 14,091 -- (36,036) -- (16,945)
Issuance of
68,230 shares
of common stock
for cash....... -- -- -- -- 682 38,464 -- -- -- 39,146
Issuance of
40,000 shares
of common stock
in exchange for
services....... -- -- -- -- 400 400 -- -- -- 800
Net loss for
1989........... -- -- -- -- -- -- -- (81,124) -- (81,124)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1989........... -- -- -- -- 6,082 52,955 -- (117,160) -- (58,123)
Issuance of
120,195 shares
of common stock
for cash....... -- -- -- -- 1,202 155,180 -- -- -- 156,382
Issuance of
22,685 shares
of common stock
in exchange for
notes payable.. -- -- -- -- 227 28,582 -- -- -- 28,809
Issuance of
1,000 shares of
common stock in
exchange for
services....... -- -- -- -- 10 1,490 -- -- -- 1,500
Net loss for
1990........... -- -- -- -- -- -- -- (323,006) -- (323,006)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1990........... -- -- -- -- 7,521 238,207 -- (440,166) -- (194,438)
Issuance of
256,470 shares
of common stock
for cash....... -- -- -- -- 2,565 214,938 -- -- -- 217,503
Issuance of
51,485 shares
of common stock
in exchange for
notes payable.. -- -- -- -- 515 50,283 -- -- -- 50,798
Issuance of
14,740 shares
of common stock
in exchange for
services....... -- -- -- -- 147 8,213 -- -- -- 8,360
Issuance of
17,775 shares
of common stock
to licensor.... -- -- -- -- 178 26,485 -- -- -- 26,663
Net loss for
1991........... -- -- -- -- -- -- -- (303,083) -- (303,083)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1991........... -- -- -- -- 10,926 538,126 -- (743,249) -- (194,197)
Issuance of
303,794 shares
of common stock
for cash....... -- -- -- -- 3,038 644,962 -- -- -- 648,000
Issuance of
9,398 shares of
common stock to
licensor....... -- -- -- -- 94 22,038 -- -- -- 22,132
Net loss for
1992........... -- -- -- -- -- -- -- (689,794) -- (689,794)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1992........... -- -- -- -- 14,058 1,205,126 -- (1,433,043) -- (213,859)
Issuance of
327,159 shares
of preferred
stock for cash,
net of offering
costs of
$54,969........ -- -- -- 3,272 -- 923,169 -- -- -- 926,441
Issuance of
13,333 shares
of preferred
stock in
exchange for
notes payable.. -- -- -- 133 -- 39,867 -- -- -- 40,000
Issuance of
10,530 shares
of common stock
to licensor.... -- -- -- -- 105 31,485 -- -- -- 31,590
Net loss for
1993........... -- -- -- -- -- -- -- (721,478) -- (721,478)
----- ----- ----- ------ ------- ---------- ----- ----------- ----- ---------
Balance at
December 31,
1993........... -- -- -- 3,405 14,163 2,199,647 -- (2,154,521) -- 62,694
</TABLE>

F-5
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
For the Period from September 21, 1988 (inception) to December 31, 1999

<TABLE>
<CAPTION>
Series A Convertible Deficit
Convertible Series B Preferred Stock Notes Accumulated Accumulated
Participating Convertible ---------------- Receivable During the Other
Preferred Preferred Series Series Common Additional from Stock Development Comprehensive
Stock Stock B A Stock Capital Sales Stage Loss
------------- ----------- ------- ------- ------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
154,885 shares
of common stock
for cash upon
exercise of
warrants....... $ -- $ -- $ -- $ -- $ 1,549 $ 230,777 $ -- $ -- $ --
Issuance of
68,331 shares
of common stock
for cash, net
of offering
costs of
$42,119........ -- -- -- -- 683 162,191 -- -- --
Issuance of
6,093 shares of
common stock to
licensor....... -- -- -- -- 69 20,640 -- -- --
Net loss for
1994........... -- -- -- -- -- -- -- (1,250,081) --
----------- ----- ------- ------- ------- ----------- -------- ------------ -----
Balance at
December 31,
1994 .......... -- -- -- 3,405 16,464 2,613,255 -- (3,404,602) --
Issuance of
119,353 shares
of preferred
stock for cash,
net of offering
costs of
$134,861....... -- -- 1,194 -- -- 222,094 -- -- --
Issuance of
89,331 shares
of preferred
stock for cash
upon exercise
of warrants.... -- -- 893 -- -- 222,435 -- -- --
Issuance of
68,331 shares
of preferred
stock upon
exchange of
common stock... -- -- 683 -- (683) -- -- -- --
Issuance of
6,456 shares of
common stock to
licensor....... -- -- -- -- 64 19,304 -- -- --
Net loss for
1995........... -- -- -- -- -- -- -- (1,206,131) --
----------- ----- ------- ------- ------- ----------- -------- ------------ -----
Balance at
December 31,
1995 .......... -- -- 2,770 3,405 15,845 3,077,088 -- (4,610,733) --
Issuance of
408,582 shares
of common stock
for 340,492
shares of
Series A,
Convertible
Preferred
Stock.......... -- -- -- (3,405) 4,086 (681) -- -- --
Issuance of
332,446 shares
of common stock
for 277,045
shares of
Series B,
Convertible
preferred
Stock.......... -- -- (2,770) -- 3,324 (554) -- -- --
Issuance of
285,758 shares
of common stock
in exchange for
shares of
preferred and
common stock of
subsidiary..... -- -- -- -- 2,858 582,222 -- -- --
Issuance of
4,072,504
shares of
redeemable
preferred
stock.......... 5,294,255 -- -- -- -- (101,275) -- -- --
Issuance of
125,953 shares
of common stock
to licensor.... -- -- -- -- 1,259 17,633 -- -- --
Issuance of
24,757 shares
of common stock
for services... -- -- -- -- 248 3,466 -- -- --
Net loss for
1996........... -- -- -- -- -- -- -- (2,088,250) --
----------- ----- ------- ------- ------- ----------- -------- ------------ -----
Balance at
December 31,
1996........... 5,294,255 -- -- -- 27,620 3,577,899 -- (6,698,983) --
Issuance of
295,834 shares
of common stock
upon exercise
of stock
options........ -- -- -- -- 2,958 41,417 (44,375) -- --
Issuance of
2,072,095
shares of
redeemable
preferred
stock.......... 3,418,957 -- -- -- -- (19,552) -- -- --
Elimination of
redemption
rights......... (8,651,766) -- -- -- -- 8,651,766 -- -- --
Issuance of
64,085 shares
of common stock
to licensor.... -- -- -- -- 641 12,176 -- -- --
Issuance of
13,846 shares
of common stock
for services... -- -- -- -- 139 17,861 -- -- --
Net loss for
1997........... -- -- -- -- -- -- -- (3,479,948) --
----------- ----- ------- ------- ------- ----------- -------- ------------ -----
Balance at
December 31,
1997........... 61,446 -- -- -- 31,358 12,281,567 (44,375) (10,178,931) --
<CAPTION>
Total
------------
<S> <C>
Issuance of
154,885 shares
of common stock
for cash upon
exercise of
warrants....... $ 232,326
Issuance of
68,331 shares
of common stock
for cash, net
of offering
costs of
$42,119........ 162,874
Issuance of
6,093 shares of
common stock to
licensor....... 20,709
Net loss for
1994........... (1,250,081)
------------
Balance at
December 31,
1994 .......... (771,478)
Issuance of
119,353 shares
of preferred
stock for cash,
net of offering
costs of
$134,861....... 223,288
Issuance of
89,331 shares
of preferred
stock for cash
upon exercise
of warrants.... 223,328
Issuance of
68,331 shares
of preferred
stock upon
exchange of
common stock... --
Issuance of
6,456 shares of
common stock to
licensor....... 19,368
Net loss for
1995........... (1,206,131)
------------
Balance at
December 31,
1995 .......... (1,511,625)
Issuance of
408,582 shares
of common stock
for 340,492
shares of
Series A,
Convertible
Preferred
Stock.......... --
Issuance of
332,446 shares
of common stock
for 277,045
shares of
Series B,
Convertible
preferred
Stock.......... --
Issuance of
285,758 shares
of common stock
in exchange for
shares of
preferred and
common stock of
subsidiary..... 585,080
Issuance of
4,072,504
shares of
redeemable
preferred
stock.......... 5,192,980
Issuance of
125,953 shares
of common stock
to licensor.... 18,892
Issuance of
24,757 shares
of common stock
for services... 3,714
Net loss for
1996........... (2,088,250)
------------
Balance at
December 31,
1996........... 2,200,791
Issuance of
295,834 shares
of common stock
upon exercise
of stock
options........ --
Issuance of
2,072,095
shares of
redeemable
preferred
stock.......... 3,399,405
Elimination of
redemption
rights......... --
Issuance of
64,085 shares
of common stock
to licensor.... 12,817
Issuance of
13,846 shares
of common stock
for services... 18,000
Net loss for
1997........... (3,479,948)
------------
Balance at
December 31,
1997........... 2,151,065
</TABLE>

F-6
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
For the Period from September 21, 1988 (inception) to December 31, 1999

See accompanying Notes to Consolidated Financial Statements.

F-7
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
Period from
Sept. 21, 1988
(inception) to
1999 1998 1997 Dec. 31, 1999
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Operating activities
Net loss................ $(7,792,684) $(4,808,694) $(3,479,948) $(22,780,309)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization......... 86,574 78,256 54,925 499,342
Gain on sale of
property and
equipment............ 1,326 -- -- (5,370)
Issuance of stock for
services............. 10,921 65,016 30,817 286,515
Interest accrued on
notes receivable from
stock sales.......... (2,840) (2,764) -- (5,604)
Recognition of stock
compensation
expense.............. 284,855 -- -- 284,855
Accrued interest on
stock for debt
conversion........... 12,696
Minority interest in
losses of
subsidiary........... -- -- -- (50,835)
Changes in operating
assets and liabilities:
Prepaids and other
assets............... (277,229) (15,139) -- (292,368)
Accounts payable and
other liabilities.... 455,741 62,636 29,616 782,945
----------- ----------- ----------- ------------
Net cash used in
operating activities... (7,233,336) (4,620,689) (3,364,590) (21,268,133)
Investing activities
Purchases of marketable
securities............. (4,329,610) -- -- (4,329,610)
Purchases of property
and equipment.......... (109,378) (114,528) (152,449) (607,717)
Proceeds from sale of
property and
equipment.............. -- -- -- 31,100
Other................... -- -- -- (9,379)
----------- ----------- ----------- ------------
Net cash used in
investing activities... $(4,438,988) $ (114,528) $ (152,449) $ (4,915,606)
</TABLE>

F-8
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
Period from
Year Ended December 31, Sept. 21, 1988
------------------------------------ (inception) to
1999 1998 1997 Dec. 31, 1999
------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
Financing activities
Payment of deferred
offering costs........... $ -- $ -- $ (106,710) $ (185,587)
Proceeds from borrowings
on notes payable......... -- -- -- 921,046
Principal payments on
capitalized lease
obligations.............. -- -- -- (174,809)
Principal payments on
notes payable............ -- -- -- (73,565)
Proceeds from issuance of
redeemable preferred
stock.................... -- -- 3,567,738 7,860,176
Proceeds from issuance of
preferred stock.......... -- 14,085,906 -- 15,537,840
Proceeds from issuance of
common stock............. 312,141 276,716 -- 2,050,179
Proceeds from sale of
preferred stock of
subsidiary............... -- -- -- 565,360
------------ ----------- ---------- -----------
Net cash provided by
financing activities..... 312,141 14,362,622 3,461,028 26,500,640
------------ ----------- ---------- -----------
Decrease (increase) in
cash and cash
equivalents.............. (11,360,183) 9,627,405 (56,011) 316,901
Cash and cash equivalents
at beginning of period... 11,677,084 2,049,679 2,105,690 --
------------ ----------- ---------- -----------
Cash and cash equivalents
at end of period......... $ 316,901 $11,677,084 $2,049,679 $ 316,901
============ =========== ========== ===========
Supplemental Cash Flow
Disclosures
Interest paid............. $ -- $ -- $ 13,454 $ 93,289
============ =========== ========== ===========
Equipment acquired under
capital leases........... $ -- $ -- $ -- $ 174,809
============ =========== ========== ===========
Issuance of redeemable
preferred stock in
exchange for notes
payable and accrued
interest................. $ -- $ -- $ -- $ 742,037
============ =========== ========== ===========
Issuance of preferred
stock in exchange for
notes payable............ $ -- $ -- $ -- $ 40,000
============ =========== ========== ===========
Issuance of common stock
in exchange for notes
payable/receivable....... $ 15,600 $ -- $ 44,375 $ 139,582
============ =========== ========== ===========
Issuance of preferred
stock of subsidiary in
exchange for notes
payable.................. $ -- $ -- $ -- $ 58,522
============ =========== ========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-9
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999

1. Significant Accounting Policies

Insmed Pharmaceuticals, Inc. (the Company) is a development stage
biopharmaceutical company incorporated in September 1988 to conduct research
and development aimed at treating type 2 diabetes, polycystic ovary syndrome
and other diseases associated with insulin resistance. The following is a
description of the Company's more significant accounting policies:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiary, Insmed Diagnostics, Inc. All significant intercompany
balances and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers liquid investments with maturities of three months or
less when purchased to be cash equivalents. Substantially all cash equivalents
are held in a short-term money market account with a bank.

Marketable Securities

Marketable securities consist of corporate debt securities, all of which
mature within one year. Management classifies the company's marketable
securities as available for sale. Such securities are stated at market value,
with the unrealized gains and losses included as a separate component of
stockholders' equity. Realized gains and losses and declines in value judged to
be other than temporary on securities available for sale are included in
investment income. The cost of securities sold is calculated using the specific
identification method.

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over periods ranging from three to seven years.

Stock-Based Compensation

The Company recognizes expense for stock-based compensation in accordance
with the provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. Accordingly,
compensation cost is recognized for the excess of the estimated fair value of
the stock at the grant date over the exercise price, if any. Disclosures
regarding alternative fair value measurement and recognition methods prescribed
by Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation, are presented in Note 2.

Stock options granted to non-employees are accounted for in accordance with
EITF 96-18, Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services.
Accordingly, the estimated fair value of the equity instrument is recorded on
the earlier of the performance commitment date or the date the services
required are completed.

Revenue Recognition

The Company has received funding from the U.S. government and certain
corporations in support of research, in some cases in return for permitting
those corporations exclusive review of certain research results for limited
time periods. Revenues for 1999 consist primarily of proceeds from a Small
Business Innovation Research Program (SBIR) grant to fund a phase II study in
PCOS subjects. Revenues for 1998 consist of an

F-10
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SBIR grant to fund a phase I study in PCOS subjects. Grant revenues are not
contingent upon any specified results of the studies. Grant revenues are
recognized over the duration of the study to which the grant relates as
reimbursable costs are incurred. A study's duration is generally six to twelve
months. Revenue related to future performance is deferred and recognized as
revenue when earned.

In 1996, 1995 and 1994, the Company had an agreement where revenue from
achievement of milestone events was recognized when the results stipulated in
the related agreement were met and there were no remaining performance
obligations. There have been no other agreements of this nature since
inception.

Net Loss Per Share

Basic net loss per share is computed based upon the weighted average number
of common shares outstanding during the period. The Company's diluted net loss
per share is the same as its basic net loss per share because all stock
options, warrants, and other potentially dilutive securities are antidilutive
and, therefore, excluded from the calculation of diluted net loss per share.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements

There have been no recently issued accounting pronouncements that would have
a material impact on the company's financial position or results of operations.

2. Pending Acquisition of Celtrix Pharmaceuticals

On November 30, 1999, the Company entered into an agreement to acquire
Celtrix Pharmaceuticals, Inc. ("Celtrix"). At closing, each common share of
Celtrix will be exchanged for one share of common stock in a newly formed
holding company (Insmed Incorporated). The aggregate par value and related
dividends of Celtrix Series A Preferred Stock are convertible into Celtrix
common stock at a price per share of $2.006. The holders of Celtrix Series A
Preferred Stock will receive one share of common stock of Insmed Incorporated
on an as converted basis. Each preferred and common share of the Company will
be exchanged for three and one-half shares of common stock of Insmed
Incorporated. All options and warrants outstanding at the time of the
transaction will convert into options and warrants of the holding company. The
acquisition of Celtrix by the Company is subject to approval by the
shareholders of both companies, as well as certain other conditions. The
Company's current management and board of directors will govern the holding
company.

The Company has incurred $375,784 of legal, due diligence and other costs in
1999 related to the acquisition. These costs are reflected in other assets and
will be included in determining the purchase price of Celtrix.

3. Commitment to Issue Equity

The Company entered into an agreement to sell 5,632,678 shares of its common
stock and warrants to purchase 6,901,344 shares of common stock of Insmed
Incorporated for $34.5 million. The warrants are exercisable for five years at
a price of $2.25. Such sale is contingent upon approval of the merger with
Celtrix by the shareholders of both companies.

F-11
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The proceeds of the issuance of the shares and warrants are expected to fund
Insmed Incorporated's research and development activities for at least two
years. Continuation of the present level of research and development efforts is
contingent upon continued availability of adequate financing. If the Celtrix
acquisition and the equity issuance are not consummated, management of the
Company intends to pursue and believes it can obtain other financing
arrangements including private placements and strategic partnerships.

4. Stockholders' Equity

Preferred Stock

Series A Convertible Participating Preferred Stock has a liquidation
preference ahead of all other classes of capital stock, and Series B
Convertible Preferred Stock has a liquidation preference ahead of common stock
equal to its original issue price plus any unpaid dividends. Preferred
stockholders are entitled to receive noncumulative dividends if declared by the
board of directors and in preference to common stockholders.

Each holder of the preferred stock can convert these shares into an equal
number of shares of common stock at any time. These shares will automatically
convert at the time of the merger with Celtrix or otherwise upon a public
offering with gross proceeds of at least $10 million (at a price per share of
at least $4.95) or the vote of at least two-thirds of the outstanding shares.

The preferred stock entitles the holders to vote in all corporate matters
and approval of certain matters requires the majority vote of the outstanding
shares.

In 1997, the holders of the Series A shares agreed to eliminate their
redemption rights to enable additional financing for the Company.

Common Stock

Periodically, the Company has issued shares of common stock in exchange for
services provided by stockholders and others. These issuances have been
recorded at their estimated fair value at the time of the respective
transactions and corresponding amounts have been reflected as expense in the
accompanying consolidated statements of operations or netted against additional
capital when the issuance involves costs directly related to the sale of equity
securities. The estimated fair values used in recording these transactions were
based upon recent issuances of equity for cash, principally the sale of
preferred stock, taking into consideration the aggregate liquidation
preferences of the preferred stock.

In 1992, the Company's board of directors declared a five-for-one common
stock split that was effected in the form of a stock dividend. All share
activity before the split and all stock option and stock warrant data have been
restated to reflect the stock split.

Stock Options and Warrants

In 1994, the Company's stockholders approved the adoption of a stock option
plan for its key employees, directors, and consultants. The plan provides for
issuance of options to purchase up to 2,000,000 shares of common stock. At
December 31, 1999, 33,582 options remain available for new grants under the
plan. Options may be granted at the discretion of the board of directors at
exercise prices not less than the estimated fair value of such shares at the
date of grant. Before adopting this plan, the Company granted other stock
options to certain employees, directors, and consultants pursuant to agreements
approved by the board of directors.

F-12
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of stock option activity since inception is as follows (as
adjusted for the stock split):

<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at Inception, September 21, 1988
Granted............................................. 1,288,463 $1.39
Expired............................................. (107,500) 2.09
Relinquished........................................ (220,000) 3.50
--------- -----
Outstanding at December 31, 1996.................... 960,963 0.81
========= =====
Exercisable at December 31, 1996.................... 528,152 $1.23
========= =====
Weighted Average Fair Value of Options Granted...... $0.01
Balance, December 31, 1996............................ 960,963 0.81
Granted............................................. 412,234 0.43
Expired............................................. (30,000) 5.00
Relinquished........................................ (25,417) 1.83
Exercised........................................... (295,834) 0.15
--------- -----
Outstanding at December 31, 1997.................... 1,021,946 0.70
========= =====
Exercisable at December 31, 1997.................... 528,413 $1.18
========= =====
Weighted Average Fair Value of Options Granted...... $0.01
Balance, December 31, 1997............................ 1,021,946 0.70
Granted............................................. 590,501 1.18
Relinquished........................................ (76,993) 0.19
Exercised........................................... (102,590) 0.16
--------- -----
Outstanding at December 31, 1998.................... 1,432,864 0.95
========= =====
Exercisable at December 31, 1998.................... 850,320 $1.37
========= =====
Weighted Average Fair Value of Options Granted...... $0.08
Balance, December 31, 1998............................ 1,432,864 0.95
Granted............................................. 532,484 0.80
Relinquished........................................ (73,172) 0.38
Exercised........................................... (188,642) 0.99
--------- -----
Outstanding at December 31, 1999.................... 1,703,534 0.93
========= =====
Exercisable at December 31, 1999.................... 955,667 $1.16
========= =====
Weighted Average Fair Value of Options Granted...... $0.38
</TABLE>

F-13
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, 1999 and 1998, 1,521,333 and 1,108,666 of the above options
represented grants under the Company's stock option plan, respectively. The
following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Contractual Exercisable
Exercise Price Options Life Options
-------------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.15.................................... 386,687 2.56 311,310
$0.20.................................... 159,145 2.62 99,078
$0.50.................................... 290,754 2.39 134,274
$0.80.................................... 580,207 4.85 124,264
$1.21.................................... 1,005 7.00 1,005
$1.30.................................... 2,227 7.00 2,227
$1.65.................................... 64,085 4.35 64,085
$2.50.................................... 3,061 5.59 3,061
$3.00.................................... 105,587 0.73 105,587
$4.00.................................... 110,776 5.46 110,776
--------- ---- -------
1,703,534 3.47 955,667
========= ==== =======
</TABLE>

In 1999, the Company recorded $285,000 in stock compensation expense. The
primary component of this charge, $254,000, relates to the exercise by the
Chief Executive Officer of options for 295,834 shares of common stock purchased
with the proceeds from a non-recourse note. This option grant is a variable
award for which the change in the fair market value of the underlying stock is
recognized as compensation expense. The remainder of the charge relates to 1999
stock option grants to employees and non-employees.

If the Company had accounted for its employee stock awards under the fair
value based method, the net loss would have increased by approximately $48,000
for 1999, $16,000 for 1998, and $10,000 for 1997. The basic and diluted net
loss per share would have increased $.01 in 1999, $.00 in 1998, $.00 in 1997.
These pro forma amounts are not indicative of future effects of applying the
fair value based method since stock based awards granted may vary from year to
year and vesting periods of one to four years were used to measure pro forma
compensation expense. The fair value for these awards was estimated at the date
of grant using the Black-Scholes pricing method assuming a weighted average
volatility rate of 25%, risk-free interest rate of 6.0%, no dividends, and a
weighted-average expected life of the option of 4 years (2 years in 1998 and
1997).

The Company has an agreement with its founding scientist to grant options to
enable him to maintain a three percent interest in the equity of the Company as
new equity securities are issued. The exercise price for these options is equal
to the issue price of the new securities. The right to continuing options will
expire one day before the merger with Celtrix or before a public offering.

Warrants were issued periodically to certain stockholders, directors, and
consultants for the purchase of common stock. At December 31, 1999, warrants
were outstanding to purchase 10,000 shares of common stock at $3.00 per share.
All of the warrants are exercisable and will expire on January 31, 2002 or upon
the effective date of a registration statement for a public offering.

A total of 11,439,894 shares of common stock were reserved at December 31,
1999 in connection with stock options, stock warrants, and potential
conversions of the preferred stock.

5. Income Taxes

Deferred tax assets and liabilities are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The deferred tax assets of approximately $8.3 million and $5.5

F-14
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

million at December 31, 1999 and 1998, respectively, arise primarily due to net
operating loss carryforwards for income tax purposes. Due to the Company's
cumulative losses, these amounts have been entirely offset by a valuation
allowance.

At December 31, 1999 and 1998, the Company had net operating loss
carryforwards for income tax purposes of approximately $20.6 million and $14.0
million, respectively, expiring in various years beginning in 2003. Utilization
of these carryforwards will be limited due to changes in the ownership of the
Company's common stock.

6. Leases

The Company leases office and laboratory space under operating lease
agreements expiring in February 2002. The leases provide for monthly rent of
approximately $14,300 with a 2.5% escalation per year. The Company also leases
a vehicle, office equipment and additional laboratory space.

Future minimum payments on these leases at December 31, 1999 were as
follows:

<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
2000............................................................ $227,858
2001............................................................ 216,278
2002............................................................ 35,362
--------
$479,498
========
</TABLE>

Rent expense for all operating leases amounted to $243,010 in 1999, $222,747
in 1998, $127,434 in 1997 and $842,081 on a cumulative basis since inception.

7. Employee Benefit Plan

In 1996, the Company adopted a defined contribution plan covering
substantially all employees meeting certain eligibility requirements.
Participants may elect to contribute a specified portion of their compensation
to the plan on a tax-deferred basis. The Company has never contributed to this
plan.

8. License Agreement

In 1988, the Company entered into a license agreement with The University of
Virginia Alumni Patents Foundation (the Foundation). The agreement, as amended
in 1991, provides the Company an exclusive, worldwide license to develop and
sell products related to certain patent rights for insulin resistance and
associated disorders.

In consideration for the license agreement, Insmed Pharmaceuticals is
obligated to pay minimum annual licensing fees of $100,000 as well as patent
costs through the expiration of the patent rights in 2018. Insmed
Pharmaceuticals must pay the Foundation a royalty on the net sales of
therapeutic drugs covered by the license agreement. Royalties earned by the
Foundation will reduce licensing fees and, in case of patent infringement,
Insmed Pharmaceuticals may use 50% of royalties payable to the foundation to
cover expenses it incurs to defend the patents.

F-15
<PAGE>

INSMED PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Under the license agreement, the Company is required to issue shares of its
common stock each time shares of any class of stock are issued so that the
Foundation at all times has a 3% undiluted interest in the Company. As of
December 31, 1999, the Foundation had received 395,244 shares of common stock
under the license agreement. These issuances have been recorded at their
estimated fair value at the time of the respective transaction. Related
expenses of $110,921 in 1999, $165,016 in 1998, $112,817 in 1997 and $1,053,218
on a cumulative basis since inception have been included in research and
development expense in the accompanying consolidated statements of operations.
The right to receive such stock expires one day before the merger with Celtrix
or before a public offering.

The Company also provides support for research at the University of Virginia
(UVA) that contributes toward commercial development of its planned products.
Certain of the Company's research activities have taken place at UVA. The
Company has also supported the research through consulting payments to
individuals conducting additional research work beyond their commitments as
employees of UVA. Total expense for research support to UVA amounted to
$347,324 in 1999, $180,000 in 1998, $191,600 in 1997 and $1,501,975 on a
cumulative basis since inception.

9. Related Party Transactions

The Company retained one of its directors as general counsel until June 1996
and subsequently retained him as corporate secretary. Payments for these
services amounted to $38,806 in 1999, $18,060 in 1998, $12,952 in 1997 and
$266,865 on a cumulative basis since inception.

On October 15, 1997, the Company loaned $44,375 to its chief executive
officer which he used to purchase 295,834 shares of the Company's common stock
pursuant to a stock option agreement. The note is collateralized by the shares
purchased and is payable on September 30, 2002. Interest accrues at 6.23% per
annum. The principal and accrued interest are presented as a separate component
of stockholders' equity.

F-16
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Celtrix Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Celtrix
Pharmaceuticals, Inc. as of March 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Celtrix
Pharmaceuticals, Inc. at March 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1999, in conformity with accounting principles generally
accepted in the United States.

/s/ Ernst & Young LLP

Palo Alto, California
May 28, 1999

F-17
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,258 $ 1,608
Short-term investments................................. -- 6,305
Receivables and other current assets................... 172 219
--------- ---------
Total current assets................................. 1,430 8,132
Property and equipment, at cost:
Leasehold improvements................................. -- 11,133
Machinery and equipment................................ 164 8,974
--------- ---------
164 20,107
Less accumulated depreciation and amortization........... (63) (13,045)
--------- ---------
101 7,062
Assets held for sale..................................... 416 --
Intangible and other assets, net of accumulated
amortization of $1,235 and $938 at March 31, 1999 and
1998, respectively...................................... 2,554 2,682
--------- ---------
Total Assets......................................... $ 4,501 $ 17,876
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 547 $ 751
Accrued clinical expenses.............................. 439 482
Accrued compensation................................... 47 421
Other accrued liabilities.............................. 188 580
Short-term debt and lease obligations.................. -- 8
--------- ---------
Total current liabilities............................ 1,221 2,242
Deferred rent............................................ -- 890
Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000
shares and 2,000,000 shares at March 31, 1999 and
1998, respectively; none issued and outstanding....... -- --
Common stock, $.01 par value, authorized 60,000,000
shares and 30,000,000 shares at March 31, 1999 and
1998, respectively; 25,061,053 shares and 21,061,053
shares issued and outstanding at March 31, 1999 and
1998, respectively.................................... 251 211
Additional paid-in capital............................. 133,437 131,542
Accumulated deficit.................................... (130,408) (117,009)
--------- ---------
Total stockholders' equity........................... 3,280 14,744
--------- ---------
Total liabilities and stockholder equity............. $ 4,501 $ 17,876
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-18
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales................................. $ 10 $ 51 $ 31
Licensing revenues and other.................. 121 610 627
-------- -------- --------
131 661 658
Costs and expenses:
Cost of sales................................. -- 1 5
Research and development...................... 6,830 13,006 11,999
General and administrative.................... 2,272 1,985 1,814
Restructuring costs........................... 5,160 -- --
-------- -------- --------
14,262 14,992 13,818
-------- -------- --------
Operating loss.................................. (14,131) (14,331) (13,160)
Interest income, net............................ 132 681 464
Gain on sale of investments..................... -- 737 --
Proceeds from settlement agreement.............. 600 -- --
-------- -------- --------
Net loss........................................ $(13,399) $(12,913) $(12,696)
======== ======== ========
Basic and diluted net loss per share............ $ (0.58) $ (0.61) $ (0.83)
======== ======== ========
Shares used in basic and diluted per share
computation.................................... 22,941 21,004 15,238
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-19
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1996.......... $152 $118,052 $ (91,418) $ 26,786
Issuance of 20,249 shares of common
stock upon exercise of stock
options........................... -- 51 -- 51
Issuance of 29,188 shares of common
stock under the Employee Stock
Purchase Plan..................... 1 49 -- 50
Unrealized gain on available-for-
sale securities................... -- -- 19 19
Net loss........................... -- -- (12,696) (12,696)
---- -------- --------- --------
Balance at March 31, 1997.......... 153 118,152 (104,095) 14,210
Issuance of 5,721,876 shares of
common stock and warrants to
purchase 2,860,934 shares of
common stock in a private
placement, net.................... 57 13,274 -- 13,331
Issuance of 75,748 shares of common
stock under the Employee Stock
Purchase Plan..................... 1 116 -- 117
Unrealized loss on available-for-
sale securities................... -- -- (1) (1)
Net loss........................... -- -- (12,913) (12,913)
---- -------- --------- --------
Balance at March 31, 1998.......... 211 131,542 (117,009) 14,744
Issuance of 4,000,000 shares of
common stock and warrants to
purchase 6,000,000 shares of
common stock in a private
placement, net.................... 40 1,872 -- 1,912
Issuance of warrants to purchase
75,000 shares of common stock and
options to purchase 50,000 shares
of common stock to non-employees.. -- 23 -- 23
Net loss........................... -- -- (13,399) (13,399)
---- -------- --------- --------
Balance at March 31, 1999.......... $251 $133,437 $(130,408) $ 3,280
==== ======== ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-20
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)

<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(13,399) $(12,913) $(12,696)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write off of leasehold improvements........... 5,311 -- --
Write off of deferred rent liability.......... (816) -- --
Reduction in deferred rent liability.......... (74) -- --
Depreciation and amortization................. 1,036 1,660 1,840
Gain on sale of investments................... -- (737) --
Changes in operating accounts:
Receivables and other current assets.......... 4 (22) (2)
Accounts payable, accrued compensation and
other accrued liabilities.................... (992) 854 79
-------- -------- --------
Net cash used in operating activities....... (8,930) (11,158) (10,779)
Cash flows from investing activities:
Sales and maturities of available-for-sale
securities................................... 7,575 40,497 35,210
Purchase of available-for-sale securities..... (1,270) (43,482) (30,315)
Decrease (increase) in restricted cash........ -- 520 (470)
Proceeds from sale of fixed assets............ 600 -- --
Capital expenditures.......................... (84) (187) (198)
Increase in intangible and other assets....... (168) (394) (455)
-------- -------- --------
Net cash provided by (used in) investing
activities................................. 6,653 (3,046) 3,772
Cash flows from financing activities:
Proceeds from issuance of common stock, net... 1,935 13,448 101
Principal payments under lease obligations.... (8) (320) (543)
-------- -------- --------
Net cash provided by (used in) financing
activities................................. 1,927 13,128 (442)
-------- -------- --------
Net decrease in cash and cash equivalents....... (350) (1,076) (7,449)
Cash and cash equivalents at beginning of year.. 1,608 2,684 10,133
-------- -------- --------
Cash and cash equivalents at end of year........ $ 1,258 $ 1,608 $ 2,684
======== ======== ========
Supplemental disclosure:
Interest paid................................. $ 1 $ 24 $ 89
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-21
<PAGE>

CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Celtrix Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical company
focused on developing novel therapeutics for the treatment of seriously
debilitating, degenerative conditions primarily associated with severe trauma,
chronic diseases or aging. The Company operates in the business segment.

The consolidated financial statements include the accounts of Celtrix and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

At March 31, 1999, the Company had net working capital of $0.2 million and
an accumulated deficit of $130.4 million, and incurred a net loss of $13.4
million for the year ended March 31, 1999. Working capital was increased in
April 1999 from the issuance of common stock to Elan International Services,
Ltd., which resulted in net proceeds of $2.3 million. The Company expects
current cash and cash equivalents, including proceeds from the April 1999
financing, will be sufficient to fund operations into the third calendar
quarter of 2000. The Company will be required to seek additional funds to
finance operations beyond that period. The transaction with Elan Corporation,
plc provides for the purchase by Elan of additional Celtrix equity securities,
the proceeds from which will be used to fund the Company's share of anticipated
clinical expenses associated with the joint venture's large-scale trial in
osteoporosis (recovery from hip fracture surgery).

Use of Estimates

Cash Equivalents and Short-term Investments

Celtrix considers all highly liquid investment securities with maturity from
date of purchase of three months or less to be cash equivalents and investment
securities with maturity from date of purchase of more than three months to be
short-term investments.

To date, all marketable securities have been classified as available-for-
sale and are carried at fair value, with unrealized gains and losses reported
in accumulated deficit. Fair values of investment securities are based on
quoted market prices, and the costs of securities sold are based on the
specific identification method. Premiums and discounts are amortized over the
period from acquisition to maturity and are included in investment income,
along with interest and dividends.

Property and Equipment

Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are amortized over the shorter of the life
of the lease or their estimated useful lives using the straight-line method.

Intangible Assets

Intangible and other assets consist primarily of patents. Patents, carried
at cost, are amortized using the straight-line method over the estimated useful
lives of the related intellectual property, generally 12 years. Celtrix
regularly performs reviews regarding the carrying value of the assets. The
reviews look for the existence of facts or circumstances, either internal or
external, which may indicate that the carrying value of the assets cannot be
recovered. To date no adjustments have been made to the carrying value of the
assets.

F-22
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

Licensing revenues are recorded when contractually earned. Revenues are not
refundable if the research effort is not successful. The Company has no future
performance obligations relating to these licensing revenues. Revenue from
product sales is recognized at time of shipment.

Licensing revenues from a single customer in 1999, 1998, and 1997 were 86%,
75% and 75%, of the company's total licensing revenues, respectively. Licensing
revenues from a Japanese company were 75% of total licensing revenues in 1998
and 1997.

Stock-Based Compensation

The Financial Accounting Standards Board issued SFAS 123, "Accounting for
Stock-Based Compensation" in October 1995, which encourages, but does not
require, companies to record compensation expense for stock-based employee
compensation plans at fair value. The Company has elected to follow the
disclosure requirements of SFAS 123 for the fiscal years ended 1999, 1998 and
1997 (see Note 5) and will continue to measure stock-based compensation to
employees in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees."

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for employee stock option grants in accordance with
APB Opinion No. 25, and, accordingly, recognizes no compensation expense for
the stock option grants.

Stock options granted to non-employees for services rendered are accounted
for at fair value.

Recently Issued Accounting Standard

In April 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Total comprehensive income (loss) approximates net loss for the fiscal
years ended March 31, 1999, 1998 and 1997.

F-23
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Investment Securities

There were no available-for-sale securities held at March 31, 1999. The
following is a summary of available-for-sale securities at March 31, 1998 (in
thousands). Gross unrealized losses were immaterial.

<TABLE>
<CAPTION>
1998
---------------------------
Net Estimated
Unrealized Fair
Cost Losses Value
------ ---------- ---------
<S> <C> <C> <C>
U.S. treasury securities and obligations of
U.S. government agencies..................... $5,808 $ 1 $5,807
U.S. corporate debt securities................ 499 1 498
------ ---- ------
$6,307 $ 2 $6,305
====== ==== ======
Classified as:
Cash equivalents............................ $ -- $-- $ --
Short-term investments...................... 6,307 2 6,305
------ ---- ------
$6,307 $ 2 $6,305
====== ==== ======
</TABLE>

During fiscal years 1999 and 1998, no securities were sold prior to
maturity.

3. Assets Held for Sale

As a result of the September 1998 restructuring and the discontinuation of
manufacturing, the Company is in the process of selling certain equipment and
other fixed assets. The assets held for sale are recorded at the lower of
carrying values or fair value, less costs to sell.

4. Debt and Commitments

As of March 31, 1999, the Company had fully amortized its obligation under
capital leases and debt arrangements. Amortization expense for leased assets
is included in depreciation and amortization expense.

As a result of restructuring the Company and discontinuing manufacturing
operations in September 1998, the Company terminated its office, laboratory
and manufacturing facility lease effective November 1998. The Company also
terminated certain equipment operating leases as a result of the
restructuring. The Company currently leases offices in San Jose under an
operating lease which expires in December 1999. Deferred rent at March 31,
1998 reflects the landlord's funding of certain leasehold improvements prior
to lease commencement and was amortized over the lease term to offset rent
expense. Rent expense was $600,000, $1.1 million and $1.2 million for the
years ended March 31, 1999, 1998, and 1997 respectively.

Future minimum lease payments under operating leases at March 31, 1999 are
as follows (in thousands):

<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999............................................................... $117
2000............................................................... --
2001............................................................... --
2002............................................................... --
2003............................................................... --
Thereafter......................................................... --
----
Total minimum lease payments..................................... $117
====
</TABLE>

F-24
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Incentive and Benefit Plans

In September 1997, the stockholders approved an increase in the number of
shares reserved for issuance under the Company's 1991 Stock Option Plan from
1,500,000 to 3,000,000 shares of common stock. Under the 1991 Directors' Stock
Option Plan, 200,000 shares of Celtrix's common stock have been reserved for
issuance. The exercise prices under these plans are determined by the Board of
Directors or its committee and may not be less than 100% of the fair market
value of Celtrix's common stock at the time of grant. The options expire ten
years from the date of grant, unless otherwise provided in the option
agreement. The options generally become vested and exercisable over four years.

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.

Pro forma information regarding net loss and net loss per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
March 31, 1995 under the fair value method of that Statement. The fair value of
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1999, 1998
and 1997, respectively: risk-free interest rates of 4.88%, 6.03%, and 6.55%;
dividend yields of zero; volatility factors of the expected market price of the
Company's common stock of .801, .792 and .733; and an expected option life of 5
years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility and
expected option life. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

In September 1998, the stockholders approved an increase in the number of
shares reserved for issuance under the Company's 1991 Employee Stock Purchase
Plan from 250,000 to 500,000 shares of common stock. Under the plan, employees
have an opportunity to purchase common stock of Celtrix at 85% of the fair
market value at the beginning or end of each 12-month offering period,
whichever is lower. The first offering period commenced January 1, 1994. As of
March 31, 1999, 176,880 shares of common stock have been issued to company
employees. There were no shares issued, and subsequently no fair value of
employees' purchase rights estimated, for 1999. The fair value of the
employees' purchase rights for 1998 and 1997, respectively, was estimated using
the Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.59% and 5.66%; dividend yields of
zero; volatility factors of the expected market price of the Company's common
stock of .792 and .733; and an expected life of 1 year.

F-25
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss............................ $(13,391) $(13,275) $(12,929)
Pro forma net loss per share.................. $ (0.58) $ (0.63) $ (0.85)
</TABLE>

The weighted-average fair value of options granted during 1999, 1998 and
1997 was $1.14, $1.59, and $1.47, respectively.

A summary of the Company's stock option activity, which includes the 1991
Stock Option Plan and the 1991 Directors' Stock Option Plan, for the years
ended March 31 follows:

<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------
Shares Weighted-
Available Number of Price Per Average
for Grant Shares Share Exercise Price
---------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at March 31,
1996................... 653,335 1,034,740 $1.25-$11.50 $2.94
Options granted....... (137,116) 137,116 $1.94-$ 3.94 $2.45
Options exercised..... -- (20,249) $1.31-$ 2.63 $2.52
Options canceled...... 191,249 (191,249) $1.31-$ 9.50 $4.30
---------- --------- ------------ -----
Balance at March 31,
1997................... 707,468 960,358 $1.25-$11.50 $2.61
Shares authorized..... 1,500,000 -- -- --
Options granted....... (1,073,783) 1,073,783 $2.00-$ 2.94 $2.34
Options canceled...... 272,450 (272,450) $2.44-$ 3.94 $2.60
---------- --------- ------------ -----
Balance at March 31,
1998................... 1,406,135 1,761,691 $1.25-$11.50 $2.39
Options granted....... (211,084) 211,084 $1.06-$ 2.88 $1.62
Options canceled...... 731,275 (731,275) $1.25-$11.50 $2.38
---------- --------- ------------ -----
Balance at March 31,
1999................... 1,926,326 1,241,500 $1.06-$ 8.00 $2.26
========== ========= ============ =====
</TABLE>

The following table summarizes information concerning outstanding options at
March 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ------------------------
Weighted- Weighted Weighted-
Options Average Average Options Average
Outstanding at Remaining Exercise Exercisable at Exercise
Range of Exercise Price Mar. 31, '99 Contractual Life Price Mar. 31, '98 Price
----------------------- -------------- ---------------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$1.06-$2.50............. 853,083 7.4 $2.06 444,003 $2.22
$2.51-$4.00............. 386,917 7.3 $2.68 251,550 $2.72
$4.01-$8.00............. 1,500 3.2 $8.00 1,500 $8.00
--------- -------
1,241,500 697,053
========= =======
</TABLE>

Under Celtrix's 1991 retirement savings plan ("401(k) Plan"), employees may
elect to defer up to 20% of their total compensation, not to exceed the amount
allowed by applicable Internal Revenue Service guidelines. There were no
employer contributions to the plan as of March 31, 1999.

F-26
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Stockholders' Equity

In November 1998, Celtrix sold 4,000,000 shares of common stock in a private
placement at $0.50 per share, which resulted in net proceeds to the Company of
approximately $1.9 million. Additionally, the Company issued a three-year
warrant to purchase 6,000,000 shares of Celtrix common stock at $0.55 per
share. As of March 31, 1999, 6,000,000 shares of warrants are outstanding.

In April 1997, the Company completed a private placement of 5,721,876 newly
issued shares of common stock at $2.438 per share. For every two shares of
stock issued, the Company also issued a warrant to purchase an additional share
of Celtrix common stock at $2.682 per share. The warrants are exercisable only
after the shares of stock are held for at least one year and as of March 31,
1999, there were 2,758,391 warrants outstanding related to this financing
(102,543 were cancelled due to the sale of stock). The warrant expires in April
2000. The net proceeds to the Company, after fees and expenses of approximately
$619,000, were $13.3 million.

7. License and Collaborative Arrangements

In July 1994, Celtrix entered into a license agreement with The Green Cross
Corporation ("Green Cross"), covering the development and commercialization of
SomatoKine for the treatment of osteoporosis in Japan. Under the terms of the
agreement, Green Cross was to be responsible for all related research,
development and marketing, as well as manufacturing the product to support its
preclinical, clinical and commercial needs in Japan. The agreement provided for
Celtrix to receive licensing fees, milestone payments upon Green Cross
accomplishing specific product development activities and royalties on future
product sales. Celtrix retained full rights outside of Japan to SomatoKine and
also to related know-how and technology developed by Green Cross. In April
1998, Green Cross was merged with Yoshitomi Pharmaceuticals Industries, Ltd. In
May 1998, Celtrix received notice from Yoshitomi of its intent to terminate
this license agreement. This license was terminated in March 1999 upon the
payment by Yoshitomi of $600,000 to Celtrix. Celtrix regained the rights to the
treatment of osteoporosis in Japan.

In June 1994, the Company entered into a product development, license and
marketing agreement with Genzyme Corporation ("Genzyme") on TGF-beta-2 which
includes equity investments, milestone payments and potential royalties to
Celtrix. As part of the agreement, Celtrix sold to Genzyme 1,550,388 shares of
Celtrix common stock in June 1994, and subsequently, in December 1995 Celtrix
exercised the option to receive an additional investment by Genzyme for
1,472,829 shares of Celtrix common stock resulting in $4.4 million of net
proceeds to the Company. Under recently amended terms, Genzyme has been granted
expanded worldwide commercialization rights for all systemic applications and
select local applications of TGF-beta-2 to include Japan, China, Korea and
Taiwan; in exchange, Genzyme released Celtrix from certain service and royalty
obligations under the original agreement. Celtrix has retained rights to select
applications of TGF-beta-2 and the Company has the option to reacquire rights
to other product applications not pursued by Genzyme. In December 1997, the
Company also entered into a new license agreement with Genzyme granting Genzyme
a worldwide exclusive royalty-bearing license to TGF-beta antibodies, and
license and sublicense rights to TGF-beta receptor. Under the terms of the
agreement, Genzyme will assume the licensing and royalty obligations of Celtrix
related to TGF-beta receptor.

Since inception, Celtrix has entered into various other research and
development and licensing arrangements. Some of these agreements contain
royalty and other obligations.

F-27
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Restructuring Costs

During fiscal year 1999, the Company restructured to focus on the clinical
development of SomatoKine, cease manufacturing operations and reduce the cash
burn rate. As a result, the Company recognized a $5.2 million restructuring
charge in the quarter ended September 30, 1998 consisting of a $5.3 million
non-cash write-off of leasehold improvements partly offset by $816,000 non-cash
reduction of deferred rent liability, $358,000 in severance expenses, $250,000
related to non-cancelable operating lease obligations, and $75,000 in other
restructuring-related charges. As part of the restructuring, the Company
reduced its workforce by 69 employees, or approximately 90%, by the end of the
calendar year. The reduction in workforce affected all levels of staff in
manufacturing and other functions. As of March 31, 1999, the Company has no
restructuring liabilities remaining to be paid.

9. Gain on Sale of Investments

In June 1997, the Company sold 43,750 shares of Prograft Medical, Inc.
preferred stock, resulting in the recording of $737,000 in gain on investment.
These shares were held by Celtrix since 1993.

10. Income Taxes

At March 31, 1999, the Company had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $127.7 million
and $4.3 million, respectively, expiring in the years 2006 through 2019. The
federal net operating loss carryforward differs from the accumulated deficit
principally due to (i) the nondeductibility for tax purposes of the charges for
in-process research and development resulting from the BioGrowth, Inc. merger
and the Baltimore Biotech, Inc. acquisition, and (ii) timing differences in the
recognition of certain revenue and expense items for financial and federal tax
reporting purposes (primarily certain expenses not currently deductible).
Approximately $8.8 million of the total federal net operating losses are
available only to offset future consolidated taxable income to the extent
contributed by the Company's wholly owned subsidiary, BioGrowth, Inc.

Utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986.

Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of March 31 are as follows (in
thousands):

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $44,300 $39,100
Research credits......................................... 5,900 5,500
Acquired intangibles..................................... -- --
Research expenses capitalized for tax purposes........... 2,400 2,200
Other.................................................... (1,400) (1,000)
------- -------
Total deferred tax assets.............................. 51,200 45,800
Valuation allowance for deferred tax assets.............. (51,200) (45,800)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>

The valuation allowance increased by $5.4 million, $4.8 million, and $5.2
million during the years ended March 31, 1999, 1998, and 1997, respectively.

F-28
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Subsequent Event

The Company entered into an agreement on April 21, 1999 with Elan
Corporation, plc to establish a joint venture (Celtrix Newco Ltd), a company
incorporated in Bermuda for the development of SomatoKine to treat osteoporosis
using Elan's MEDIPAD Delivery System.

The joint venture company is initially owned 80.1% by Celtrix and 19.9% by
Elan. The new company has licensed SomatoKine technology from Celtrix and
MEDIPAD technology from Elan. Celtrix has invested $8.01 million in the joint
venture and Elan has invested $1.99 million. At the time of closing, Elan
International Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which is convertible into Celtrix
common stock at a price of $2.006 per share or exchangeable for an incremental
30.1% ownership in the joint venture to a total of 50.0%. If the exchange right
is excercised, the Series A Convertible/Exchangeable Preferred Stock will be
cancelled. The Series A Convertible/Exchangeable Preferred Stock pays a 5%
annual in-kind dividend.

The agreement with Elan also provides for EIS to purchase from time to time
Series B Convertible Preferred Stock up to an amount of $4.8 million, the
proceeds from which sale will be used by Celtrix to fund its share of the joint
venture's operating expenses. The Series B Convertible Preferred Stock is
convertible into Celtrix common stock at a price of $2.006 per share and pays a
9% annual in-kind dividend.

Elan received a $10 million license payment from the joint venture for the
use of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until it is paid $10 million.
Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.

In April 1999, in a separate transaction, the Company issued 1,508,751
shares of common stock to Elan International Services, Ltd. at a price of
$1.657 per share, amounting to $2.3 million (net of expenses).

F-29
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
December 31, March
1999 31, 1999
------------ --------
(Unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,243 $ 1,258
Receivables and other current assets................... 159 172
-------- --------
Total current assets................................. 1,402 1,430
Property and equipment, net.............................. 75 101
Assets held for sale..................................... 349 416
Intangible and other assets, net......................... 2,581 2,554
-------- --------
Total assets......................................... $ 4,407 $ 4,501
======== ========
LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 333 $ 547
Other accrued liabilities.............................. 360 674
-------- --------
Total current liabilities............................ 693 1,221
Series A convertible/exchangeable preferred stock........ 7,948 --
Stockholders' equity (deficit):
Common stock........................................... 272 251
Additional paid-in capital............................. 136,141 133,437
Cumulative preferred stock dividend.................... 281 --
Accumulated deficit.................................... (140,928) (130,408)
-------- --------
Total stockholders' equity (deficit)................. (4,234) 3,280
-------- --------
Total liabilities, preferred stock and stockholders'
equity (deficit).................................... $ 4,407 $ 4,501
======== ========
</TABLE>
- --------
(1) Derived from audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.

See accompanying notes.

F-30
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales...................... $ -- $ -- $ -- $ 10
Revenues from related parties...... 597 -- 629 --
Other revenues..................... 25 21 83 69
--------- --------- -------- --------
622 21 712 79
Costs and expenses:
Research and development........... 290 615 629 6,432
General and administrative......... 489 496 1,424 1,725
Restructuring costs................ -- -- -- 5,178
--------- --------- -------- --------
779 1,111 2,053 13,335
--------- --------- -------- --------
Operating loss....................... (157) (1,090) (1,341) (13,256)
Equity in loss from joint venture.... (963) -- (8,973) --
Interest income, net................. 21 14 74 121
--------- --------- -------- --------
Net loss......................... $ (1,099) $ (1,076) $(10,240) $(13,135)
========= ========= ======== ========
Basic and diluted net loss per
share........................... $ (0.04) $ (0.04) $ (0.39) $ (0.59)
========= ========= ======== ========
Shares used in basic and diluted
per share computation........... 26,837 24,583 26,548 22,235
========= ========= ======== ========
</TABLE>

See accompanying notes.

F-31
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(10,240) $(13,135)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 267 939
Write off of leasehold improvements.................... -- 5,311
Reduction in deferred rent liability................... -- (890)
Equity in loss from Celtrix/Elan joint venture......... 8,973 --
Other adjustments related to changes in operating
accounts.............................................. (514) (506)
-------- --------
Net cash used in operating activities................ (1,514) (8,281)
Cash flows from investing activities:
Investment in Celtrix/Elan joint venture................. (8,973) --
Decrease in available-for-sale securities................ -- 6,307
Proceeds from sale of fixed assets....................... 67 359
Capital expenditures..................................... (3) (77)
Increase in intangible and other assets.................. (265) (85)
-------- --------
Net cash (used in) provided by investing activities.. (9,174) 6,504
Cash flows from financing activities:
Proceeds from issuance of common stock, net.............. 2,725 1,957
Proceeds from issuance of Series A
convertible/exchangeable preferred stock, net........... 7,948 --
Principal payments under lease obligations............... -- (8)
-------- --------
Net cash provided by financing activities............ 10,673 1,949
-------- --------
Net (decrease) increase in cash and cash equivalents....... (15) 172
Cash and cash equivalents at beginning of period........... 1,258 1,608
-------- --------
Cash and cash equivalents at end of period................. $ 1,243 $ 1,780
======== ========
</TABLE>

See accompanying notes.

F-32
<PAGE>

CELTRIX PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Condensed Consolidated Interim Financial Statements

The condensed consolidated balance sheet as of December 31, 1999 and the
condensed consolidated statements of operations and cash flows for the three-
and nine-month periods ended December 31, 1999 and 1998, have been prepared by
the Company, without audit. In the opinion of management, the accompanying
unaudited interim condensed consolidated financial statements include all
adjustments, which include normal recurring adjustments, necessary to present
fairly the Company's financial position, results of its operations and its cash
flows. Interim results are not necessarily indicative of results to be expected
for a full fiscal year.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the fiscal year ended March 31, 1999 in the Company's
Annual Report on Form 10-K.

2. Acquisition of Celtrix by Insmed Pharmaceuticals, Inc.

On December 1, 1999, the Company announced that it had entered into a
definitive agreement for Insmed Pharmaceuticals, Inc. ("Insmed") to acquire
Celtrix. The acquisition of Celtrix by Insmed, a bioscience company focused on
the diagnosis and treatment of medical conditions associated with insulin
resistance, including type 2 diabetes and polycystic ovary syndrome (PCOS), is
subject to approval by the shareholders of both companies, as well as certain
other contingencies and is expected to close at the beginning of the second
quarter, 2000. At closing, each common share of Celtrix will be exchanged for
one share of common stock in a newly formed holding company (Insmed
Incorporated). The aggregate par value and related dividends of Celtrix Series
A Convertible/Exchangeable Preferred Stock are convertible into Celtrix common
stock at a price per share of $2.006. The holders of Celtrix Series A will
receive one share of common stock of Insmed Incorporated on an as converted
basis. Each share of Insmed will be exchanged for three and one-half shares.
Prior to the closing of the financing described below, Celtrix's current
shareholders will hold approximately 43 percent and Insmed's current
shareholders will hold approximately 57% of the new company. The exchange will
be tax-free for both companies' shareholders. The newly formed holding company
expects to be a publicly traded company.

In connection with the merger, Insmed entered into an agreement to sell
5,632,678 shares of its common stock and warrants, exercisable for five years,
to purchase 6,901,344 shares of common stock of the newly formed holding
company. The proceeds from the financing will be approximately $34.5 million.
Subsequent to the financing, the new investors, Celtrix's current shareholders
and Insmed's current shareholders will hold approximately 22%, 34% and 44%,
respectively, of the outstanding common stock of the newly formed holding
company, on a fully diluted basis. Such sale is contingent upon completion of
the merger with Celtrix.

3. Joint Venture with Elan Corporation, plc

On April 21, 1999, the Company entered into an agreement with Elan
Corporation, plc to establish a joint venture company (Celtrix Newco, Ltd.), a
company incorporated in Bermuda, for the development of SomatoKine to treat
osteoporosis using Elan's MEDIPAD Delivery System.

The joint venture company is initially owned 80.1% by Celtrix and 19.9% by
Elan. The joint venture company has licensed SomatoKine technology from Celtrix
and MEDIPAD technology from Elan. Celtrix initially invested $8.01 million in
the joint venture and Elan invested $1.99 million. At the time of closing, Elan
International Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which, with all accrued and unpaid
dividends, is convertible at EIS's option into Celtrix

F-33
<PAGE>

CELTRIX PHARMACEUTICALS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

common stock at a price of $2.006 per share or exchangeable for an incremental
30.1% ownership in the joint venture to a total of 50.0%. If the exchange right
is exercised, the Series A Convertible/Exchangeable Preferred Stock will be
cancelled. Because the Series A Convertible/Exchangeable Preferred Stock can be
exchanged for an additional ownership in the joint venture and is at EIS's
option, it is presented outside of permanent equity on the consolidated balance
sheet. The Company anticipates the Series A Convertible/Exchangeable Preferred
Stock will be converted to Celtrix common stock, in accordance with the terms
of the agreement with Elan, at the time of the proposed merger with Insmed
Pharmaceuticals, Inc. (see Note 2). The Series A Convertible/Exchangeable
Preferred Stock pays a 5% annual in-kind dividend. Although the Company owns
80.1% of the joint venture, the joint venture is accounted for under the equity
method of accounting. Celtrix has not consolidated the joint venture company
because Elan has substantive rights that give them the ability to block
significant decisions proposed by the Company and to participate in the matters
arising in the ordinary course of business, which would not normally require
board of directors approval or approval by Elan. In addition, Elan actively
participates in directing and carrying out the operating and capital activities
of the joint venture's business.

The agreement with Elan also provides, at Celtrix's option, for EIS to
purchase from time to time Series B Convertible Preferred Stock up to an amount
of $4.8 million, the proceeds from which sale will be used by Celtrix to fund
its share of the joint venture's operating expenses. Celtrix and Elan will be
reimbursed by the joint venture for research and development and administrative
work performed on behalf of the joint venture. The Series B Convertible
Preferred Stock is convertible into Celtrix common stock at a price of $2.006
per share and pays a 9% annual in-kind dividend. The obligation of Elan to
purchase Series B Convertible Preferred Stock will terminate at the time of the
merger with Insmed. See Note 2.

In April 1999, in a separate transaction, the Company issued 1,508,751
shares of Celtrix common stock to Elan International Services, Ltd. at a price
of $1.657 per share, amounting to $2.4 million (net of expenses).

The following summarizes financial information of Celtrix Newco, Ltd.

<TABLE>
<CAPTION>
Condensed Statement
of Operations
-------------------------
Three Months Nine Months
Ended Ended
December 31, December 31,
1999 1999
------------ ------------
(in thousands)
<S> <C> <C>
Costs and Expenses:
Research and development......................... $ 840 $ 11,075
General and Administrative....................... 60 127
----- --------
Net Loss....................................... $(900) $(11,202)
===== ========
Company's Share of Net Loss.................... $ 963(1) $ 8,973
===== ========
</TABLE>
- --------
(1) Includes an adjustment for advances to the joint venture by Celtrix.

F-34
<PAGE>

CELTRIX PHARMACEUTICALS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)

<TABLE>
<CAPTION>
Condensed Balance Sheet
December 31, 1999
-----------------------
(in thousands)
<S> <C>
Current liabilities.................................. $ 1,202
Stockholders' equity................................. $(1,202)
</TABLE>

4. Revenues from Related Parties

Revenues from related parties of $597,000 and $629,000 for the three- and
nine-month periods ended December 31, 1999 are from the joint venture formed by
Celtrix and Elan Corporation, plc. These revenues cover services performed on
behalf of the joint venture and $550,000 for the reimbursement, at Celtrix's
production cost, of the anticipated total amount of SomatoKine drug substance
provided by Celtrix to the joint venture for use in the clinical trial
currently planned by the joint venture. Celtrix does not expect further
revenues during 2000 from the sale of SomatoKine from the clinical supply of
drug substance on hand.

5. Restructuring Charges

In September 1998, Celtrix announced a restructuring of the Company to focus
on the clinical development of SomatoKine, cease manufacturing operations and
significantly reduce the cash burn rate. As a result, the Company recognized a
$5.2 million restructuring charge in the quarter ended September 30, 1998. As
of December 31, 1999, the Company held $349,000 in certain equipment and fixed
assets to be sold. There are no restructuring liabilities remaining to be paid
as of December 31, 1999.

6. Nasdaq Listing

In April 1999, the Company participated in an oral hearing before a Nasdaq
Listing Qualifications Panel regarding its compliance with Nasdaq National
Market Standards. The hearing was in response to notification received by the
Company from Nasdaq in January 1999 that the Company failed to comply with the
minimum net tangible assets requirement. On July 6, 1999, the Nasdaq panel
informed the Company that its listing would be moved from the Nasdaq National
Market to The Nasdaq SmallCap Market effective July 8, 1999, subject to its
continued compliance with SmallCap listing requirements.

7. Subsequent Events

In January 2000, certain investors holding warrants issued in connection
with the $2.0 million November 1998 private placement financing completed a
cashless exercise of 4,230,000 shares underlying such warrants which resulted
in the issuance of 3,384,000 shares of common stock to such investors on the
basis of a $2.75 share price.

In February 2000, an investor in the $14.0 million April 1997 private
placement financing exercised 820,344 warrants at an exercise price of $2.6818
per share, which generated $2.2 million in additional cash for the Company.

F-35
<PAGE>

Annex A

AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

INSMED, INC.,

CELTRIX PHARMACEUTICALS, INC.,

CELTRIX MERGERSUB, INC.,

AND

INSMED PHARMACEUTICALS, INC.

Dated as of February 9, 2000

A-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS...................................................... 9
Section 1.1. Agreement................................................... 9
Section 1.2. Antitrust Laws.............................................. 9
Section 1.3. Articles of Exchange........................................ 9
Section 1.4. BancBoston.................................................. 9
Section 1.5. Celtrix..................................................... 9
Section 1.6. Celtrix Affiliate........................................... 9
Section 1.7. Celtrix Benefit Plans....................................... 9
Section 1.8. Celtrix Capital Stock....................................... 9
Section 1.9. Celtrix Common Stock........................................ 9
Section 1.10. Celtrix Companies.......................................... 9
Section 1.11. Celtrix Contracts.......................................... 10
Section 1.12. Celtrix Disclosure Letter.................................. 10
Section 1.13. Celtrix Dissenting Holders................................. 10
Section 1.14. Celtrix ERISA Affiliate.................................... 10
Section 1.15. Celtrix ERISA Plan......................................... 10
Section 1.16. Celtrix Form 10-K.......................................... 10
Section 1.17. Celtrix Intellectual Property.............................. 10
Section 1.18. Celtrix License Agreements................................. 10
Section 1.19. Celtrix Permits............................................ 10
Section 1.20. Celtrix Plans.............................................. 10
Section 1.21. Celtrix Preferred Stock.................................... 10
Section 1.22. Celtrix Qualified Plan..................................... 10
Section 1.23. Celtrix Series A Preferred Stock........................... 10
Section 1.24. Celtrix Series B Preferred Stock........................... 10
Section 1.25. Celtrix SEC Reports........................................ 11
Section 1.26. Celtrix Stock Options...................................... 11
Section 1.27. Celtrix Superior Proposal.................................. 11
Section 1.28. Celtrix Third Party Acquisition Offer...................... 11
Section 1.29. Celtrix Warrant............................................ 11
Section 1.30. Certificate of Merger...................................... 11
Section 1.31. Certificates............................................... 11
Section 1.32. Closing.................................................... 11
Section 1.33. Closing Date............................................... 11
Section 1.34. COBRA...................................................... 11
Section 1.35. Code....................................................... 11
Section 1.36. Confidential Material...................................... 11
Section 1.37. Confidentiality Agreement.................................. 11
Section 1.38. Contracts.................................................. 12
Section 1.39. Copyrights................................................. 12
Section 1.40. Delivering Company......................................... 12
Section 1.41. DGCL....................................................... 12
Section 1.42. Dissenting Shares.......................................... 12
Section 1.43. Effective Time............................................. 12
Section 1.44. Elan Joint Venture......................................... 12
Section 1.45. Elan Joint Venture Agreement............................... 12
Section 1.46. Environmental Claim........................................ 12
Section 1.47. Environmental Laws......................................... 12
Section 1.48. ERISA...................................................... 12
</TABLE>

A-2
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1.49. Exchange................................................... 12
Section 1.50. Exchange Act............................................... 12
Section 1.51. Exchange Agent............................................. 12
Section 1.52. Exchange Consideration..................................... 13
Section 1.53. FCPA....................................................... 13
Section 1.54. GAAP....................................................... 13
Section 1.55. Governmental Authority..................................... 13
Section 1.56. HSR Act.................................................... 13
Section 1.57. Indemnified Party.......................................... 13
Section 1.58. Insmed..................................................... 13
Section 1.59. Insmed Affiliate........................................... 13
Section 1.60. Insmed Benefit Plans....................................... 13
Section 1.61. Insmed Capital Stock....................................... 13
Section 1.62. Insmed Common Stock........................................ 13
Section 1.63. Insmed Companies........................................... 13
Section 1.64. Insmed Contracts........................................... 13
Section 1.65. Insmed Disclosure Letter................................... 13
Section 1.66. Insmed Dissenting Holder................................... 13
Section 1.67. Insmed ERISA Affiliate..................................... 14
Section 1.68. Insmed ERISA Plan.......................................... 14
Section 1.69. Insmed Financial Statements................................ 14
Section 1.70. Insmed Intellectual Property............................... 14
Section 1.71. Insmed License Agreements.................................. 14
Section 1.72. Insmed Permits............................................. 14
Section 1.73. Insmed Plans............................................... 14
Section 1.74. Insmed Preferred Stock..................................... 14
Section 1.75. Insmed Qualified Plan...................................... 14
Section 1.76. Insmed Series A Preferred Stock............................ 14
Section 1.77. Insmed Series B Preferred Stock............................ 14
Section 1.78. [Intentionally Omitted].................................... 14
Section 1.79. Insmed Stock Options....................................... 14
Section 1.80. Insmed Superior Proposal................................... 14
Section 1.81. Insmed Third Party Acquisition Offer....................... 15
Section 1.82. Insmed Warrant............................................. 15
Section 1.83. IRS........................................................ 15
Section 1.84. Joint Proxy Statement/Prospectus........................... 15
Section 1.85. Knowledge of Celtrix....................................... 15
Section 1.86. Knowledge of Insmed........................................ 15
Section 1.87. Law........................................................ 15
Section 1.89. Material Adverse Effect.................................... 15
Section 1.90. Merger..................................................... 15
Section 1.91. Merger Consideration....................................... 15
Section 1.92. Merger Subsidiary.......................................... 15
Section 1.93.A. Nasdaq SmallCap.......................................... 15
Section 1.93.B. Nasdaq National.......................................... 16
Section 1.94. New Stock Plan............................................. 16
Section 1.94A. Original Agreement........................................ 16
Section 1.95. Parent..................................................... 16
Section 1.96. Parent Common Stock........................................ 16
Section 1.97. Partnership; Partnerships.................................. 16
Section 1.98. Patents.................................................... 16
</TABLE>

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Section 1.99. Permits................................................... 16
Section 1.100. PGE...................................................... 16
Section 1.101. Plan of Exchange......................................... 16
Section 1.102. Receiving Company........................................ 16
Section 1.103. Registration Statement................................... 16
Section 1.104. Representatives.......................................... 16
Section 1.105. SCC...................................................... 17
Section 1.106. SEC...................................................... 17
Section 1.107. Secretary of State....................................... 17
Section 1.108. Securities Act........................................... 17
Section 1.109. Special Meetings......................................... 17
Section 1.110. Subsidiary; Subsidiaries................................. 17
Section 1.111. Tax; Taxes............................................... 17
Section 1.112. Tax Return............................................... 17
Section 1.113. Trademarks............................................... 17
Section 1.114. Trade Secrets............................................ 17
Section 1.115. VSCA..................................................... 17
Section 1.116. Year 2000 Compliant or Year 2000 Compliance.............. 17
Section 1.117. Year 2000 Problem........................................ 18
ARTICLE II THE MERGER AND EXCHANGE........................................ 18
Section 2.1. The Merger................................................. 18
Section 2.2. The Exchange............................................... 19
Section 2.3. Exchange of Certificates................................... 20
Section 2.4. Stock Options and Warrants................................. 21
ARTICLE III SHAREHOLDER APPROVAL; CLOSING................................. 23
Section 3.1. Shareholder Approval....................................... 23
Section 3.2. Time and Place of Closing.................................. 24
ARTICLE IV PARENT AND MERGER SUBSIDIARY .................................. 24
Section 4.1. No Conduct of Business by Each of Parent and Merger
Subsidiary; Restated Articles and Bylaws............................... 24
Section 4.2. Board of Directors......................................... 24
Section 4.3. Management................................................. 24
Section 4.4. Headquarters of Parent..................................... 24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CELTRIX....................... 25
Section 5.1. Organization and Authority of the Celtrix Companies........ 25
Section 5.2. Capitalization............................................. 25
Section 5.3. Authority Relative to this Agreement; Recommendation....... 25
Section 5.4. Consents and Approvals; No Violations...................... 26
Section 5.5. Reports.................................................... 26
Section 5.6. Absence of Certain Events.................................. 26
Section 5.7. Joint Proxy Statement/Prospectus........................... 27
Section 5.8. Litigation................................................. 27
Section 5.9. Employee Benefit Plans; Labor Matters...................... 27
Section 5.10. Tax Matters............................................... 29
Section 5.11. Compliance with Law....................................... 30
Section 5.12. Transactions With Affiliates.............................. 31
Section 5.13. Fees and Expenses of Brokers and Others................... 31
</TABLE>

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Section 5.14. Accuracy of Information.................................... 31
Section 5.15. Absence of Undisclosed Liabilities......................... 31
Section 5.16. Opinion of Financial Advisor............................... 31
Section 5.17. [Intentionally Omitted].................................... 31
Section 5.18. Environmental Laws and Regulations......................... 32
Section 5.19. Intellectual Property...................................... 32
Section 5.20. Insurance.................................................. 34
Section 5.21. Vote Required; Board Approval.............................. 34
Section 5.22. State Takeover Statutes.................................... 34
Section 5.23. Tax Treatment.............................................. 34
Section 5.24. Certain Business Practices................................. 34
Section 5.25. No Existing Discussions.................................... 34
Section 5.26. Material Contracts......................................... 35
Section 5.27. Properties................................................. 35
Section 5.28. Year 2000 Compliance....................................... 36
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF INSMED........................ 36
Section 6.1. Organization and Authority of the Insmed Companies.......... 36
Section 6.2. Capitalization.............................................. 36
Section 6.3. Authority Relative to this Agreement; Recommendation........ 37
Section 6.4. Consents and Approvals; No Violations....................... 37
Section 6.5. Financial Statements........................................ 37
Section 6.6. Absence of Certain Events................................... 37
Section 6.7. Joint Proxy Statement/Prospectus............................ 38
Section 6.8. Litigation.................................................. 38
Section 6.9. Employee Benefit Plans; Labor Matters....................... 38
Section 6.10. Tax Matters................................................ 40
Section 6.11. Compliance with Law........................................ 40
Section 6.12. Transactions With Affiliates............................... 41
Section 6.13. Fees and Expenses of Brokers and Others.................... 41
Section 6.14. Accuracy of Information.................................... 41
Section 6.15. Absence of Undisclosed Liabilities......................... 41
Section 6.16. [Intentionally Omitted].................................... 41
Section 6.17. [Intentionally Omitted].................................... 41
Section 6.18. Environmental Laws and Regulations......................... 42
Section 6.19. Intellectual Property...................................... 42
Section 6.20. Insurance.................................................. 43
Section 6.21. Vote Required; Board Approval.............................. 44
Section 6.22. State Takeover Statutes.................................... 44
Section 6.23. Tax Treatment.............................................. 44
Section 6.24. Certain Business Practices................................. 44
Section 6.25. No Existing Discussions.................................... 44
Section 6.26. Material Contracts......................................... 44
Section 6.27. Properties................................................. 45
Section 6.28. Year 2000 Compliance....................................... 45
ARTICLE VII COVENANTS...................................................... 46
Section 7.1. Conduct of Business of Celtrix.............................. 46
Section 7.2. Conduct of Business of Insmed............................... 47
Section 7.3. Conduct of Elan Joint Venture............................... 48
Section 7.4. No Solicitation............................................. 48
</TABLE>

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<PAGE>

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Section 7.5. Meetings of Shareholders................................... 50
Section 7.6. Nasdaq Listing............................................. 50
Section 7.7. Employee Benefits; Stock Option and Employee Purchase
Plans.................................................................. 50
Section 7.8. The Registration Statement................................. 50
Section 7.9. Access to Information...................................... 51
Section 7.10. Best Efforts.............................................. 51
Section 7.11. Consents.................................................. 51
Section 7.12. Public Announcements...................................... 52
Section 7.13. Certain Agreements........................................ 52
Section 7.14. Letter of Celtrix's Accountants........................... 52
Section 7.15. Letter of Insmed's Accountants............................ 52
Section 7.16. Indemnification........................................... 52
Section 7.17. Affiliate Letters......................................... 53
Section 7.18. Confidentiality........................................... 53
Section 7.19. Antitrust Matters......................................... 55
Section 7.20. Voting Agreements......................................... 55
ARTICLE VIII CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER AND
EXCHANGE................................................................. 56
Section 8.1. Conditions Precedent to Each Party's Obligation to Consum-
mate Merger and Exchange............................................... 56
Section 8.2. Conditions Precedent to Obligations of Celtrix............. 56
Section 8.3. Conditions Precedent to Obligations of Insmed.............. 57
ARTICLE IX TERMINATION; AMENDMENT; WAIVER ................................ 58
Section 9.1. Termination................................................ 58
Section 9.2. Effect of Termination...................................... 59
Section 9.3. Termination Fee............................................ 59
Section 9.4. Amendment.................................................. 60
Section 9.5. Extension; Waiver.......................................... 60
ARTICLE X MISCELLANEOUS .................................................. 60
Section 10.1. Survival of Representations, Warranties and Covenants..... 60
Section 10.2. Brokerage Fees and Commissions............................ 60
Section 10.3. Entire Agreement; Assignment.............................. 60
Section 10.4. Notices................................................... 60
Section 10.5. Governing Law............................................. 61
Section 10.6. Descriptive Headings...................................... 61
Section 10.7. Parties in Interest....................................... 61
Section 10.8. Counterparts.............................................. 61
Section 10.9. Specific Performance...................................... 61
Section 10.10. Fees and Expenses........................................ 62
Section 10.11. Severability............................................. 62
Section 10.12. Personal Liability....................................... 62
</TABLE>

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<PAGE>

EXHIBITS AND SCHEDULES

EXHIBITS

<TABLE>
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Exhibit 1.30 Certificate of Merger
Exhibit 1.101 Plan of Exchange
Exhibit 4.1A Articles of Incorporation of Parent
Exhibit 4.1B Bylaws of Parent
Exhibit 4.2 Board of Directors of Parent
Exhibit 4.3 Officers of Parent
Exhibit 7.17(a)(i) Celtrix Affiliates
Exhibit 7.17(a)(ii) Celtrix Affiliate Letters
Exhibit 7.17(b)(i) Insmed Affiliates
Exhibit 7.17(b)(ii) Insmed Affiliate Letters
Exhibit 7.20A Form of Celtrix Voting Agreement
Exhibit 7.20B Form of Insmed Voting Agreement

SCHEDULES TO CELTRIX DISCLOSURE LETTER

Schedule 1.85 Knowledge of Celtrix
Schedule 1.97A Partnerships of Celtrix
Schedule 1.110A Celtrix Subsidiaries
Celtrix Options, Warrants, Subscriptions or Other
Schedule 5.2 Rights
Schedule 5.4 Celtrix Required Consents
Schedule 5.6(a) Adverse Changes Affecting Celtrix
Schedule 5.6(b) Adverse Changes Affecting Elan Joint Venture
Schedule 5.8 Celtrix Litigation
Schedule 5.9(i) Celtrix Optionholders
Schedule 5.9(j) Celtrix Change of Control Provisions
Schedule 5.10 Tax Matters Concerning Celtrix
Schedule 5.12 Transactions With Affiliates by Celtrix
Schedule 5.18 Celtrix Environmental Matters
Schedule 5.19 Celtrix Intellectual Property
Schedule 5.20 Celtrix Insurance
Schedule 5.26 Celtrix Material Contracts
Celtrix Exceptions to Operation in the Ordinary
Schedule 7.1 Course
Schedule 7.3 Elan Joint Venture Exceptions in the Ordinary Course
Schedule 7.13 Certain Agreements With Employees

SCHEDULES TO INSMED DISCLOSURE LETTER

Schedule 1.86 Knowledge of Insmed
Schedule 1.97B Partnerships of Insmed
Schedule 1.110B Insmed Subsidiaries
Insmed Outstanding Options, Warrants, Subscriptions
Schedule 6.2 or Other Rights
Schedule 6.4 Insmed Required Consents
Schedule 6.6 Adverse Changes Affecting Insmed
Schedule 6.9(i) Insmed Optionholders
Schedule 6.10 Tax Matters Concerning Insmed
Schedule 6.11 Compliance with Law by Insmed
Schedule 6.12 Transactions With Affiliates
Schedule 6.18 Insmed Environmental Matters
Schedule 6.19 Insmed Intellectual Property
Schedule 6.20 Insmed Insurance
Schedule 6.26 Insmed Material Contracts
Schedule 7.2 Insmed Exceptions in the Ordinary Course
</TABLE>

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<PAGE>

AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION

AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as of
February 9, 2000, by and among INSMED, INC., a Virginia corporation ("Parent"),
CELTRIX PHARMACEUTICALS, INC., a Delaware corporation ("Celtrix"), CELTRIX
MERGERSUB, INC., a Delaware corporation and a direct, wholly owned subsidiary
of Parent ("Merger Subsidiary") and INSMED PHARMACEUTICALS, INC., a Virginia
corporation ("Insmed").

RECITALS

WHEREAS, the respective Boards of Directors of Celtrix and Insmed have,
subject to the terms and conditions set forth herein, determined that it is
advisable, fair and in the best interests of their respective shareholders that
the businesses and operations of Celtrix and Insmed be combined; and

WHEREAS, the parties have determined that the most practical manner to give
effect to such combination is through (a) the merger of Merger Subsidiary, with
and into Celtrix, with Celtrix to be the surviving corporation of such Merger
in accordance with this Agreement and the Certificate of Merger and (b) a share
exchange pursuant to which all outstanding shares of Insmed Capital Stock will
be exchanged for shares of Parent Capital Stock in accordance with the Plan of
Exchange; and

WHEREAS, each of the directors and certain shareholders of Celtrix and
Insmed have entered into Shareholder Letters pursuant to which each such
director and shareholder has agreed, among other things, to vote all voting
securities of Celtrix or Insmed, as the case may be, beneficially owned by him
in favor of approval and adoption of the Merger or the Exchange, as the case
may be; and

WHEREAS, Celtrix and Insmed desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and Exchange
and also to prescribe various conditions to the Merger and Exchange; and

WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated by this Agreement shall constitute transactions
described in Section 351 and/or Section 368 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder; and

WHEREAS, this Agreement and the Purchase Agreement dated January 13, 2000
amomg Parent, Insmed and the investors named therein constitute a single plan
for the capitalization of Parent; and

WHEREAS, the parties hereto previously entered into the Agreement and Plan
of Reorganization dated as of November 30, 1999 (the "Original Agreement"); and

WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in its entirety;

NOW, THEREFORE, in consideration of the premises, which are incorporated
into and made part of this Agreement, and of the mutual representations,
warranties, covenants, agreements and conditions set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:

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ARTICLE I

Definitions

Section 1.1. Agreement.

"Agreement" shall mean this Amended and Restated Agreement and Plan of
Reorganization, together with the Certificate of Merger, Plan of Exchange and
other Schedules and Exhibits attached hereto, as amended from time to time in
accordance with the terms hereof.

Section 1.2. Antitrust Laws.

"Antitrust Laws" shall have the meaning given in Section 7.19(b) hereof.

Section 1.3. Articles of Exchange.

"Articles of Exchange" shall mean the articles of exchange to be filed by
Parent with the SCC with respect to the Exchange.

Section 1.4. BancBoston.

"BancBoston" shall mean BancBoston Robertson Stephens, Inc., financial
advisors to Insmed.

Section 1.5. Celtrix.

"Celtrix" shall mean Celtrix Pharmaceuticals, Inc., a Delaware corporation.

Section 1.6. Celtrix Affiliate.

"Celtrix Affiliate" shall have the meaning given in Section 5.12 hereof.

Section 1.7. Celtrix Benefit Plans.

"Celtrix Benefit Plans" shall have the meaning given in Section 5.9(a)
hereof.

Section 1.8. Celtrix Capital Stock.

"Celtrix Capital Stock" shall mean, collectively, the Celtrix Common Stock
and the Celtrix Preferred Stock.

Section 1.9. Celtrix Common Stock.

"Celtrix Common Stock" shall mean the common stock, $.01 par value, of
Celtrix.

Section 1.10. Celtrix Companies.

"Celtrix Companies" shall mean Celtrix, its Subsidiaries and the
Partnerships in which it has any interest.

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<PAGE>

Section 1.11. Celtrix Contracts.

"Celtrix Contracts" shall have the meaning given in Section 5.26(a) hereof.

Section 1.12. Celtrix Disclosure Letter.

"Celtrix Disclosure Letter" shall have the meaning given in the preamble of
Article V hereof.

Section 1.13. Celtrix Dissenting Holders.

"Celtrix Dissenting Holders" shall have the meaning given in Section 2.1(e)
hereof.

Section 1.14. Celtrix ERISA Affiliate.

"Celtrix ERISA Affiliate" shall mean Celtrix and any trade or business
(whether or not incorporated) which is or has ever been under common control,
or which is or has ever been treated as a single employer, with Celtrix under
Section 414(b), (c), (m) or (o) of the Code.

Section 1.15. Celtrix ERISA Plan.

"Celtrix ERISA Plan" shall have the meaning given in Section 5.9(a) hereof.

Section 1.16. Celtrix Form 10-K.

"Celtrix Form 10-K" shall mean Celtrix's Annual Report on Form 10-K for the
fiscal year ended March 31, 1999.

Section 1.17. Celtrix Intellectual Property.

"Celtrix Intellectual Property" shall have the meaning given in Section
5.19(a) hereof.

Section 1.18. Celtrix License Agreements.

"Celtrix License Agreements" shall have the meaning given in Section
5.19(b) hereof.

Section 1.19. Celtrix Permits.

"Celtrix Permits" shall have the meaning given in Section 5.11 hereof.

Section 1.20. Celtrix Plans.

"Celtrix Plans" shall have the meaning given in Section 2.4(a) hereof.

Section 1.21. Celtrix Preferred Stock.

"Celtrix Preferred Stock" shall mean the Celtrix Series A Preferred Stock
and the Celtrix Series B Preferred Stock.

Section 1.22. Celtrix Qualified Plan.

"Celtrix Qualified Plan" shall have the meaning given in Section 5.9(d)
hereof.

Section 1.23. Celtrix Series A Preferred Stock.

"Celtrix Series A Preferred Stock" shall mean the Series A Preferred Stock,
$.01 par value, of Celtrix.

Section 1.24. Celtrix Series B Preferred Stock.

"Celtrix Series B Preferred Stock" shall mean the Series B Preferred Stock,
$.01 par value, of Celtrix.

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<PAGE>

Section 1.25. Celtrix SEC Reports.

"Celtrix SEC Reports" shall mean (a) Celtrix's Annual Reports on Form 10-K
for the fiscal years ended March 31, 1999, 1998, 1997, and 1996, and (b) all
documents filed by Celtrix with the SEC pursuant to Sections 13(a) and 13(c) of
the Exchange Act, any definitive proxy statements so filed pursuant to Section
14 of the Exchange Act and any report filed pursuant to Section 15(d) of the
Exchange Act and all other reports and registration statements under the
Securities Act filed by Celtrix with the SEC, in each such case since April 1,
1996.

Section 1.26. Celtrix Stock Options.

"Celtrix Stock Options" shall have the meaning given in Section 2.4(a)
hereof.

Section 1.27. Celtrix Superior Proposal.

"Celtrix Superior Proposal" shall have the meaning given in Section 7.4(b)
hereof.

Section 1.28. Celtrix Third Party Acquisition Offer.

"Celtrix Third Party Acquisition Offer" shall have the meaning given in
Section 7.4(b) hereof.

Section 1.29. Celtrix Warrant.

"Celtrix Warrant" shall have the meaning given in Section 2.4(e) hereof.

Section 1.30. Certificate of Merger.

"Certificate of Merger" shall mean the Certificate of Merger of Merger
Subsidiary with and into Celtrix, in substantially the form attached hereto as
Exhibit 1.30.

Section 1.31. Certificates.

"Certificates" shall have the meaning given in Section 2.3 hereof.

Section 1.32. Closing.

"Closing" shall have the meaning given in Section 3.2 hereof.

Section 1.33. Closing Date.

"Closing Date" shall mean the date on which the Closing occurs.

Section 1.34. COBRA.

"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.

Section 1.35. Code.

"Code" shall mean, as appropriate, the Internal Revenue Code of 1954 or of
1986, each as amended.

Section 1.36. Confidential Material.

"Confidential Material" shall have the meaning given in Section 7.18(a)
hereof.

Section 1.37. Confidentiality Agreement.

"Confidentiality Agreement" shall mean the Mutual Non-Disclosure Agreement,
dated as of December 8, 1998, between Celtrix and Insmed.

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Section 1.38. Contracts.

"Contracts" shall mean all contracts, agreements, leases, licenses,
arrangements, relationships and commitments, whether written or oral (and all
amendments, side letters, modifications and supplements thereto).

Section 1.39. Copyrights.

"Copyrights" shall have the meaning given in Section 5.19(a) hereof.

Section 1.40. Delivering Company.

"Delivering Company" shall have the meaning given in Section 7.18(a) hereof.

Section 1.41. DGCL.

"DGCL" shall mean the Delaware General Corporation Law, as amended.

Section 1.42. Dissenting Shares.

"Dissenting Shares" shall mean shares of Celtrix Capital Stock or Insmed
Capital Stock held by a Celtrix Dissenting Holder or Insmed Dissenting Holder,
as the case may be.

Section 1.43. Effective Time.

"Effective Time" shall have the meaning given in Section 3.1 hereof.

Section 1.44. Elan Joint Venture.

"Elan Joint Venture" shall mean, as may be applicable, either Celtrix Newco
Ltd. or that certain Subscription, Joint Development and Operating Agreement
(the "Elan Joint Venture Agreement") between Celtrix, Elan Corporation, plc,
Elan International Services, Ltd. and Celtrix Newco Ltd., dated April 21, 1999,
with respect to the development of SomatoKine to treat osteoporosis using Elan
Corporation, plc's MEDIPAD Delivery System.

Section 1.45. Elan Joint Venture Agreement.

"Elan Joint Venture Agreement" shall have the meaning given in Section 1.44
hereof.

Section 1.46. Environmental Claim.

"Environmental Claim" shall have the meaning given in Section 5.18 hereof.

Section 1.47. Environmental Laws.

"Environmental Laws" shall have the meaning given in Section 5.18 hereof.

Section 1.48. ERISA.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.

Section 1.49. Exchange.

"Exchange" shall have the meaning given in Section 2.2(a) hereof.

Section 1.50. Exchange Act.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

Section 1.51. Exchange Agent.

"Exchange Agent" shall mean First Union National Bank.

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<PAGE>

Section 1.52. Exchange Consideration.

"Exchange Consideration" shall have the meaning given in Section 2.2 hereof.

Section 1.53. FCPA.

"FCPA" shall mean the Foreign Corrupt Practices Act of 1977, as amended.

Section 1.54. GAAP.

"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America at the time of the preparation of the subject
financial statement.

Section 1.55. Governmental Authority.

"Governmental Authority" shall mean any federal, state, provincial,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, or any court, in each case whether of the United States,
any of its possessions or territories, or of any foreign nation.

Section 1.56. HSR Act.

"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.

Section 1.57. Indemnified Party.

"Indemnified Party" shall have the meaning given in Section 7.16.

Section 1.58. Insmed.

"Insmed" shall mean Insmed Pharmaceuticals, Inc., a Virginia corporation.

Section 1.59. Insmed Affiliate.

"Insmed Affiliate" shall have the meaning given in Section 6.12 hereof.

Section 1.60. Insmed Benefit Plans.

"Insmed Benefit Plans" shall have the meaning given in Section 6.9(a)
hereof.

Section 1.61. Insmed Capital Stock.

"Insmed Capital Stock" shall mean, collectively, the Insmed Common Stock and
Insmed Preferred Stock.

Section 1.62. Insmed Common Stock.

"Insmed Common Stock" shall mean the Common Stock, $.01 par value, of
Insmed.

Section 1.63. Insmed Companies.

"Insmed Companies" shall mean Insmed, its Subsidiaries and the Partnerships
in which it has any interest.

Section 1.64. Insmed Contracts.

"Insmed Contracts" shall have the meaning given in Section 6.26(a) hereof.

Section 1.65. Insmed Disclosure Letter.

"Insmed Disclosure Letter" shall have the meaning given in the preamble to
Article VI hereof.

Section 1.66. Insmed Dissenting Holder.

"Insmed Dissenting Holder" shall have the meaning given in Section 2.2(c).

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<PAGE>

Section 1.67. Insmed ERISA Affiliate.

"Insmed ERISA Affiliate" shall mean Insmed and any trade or business
(whether or not incorporated) which is or has ever been under common control,
or which is or has ever been treated as a single employer, with Insmed under
Section 414(b), (c), (m) or (o) of the Code.

Section 1.68. Insmed ERISA Plan.

"Insmed ERISA Plan" shall have the meaning given in Section 6.9(a) hereof.

Section 1.69. Insmed Financial Statements.

"Insmed Financial Statements" shall have the meaning given in Section 6.5
hereof.

Section 1.70. Insmed Intellectual Property.

"Insmed Intellectual Property" shall have the meaning given in Section
6.19(b) hereof.

Section 1.71. Insmed License Agreements.

"Insmed License Agreements" shall have the meaning given in Section 6.19(a)
hereof.

Section 1.72. Insmed Permits.

"Insmed Permits" shall have the meaning given in Section 6.11 hereof.

Section 1.73. Insmed Plans.

"Insmed Plans" shall have the meaning given in Section 2.4(b) hereof.

Section 1.74. Insmed Preferred Stock.

"Insmed Preferred Stock" shall mean, collectively, the Insmed Series A
Preferred Stock and Insmed Series B Preferred Stock.

Section 1.75. Insmed Qualified Plan.

"Insmed Qualified Plan" shall have the meaning given in Section 6.9(d)
hereof.

Section 1.76. Insmed Series A Preferred Stock.

"Insmed Series A Preferred Stock" shall mean the Series A Convertible
Participating Preferred Stock, $.01 par value, of Insmed.

Section 1.77. Insmed Series B Preferred Stock.

"Insmed Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, $.01 par value, of Insmed.

Section 1.78. [Intentionally Omitted].

Section 1.79. Insmed Stock Options.

"Insmed Stock Options" shall have the meaning given in Section 2.4(b)
hereto.

Section 1.80. Insmed Superior Proposal.

"Insmed Superior Proposal" shall have the meaning given in Section 7.4(a)
hereto.

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Section 1.81. Insmed Third Party Acquisition Offer.

"Insmed Third Party Acquisition Offer" shall have the meaning given in
Section 7.4(a) hereto.

Section 1.82. Insmed Warrant.

"Insmed Warrant" shall have the meaning given in Section 2.4(e) hereto.

Section 1.83. IRS.

"IRS" shall mean the Internal Revenue Service.

Section 1.84. Joint Proxy Statement/Prospectus.

"Joint Proxy Statement/Prospectus" shall mean the Joint Proxy
Statement/Prospectus of Parent, Celtrix and Insmed included in the
Registration Statement and distributed to each of the shareholders of Celtrix
and Insmed in connection with the Special Meetings.

Section 1.85. Knowledge of Celtrix.

"Knowledge of Celtrix" shall mean the actual knowledge, after due inquiry,
of those officers of Celtrix identified on Schedule 1.85 attached hereto.

Section 1.86. Knowledge of Insmed.

"Knowledge of Insmed" shall mean the actual knowledge, after due inquiry,
of those officers of Insmed identified on Schedule 1.86 attached hereto.

Section 1.87. Law.

"Law" shall mean any federal, state, provincial, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder.

Section 1.88. Lien.

"Lien" shall mean any mortgages, liens, pledges, charges, security
interests or encumbrances of any kind.

Section 1.89. Material Adverse Effect.

"Material Adverse Effect" shall mean, with respect to any entity or group
of entities, a material adverse effect (or any development which, insofar as
reasonably can be foreseen, is reasonably likely to have a material adverse
effect in the future), on the business, assets, financial or other condition,
results of operations or prospects of such entity or group of entities taken
as a whole.

Section 1.90. Merger.

"Merger" shall have the meaning given in Section 2.1(a) hereof.

Section 1.91. Merger Consideration.

"Merger Consideration" shall have the meaning given in Section 2.1(b)
hereof.

Section 1.92. Merger Subsidiary.

"Merger Subsidiary" shall mean Celtrix Mergersub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of Parent.

Section 1.93.A. Nasdaq SmallCap.

"Nasdaq" shall mean The Nasdaq SmallCap Market.

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Section 1.93.B. Nasdaq National

"Nasdaq National" shall mean the Nasdaq National Market.

Section 1.94. New Stock Plan.

"New Stock Plan" shall have the meaning given in Section 2.4(d) hereof.

Section 1.94A. Original Agreement.

"Original Agreement" shall have the meaning given in the Recitals hereof.

Section 1.95. Parent.

"Parent" shall mean Insmed, Inc., a Virginia corporation formed to effect
the transactions described herein.

Section 1.96. Parent Common Stock.

"Parent Common Stock" shall mean the Common Stock, $.01 par value, of
Parent.

Section 1.97. Partnership; Partnerships.

"Partnership" shall mean any limited or general partnership, joint venture
or other business association, other than a Subsidiary, in which any party has
a direct or indirect interest (collectively, "Partnerships"), all of such
Partnerships of Celtrix being listed on Schedule 1.97A to the Celtrix
Disclosure Letter and all of such Partnerships of Insmed being listed on
Schedule 1.97B to the Insmed Disclosure Letter.

Section 1.98. Patents.

"Patents" shall have the meaning given in Section 5.19(a) hereto.

Section 1.99. Permits.

"Permits" shall mean all permits, licenses, variances, exemptions, orders,
registrations and approvals and governmental authorizations of all Governmental
Authorities.

Section 1.100. PGE.

"PGE" shall mean Pacific Growth Equities, Inc., financial advisors to
Celtrix.

Section 1.101. Plan of Exchange.

"Plan of Exchange" shall mean the Plan of Exchange with respect to the
Exchange, in substantially the form attached hereto as Exhibit 1.101.

Section 1.102. Receiving Company.

"Receiving Company" shall have the meaning given in Section 7.18(a) hereof.

Section 1.103. Registration Statement.

"Registration Statement" shall mean the Registration Statement on Form S-4,
including the Joint Proxy Statement/Prospectus contained therein, to be filed
by Parent with the SEC with respect to the Parent Common Stock to be offered to
the holders of Celtrix Capital Stock and Insmed Capital Stock in the Merger.

Section 1.104. Representatives.

"Representatives" shall have the meaning given in Section 7.18(a) hereof.

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Section 1.105. SCC.

"SCC" shall mean the State Corporation Commission of Virginia.

Section 1.106. SEC.

"SEC" shall mean the Securities and Exchange Commission.

Section 1.107. Secretary of State.

"Secretary of State" shall mean the Secretary of State of the State of
Delaware.

Section 1.108. Securities Act.

"Securities Act" shall mean the Securities Act of 1933, as amended.

Section 1.109. Special Meetings.

"Special Meetings" shall mean, collectively, the special or annual meeting
of shareholders of Celtrix and the special meeting of shareholders of Insmed
called pursuant to Section 3.1 hereof to consider and approve the transactions
contemplated herein, and any adjournments thereof.

Section 1.110. Subsidiary; Subsidiaries.

"Subsidiary" shall mean (i) each corporate entity with respect to which a
party has the right to vote (directly or indirectly through one or more other
entities or otherwise) shares representing 50% or more of the votes eligible to
be cast in the election of directors of such entity, and (ii) each other
corporate entity which constitutes a "significant subsidiary," as defined in
Rule 1-02 of Regulation S-X adopted under the Exchange Act (collectively,
"Subsidiaries"), all of the Subsidiaries of Celtrix being listed on Schedule
1.110A of the Celtrix Disclosure Letter attached hereto and all of the
Subsidiaries of Insmed being listed on Schedule 1.110B of the Insmed Disclosure
Letter attached hereto.

Section 1.111. Tax; Taxes.

"Tax" or "Taxes" means any federal, state, county, local, or foreign taxes,
charges, levies, imposts, duties, other assessments, or similar charges of any
kind whatsoever, including any interest, penalties, and additions imposed
thereon or with respect thereto.

Section 1.112. Tax Return.

"Tax Return" means any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group.

Section 1.113. Trademarks.

"Trademarks" shall have the meaning given in Section 5.19(a).

Section 1.114. Trade Secrets.

"Trade Secrets" shall have the meaning given in Section 5.19(a).

Section 1.115. VSCA.

"VSCA" shall mean the Virginia Stock Corporation Act, as amended.

Section 1.116. Year 2000 Compliant or Year 2000 Compliance.

"Year 2000 Compliant" or "Year 2000 Compliance" shall mean that the computer
systems and other automated equipment used by an entity in connection with the
conduct of its business, including, without limitation, all hardware, software
and operating systems, (i) are able to accurately recognize, represent,
process,

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manage and manipulate date and date-sensitive data (including, but not limited
to, calculating, comparing, sorting, tagging and sequencing), in both input and
output, whether the date field uses 2 or 4 digits or any other date coding
scheme, including "leap year" calculations and will not cause an abnormal
ending scenario within the application domain or generate incorrect values
involving such dates, (ii) with respect to system time for all hardware,
software and operating systems, automatically function into and beyond the year
2000 without interruption and that all applications and components will
correctly interpret system time into and beyond the year 2000, and (iii) are
able to accurately recognize, represent, process and manage any date fields
currently assigned special values (i.e., 99/99/99 or 00/00/00), if any.

Section 1.117. Year 2000 Problem.

"Year 2000 Problem" shall mean the risk that computer applications may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999.

ARTICLE II

The Merger and Exchange

Section 2.1. The Merger.

(a) Immediately prior to the Effective Time Celtrix will execute and deliver
the Certificate of Merger and file it with the Secretary of State in accordance
with the DGCL. Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Subsidiary shall be merged with and into Celtrix in
accordance with the provisions of, and with the effects provided in, Subchapter
IX of the DGCL (the "Merger"). Celtrix shall be the surviving corporation
resulting from the Merger and as a result shall become a wholly-owned
subsidiary of Parent and shall continue to be governed by the laws of the State
of Delaware and the separate corporate existence of Merger Subsidiary shall
cease. The Merger is intended to qualify as a reorganization under Section
368(a) of the Code and as part of an exchange described in Section 351 of the
Code.

(b) Pursuant to the Merger, each share of Celtrix Common Stock and each
share of Celtrix Preferred Stock outstanding immediately prior to the Effective
Time (other than (i) shares of Celtrix Common Stock and Celtrix Preferred Stock
held in Celtrix's treasury, which shall be cancelled pursuant to Section 2.1(d)
hereof, (ii) shares of Celtrix Common Stock and Preferred Stock held by Merger
Subsidiary, which shall be cancelled pursuant to Section 2.1(d) hereof and
(iii) Dissenting Shares) shall by virtue of the Merger and without any action
on the part of the Merger Subsidiary, Celtrix or the holder thereof, be
converted into and become (X) in the case of each share of Celtrix Common Stock
one (1) share of Parent Common Stock and (Y) in the case of each share of
Celtrix Preferred Stock, that number of shares of Parent Common Stock equal to
$1,000, plus all accrued and unpaid dividends on such share of Celtrix
Preferred Stock through the Effective Time, divided by $2.0006 (in each case,
subject to adjustment for any stock split, reverse split, stock dividend or
other similar distribution with respect to Celtrix Common Stock or any series
of Celtrix Preferred Stock, as the case may be) (the "Merger Consideration").
All such shares of Celtrix Common Stock and Celtrix Preferred Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Celtrix Common Stock or Celtrix Preferred Stock
shall cease to have any ownership or other rights with respect thereto, except
the right to receive the shares of Parent Common Stock, in each case upon the
surrender of such certificate in accordance with Section 2.3 and without any
interest thereon. Pursuant to the Merger, at the Effective Time, each share of
Common Stock of Merger Subsidiary issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchanged for one share of
Celtrix Common Stock. The separate existence and corporate organization of
Merger Subsidiary shall cease upon the Effective Time.

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(c) No fraction of a share of Parent Common Stock shall be issued in
connection with the conversion of Celtrix Common Stock or Celtrix Preferred
Stock in the Merger and the distribution of Parent Common Stock in respect
thereof, but in lieu of such fraction, the Exchange Agent shall make a cash
payment (without interest and subject to the payment of any applicable
withholding Taxes) equal to the same fraction of the market value of a full
share of Parent Common Stock, computed on the basis of the mean of the high and
low sales prices of Parent Common Stock as reported on Nasdaq National or
Nasdaq SmallCap, as the case may be, on the first full day on which the Parent
Common Stock is traded on Nasdaq National or Nasdaq SmallCap, as the case may
be, after the Effective Time. Parent and Celtrix agree to use their best
efforts to cause the Merger to be consummated in accordance with the terms of
this Agreement. The parties acknowledge that payment of the cash consideration
in lieu of issuing fractional shares was not separately bargained-for
consideration but merely represents a mechanical rounding-off for purposes of
simplifying the corporate and accounting complexities which would otherwise be
caused by the issuance of fractional shares.

(d) At the Effective Time, each share held in the treasury of Celtrix and
each share of Celtrix Common Stock and Celtrix Preferred Stock held by Merger
Subsidiary shall, by virtue of the Merger and without any action on the part of
Celtrix or Merger Subsidiary be canceled, retired and cease to exist and no
payment shall be made with respect thereto.

(e) Notwithstanding anything in this Agreement to the contrary, shares of
Celtrix Capital Stock outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such shares of Celtrix Capital
Stock in accordance with the DGCL (a "Celtrix Dissenting Holder") shall not be
converted into a right to receive the Merger Consideration, but shall, from and
after the Effective Time, have only such rights as are afforded to the holders
thereof by the provisions of Section 262 of the DGCL, unless such Celtrix
Dissenting Holder fails to perfect or withdraws or otherwise loses his right to
appraisal. If, after the Effective Time, such Celtrix Dissenting Holder fails
to perfect or withdraws or loses his right to appraisal, such shares of Celtrix
Capital Stock shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration payable in
respect of such shares of Celtrix Capital Stock pursuant to this Section 2.1.
Celtrix shall give Insmed (i) prompt notice of any demands received by Celtrix
for appraisal of shares, withdrawals of such demands, and any other instruments
served pursuant to the DGCL and received by Celtrix and (ii) all negotiations
and proceedings with respect to such demands. Celtrix shall not, except with
the prior written consent of Insmed, make any payment with respect to any
demands for appraisal, or offer to settle, or settle any such demands.

Section 2.2. The Exchange.

(a) Immediately prior to the Effective Time Parent shall execute and deliver
Articles of Exchange, which shall include the Plan of Exchange, and file it
with the SCC in accordance with the VSCA. Subject to the terms and conditions
of this Agreement, the Plan of Exchange and the VSCA, and without any action on
the part of Parent, Insmed or the holders of Insmed Capital Stock, at the
Effective Time each share of Insmed Common Stock, Insmed Series A Preferred
Stock and Insmed Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares) shall be exchanged
for 3.50 shares of Parent Common Stock (subject to adjustment for any stock
split, reverse split, stock dividend or other similar distribution with respect
to the Insmed Common Stock, Insmed Series A Preferred Stock or Insmed Series B
Preferred Stock, as the case may be) (the "Exchange") (the shares of Parent
Common Stock received pursuant to the Exchange, the "Exchange Consideration").
Parent shall acquire and become the owner and holder of each issued and
outstanding share of Insmed Capital Stock so exchanged. The former holders of
shares of Insmed Capital Stock so exchanged shall cease to have any ownership
or other rights with respect thereto, except the right to receive the shares of
Parent Common Stock upon the surrender of such certificate in accordance with
Section 2.3 and without any interest thereon. Each share of Parent Common Stock
issued and outstanding immediately prior to the Effective Time shall be
canceled and shall thereupon constitute an authorized unissued share of Parent
Common Stock. The Exchange is intended to qualify as a reorganization under
Section 368 of the Code or a tax-free exchange under Section 351 of the Code.

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(b) No fraction of a share of Parent Common Stock shall be issued in
connection with the exchange of Insmed Common Stock or Insmed Preferred Stock
in the Exchange and the distribution of Parent Common Stock in respect thereof,
but in lieu of such fraction, the Exchange Agent shall make a cash payment
(without interest and subject to the payment of any applicable withholding
Taxes) equal to the same fraction of the market value of a full share of Parent
Common Stock, computed on the basis of the mean of the high and low sales
prices of Parent Common Stock as reported on Nasdaq National or Nasdaq
SmallCap, as the case may be, on the first full day on which the Parent Common
Stock is traded on Nasdaq National or Nasdaq SmallCap, as the case may be,
after the Effective Time. Parent and Insmed agree to use their best efforts to
cause the Exchange to be consummated in accordance with the terms of this
Agreement and the Plan of Exchange. The parties acknowledge that payment of the
cash consideration in lieu of issuing fractional shares was not separately
bargained-for consideration but merely represents a mechanical rounding-off for
purposes of simplifying the corporate and accounting complexities which would
otherwise be caused by the issuance of fractional shares.

(c) Notwithstanding anything in this Agreement to the contrary, shares of
Insmed Capital Stock outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Exchange or consented
thereto in writing and who has demanded appraisal for such shares of Insmed
Capital Stock in accordance with the VSCA (an "Insmed Dissenting Holder") shall
not be exchanged into the Exchange Consideration, but shall, from and after the
Effective Time, have only such rights as are afforded to the holders thereof by
the provisions of Section 13.1-730 of the VSCA, unless such Insmed Dissenting
Holder fails to perfect or withdraws or otherwise loses his right to appraisal.
If, after the Effective Time, such Insmed Dissenting Holder fails to perfect or
withdraws or loses his right to appraisal, such shares of Insmed Capital Stock
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Exchange Consideration payable in respect of such shares
of Insmed Capital Stock pursuant to this Section 2.2. Insmed shall give Celtrix
(i) prompt notice of any demands received by Insmed for appraisal of shares,
withdrawals of such demands, and any other instruments served pursuant to the
VSCA and received by Insmed and (ii) all negotiations and proceedings with
respect to such demands.

Section 2.3. Exchange of Certificates.

(a) Prior to the Effective Time, Parent, Celtrix and Insmed shall appoint
the Exchange Agent to act as the exchange agent in connection with the Merger
and Exchange. Except as otherwise provided in Sections 2.1 and 2.2, from and
after the Effective Time, each holder of a certificate which immediately prior
to the Effective Time represented outstanding shares of Celtrix Capital Stock
and Insmed Capital Stock (the "Certificates") shall be entitled to receive in
exchange therefor, upon surrender thereof to the Exchange Agent, a certificate
or certificates representing the number of whole shares of Parent Common Stock
into which such holder's shares were converted in the Merger or Exchange, as
the case may be, plus cash payable in lieu of a fractional share. Immediately
prior to the Effective Time, Parent will deliver to the Exchange Agent, in
trust for the benefit of the holders of Celtrix Capital Stock and Insmed
Capital Stock, shares of Parent Common Stock (together with sufficient cash in
immediately available funds in lieu of fractional shares, as provided in
Sections 2.1 and 2.2 hereof) necessary to make the exchanges contemplated by
Sections 2.1 and 2.2 hereof on a timely basis.

(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Celtrix Capital Stock and
Insmed Capital Stock whose shares were converted or exchanged into the right to
receive shares of Parent Common Stock pursuant to Sections 2.1 and 2.2 herein,
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender to the Exchange
Agent of a Certificate, together with such letter of transmittal duly executed,
and any other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock and, if applicable, a check representing
the cash consideration to which such holder has the right to receive for a
fractional share, as set forth in the

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Certificate of Merger and the Plan of Exchange, and such Certificate so
surrendered shall forthwith be cancelled. No holder of a Certificate or
Certificates shall be entitled to receive any dividend or other distribution
from Parent until the surrender of such holder's Certificate for a certificate
or certificates representing shares of Parent Common Stock. Upon such
surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest and subject to any applicable withholding
Tax) which theretofore became payable, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of Parent Common Stock
represented by the certificates issued upon surrender, which amount shall be
delivered to the Exchange Agent by Parent from time to time as such dividends
or other distributions are declared. If delivery of certificates representing
shares of Parent Common Stock is to be made to a person other than the person
in whose name the Certificate surrendered is registered or if any certificate
for shares of Parent Common Stock is to be issued in a name other than that in
which the Certificate surrendered therefor is registered, it shall be a
condition of such delivery or issuance that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and that
the person requesting such delivery or issuance shall pay any transfer or other
Taxes required by reason of such delivery or issuance to a person other than
the registered holder of the Certificate surrendered or establish to the
satisfaction of Parent that such Tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.3, each
Certificate shall represent for all purposes only the right to receive shares
of Parent Common Stock (and cash in lieu of a fractional share), as provided in
Sections 2.1 and 2.2 hereto, without any interest thereon.

(c) After the Effective Time, there shall be no transfers on the stock
transfer books of Parent, as the surviving corporation in the Merger and
Exchange, of the shares of Celtrix Capital Stock or Insmed Capital Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent for transfer, they shall
be cancelled and exchanged for shares of Parent Common Stock as provided in
Sections 2.1 and 2.2 hereof, in accordance with the procedures set forth in
this Section 2.3.

(d) Any shares of Parent Common Stock (and any accrued dividends and
distributions thereon), and any cash held by the Exchange Agent for payment in
lieu of fractional shares, that remain unclaimed by the former shareholders of
Celtrix and Insmed six months after the Effective Time shall be delivered by
the Exchange Agent to Parent. Any former shareholders of Celtrix and Insmed who
have not theretofore complied with this Section 2.3 shall thereafter look only
to Parent for satisfaction of their claim for the consideration set forth in
the Certificate of Merger and Plan of Exchange, as the case may be, without any
interest thereon. Notwithstanding the foregoing, neither Parent, Celtrix nor
Insmed shall be liable to any holder of shares of Celtrix Capital Stock or
Insmed Capital Stock for any shares of Parent Common Stock (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar Law.

Section 2.4. Stock Options and Warrants.

(a) At the Effective Time, each outstanding option to purchase shares of
Celtrix Common Stock (a "Celtrix Stock Option" or collectively, "Celtrix Stock
Options") as fully identified on Schedule 5.9(i) of the Celtrix Disclosure
Letter, whether vested or unvested, shall be assumed by Parent (all of such
plans or agreements pursuant to which any Celtrix Stock Option has been issued
or may be issued are referred to collectively as the "Celtrix Plans"). To
effect that assumption, each Celtrix Stock Option shall be replaced with an
option to acquire, on the same terms and conditions as were applicable under
such Celtrix Stock Option, the same number of shares of Parent Common Stock as
the holder of such Celtrix Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time, at a price per share equal to (y) the
aggregate exercise price for the shares of Celtrix Common Stock otherwise
purchasable pursuant to such Celtrix Stock Option divided by (z) the number of
full shares of Parent Common Stock purchasable pursuant to such replacement
option pursuant to this Section 2.4 rounded up to the nearest whole cent;
provided, however, that in the case of any option to which section 421 of the
Code applies by reason of its qualification under section 422 of the Code
("incentive stock options" or "ISOs"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise

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of such option shall be determined in order to comply with section 424(a) of
the Code rounded up to the nearest whole cent. Parent shall make such
assumption in such manner that (i) Parent is a corporation "assuming a stock
option in a transaction to which Section 424(a) applies" within the meaning of
Section 424 of the Code or (ii) to the extent that Section 424 of the Code does
not apply to such Celtrix Stock Option, Parent would be such a corporation were
Section 424 of the Code applicable to such Celtrix Stock Option.

(b) At the Effective Time, each outstanding option to purchase shares of
Insmed Common Stock (an "Insmed Stock Option" or collectively, "Insmed Stock
Options") whether vested or unvested, shall be assumed by Parent (all of such
plans or agreements pursuant to which any Insmed Stock Option has been issued
or may be issued are referred to collectively as the "Insmed Plans"). To effect
that assumption, each Insmed Stock Option shall be replaced with an option to
acquire, on the same terms and conditions as were applicable under such Insmed
Stock Option, the same number of shares of Parent Common Stock as the holder of
such Insmed Stock Option would have been entitled to receive pursuant to the
Exchange had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the shares of Insmed Common Stock otherwise purchasable pursuant to such
Insmed Stock Option divided by (z) the number of shares of Parent Common Stock
purchasable pursuant to such replacement option pursuant to this Section 2.4
rounded up to the nearest one tenth of a cent; provided, however, that in the
case of any ISOs, the option price, the number of shares purchasable pursuant
to such option and the terms and conditions of exercise of such option shall be
determined in order to comply with section 424(a) of the Code rounded up to the
nearest one tenth of a cent. Parent shall make such assumption in such manner
that (i) Parent is a corporation "assuming a stock option in a transaction to
which Section 424(a) applies" within the meaning of Section 424 of the Code or
(ii) to the extent that Section 424 of the Code does not apply to such Insmed
Stock Option, Parent would be such a corporation were Section 424 of the Code
applicable to such Insmed Stock Option.

(c) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Celtrix Stock Options and Insmed Stock Options appropriate
notices setting forth such holders' rights pursuant to the respective Celtrix
Plans and Insmed Plans and this Section 2.4, and shall amend or replace the
agreements evidencing the grants of such Insmed Options and Celtrix Options as
required by Section 2.4(a) and Section 2.4(b) after giving effect to the Merger
and Exchange. Parent shall comply with the terms of the Celtrix Plans and
Insmed Plans as in effect prior to the Effective Time and ensure, to the extent
required by, and subject to the provisions of, such Plans, that Celtrix Stock
Options and Insmed Stock Options which qualified as incentive stock options
immediately prior to the Effective Time continue to qualify as incentive stock
options of Parent after the Effective Time.

(d) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Celtrix Stock Options and Insmed Stock Options assumed in accordance with
this Section 2.4. Such action shall include, without limitation (i) adoption of
the Insmed, Inc. Stock Incentive Plan (the "New Stock Plan") on or before the
Effective Time; and (ii) registration of shares of Parent Common Stock that
will be issuable under the New Stock Plan (including those that will be
delivered on exercise of Celtrix Stock Options and Insmed Stock Options assumed
in accordance with this Section 2.4) pursuant to a registration statement on
Form S-8 filed within 10 business days of the Effective Time. In addition,
prior to the Effective Time, the sole shareholder of the Parent shall approve
the New Stock Plan. Following the Effective Time, Parent shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements for so long as options or other awards granted
thereunder remain outstanding. With respect to those individuals who,
subsequent to the Merger and Exchange, will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, Parent
shall administer the New Stock Plan in a manner that complies with Rule 16b-3
promulgated under the Exchange Act, as it may be amended from time to time.

(e) At the Effective Time, each of the (i) warrants to purchase shares of
Celtrix Common Stock (each a "Celtrix Warrant"), and (ii) warrants to purchase
shares of Insmed Common Stock (each a "Insmed Warrant") which then remains
outstanding shall be replaced with a warrant to purchase, on the same terms and
conditions

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as were applicable under such Celtrix Warrant or Insmed Warrant, as the case
may be, the same number of shares of Parent Common Stock as the holder of such
Celtrix Warrant or Insmed Warrant would have been entitled to receive pursuant
to the Merger and Exchange had such holder exercised such warrant in full
immediately prior to the Effective Time, at a price per share equal to (y) the
aggregate exercise price for the shares of Celtrix Common Stock or shares of
Insmed Common Stock otherwise purchasable pursuant to such Celtrix Warrant or
Insmed Warrant, as the case may be, divided by (z) the number of full shares of
Parent Common Stock purchasable pursuant to such replacement warrant rounded up
to the nearest whole cent.

As soon as practicable after the Effective Time, Parent shall deliver to
each holder of a Celtrix Warrant or Insmed Warrant appropriate notices setting
forth such holder's rights pursuant to the warrants to purchase shares of
Parent Common Stock, and shall amend or replace the agreements evidencing such
Celtrix Warrants or Insmed Warrants as required by this Section 2.4(e) after
giving effect to the Merger and Exchange.

Parent shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon exercise
of Celtrix Warrants or Insmed Warrants replaced with warrants to purchase
Parent Common Stock in accordance with this Section 2.4(e).

(f) In lieu of issuing any options or warrants to purchase a fractional
share of Parent Common Stock, Parent will deliver to holders of Insmed Stock
Options or Insmed Warrants cash, within 30 days of Closing, payable by check,
equal to the difference between (i) the fractional share multiplied by the mean
of the high and low sales price of Parent Common Stock on the first full day of
trading on Nasdaq National or Nasdaq SmallCap, as the case may be, after the
Closing, and (ii) the exercise price per fractional share of each Insmed Stock
Option or Insmed Warrant divided by 3.5.

(g) In lieu of issuing any options or warrants to purchase a fractional
share of Parent Common Stock, Parent will deliver to holders of Celtrix Stock
Options or Celtrix Warrants, cash within 30 days of Closing, payable by check,
equal to the difference between (i) the fractional share multiplied by the mean
of the high and low sales price of Parent Common Stock on the first full day of
trading on Nasdaq National or Nasdaq SmallCap, as the case may be, after the
Closing, and (ii) the exercise price per fractional share of each Celtrix Stock
Option or Celtrix Warrant.

(h) Each warrant or option to purchase shares of Parent Common Stock issued
and outstanding prior to the Effective Time shall continue to be issued and
outstanding after the Effective Time and shall continue to have such rights and
preferences as existed prior to the Effective Time. All shares of Parent Common
Stock reserved for issuance upon exercise of such warrants and options shall
continue to be reserved for issuance after the Effective Time.

ARTICLE III

Shareholder Approval; Closing

Section 3.1. Shareholder Approval. This Agreement together with the
Certificate of Merger shall be submitted for consideration and approval to the
holders of shares of Celtrix Capital Stock at an annual or special meeting of
shareholders duly held for such purpose by Celtrix, and this Agreement together
with the Plan of Exchange shall be submitted for consideration and approval to
the holders of shares of Insmed Capital Stock at an annual or special meeting
of shareholders duly held for such purpose by Insmed. Celtrix and Insmed shall
coordinate and cooperate with respect to the timing of such meetings and shall
endeavor to hold such meetings on the same day and as soon as practicable after
the date hereof. The Board of Directors of Celtrix shall recommend that its
shareholders approve this Agreement and the transactions contemplated hereby
and the Board of Directors of Insmed shall recommend that its shareholders
approve the Plan of Exchange and the transactions contemplated hereby and
thereby, and such recommendation shall be contained in the Joint Proxy
Statement/Prospectus. On the first business day on or by which (a) this
Agreement and the Plan of

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Exchange have been duly approved by the requisite vote of the holders of shares
of Celtrix Capital Stock and Insmed Capital Stock, and (b) the Closing of the
transactions contemplated by this Agreement and those contemplated by the Plan
of Exchange shall have occurred, or such later date as shall be agreed upon by
Celtrix and Insmed, Articles of Exchange shall be filed in accordance with the
VSCA and a Certificate of Merger shall be filed in accordance with the DGCL,
and the Merger and the Exchange shall become effective in accordance with the
terms of this Agreement and the Certificate of Merger and the Plan of Exchange
at the time and date set forth therein (such time and date being referred to
herein as the "Effective Time").

Section 3.2. Time and Place of Closing. The closing of the transactions
contemplated by this Agreement and the Plan of Exchange will take place at a
time and on a date mutually agreed upon by the parties hereto (the "Closing"),
which shall be no later than the third business day following the date on which
all of the conditions to the obligations of the parties hereunder set forth in
Article VIII have been satisfied or waived. The place of Closing shall be at
Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street,
Richmond, Virginia 23219, or at such other place as may be mutually agreed upon
by the parties hereto.

ARTICLE IV

Parent and Merger Subsidiary

Section 4.1. No Conduct of Business by Each of Parent and Merger Subsidiary;
Restated Articles and Bylaws.

(a) Prior to the Effective Time, each of Parent and Merger Subsidiary shall
not (i) conduct any business operations whatsoever or (ii) enter into any
contract or agreement of any kind or acquire any assets or incur any liability,
except for the Stock Purchase Agreement, dated January 13, 2000, by and among
Parent, Insmed and certain investors, or as may be specifically contemplated by
this Agreement or as the parties may otherwise agree.

(b) Insmed, Celtrix and Parent agree that immediately prior to the filing of
the Certificate of Merger and Articles of Exchange pursuant to Sections 2.1 and
2.2 hereof, the Articles of Incorporation of Parent, shall be substantially in
the form attached hereto as Exhibit 4.1A, and the Bylaws of Parent shall be
substantially in the form attached hereto as Exhibit 4.1B.

Section 4.2. Board of Directors.

(a) At the Effective Time, the Board of Directors of Parent shall be as
listed on Exhibit 4.2 attached hereto. The Board of Directors of Parent shall
be divided into three classes, with the initial terms of office of the first,
second and third classes expiring at the first, second and third annual
meetings of the shareholders of Parent, respectively.

(b) The persons named as members of the Board of Directors of Parent on
Exhibit 4.2 shall be named in the Joint Proxy Statement/Prospectus and the
Registration Statement, subject to receipt of the consent of such individuals
to be so named.

Section 4.3. Management.

The principal officers of Parent at the Effective Time shall be as listed on
Exhibit 4.3. All other management positions of Parent shall be determined by
Parent's Chief Executive Officer and President.

Section 4.4. Headquarters of Parent.

The headquarters of Parent shall be located in Richmond, Virginia.

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ARTICLE V

Representations and Warranties of Celtrix

Celtrix represents and warrants to Insmed that as of November 30, 1999
(unless such representation or warranty speaks as of a different date), and
subject to such qualifications and exceptions as are set forth in a disclosure
letter delivered and dated as of the date hereof, signed by an executive
officer of Celtrix (the "Celtrix Disclosure Letter"), as follows:

Section 5.1. Organization and Authority of the Celtrix Companies. Each of
the Celtrix Companies is duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of organization. Each of the
Celtrix Companies has full corporate or partnership power to carry on their
respective businesses as they are now being conducted and to own, operate and
hold under lease their assets and properties as, and in the places where, such
properties and assets now are owned, operated or held. Each of the Celtrix
Companies is duly qualified as a foreign entity to do business, and is in good
standing, in each jurisdiction where the failure to be so qualified would have
a Material Adverse Effect on the Celtrix Companies. The copies of the
Certificate of Incorporation and Bylaws or partnership or joint venture
certificates and agreements of each of the Celtrix Companies which have been
delivered to Insmed are complete and correct and in full force and effect on
the date hereof, and no amendment or other modification has been filed,
recorded or is pending or contemplated thereto.

Section 5.2. Capitalization. Celtrix's authorized equity capitalization
consists of 60,000,000 shares of Celtrix Common Stock, $.01 par value, and
10,000,000 shares of Celtrix Preferred Stock, $.01 par value, 10,000 shares of
which have been designated Celtrix Series A Preferred Stock and 9,000 shares of
which have been designated Celtrix Series B Preferred Stock. As of the close of
business on December 31, 1999, 27,862,372 shares of Celtrix Common Stock, 8,010
shares of Celtrix Series A Preferred Stock and 0 shares of Celtrix Series B
Preferred Stock were issued and outstanding. Such shares of Celtrix Capital
Stock constituted all of the issued and outstanding shares of capital stock of
Celtrix as of such date. All issued and outstanding shares of Celtrix Capital
Stock have been duly authorized and validly issued and are fully paid and
nonassessable, are not subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any federal or state
securities laws. All of the outstanding shares of capital stock of Celtrix's
Subsidiaries are validly issued, fully paid and nonassessable and are, except
as disclosed in Schedule 5.2 of the Celtrix Disclosure Letter, owned by
Celtrix, directly or indirectly, free and clear of all Liens. Since January 1,
1995, except as set forth in Schedule 5.2 Celtrix has not declared or paid any
dividend on, or declared or made any distribution with respect to, or
authorized or effected any split-up or any other recapitalization of, any of
the Celtrix Capital Stock, or directly or indirectly redeemed, purchased or
otherwise acquired any of its outstanding capital stock or agreed to take any
such action and will not take any such action during the period between the
date of this Agreement and the Effective Time. Schedule 5.2 of the Celtrix
Disclosure Letter sets forth, as of December 31, 1999, all outstanding options,
warrants, subscriptions or other rights to purchase or acquire any capital
stock of any of the Celtrix Companies, the exercise or purchase price for such
securities and the expiration date thereof, and lists all contracts,
commitments, understandings, arrangements or restrictions by which any of the
Celtrix Companies is bound to sell or issue any shares of its capital stock.
The shares of Celtrix Common Stock constitute the only class of equity
securities of Celtrix registered or required to be registered under the
Exchange Act. All outstanding shares of Celtrix Common Stock are duly included
for trading on Nasdaq SmallCap.

Section 5.3. Authority Relative to this Agreement; Recommendation. The
execution, delivery and performance of this Agreement and of all of the other
documents and instruments required hereby by Celtrix are within the corporate
power and authority of Celtrix. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Celtrix and no other corporate
proceedings on the part of Celtrix are necessary to authorize this Agreement or
to consummate the transactions contemplated herein (other than the approval of
the transactions contemplated in this Agreement by the holders of at least a
majority of the outstanding shares of Celtrix Capital

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Stock at the Celtrix Special Meeting). This Agreement and all of the other
documents and instruments required hereby have been or will be duly and validly
executed and delivered by Celtrix and (assuming the due authorization,
execution and delivery hereof and thereof by Insmed) constitute or will
constitute valid, legal and binding agreements of Celtrix, enforceable against
Celtrix in accordance with their respective terms. The Celtrix Board has
resolved that the shareholders of Celtrix approve and adopt this Agreement.

Section 5.4. Consents and Approvals; No Violations. Except for (i) any
applicable requirements of the Exchange Act, and any applicable filings under
state securities, "Blue Sky" or takeover laws, (ii) the filing and recordation
of a Certificate of Merger as required by the DGCL and (iii) those required
filings, registrations and approvals listed on Schedule 5.4 of the Celtrix
Disclosure Letter, no filing or registration with, or notice to, and no permit,
authorization, consent or approval of, any public court, tribunal or
administrative, governmental or regulatory body, agency or authority is
necessary or required in connection with the execution and delivery of this
Agreement by Celtrix or for the consummation by Celtrix of the transactions
contemplated by this Agreement. Assuming that all filings, registrations,
permits, authorizations, consents and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated hereby by Celtrix will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation, Bylaws,
partnership or joint venture agreements or other organizational documents of
any of the Celtrix Companies, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, Celtrix Contract or other instrument or obligation to which
any of the Celtrix Companies is a party or by which it or any of them or any of
their properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the
Celtrix Companies or any of their properties or assets except, in the case of
subsections (ii) or (iii) above, for violations, breaches or defaults that
would not have a Material Adverse Effect on the Celtrix Companies and that will
not prevent or delay the consummation of the transactions contemplated hereby.

Section 5.5. Reports. The Celtrix SEC Reports complied, as of their dates of
filing, in all material respects with all applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the SEC. As
of their respective dates, none of such forms, reports or documents, including
without limitation any financial statements or schedules included therein,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in light of the circumstances under which
they were made. Each of the balance sheets (including the related notes)
included in the Celtrix SEC Reports fairly presented the consolidated financial
position of the Celtrix Companies as of the respective dates thereof, and the
other related financial statements (including the related notes) included
therein fairly presented the results of operations and cash flows of the
Celtrix Companies for the respective fiscal periods or as of the respective
dates set forth therein. Each of the financial statements (including the
related notes) included in the Celtrix SEC Reports (i) complied as to form with
the applicable accounting requirements and rules and regulations of the SEC,
and (ii) was prepared in accordance with GAAP consistently applied during the
periods presented. Except for Celtrix, none of the Celtrix Companies is
required to file any forms, reports or other documents with the SEC, Nasdaq
SmallCap or any other foreign or domestic securities exchange or Governmental
Authority with jurisdiction over securities laws. All material agreements,
contracts and other documents required to be filed as exhibits to any of the
Celtrix SEC Reports have been so filed by Celtrix.

Section 5.6. Absence of Certain Events.

(a) Except as set forth in the Celtrix SEC Reports filed prior to the date
of this Agreement or as otherwise specifically disclosed in Schedule 5.6(a) of
the Celtrix Disclosure Letter, since March 31, 1999, none of the Celtrix
Companies has suffered any adverse change in its business, financial condition
or results of operations that will have a Material Adverse Effect upon the
Celtrix Companies. Except as disclosed in the Celtrix SEC Reports or in
Schedule 5.6(a) of the Celtrix Disclosure Letter, or as otherwise specifically
contemplated by this

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Agreement, and except with respect to the Elan Joint Venture in which case
Section 5.6(b) shall apply, there has not been since March 31, 1999: (i) any
entry into any agreement or understanding or an amendment of any agreement or
understanding between any of the Celtrix Companies on the one hand, and any of
their respective executive officers or key employees or consultants on the
other hand, providing for employment of any such officer or key employee or
consultants or any general or material increase in the compensation, severance
or termination benefits payable or to become payable by any of the Celtrix
Companies to any of their respective officers or key employees or consultants
(except for normal increases in the ordinary course of business that are
consistent with past practices and that, in the aggregate, do not result in a
material increase in benefits or compensation expense), or any adoption of or
increase in any bonus, insurance, pension or other employee benefit plan,
payment or arrangement (including, without limitation, the granting of stock
options or stock appreciation rights or the award of restricted stock) made to,
for or with any such officer or key employee or consultant; (ii) any entry by
any of the Celtrix Companies into any material commitment, agreement, license
or transaction (including, without limitation, any borrowing, capital
expenditure, sale of assets or any Lien made on any of the properties or assets
of any of the Celtrix Companies) other than in the ordinary and usual course of
business; (iii) any change in the accounting methods, principles or practices
of Celtrix; (iv) any damage, destruction or loss, whether covered by insurance
or not, having a Material Adverse Effect upon the Celtrix Companies; or (v) any
agreement to do any of the foregoing.

(b) with respect to the Elan Joint Venture, except as set forth in Schedule
5.6(b) of the Celtrix Disclosure Letter, none of the Celtrix Companies has
committed to, or has itself entered into any agreement, commitment or
understanding or an amendment of any agreement, commitment or understanding
with respect to the Elan Joint Venture, including without limitation, (i) any
agreement relating to funding the Elan Joint Venture, (ii) any agreement
establishing a budget for the Elan Joint Venture, (iii) any agreement,
commitment or understanding as to clinical trials or (iv) any other agreement
commitment or understanding that could reasonably be expected to impose a
liability on any Celtrix Company of $50,000 or more.

Section 5.7. Joint Proxy Statement/Prospectus. None of the information with
respect to the Celtrix Companies to be included in the Joint Proxy
Statement/Prospectus or the Registration Statement will, in the case of the
Joint Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, at the time of the mailing of the Joint Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, and at the time of the Celtrix
Special Meeting, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Celtrix with respect to
information supplied in writing by Parent or Insmed or any affiliate of Parent
or Insmed for inclusion in the Joint Proxy Statement/Prospectus.

Section 5.8. Litigation. Except as set forth in Schedule 5.8 of the Celtrix
Disclosure Letter, there is no action, suit, proceeding or investigation
pending or, to the Knowledge of Celtrix, threatened against or relating to any
of the Celtrix Companies at law or in equity, or before any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency, instrumentality or arbitration panel, whether in the United
States or otherwise, including without limitation with respect to infringement
of any Intellectual Property. None of the Celtrix Companies is subject to any
order, judgment, decree or obligation that would materially limit the ability
of the Celtrix Companies to operate their respective businesses in the ordinary
course.

Section 5.9. Employee Benefit Plans; Labor Matters.

(a) Celtrix has delivered to Insmed prior to the execution of this Agreement
copies of all pension, 401(k), retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other incentive plan, any other employee program, arrangement or
agreement, whether

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arrived at through collective bargaining or otherwise, any medical, vision,
dental or other health plan, any life insurance plan, or any other employee
benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any of the Celtrix Companies or affiliates thereof for the
benefit of employees, former employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, former employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries are eligible to participate
(collectively, the "Celtrix Benefit Plans") and (i) any related trust
agreement; (ii) any amendments to such plans or trust; (iii) the most recent
Form 5500 and all schedules thereto; (iv) the most recent IRS determination
letter; (iv) the most recent summary plan descriptions; and (v) the most recent
actuarial report for any Celtrix Benefit Plan that is a defined benefit pension
plan or funded welfare benefit plan. Any of the Celtrix Benefit Plans which is
an "employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as an "Celtrix ERISA Plan."

(b) Each Celtrix Benefit Plan has been administered in material compliance
with its terms and with the applicable provisions (including, without
limitation, any funding requirements or limitations) of ERISA, the Code and any
other applicable Laws. Each Celtrix Benefit Plan is enforceable in accordance
with its terms.

(c) No Celtrix ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A)
of ERISA, and the present fair market value of the assets of any such plan
exceeds the plan's "benefit liabilities," as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that would apply
if the plan terminated in accordance with all applicable legal requirements.

(d) Each Celtrix ERISA Plan intended to be qualified under Section 401(a) of
the Code ("Celtrix Qualified Plan") has either obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination. To the Knowledge of Celtrix, there are no facts or circumstances
that would be reasonably likely to jeopardize or adversely affect the
qualification under Code Section 401(a) of any Celtrix Qualified Plan or
otherwise have a material adverse effect on the qualified status of any Celtrix
Qualified Plan. Each Celtrix Qualified Plan incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation to the extent such amendment or incorporation is
required as of the Closing Date.

(e) As of the Effective Time, full payment of all contributions will be made
or accrued with respect to each Celtrix Benefit Plan (including all employer
contributions and employee salary reduction contributions) that are either
required under the terms thereof or under ERISA or the Code. Neither Celtrix
nor any organization to which Celtrix is a successor or parent corporation,
within the meaning of Section 4069(b) of ERISA, has engaged in any transaction,
within the meaning of Section 4069 of ERISA. No Celtrix ERISA Plan has incurred
a "reportable event" as such term is defined in Section 4043 of ERISA, other
than a "reportable event" which was not required to be reported.

(f) Celtrix has filed all reports, returns and other documentation and paid
all premiums and taxes associated therewith that are required to have been
filed with respect to each Celtrix Benefit Plan with the IRS, the Department of
Labor, or any other governmental agency (federal, state or local) and such have
been filed on a timely basis. No lawsuits, complaints, investigations or
proceedings to or by any Person or governmental authority have been filed or,
to the Knowledge of Celtrix, are proposed or threatened, with respect to any
Celtrix Benefit Plan, except where such lawsuits, complaints, investigations or
proceedings would not have, alone or in the aggregate, a Material Adverse
Effect.

(g) Neither Celtrix nor any Celtrix ERISA Affiliate is or has ever been a
party to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
and neither Celtrix nor any Celtrix ERISA Affiliate has

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received a notice of, or incurred, any withdrawal liability with respect to a
"multiemployer plan" that has not been satisfied.

(h) Celtrix has not incurred any material liability for "welfare benefits"
(as defined in Code Section 419) that was not fully reflected in the Celtrix
Form 10-K. Except as required under COBRA (or any similar provisions of state
law) or the terms of any Celtrix ERISA Plan, Celtrix is not obligated to
provide or to pay any benefits to former employees, or to their dependents or
beneficiaries, solely as a result of the consummation of the transactions
contemplated in this Agreement.

(i) Schedule 5.9(i) sets forth a true and complete list, as of December 31,
1999, of each person who holds any Celtrix Stock Options, together with the
number of shares of Celtrix Common Stock which are subject to such option, the
date of grant of such option, the extent to which such option is vested (or
will become vested as a result of the Merger), the option price of such option
(to the extent determined as of the date hereof), whether such option is a
nonqualified stock option or is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code, and the expiration
date of such option. Schedule 5.9(i) of the Celtrix Disclosure Letter also sets
forth the total number of such incentive stock options and such nonqualified
options and any non-statutory options issued to consultants or others. Celtrix
has furnished Insmed with complete copies of the plans pursuant to which the
Celtrix Stock Options were issued. Other than the automatic vesting of Celtrix
Stock Options that may occur without any action on the part of Celtrix or its
officers or directors, Celtrix has not taken any action that would result in
any Celtrix Stock Options that are unvested becoming vested in connection with
or as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.

(j) Celtrix has made available to Insmed (i) a description of the terms of
employment and compensation arrangements of all officers and other employees of
Celtrix and a copy of each such agreement currently in effect; (ii) copies of
all agreements with consultants who are individuals obligating Celtrix to make
annual cash payments in an amount exceeding $25,000; (iii) copies (or
descriptions) of all severance agreements, programs and policies of Celtrix
with or relating to its employees, except programs and policies required to be
maintained by Law; and (iv) copies of all plans, programs, agreements and other
arrangements of Celtrix with or relating to its employees which contain change
in control provisions all of which are set forth on Schedule 5.9(j) of the
Celtrix Disclosure Letter.

Section 5.10. Tax Matters.

(a) Except as set forth on Schedule 5.10 of the Celtrix Disclosure Letter:

(i) Celtrix and each of its Subsidiaries that is incorporated under the
laws of the United States or of any of the United States are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of
which Celtrix is the common parent, such affiliated group files a
consolidated federal income tax return and neither Celtrix nor any of its
Subsidiaries has ever filed a consolidated federal income tax return with
(or been included in a consolidated return of) a different affiliated
group;

(ii) each of the Celtrix Companies has timely filed or caused to be
filed all material Tax Returns required to have been filed by or for it,
and all information set forth in such Tax Returns is accurate and complete
in all material respects;

(iii) each of the Celtrix Companies has paid or made adequate provision
on its books and records in accordance with GAAP for all material Taxes
covered by such Tax Returns;

(iv) each of the Celtrix Companies is in material compliance with, and
its records contain all information and documents (including, without
limitation, properly completed IRS Forms W-8 and Forms W-9) necessary to
comply with, all applicable information reporting requirements under
federal, state, local and foreign Laws, and such records identify with
specificity all accounts subject to withholding under Section 1441, 1442 or
3406 of the Code or similar provisions of state, local or foreign Laws;

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(v) each of the Celtrix Companies has collected or withheld all material
Taxes required to be collected or withheld by it, and all such Taxes have
been paid to the appropriate Governmental Authority or set aside in
appropriate accounts for future payment when due;

(vi) there are no unpaid Taxes due and payable by any of the Celtrix
Companies or by any other person that are or may become a lien on any asset
of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, Celtrix;

(vii) none of the Celtrix Companies has granted (or is subject to) any
waiver, which is currently in effect, of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or
asserted against or with respect to any of the Celtrix Companies by any
Governmental Authority; no power of attorney relating to Taxes that is
currently in effect has been granted by or with respect to any of the
Celtrix Companies; there are no currently pending administrative or
judicial proceedings, or any deficiency or refund litigation, with respect
to Taxes of any of the Celtrix Companies, the adverse outcome of which may
reasonably be expected to have a Material Adverse Effect on Celtrix; and
any such assertion, assessment, proceeding or litigation disclosed in
Schedule 5.10 of the Celtrix Disclosure Letter is being contested in good
faith through appropriate measures, and its status is described in the
Schedule 5.10 of the Celtrix Disclosure Letter;

(viii) none of the Celtrix Companies has made or entered into, or holds
any asset subject to, a consent filed pursuant to Section 341(f) of the
Code or a "safe harbor lease" subject to former Section 168(f)(8) of the
Code;

(ix) none of the Celtrix Companies is required to include in income any
material amount from an adjustment pursuant to Section 481 of the Code or
any similar provision of state or local Law, and to the Knowledge of
Celtrix no Governmental Authority has proposed any such adjustment;

(x) none of the Celtrix Companies is obligated to make any payments, or
is a party to any Contract that could obligate it to make any payments,
that would not be deductible by reason of Section 162(m) or 280G of the
Code;

(xi) there are no excess loss accounts or deferred intercompany gains
with respect to any member of the affiliated group of which Celtrix is the
common parent which may reasonably be expected to have a Material Adverse
Effect on Celtrix if taken into account;

(xii) the most recent audited consolidated balance sheet included in the
Celtrix SEC Reports fully and properly reflects, as of the date thereof,
the liabilities of Celtrix and its Subsidiaries for all accrued Taxes and
deferred liability for Taxes and, for periods ending after such date, the
books and records of each such corporation fully and properly reflect its
liability for all accrued Taxes; and

(xiii) since April 16, 1997, none of the Celtrix Companies has
distributed to its stockholders or security holders stock or securities of
a controlled corporation in a transaction to which Section 355(a) of the
Code applies.

(b) Celtrix has provided Insmed with copies of all Tax Returns (for the last
five years), consents and agreements made by or affecting any of the Celtrix
Companies, or filed by or on behalf of any of the Celtrix Companies, including
any Tax Returns, consents or agreements with respect to which any of the
Celtrix Companies is or has been included in a consolidated, unitary or
combined return.

Section 5.11. Compliance with Law. Except as publicly disclosed by Celtrix
in the Celtrix Form 10-K, Celtrix holds all Permits necessary for the lawful
conduct of its businesses (the "Celtrix Permits"), except for failures to hold
such Celtrix Permits which would not have a Material Adverse Effect on Celtrix.
Except as publicly disclosed by Celtrix in the Celtrix Form 10-K, Celtrix is in
compliance with the terms of the Celtrix Permits, except where the failure so
to comply would not have a Material Adverse Effect on Celtrix. Except as
publicly disclosed by Celtrix in the Celtrix Form 10-K, the business of Celtrix
is not being conducted in violation of any Law, ordinance or regulation of any
Governmental Entity except that no representation or

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warranty is made in this Section 5.11 with respect to Environmental Laws (as
defined in Section 5.18 below) and except for violations or possible violations
which do not have, and, insofar as reasonably can be foreseen, in the future
will not, have a Material Adverse Effect on Celtrix. Except as publicly
disclosed by Celtrix in the Celtrix Form 10-K, no investigation or review by
any Governmental Entity with respect to Celtrix is pending or, to the Knowledge
of Celtrix, threatened, nor, to the Knowledge of Celtrix, has any Governmental
Entity indicated an intention to conduct the same, other than, in each case,
those which Celtrix reasonably believes will not have a Material Adverse Effect
on Celtrix.

Section 5.12. Transactions With Affiliates. Except as set forth in Schedule
5.12 of the Celtrix Disclosure Letter attached hereto, since March 31, 1999,
the Celtrix Companies have not, in the ordinary course of business or
otherwise, purchased, leased or otherwise acquired any material property or
assets or obtained any material services from, or sold, leased or otherwise
disposed of any material property or assets or provided any material services
to (except with respect to remuneration for services rendered as a director,
officer or employee of one or more of the Celtrix Companies) (a) any holder of
5% or more of the voting securities of Celtrix, (b) any director, officer or
employee of the Celtrix Companies, (c) any person, firm or corporation that
directly or indirectly controls, is controlled by or is under common control
with any of the Celtrix Companies or (d) any member of the immediate family of
any of such persons (collectively, for purposes of this Section, a "Celtrix
Affiliate"). Except as set forth in Schedule 5.12 of the Celtrix Disclosure
Letter, (a) the Contracts of the Celtrix Companies do not include any
obligation or commitment between any of the Celtrix Companies and any Celtrix
Affiliate, and (b) the assets of Celtrix do not include any receivable or other
obligation or commitment from a Celtrix Affiliate to any of the Celtrix
Companies, and no Celtrix Affiliate has any interest in any material property,
real or personal, tangible or intangible, including without limitation, any
Software or Celtrix Intellectual Property, used in or pertaining to the
business of Celtrix, except for the ordinary rights of a shareholder or
employee stock optionholder.

Section 5.13. Fees and Expenses of Brokers and Others. None of the Celtrix
Companies (a) has had any dealings, negotiations or communications with any
broker, finder or investment banker or other intermediary in connection with
the transactions contemplated by this Agreement, (b) is committed to any
liability for any brokers' or finders' fees or any similar fees in connection
with the transactions contemplated by this Agreement or (c) has retained any
broker, finder or investment banker or other intermediary to act on its behalf
in connection with the transactions contemplated by this Agreement, except that
Celtrix has retained PGE to represent it in connection with such transactions.

Section 5.14. Accuracy of Information. Neither this Agreement nor any other
document provided by the Celtrix Companies or their employees or agents to
Insmed in connection with the transactions contemplated herein contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.

Section 5.15. Absence of Undisclosed Liabilities. None of the Celtrix
Companies has any liabilities or obligations of any kind, whether absolute,
accrued, asserted or unasserted, contingent or otherwise, except liabilities,
obligations or contingencies that are accrued or reserved against in the
consolidated balance sheet of Celtrix as of March 31, 1999, that is included in
the Celtrix SEC Reports or reflected in the notes thereto, or that were
incurred after the date of such balance sheet in the ordinary course of
business and consistent with past practices, and except for any such
liabilities or obligations which, individually or in the aggregate, would not
have a Material Adverse Effect on the Celtrix Companies.

Section 5.16. Opinion of Financial Advisor. Celtrix has received the opinion
of PGE to the effect that, as of November 29, 1999, the consideration
contemplated in the Merger is fair to the holders of shares of Celtrix Capital
Stock from a financial point of view.

Section 5.17. [Intentionally Omitted].

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Section 5.18. Environmental Laws and Regulations.

(a) Except as publicly disclosed by Celtrix in the Celtrix Form 10-K or as
set forth in Schedule 5.18 of the Celtrix Disclosure Letter, (i) Celtrix is and
always has been in material compliance with all applicable federal, state,
local and foreign laws (including common law) and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "Environmental Laws"), except for non-
compliance that would not have a Material Adverse Effect on Celtrix, which
compliance includes, but is not limited to, the possession by Celtrix of all
material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) Celtrix has not received written notice of, or, to the Knowledge
of Celtrix, is the subject of, any action, cause of action, claim,
investigation, demand or notice by any person or entity alleging liability
under or non-compliance with any Environmental Law (an "Environmental Claim")
that could reasonably be expected to have a Material Adverse Effect on Celtrix;
(iii) there has been no releases or offsite shipments from any property ever
owned by Celtrix or any of its Subsidiaries of any hazardous, toxic or
radioactive material, substance or wastes defined or regulated as such under
the Environmental Law that would be reasonably likely to result in an
Environmental Claim; and (iv) to the Knowledge of Celtrix, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.

(b) Except as publicly disclosed by Celtrix in the Celtrix Form 10-K, there
are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Celtrix that are pending or, to the Knowledge of
Celtrix, threatened against Celtrix or, to the Knowledge of Celtrix, against
any person or entity whose liability for any Environmental Claim Celtrix has or
may have retained or assumed either contractually or by operation of Law.

Section 5.19. Intellectual Property.

(a) Celtrix owns, or has a valid license to use or otherwise has the right
to use, free and clear of all Liens, all (i) patents and industrial design
registrations or applications (including any continuations, divisionals,
continuations-in-part, renewals, reissues, and applications for any of the
foregoing) (collectively, "Patents"), (ii) trademarks, service marks, trade
names, Internet domain names, designs, logos, slogans, and general intangibles
of like nature, together with all goodwill, registrations and applications
related to the foregoing (collectively, "Trademarks"), (iii) copyrights
(including any registrations and applications therefor) (collectively
"Copyrights"), (iv) software, (v) "mask works" (as defined under 17 U.S.C. (S)
901) and any registrations and applications for "mask works" and (vi)
technology, trade secrets and other confidential information, know-how,
proprietary processes, formulae, algorithms, models, and methodologies
(collectively, "Trade Secrets"), in the case of each of the foregoing clauses,
used in or necessary of the conduct of Celtrix's business as currently
conducted or contemplated to be conducted (collectively, the "Celtrix
Intellectual Property").

(b) Schedule 5.19 of the Celtrix Disclosure Letter sets forth, for the
Celtrix Intellectual Property, a complete and accurate list as of the date
hereof of (i) all U.S. and foreign (A) patents and patent applications, each as
owned by Celtrix, (B) trademark registrations (including Internet domain name
registrations), trademark applications, and material unregistered trademarks,
each as owned by Celtrix and (C) copyright and mask work registrations and
applications, and material unregistered copyrights, each as owned by Celtrix;
and (ii) all material agreements (whether oral or written) (A) granting or
obtaining any right to use or practice any rights under any Celtrix
Intellectual Property, or (B) restricting Celtrix's rights to use any Celtrix
Intellectual Property, including license agreements, consulting and
professional services agreements, development agreements, distribution
agreements, settlement agreements, consent to use agreements, and covenants not
to sue (collectively, the "Celtrix License Agreements"). The Celtrix License
Agreements are valid and binding obligations of Celtrix and, to Celtrix's
Knowledge, each of the other parties thereto, enforceable in accordance with
their terms, except that the enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
thereafter in effect relating to creditors' rights

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generally and (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought. There exists no event or condition which
will result in a violation or breach of, or constitute (with or without due
notice of lapse of time or both) a default by Celtrix or, to Celtrix's
Knowledge, any party under any such Celtrix License Agreement. Celtrix has not
licensed or sublicensed, nor has any third party acquired, rights in any
Celtrix Intellectual Property other than pursuant to the Celtrix License
Agreements.

(c) No royalties, honoraria or other fees are payable by Celtrix to any
third parties for the use of or right to use any Celtrix Intellectual Property
except pursuant to the Celtrix License Agreements identified on Schedule 5.19
of the Celtrix Disclosure Letter.

(d) Except as set forth on Schedule 5.19 of the Celtrix Disclosure Letter:

(i) Celtrix is listed in the records of the appropriate U.S., state or
foreign registry as the sole and current owner of record for each
application and registration listed on Schedule 5.19 of the Celtrix
Disclosure Letter;

(ii) Each Patent, Copyright and Trademark owned by Celtrix and, to
Celtrix's Knowledge, each Patent, Copyright and Trademark not owned but
used by Celtrix, is in full force and effect, and has not been cancelled,
expired, or abandoned, and is valid and enforceable;

(iii) There has never been any claim, suit, arbitration or other
adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction, nor, to Celtrix's Knowledge, is
there threatened or any valid basis for any such claim, suit, arbitration
or other adversarial proceeding, (A) involving the Celtrix Intellectual
Property owned by Celtrix or the Celtrix Intellectual Property licensed to
Celtrix or (B) alleging that the activities or the conduct of Celtrix's
business does or will infringe upon, violate or constitute the unauthorized
use of the intellectual property rights of any third party, or challenging
the ownership, use, validity, enforceability or registrability of any
Celtrix Intellectual Property. There are no settlements, forbearances to
sue, consents, judgments, orders or similar obligations other than the
Celtrix License Agreements to which Celtrix or any of its executive
officers is subject or a party or the existence of which Celtrix or any of
its directors or executive officers is otherwise aware which (A) restrict
Celtrix's rights to use any Celtrix Intellectual Property, (B) restrict
Celtrix's business in order to accommodate a third party's intellectual
property rights or (C) permit any third party to use any Celtrix
Intellectual Property;

(iv) The conduct of Celtrix's business as currently conducted or planned
to be conducted does not infringe upon (either directly or indirectly, such
as through contributory infringement or inducement to infringe) any
intellectual property rights owned or controlled by any third party. To
Celtrix's Knowledge, no third party is misappropriating, infringing,
diluting or violating any Celtrix Intellectual Property; no claim, suit,
arbitration or other adversarial proceeding alleging any such
misappropriation, infringement, dilution or violation has ever been brought
against any third party by Celtrix nor has Celtrix ever threatened any such
claim against any third party;

(v) Celtrix takes reasonable measures to protect the confidentiality of
its Trade Secrets, including requiring its employees and other parties
having access thereto to execute written non-disclosure agreements. To
Celtrix's Knowledge, no Trade Secret has been disclosed or authorized to be
disclosed to any third party other than pursuant to a non-disclosure
agreement that fully protects the proprietary interests of Celtrix in and
to such Trade Secrets. To Celtrix's Knowledge, no party to any non-
disclosure agreement relating to Celtrix's Trade Secrets is in breach or
default thereof;

(vi) Except as set forth in Schedule 5.19 of the Celtrix Disclosure
Letter, no current or former partner, director, officer, or employee of
Celtrix will, after giving effect to each of the transactions contemplated
herein, own or retain any rights in or to any of the Celtrix Intellectual
Property; and

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(vii) Except as set forth on Schedule 5.19 of the Celtrix Disclosure
Letter, the consummation of the transactions contemplated hereby will not
result in any breach or default under any Celtrix License Agreement, or
require the consent of any party thereto and will not result in the loss or
impairment of Celtrix's rights to own or use any of the Celtrix
Intellectual Property, nor will it require the consent of any governmental
authority or third party in respect of any such Celtrix Intellectual
Property.

Section 5.20. Insurance.

All material fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained
by Celtrix and its Subsidiaries are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
Celtrix and its Subsidiaries and their respective properties and assets, and
are in character and amount at least equivalent to that carried by persons
engaged in similar businesses and subject to the same or similar perils or
hazards, except for any such failures to maintain insurance policies that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect and are listed on Schedule 5.20 of the Celtrix Disclosure
Letter. Celtrix has maintained such policies on a continuous basis since April
1, 1995.

Section 5.21. Vote Required; Board Approval.

(a) The affirmative vote of the holders of at least a majority of the
outstanding shares of Celtrix voting Capital Stock, voting as a single class,
is the only vote of the holders of any class or series of Celtrix's Capital
Stock necessary to approve and adopt this Agreement and the Merger.

(b) Celtrix's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
advisable and in the best interests of Celtrix and its shareholders, (ii)
approved this Agreement and the transactions contemplated hereby and (iii)
resolved to recommend to its shareholders that they vote in favor of adopting
and approving this Agreement in accordance with the terms hereof.

Section 5.22. State Takeover Statutes.

Celtrix has taken all actions required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from the provisions of
Section 203 of the DGCL, and accordingly, such section does not apply to the
Merger or any of such transactions. No other "control share acquisition," "fair
price," "investor protection" or other anti-takeover laws or regulations
enacted under state or federal laws in the United States apply to this
Agreement or any of the transactions contemplated hereby.

Section 5.23. Tax Treatment.

Neither Celtrix nor, to the Knowledge of Celtrix, any of its affiliates has
taken, agreed to take or will take any action or is aware of any fact or
circumstance that would prevent the Merger or the Exchange from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code or
part of an exchange described in Section 351 of the Code.

Section 5.24. Certain Business Practices.

None of Celtrix or any directors, officers, agents or employees of Celtrix
has (i) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
FCPA, or (iii) made any other unlawful payment.

Section 5.25. No Existing Discussions.

As of the date hereof, Celtrix is not engaged, directly or indirectly, in
any discussions or negotiations with any other party with respect to any
Celtrix Third Party Acquisition.

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Section 5.26. Material Contracts.

(a) Schedule 5.26 of the Celtrix Disclosure Letter attached hereto contains
a true, correct and complete list of all Contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters
affecting the obligations of any party thereunder) to which the Celtrix
Companies are a party or by which any of its properties or assets are bound
that are, material to the business, properties or assets of Celtrix taken as a
whole, including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or
assets of Celtrix taken as a whole (for such purposes material shall mean an
amount of at least $25,000), all: (i) employment, product design or
development, personal services, consulting, non-competition, severance, golden
parachute, or indemnification contracts (including, without limitation, any
Contract to which Celtrix is a party involving employees of Celtrix); (ii)
licensing, publishing, merchandising or distribution agreements; (iii)
Contracts granting rights of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets or stock or otherwise entered
into since April 1, 1999; (vi) Contracts or agreements with any Governmental
Entity; (vii) Contracts relating to the purchase of goods, equipment or
services used in support of Celtrix's business or operations of amounts in
excess of $25,000 per year or having a duration in excess of one year; (viii)
Contracts which contain covenants pursuant to which Celtrix has agreed not to
compete with any person or any person has agreed not to compete with Celtrix;
(ix) Contracts upon which any substantial part of Celtrix's business is
dependent or which, if breached, could reasonably be expected to have a
Material Adverse Effect on Celtrix; and (x) all commitments and agreements to
enter into any of the foregoing (collectively, the "Celtrix Contracts"). Except
as set forth in Schedule 5.26 of the Celtrix Disclosure Letter, Celtrix is not
a party to or bound by any consulting, severance, golden parachute,
indemnification or other agreement with any employee or consultant pursuant to
which such person would be entitled to receive any additional compensation or
an accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby and Celtrix is not obligated to make a payment
to an individual that would be a "parachute payment" to a "disqualified
individual" (as those terms are defined in Section 280G of the Code, without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future).

(b) Each of the Celtrix Contracts is valid, binding, in full force and
effect and enforceable in accordance with its terms, and true and correct
copies thereof have been delivered to Insmed, and there is no default under any
Celtrix Contract so listed either by Celtrix or, to the Knowledge of Celtrix,
by any other party thereto, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default thereunder by
Celtrix or, to the Knowledge of Celtrix, any other party, in any such case in
which such default or event could reasonably be expected to have a Material
Adverse Effect on Celtrix.

(c) No party to any such Celtrix Contract has given notice to Celtrix of or
made a claim against Celtrix with respect to any breach or default thereunder,
in any such case in which such breach or default could reasonably be expected
to have a Material Adverse Effect on Celtrix.

(d) The execution and delivery of this Agreement by Celtrix does not, and
the consummation of the transactions contemplated by this Agreement will not,
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require the consent or waiver under, any of the material terms,
conditions or provisions of the Celtrix Contracts identified on Schedule 5.26
of the Celtrix Disclosure Letter.

Section 5.27. Properties.

(a) None of the Celtrix Companies leases for a term of more than six months
any real property nor owns any real property.

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Section 5.28. Year 2000 Compliance.

(a) Celtrix has reviewed the areas within its business and operations which
could be adversely affected by the Year 2000 Problem and has initiated a
program to achieve Year 2000 Compliance by December 31, 1999. As of the date
hereof, except as is not reasonably likely to have a Material Adverse Effect on
Celtrix: (i) Celtrix has implemented such Year 2000 Compliance program in
accordance with the timetable set forth therein; (ii) Celtrix has made
appropriate inquiries as to the Year 2000 Compliance of their material
suppliers, service providers, franchisers and vendors, and Celtrix has not
received notice of any inability on the part of such entities to achieve Year
2000 Compliance in a timely manner; and (iii) based on such review and program,
Celtrix believes that the Year 2000 Problem, including costs of remediation,
will not have a Material Adverse Effect on Celtrix.

ARTICLE VI

Representations and Warranties of Insmed

Insmed represents and warrants to Celtrix that as of November 30, 1999
(unless such representation or warranty speaks as of a different date), and
subject to such qualifications and exceptions as are set forth in a disclosure
letter delivered and dated as of the date hereof, signed by an executive
officer of Insmed (the "Insmed Disclosure Letter"), as follows:

Section 6.1. Organization and Authority of the Insmed Companies. Each of the
Insmed Companies is duly organized, validly existing and in good standing under
the laws of their respective jurisdictions of organization. Each of the Insmed
Companies has full corporate or partnership power to carry on their respective
businesses as they are now being conducted and to own, operate and hold under
lease their assets and properties as, and in the places where, such properties
and assets now are owned, operated or held. Each of the Insmed Companies is
duly qualified as a foreign entity to do business, and is in good standing, in
each jurisdiction where the failure to be so qualified would have a Material
Adverse Effect on the Insmed Companies. The copies of the Articles of
Incorporation and Bylaws or partnership or joint venture certificates and
agreements of each of the Insmed Companies which have been delivered to Celtrix
are complete and correct and in full force and effect on the date hereof, and
no amendment or other modification has been filed, recorded or is pending or
contemplated thereto.

Section 6.2. Capitalization. Insmed's authorized equity capitalization
consists of 20,000,000 shares of Insmed Common Stock, $.01 par value, and
17,000,000 shares of Insmed Preferred Stock, $.01 par value, 7,000,000 shares
of which have been designated as Insmed Series A Preferred Stock, and 5,000,000
shares of which have been designated as Insmed Series B Preferred Stock. As of
the close of business on November 30, 1999, 3,637,052 shares of Insmed Common
Stock, 6,144,599 shares of Insmed Series A Preferred Stock, and 3,581,761
shares of Insmed Series B Preferred Stock were issued and outstanding. Such
shares of Insmed Capital Stock constituted all of the issued and outstanding
shares of capital stock of Insmed as of such date. All issued and outstanding
shares of Insmed Capital Stock have been duly authorized and validly issued and
are fully paid and nonassessable, are not subject to and have not been issued
in violation of any preemptive rights and have not been issued in violation of
any federal or state securities laws. All of the outstanding shares of capital
stock of Insmed's Subsidiaries are validly issued, fully paid and nonassessable
and are, except as disclosed on Schedule 6.2 of the Insmed Disclosure Letter,
owned by Insmed, directly or indirectly, free and clear of all liens, claims,
charges or encumbrances. Since January 1, 1995, Insmed has not declared or paid
any dividend on, or declared or made any distribution with respect to, or
authorized or effected any split-up or any other recapitalization of, any of
the Insmed Capital Stock, or except as set forth in Schedule 6.2 of the Insmed
Disclosure Letter directly or indirectly redeemed, purchased or otherwise
acquired any of its outstanding capital stock or agreed to take any such action
and will not take any such action during the period between the date of this
Agreement and the Effective Time. Schedule 6.2 of the Insmed Disclosure Letter
sets forth, as of November 30, 1999, all outstanding options, warrants,
subscriptions or other rights to purchase or acquire any

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capital stock of any of the Insmed Companies, the exercise or purchase price
for such securities and the expiration date thereof, and lists all contracts,
commitments, understandings, arrangements or restrictions by which any of the
Insmed Companies is bound to sell or issue any shares of its capital stock.

Section 6.3. Authority Relative to this Agreement; Recommendation. The
execution, delivery and performance of this Agreement and of all of the other
documents and instruments required hereby by Insmed are within the corporate
power and authority of Insmed. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Insmed and no other corporate
proceedings on the part of Insmed are necessary to authorize this Agreement or
to consummate the transactions contemplated herein (other than, with respect to
the Exchange, the approval of the Plan of Exchange by the holders of more than
two-thirds of the outstanding shares of each series of Insmed Preferred Stock
voting as a separate class and the holders of more than two-thirds of the
outstanding shares of Insmed Capital Stock voting as a single class at the
Insmed Special Meeting). This Agreement and all of the other documents and
instruments required hereby have been or will be duly and validly executed and
delivered by Insmed and (assuming the due authorization, execution and delivery
hereof and thereof by Celtrix) constitute or will constitute valid, legal and
binding agreements of Insmed, enforceable against Insmed in accordance with
their respective terms. The Insmed Board has resolved that the shareholders of
Insmed approve and adopt the Plan of Exchange.

Section 6.4. Consents and Approvals; No Violations. Except for (i) any
applicable requirements of the Exchange Act, and any applicable filings under
state securities, "Blue Sky" or takeover laws, (ii) the filing and recordation
of Articles of Exchange as required by the VSCA and (iii) those required
filings, registrations and approvals listed on Schedule 6.4 of the Insmed
Disclosure Letter attached hereto, no filing or registration with, or notice
to, and no permit, authorization, consent or approval of, any public court,
tribunal or administrative, governmental or regulatory body, agency or
authority is necessary or required in connection with the execution and
delivery of this Agreement by Insmed or for the consummation by Insmed of the
transactions contemplated by this Agreement. Assuming that all filings,
registrations, permits, authorizations, consents and approvals contemplated by
the immediately preceding sentence have been duly made or obtained, neither the
execution, delivery and performance of this Agreement nor the consummation of
the transactions contemplated hereby by Insmed will (i) conflict with or result
in any breach of any provision of the Articles of Incorporation, Bylaws,
partnership or joint venture agreements or other organizational documents of
any of the Insmed Companies, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, Insmed Contract or other instrument or obligation to which
any of the Insmed Companies is a party or by which it or any of them or any of
their properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the Insmed
Companies or any of their properties or assets except, in the case of
subsections (ii) or (iii) above, for violations, breaches or defaults that
would not have a Material Adverse Effect on the Insmed Companies and that will
not prevent or delay the consummation of the transactions contemplated hereby.

Section 6.5. Financial Statements. The audited consolidated financial
statements of Insmed for the years ended December 31, 1996, 1997 and 1998
(collectively, the "Insmed Financial Statements") fairly present, in conformity
with GAAP applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of Insmed and its
consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended. As of their respective dates, none of the Insmed Financial Statements
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in light of the circumstances under which
they were made.

Section 6.6. Absence of Certain Events. Except as otherwise specifically
disclosed in Schedule 6.6 attached hereto, since December 31, 1998, none of the
Insmed Companies has suffered any adverse change in

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its business, financial condition or results of operations that will have a
Material Adverse Effect upon the Insmed Companies. Except as disclosed in
Schedule 6.6 of the Insmed Disclosure Letter, or as otherwise specifically
contemplated by this Agreement, there has not been since December 31, 1998: (i)
any labor dispute which is or is expected to be material to any of the Insmed
Companies; (ii) any entry by any of the Insmed Companies into any material
commitment, agreement, license or transaction (including, without limitation,
any borrowing, capital expenditure, sale of assets or any mortgage, pledge,
lien or encumbrances made on any of the properties or assets of any of the
Insmed Companies) other than in the ordinary and usual course of business;
(iii) any change in the accounting methods, principles or practices of Insmed;
(iv) any damage, destruction or loss, whether covered by insurance or not,
having a Material Adverse Effect upon the Insmed Companies; or (v) any
agreement to do any of the foregoing.

Section 6.7. Joint Proxy Statement/Prospectus. None of the information with
respect to Insmed Companies to be included in the Joint Proxy
Statement/Prospectus or the Registration Statement will, in the case of the
Joint Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, at the time of the mailing of the Joint Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, and at the time of the Insmed
Special Meeting, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Insmed with respect to
information supplied in writing by Celtrix or any Celtrix Affiliate for
inclusion in the Joint Proxy Statement/Prospectus.

Section 6.8. Litigation. There is no action, suit, proceeding or
investigation pending or to the Knowledge of Insmed, threatened against or
relating to any of the Insmed Companies at law or in equity, or before any
federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency, instrumentality or arbitration panel,
whether in the United States or otherwise. None of the Insmed Companies is
subject to any order, judgment, decree or obligation that would materially
limit the ability of the Insmed Companies to operate their respective
businesses in the ordinary course.

Section 6.9. Employee Benefit Plans; Labor Matters. Insmed has delivered to
Celtrix prior to the execution of this Agreement copies of all pension,
retirement, 401(K), profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus or other incentive
plan, any other employee program, arrangement or agreement, any medical,
vision, dental or other health plan, any life insurance plan, or any other
employee health plan or fringe benefit plan, including, without limitation, any
"employee benefit plan" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any of the Insmed Companies or affiliates thereof for the
benefit of employees, former employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries are eligible to participate (collectively, the "Insmed
Benefit Plans") and (i) any related trust agreement; (ii) any amendments to
such plans or trust; (iii) the most recent Form 5500 and all schedules thereto;
(iv) the most recent IRS determination letter; (iv) the most recent summary
plan descriptions; and (v) the most recent actuarial report for any Insmed
Benefit Plan that is a defined benefit pension plan or funded welfare benefit
plan. Any of the Insmed Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as an "Insmed ERISA Plan."

(b) Each Insmed Benefit Plan has been administered in material compliance
with its terms and with the applicable provisions (including, without
limitation, any funding requirements or limitations) of ERISA, the Code and any
other applicable Laws. Each Insmed Benefit Plan is enforceable in accordance
with its terms.

(c) No Insmed ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A)
of ERISA, and the present fair market value of the assets of any

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such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan terminated in accordance with all applicable legal
requirements.

(d) Each Insmed ERISA Plan intended to be qualified under Section 401(a) of
the Code ("Insmed Qualified Plan") has either obtained a favorable
determination notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination. To the Knowledge of Insmed, there are no facts or circumstances
that would be reasonably likely to jeopardize or adversely affect the
qualification under Code Section 401(a) of any Insmed Qualified Plan or
otherwise have a material adverse effect on the qualified status of any Insmed
Qualified Plan. Each Insmed Qualified Plan incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation to the extent such Amendment or incorporation is
required.

(e) As of the Effective Time, full payment of all contributions will be made
or accrued with respect to each Insmed Benefit Plan (including all employer
contributions and employee salary reduction contributions) that are either
required under the terms thereof or under ERISA or the Code. Neither Insmed nor
any organization to which Insmed is a successor or parent corporation, within
the meaning of Section 4069(b) of ERISA, has engaged in any transaction, within
the meaning of Section 4069 of ERISA. No Insmed ERISA Plan has incurred a
"reportable event" as such term is defined in Section 4043 of ERISA, other than
a "reportable event" which was not required to be reported.

(f) Insmed has filed all reports, returns and other documentation and paid
all premiums and taxes associated therewith that are required to have been
filed with respect to each Insmed Benefit Plan with the IRS, the Department of
Labor, or any other governmental agency (federal, state or local) and such have
been filed on a timely basis. No lawsuits, complaints, investigations or
proceedings to or by any Person or governmental authority have been filed or,
to the Knowledge of Insmed, are proposed or threatened, with respect to any
Insmed Benefit Plan, except where such lawsuits, complaints, investigations or
proceedings would not have, alone or in the aggregate, a Material Adverse
Effect.

(g) either Insmed nor any Insmed ERISA Affiliate is or has ever been a party
to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) and
neither Insmed nor any Insmed ERISA Affiliate has received a notice of, or
incurred, any withdrawal liability with respect to a "multiemployer plan" that
has not been satisfied.

(h) Insmed has not incurred any material liability for "welfare benefits"
(as defined in Code Section 419) that was not fully reflected in the Insmed
Financial Statements. Except as required under COBRA (or any similar provision
of state law) or the terms of any Insmed ERISA Plan, Insmed is not obligated to
provide or to pay any benefits to former employees, or to their dependents or
beneficiaries, solely as a result of the consummation of the transactions
contemplated in this Agreement.

(i) Schedule 6.9(i) of the Insmed Disclosure Letter sets forth a true and
complete list, as of November 30, 1999, of each person who holds any Insmed
Stock Options, together with the number of shares of Insmed Common Stock which
are subject to such option, the date of grant of such option, the extent to
which such option is vested (or will become vested as a result of the Merger),
the option price of such option (to the extent determined as of the date
hereof), whether such option is a nonqualified stock option or is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of
the Code, and the expiration date of such option. Schedule 6.9(i) of the Insmed
Disclosure Letter also sets forth the total number of such incentive stock
options and such nonqualified options and any non-statutory options issued to
consultants or others. Insmed has furnished Celtrix with complete copies of the
plans pursuant to which the Insmed Stock Options were issued. Other than the
automatic vesting of Insmed Stock Options that may occur without any action on
the part of Insmed or its officers or directors, Insmed has not taken any
action that would result in any Insmed Stock

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Options that are unvested becoming vested in connection with or as a result of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

(j) Insmed has made available to Celtrix (i) a description of the terms of
employment and compensation arrangements of all officers and other employees of
Insmed and a copy of each such agreement, if any, currently in effect; (ii)
copies of all agreements, if any, with consultants who are individuals
obligating Insmed to make annual cash payments in an amount exceeding $25,000;
(iii) copies (or descriptions) of all severance agreements, programs and
policies of Insmed with or relating to its employees, except programs and
policies required to be maintained by Law; and (iv) copies of all plans,
programs, agreements and other arrangements of Insmed with or relating to its
employees which contain change in control provisions.

Section 6.10. Tax Matters.

(a) Except as set forth on Schedule 6.10 of the Insmed Disclosure Letter:

(i) Insmed and each of its Subsidiaries that is incorporated under the
laws of the United States or of any of the United States are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of
which Insmed is the common parent, such affiliated group does not file a
consolidated federal income tax return and neither Insmed nor any of its
Subsidiaries has ever filed a consolidated federal income tax return with
(or been included in a consolidated return of) a different affiliated
group;

(ii) each of the Insmed Companies has timely filed or caused to be filed
all material Tax Returns required to have been filed by or for it, and all
information set forth in such Tax Returns is accurate and complete in all
material respects;

(iii) each of the Insmed Companies has paid or made adequate provision
on its books and records in accordance with GAAP for all material Taxes
covered by such Tax Returns;

(iv) each of the Insmed Companies has collected or withheld all material
Taxes required to be collected or withheld by it, and all such Taxes have
been paid to the appropriate Governmental Authority or set aside in
appropriate accounts for future payment when due;

(v) there are no unpaid Taxes due and payable by any of the Insmed
Companies or by any other person that are or may become a lien on any asset
of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, Insmed;

(vi) none of the Insmed Companies has granted (or is subject to) any
waiver, which is currently in effect, of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or
asserted against or with respect to any of the Insmed Companies by any
Governmental Authority; there are no currently pending administrative or
judicial proceedings, or any deficiency or refund litigation, with respect
to Taxes of any of the Insmed Companies, the adverse outcome of which may
reasonably be expected to have a Material Adverse Effect on Insmed; and any
such assertion, assessment, proceeding or litigation disclosed in Schedule
6.10 of the Insmed Disclosure Letter is being contested in good faith
through appropriate measures, and its status is described in Schedule 6.10
of the Insmed Disclosure Letter; and

(vii) the most recent audited consolidated balance sheet included in the
Insmed Financial Statements fully and properly reflects, as of the date
thereof, the liabilities of Insmed and its Subsidiaries for all accrued
Taxes and deferred liability for Taxes and, for periods ending after such
date, the books and records of each such corporation fully and properly
reflect its liability for all accrued Taxes.

Section 6.11. Compliance with Law. Except as set forth in Schedule 6.11 of
the Insmed Disclosure Letter, Insmed holds all Permits necessary for the lawful
conduct of its businesses (the "Insmed Permits"), except for failures to hold
such Insmed Permits which would not have a Material Adverse Effect on Insmed.
Except as set forth on Schedule 6.11 of the Insmed Disclosure Letter, Insmed is
in compliance with the terms of the Insmed Permits, except where the failure so
to comply would not have a Material Adverse Effect on

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Insmed. Except as set forth on Schedule 6.11 of the Insmed Disclosure Letter,
the business of Insmed is not being conducted in violation of any Law,
ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 6.11 with respect to
Environmental Laws (as defined in Section 5.18 above) and except for violations
or possible violations which do not have, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect on Insmed.
Except as set forth on Schedule 6.11 of the Insmed Disclosure Letter, no
investigation or review by any Governmental Entity with respect to Insmed is
pending or, to the Knowledge of Insmed, threatened, nor, to the Knowledge of
Insmed, has any Governmental Entity indicated an intention to conduct the same,
other than, in each case, those which Insmed reasonably believes will not have
a Material Adverse Effect on Insmed.

Section 6.12. Transactions With Affiliates. Since December 31, 1998, the
Insmed Companies have not, in the ordinary course of business or otherwise,
purchased, leased or otherwise acquired any material property or assets or
obtained any material services from, or sold, leased or otherwise disposed of
any material property or assets or provided any material services to (except
with respect to remuneration for services rendered as a director, officer or
employee of one or more of the Insmed Companies) (a) any holder of 5% or more
of the voting securities of Insmed, (b) any director, officer or employee of
the Insmed Companies, (c) any person, firm or corporation that directly or
indirectly controls, is controlled by or is under common control with any of
the Insmed Companies or (d) any member of the immediate family of any of such
persons (collectively, for purposes of this Section, an "Insmed Affiliate").
Except as set forth in Schedule 6.12 of the Insmed Disclosure Letter, (a) the
Contracts of the Insmed Companies do not include any obligation or commitment
between any of the Insmed Companies and any Insmed Affiliate, and (b) the
assets of Insmed do not include any receivable or other obligation or
commitment from an Insmed Affiliate to any of the Insmed Companies and no
Insmed Affiliate has any interest in any material property, real or personal,
tangible or intangible, including without limitation, any Software or Insmed
Intellectual Property, used in or pertaining to the business of Insmed, except
for the ordinary rights of a shareholder or employee stock optionholder.

Section 6.13. Fees and Expenses of Brokers and Others. None of the Insmed
Companies (a) has had any dealings, negotiations or communications with any
broker, finder or investment banker or other intermediary in connection with
the transactions contemplated by this Agreement, (b) is committed to any
liability for any brokers' or finders' fees or any similar fees in connection
with the transactions contemplated by this Agreement or (c) has retained any
broker, finder or investment banker or other intermediary to act on its behalf
in connection with the transactions contemplated by this Agreement, except that
Insmed has retained BancBoston to represent it in connection with such
transactions.

Section 6.14. Accuracy of Information. Neither this Agreement nor any other
document provided by the Insmed Companies or their employees or agents to
Celtrix in connection with the transactions contemplated herein contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.

Section 6.15. Absence of Undisclosed Liabilities. None of the Insmed
Companies has any liabilities or obligations of any kind, whether absolute,
accrued, asserted or unasserted, contingent or otherwise, except liabilities,
obligations or contingencies that are accrued or reserved against in the
consolidated balance sheet of Insmed as of December 31, 1998 or reflected in
the notes thereto, or that were incurred after the date of such balance sheet
in the ordinary course of business and consistent with past practices, and
except for any such liabilities or obligations which, individually or in the
aggregate, would not have a Material Adverse Effect on the Insmed Companies.

Section 6.16. [Intentionally Omitted].

Section 6.17. [Intentionally Omitted].

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Section 6.18. Environmental Laws and Regulations.

(a) Except as set forth in Schedule 6.18 of the Insmed Disclosure Letter,
(i) Insmed is and always has been in material compliance with all applicable
Environmental Laws, except for non-compliance that would not have a Material
Adverse Effect on Insmed, which compliance includes, but is not limited to, the
possession by Insmed of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof; (ii) Insmed has not received written
notice of, or, to the Knowledge of Insmed, is the subject of, any Environmental
Claim that could reasonably be expected to have a Material Adverse Effect on
Insmed; (iii) there has been no releases or offsite shipments from any property
ever owned by Insmed or any of its Subsidiaries of any hazardous, toxic or
radioactive material, substance or wastes defined or regulated as such under
the Environmental Law that would be reasonably likely to result in an
Environmental Claim; and (iv) to the Knowledge of Insmed, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.

(b) Except as set forth on Schedule 6.18 of the Insmed Disclosure Letter,
there are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Insmed that are pending or, to the Knowledge of
Insmed, threatened against Insmed or, to the Knowledge of Insmed, against any
person or entity whose liability for any Environmental Claim Insmed has or may
have retained or assumed either contractually or by operation of Law.

Section 6.19. Intellectual Property.

(a) Schedule 6.19 of the Insmed Disclosure Letter sets forth, for the Insmed
Intellectual Property (as defined below), a complete and accurate list as of
the date hereof of (i) all U.S. and foreign (A) patents and patent
applications, each as owned by Insmed, (B) trademark registrations (including
Internet domain name registrations), trademark applications, and material
unregistered trademarks, each as owned by Insmed and (C) copyright and mask
work registrations and applications, and material unregistered copyrights, each
as owned by Insmed; and (ii) all material agreements (whether oral or written)
(A) granting or obtaining any right to use or practice any rights under any
Insmed Intellectual Property, or (B) restricting Insmed's rights to use any
Insmed Intellectual Property, including license agreements, consulting and
professional service agreements, development agreements, distribution
agreements, settlement agreements, consent to use agreements, and covenants not
to sue (collectively, the "Insmed License Agreements"). The Insmed License
Agreements are valid and binding obligations of Insmed and, to Insmed's
Knowledge, each of the other parties thereto, enforceable in accordance with
their terms, except that the enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
thereafter in effect relating to creditors' rights generally and (ii) the
availability of the remedy of specific performance or injunctive or other forms
of equitable relief may be subject to equitable defenses and would be subject
to the discretion of the court before which any proceeding therefor may be
brought. There exists no event or condition which will result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default by Insmed or, to Insmed's Knowledge, any party under any such Insmed
License Agreement. Insmed has not licensed or sublicensed, nor has any third
party acquired, rights in any Insmed Intellectual Property other than pursuant
to the Insmed License Agreements.

(b) Insmed owns, or has a valid license to use or otherwise has the right to
use, free and clear of all Liens, all (i) Trademarks, (ii) Patents, (iii)
Copyrights, (iv) software, (v) "mask works" (as defined under 17 U.S.C.
(S) 901) and any registrations and applications for "mask works" and (vi) Trade
Secrets, in the case of each of the foregoing clauses, used in or necessary of
the conduct of Insmed's business as currently conducted or contemplated to be
conducted (collectively, the "Insmed Intellectual Property").

(c) No royalties, honoraria or other fees are payable by Insmed to any third
parties for the use of or right to use any Insmed Intellectual Property except
pursuant to the Insmed License Agreements identified on Schedule 6.19 of the
Insmed Disclosure Letter.

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(d) Except as set forth on Schedule 6.19 of the Insmed Disclosure Letter:

(i) Insmed is listed in the records of the appropriate U.S., state or
foreign registry as the sole and current owner of record for each
application and registration listed on Schedule 6.19 of the Insmed
Disclosure Letter;

(ii) Each Patent, Copyright and Trademark owned by Insmed and, to
Insmed's Knowledge, each Patent, Copyright and Trademark not owned but used
by Insmed, is in full force and effect, and has not been cancelled,
expired, or abandoned, and is valid and enforceable;

(iii) There has never been any claim, suit, arbitration or other
adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction, nor, to Insmed's Knowledge, is
there threatened or any valid basis for any such claim, suit, arbitration
or other adversarial proceeding, (A) involving the Insmed Intellectual
Property owned by Insmed or the Insmed Intellectual Property licensed to
Insmed or (B) alleging that the activities or the conduct of Insmed's
business does or will infringe upon, violate or constitute the unauthorized
use of the intellectual property rights of any third party, or challenging
the ownership, use, validity, enforceability or registrability of any
Insmed Intellectual Property. There are no settlements, forbearances to
sue, consents, judgments, orders or similar obligations other than the
Insmed License Agreements to which Insmed or any of its executive officers
is subject or a party or the existence of which Insmed or any of its
directors or executive officers is otherwise aware which (A) restrict
Insmed's rights to use any Insmed Intellectual Property, (B) restrict
Insmed's business in order to accommodate a third party's intellectual
property rights or (C) permit any third party to use any Insmed
Intellectual Property;

(iv) The conduct of Insmed's business as currently conducted or planned
to be conducted does not infringe upon (either directly or indirectly, such
as through contributory infringement or inducement to infringe) any
intellectual property rights owned or controlled by any third party. Except
as set forth on Schedule 6.19 of the Insmed Disclosure Letter, to Insmed's
Knowledge, no third party is misappropriating, infringing, diluting or
violating any Insmed Intellectual Property; no claim, suit, arbitration or
other adversarial proceeding alleging any such misappropriation,
infringement, dilution or violation has ever been brought against any third
party by Insmed nor has Insmed ever threatened any such claim against any
third party, except in such instance where it will not have a Material
Adverse Effect on Insmed;

(v) Insmed takes reasonable measures to protect the confidentiality of
its Trade Secrets, including requiring its employees and other parties
having access thereto to execute written non-disclosure agreements. To
Insmed's Knowledge, no Trade Secret has been disclosed or authorized to be
disclosed to any third party other than pursuant to a non-disclosure
agreement that fully protects the proprietary interests of Insmed in and to
such Trade Secrets. To Insmed's Knowledge, no party to any non-disclosure
agreement relating to Insmed's Trade Secrets is in breach or default
thereof;

(vi) No current or former partner, director, officer, or employee of
Insmed will, after giving effect to each of the transactions contemplated
herein, own or retain any rights in or to any of the Insmed Intellectual
Property; and

(vii) Except as set forth on Schedule 6.19 of the Insmed Disclosure
Letter, the consummation of the transactions contemplated hereby will not
result in any breach or default under any Insmed License Agreement, or
require the consent of any party thereto and will not result in the loss or
impairment of Insmed's rights to own or use any of the Insmed Intellectual
Property, nor will it require the consent of any governmental authority or
third party in respect of any such Insmed Intellectual Property.

Section 6.20. Insurance.

All material fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained
by Insmed and its Subsidiaries are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
Insmed and its Subsidiaries and their respective properties and assets, and are
in character and amount at least equivalent to

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that carried by persons engaged in similar businesses and subject to the same
or similar perils or hazards, except for any such failures to maintain
insurance policies that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect and are listed on Schedule 6.20 of the
Insmed Disclosure Letter. Insmed has maintained such policies on a continuous
basis since January 1, 1995.

Section 6.21. Vote Required; Board Approval.

(a) The affirmative vote of (i) the holders of at least a majority of the
outstanding shares of the Insmed Series A Preferred Stock and Insmed Series B
Preferred Stock, voting together as separate voting group, and (ii) more than
two-thirds of the outstanding shares of Insmed Capital Stock voting as a single
class are the only votes of the holders of any class or series of Insmed's
Capital Stock necessary to approve and adopt this Agreement and the Plan of
Exchange.

(b) Insmed's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Exchange, are
advisable and in the best interests of Insmed and its shareholders, (ii)
approved this Agreement and the transactions contemplated hereby and (iii)
resolved to recommend to its shareholders that they vote in favor of adopting
and approving the Plan of Exchange in accordance with the terms hereof.

Section 6.22. State Takeover Statutes.

Insmed has taken all actions required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from the provisions of
Article 14.1 of the VSCA, and accordingly, such Article does not apply to the
Exchange or any of such transactions. No other "control share acquisition,"
"fair price," "investor protection" or other anti-takeover laws or regulations
enacted under state or federal laws in the United States apply to this
Agreement or any of the transactions contemplated hereby.

Section 6.23. Tax Treatment.

Neither Insmed nor, to the Knowledge of Insmed, any of its affiliates has
taken, agreed to take or will take any action or is aware of any fact or
circumstance that would prevent the Merger or the Exchange from constituting a
reorganization qualifying under the provisions of Section 368 of the Code or
part of an exchange described in Section 351 of the Code.

Section 6.24. Certain Business Practices.

None of Insmed or any directors, officers, agents or employees of Insmed has
(i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
FCPA, or (iii) made any other unlawful payment.

Section 6.25. No Existing Discussions.

As of the date hereof, Insmed is not engaged, directly or indirectly, in any
discussions or negotiations with any other party with respect to any Insmed
Third Party Acquisition Offer.

Section 6.26. Material Contracts.

(a) Schedule 6.26 of the Insmed Disclosure Letter contains a true, correct
and complete list of all Contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which Insmed is a
party affecting the obligations of any party thereunder) to which the Insmed
Companies are a party or by which any of its properties or assets are bound
that are material to the business, properties or assets of Insmed taken as a
whole, including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or
assets of Insmed taken as a whole (for such purposes material shall mean an
amount of at least $25,000), all: (i) employment, product design or
development, personal services, consulting, non-competition, severance, golden
parachute or indemnification

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contracts (including, without limitation, any Contract to which Insmed is a
party involving employees of Insmed); (ii) licensing, publishing, merchandising
or distribution agreements; (iii) Contracts granting rights of first refusal or
first negotiation; (iv) partnership or joint venture agreements; (v) agreements
for the acquisition, sale or lease of material properties or assets or stock or
otherwise entered into since January 1, 1997; (vi) Contracts or agreements with
any Governmental Entity; (vii) Contracts relating to the purchase of goods,
equipment or services used in support of Insmed's business or operations of
amounts in excess of $25,000 per year or having a duration in excess of one
year; (viii) Contracts which contain covenants pursuant to which Insmed has
agreed not to compete with any person or any person has agreed not to compete
with Insmed; (ix) Contracts upon which any substantial part of Insmed's
business is dependent or which, if breached, could reasonably be expected to
have a Material Adverse Effect on Insmed; and (x) all commitments and
agreements to enter into any of the foregoing (collectively, the "Insmed
Contracts"). Insmed is not a party to or bound by any consulting, severance,
golden parachute, indemnification or other agreement with any employee or
consultant pursuant to which such person would be entitled to receive any
additional compensation or an accelerated payment of compensation as a result
of the consummation of the transactions contemplated hereby and Insmed is not
obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual" (as those terms are defined in Section
280G of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future).

(b) Each of the Insmed Contracts is valid, binding, in full force and effect
and enforceable in accordance with its terms, and true and correct copies
thereof have been delivered to Celtrix, and there is no default under any
Insmed Contract so listed either by Insmed or, to the Knowledge of Insmed, by
any other party thereto, and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default thereunder by Insmed
or, to the Knowledge of Insmed, any other party, in any such case in which such
default or event could reasonably be expected to have a Material Adverse Effect
on Insmed.

(c) No party to any such Insmed Contract has given notice to Insmed of or
made a claim against Insmed with respect to any breach or default thereunder,
in any such case in which such breach or default could reasonably be expected
to have a Material Adverse Effect on Insmed.

(d) The execution and delivery of this Agreement by Insmed does not, and the
consummation of the transactions contemplated by this Agreement will not,
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require the consent or waiver under, any of the material terms,
conditions or provisions of the Insmed Contracts identified on Schedule 6.26 of
the Insmed Disclosure Letter.

Section 6.27. Properties. Neither Insmed nor any of its Subsidiaries is in
default under any leases for real property leased by Insmed or any of its
Subsidiaries, except where the existence of such defaults, individually or in
the aggregate, is not reasonably likely to have a Material Adverse Effect on
Insmed. None of the Insmed Companies owns any real property.

Section 6.28. Year 2000 Compliance.

(a) Insmed has reviewed the areas within its business and operations which
could be adversely affected by the Year 2000 Problem and has initiated a
program to achieve Year 2000 Compliance by December 31, 1999. As of November
30, 1999, except as is not reasonably likely to have a Material Adverse Effect
on Insmed: (i) Insmed has implemented such Year 2000 Compliance program in
accordance with the timetable set forth therein; (ii) Insmed has made
appropriate inquiries as to the Year 2000 Compliance of their material
suppliers, service providers, franchisers and vendors, and Insmed has not
received notice of any inability on the part of such entities to achieve Year
2000 Compliance in a timely manner; and (iii) based on such review and program,
Insmed believes that the Year 2000 Problem, including costs of remediation,
will not have a Material Adverse Effect on Insmed.

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ARTICLE VII

Covenants

Section 7.1. Conduct of Business of Celtrix. Except as contemplated by this
Agreement, as described in Schedule 7.1 of the Celtrix Disclosure Letter, or
with respect to the Elan Joint Venture in which case Section 7.3 shall apply,
during the period from November 30, 1999 to the Effective Time, Celtrix will
conduct its operations in the ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organization, keep available the
service of its current officers and employees and preserve its relationships
with customers, suppliers, contractors, distributors, licensors, licensees and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Schedule 7.1 of the Celtrix Disclosure Letter,
during the period from November 30, 1999 to the Effective Time, none of the
Celtrix Companies will (other than with respect to the Elan Joint Venture in
which case Section 7.3 shall apply), without the prior written consent of
Insmed:

(a) amend its Certificate of Incorporation or Bylaws, partnership or
joint venture agreements or other similar governing instruments;

(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights), except for (i) the issuance and sale of Celtrix
Shares pursuant to options previously granted under the Celtrix Plans; (ii)
the issuance and sale of Celtrix Shares pursuant to Celtrix Stock Options
outstanding on the date hereof; (iii) the issuance and sale of Celtrix
Series B Preferred Stock to Elan Corporation, plc pursuant to the Elan
Joint Venture, to the extent permitted pursuant to Section 7.3 hereof; and
(iv) the issuance and sale of Celtrix Shares pursuant to warrants granted
by Celtrix prior to the date hereof;

(c) redeem, capitalize, split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, make any other actual, constructive or deemed
distribution in respect of its capital stock or otherwise make any payments
to shareholders in their capacity as such, or redeem or otherwise acquire
any of its securities or any securities of its respective Subsidiaries and
Partnerships;

(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Celtrix (other than the Merger);

(e)(i) incur or assume any long-term or short-term debt or issue any
debt securities; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (iii) make any loans, advances or capital
contributions to, or investments in, any other person; (iv) pledge or
otherwise encumber shares of capital stock of Celtrix; or (v) mortgage or
pledge any of its material assets, tangible or intangible, or create or
suffer to exist any material Lien thereupon (other than tax Liens for taxes
not yet due);

(f) except as may be required by Law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units);

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(g) acquire, sell, lease, sell/leaseback, license or dispose of any of
its material properties or assets or enter into any agreement to do so;

(h) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it or make any
material change to its financial statements, or prepay any indebtedness,
change depreciation or amortization methods, delay incurring budgeted
expenses or deviate from usual and customary terms with suppliers, lessors,
customers or buyers;

(i) revalue in any material respect any of its assets;

(j)(i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any
material ($25,000) contract or agreement; or (iii) authorize any new
capital expenditure or expenditures;

(k) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
Celtrix;

(l) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts;

(m) fail to (i) conduct its business only in the ordinary course or (ii)
maintain and preserve its organization, goodwill and properties;

(n) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or make any material change to any of its methods of reporting
income or deductions for federal income tax purposes from those employed in
the preparation of its federal income tax return for the taxable year
ending March 31, 1998, except as may be required by applicable Law; or

(o) take, or agree in writing or otherwise to take, or have any
affiliate, director, officer, employee, agent, consultant or other third
party take or otherwise agree to take, any of the actions described in
Sections 7.1(a) through 7.1(n) or any action which would make any of the
representations or warranties of Celtrix contained in this Agreement untrue
or incorrect.

Section 7.2. Conduct of Business of Insmed. Except as contemplated by this
Agreement or as described in Schedule 7.2 of the Insmed Disclosure Letter,
during the period from November 30, 1999 to the Effective Time, Insmed will
conduct its operations in the ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organization, keep available the
service of its current officers and employees and preserve its relationships
with customers, suppliers, contractors, distributors, licensors, licensees and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Schedule 7.2 of the Insmed Disclosure Letter,
during the period from November 30, 1999 to the Effective Time, none of the
Insmed Companies will, without the prior written consent of Celtrix:

(a) amend its Articles of Incorporation or Bylaws, partnerships or joint
venture agreements or other similar governing instrument, other than to
amend the Articles of Incorporation and Bylaws of Parent to read as set
forth in Exhibit 4.1A and Exhibit 4.1B hereto, respectively;

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Shares pursuant to Insmed Options and Insmed Warrants outstanding on the
date hereof; (iii) the granting of stock options to employees in the
ordinary course of business and consistent with past practices of Insmed,
provided that the aggregate number of Insmed Shares issuable pursuant to
such options granted subsequent to the date of this Agreement shall not
exceed 200,000; (iv) the issuance and sale of not more than 6,500,000
shares of Insmed Common Stock; and (v) the issuance of warrants to purchase
not more than 6,901,344 shares of Parent Common Stock.

(c) redeem, recapitalize, split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, make any other actual, constructive or deemed
distribution in respect of its capital stock or otherwise make any payments
to shareholders in their capacity as such, or redeem or otherwise acquire
any of its securities or any securities of its respective Subsidiaries and
partnerships;

(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Insmed (other than the Exchange);

(e) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
Insmed;

(f) take, or agree in writing or otherwise to take, or have any
affiliate, director, officer, employee, agent, consultant or other third
party take or otherwise agree to take, any of the actions described in
Sections 7.2(a) through 7.2(e) or any action which would make any of the
representations or warranties of the Insmed contained in this Agreement
untrue or incorrect.

Section 7.3. Conduct of Elan Joint Venture. Except as otherwise expressly
provided in this Agreement or as described in Schedule 7.3 of the Celtrix
Disclosure Letter, during the period from November 30, 1999 to the Effective
Time, Celtrix on behalf of the Elan Joint Venture will not, without the prior
written consent of Insmed:

(a) amend the Elan Joint Venture Agreement or other similar governing
instruments;

(b) adopt or agree to a budget for the Elan Joint Venture;

(c) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any shares of Celtrix Series B Preferred Stock to provide
capital to the Elan Joint Venture;

(d) engage in any material undertakings with respect to the Elan Joint
Venture;

(e) consent to, or enter into on behalf of the Elan Joint Venture any
agreement or commitment as to clinical trials with respect to drugs under
development by the Elan Joint Venture;

(f) consent to, or enter into on behalf of the Elan Joint Venture, any
agreement, commitment or understanding that could reasonably be expected to
impose a liability on any of the Celtrix Companies of $25,000 or more;

(g) take, or agree in writing or otherwise to take, or have any
affiliate, director, officer, employee, agent, consultant or other third
party take or otherwise agree to take, any of the actions described in
Sections 7.3(a) through 7.3(f) or any action which would make any of the
representations or warranties of Celtrix contained in this Agreement untrue
or incorrect.

Section 7.4. No Solicitation.

(a) In consideration of Celtrix's due diligence review of Insmed and
negotiation of this Agreement, which the parties acknowledge has cost Celtrix
material time and expense, from November 30, 1999 through the earlier to occur
of (i) consummation of the Merger and Exchange or (ii) the date this Agreement
is terminated in accordance with Section 9.1 below, no shareholder controlled
by a director, officer or employee of Insmed,

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and no director, officer or employee of Insmed, or any representative of such
person or entity, shall institute, pursue, encourage or continue any
discussions, negotiations or agreements (whether preliminary or definitive),
including providing any information, with any person or entity other than
Celtrix contemplating or providing for any public or private offering of
equity, merger, share exchange, acquisition, purchase or sale of a significant
amount of shares (including without limitation by way of a tender or exchange
offer) or assets or other business combination or change in control of Insmed
or similar transaction involving Insmed or any of its Subsidiaries, other than
the transactions contemplated by this Agreement (each a "Insmed Third Party
Acquisition Offer"); provided, however, that nothing contained in this
Agreement shall prevent Insmed, or its Board of Directors, from (A) the
issuance and sale of securities to the extent permitted pursuant to Section 7.2
hereof or (B) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Insmed Third Party Acquisition Offer by such
person or entity or modifying or withdrawing its recommendation with respect to
the transactions contemplated hereby or recommending an unsolicited bona fide
written Insmed Third Party Acquisition Offer to the shareholders of Insmed, if
and only to the extent that (1) the Insmed Board of Directors believes in good
faith (after consultation with its financial advisor) that such Insmed Third
Party Acquisition Offer is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to
be derived from the Merger and Exchange and the prospects of Celtrix and Insmed
as a combined company, would, if consummated, result in a transaction more
favorable to the shareholders of Insmed over the long term than the transaction
contemplated by this Agreement (an "Insmed Superior Proposal") and the Insmed
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for the Insmed Board of Directors to
comply with its fiduciary duties to shareholders under applicable Law and (2)
prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the Insmed Board of
Directors receives from such person or entity an executed confidentiality and
standstill agreement. Insmed shall notify Celtrix within 24 hours after receipt
by Insmed (or any of its advisors) of any Insmed Third Party Acquisition Offer
or any request for nonpublic information in connection with an Insmed Third
Party Acquisition Offer or for access to the properties, books or records of
Insmed by any person or entity that informs Insmed that it is considering
making, or has made, an Insmed Third Party Acquisition Offer. Such notice shall
be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact. Insmed shall continue to keep Celtrix informed, on a current basis,
of the status of any such discussions or negotiations and the terms being
discussed or negotiated.

(b) In consideration of Insmed's due diligence review of Celtrix and
negotiation of the Agreement, which the parties acknowledge will cost Insmed
material time and expense, from November 30, 1999 through the earlier to occur
of (i) consummation of the Merger and Exchange, or (ii) the date this Agreement
is terminated in accordance with Section 9.1 below no shareholder controlled by
a director, officer or employee of Celtrix, and no director, officer or
employee of Celtrix, or any representative of such person or entity, shall
institute, pursue, encourage or continue any discussions, negotiations or
agreements (whether preliminary or definitive), including providing any
information, with any person or entity other than Insmed contemplating or
providing for any public or private offering of equity, merger, share exchange,
acquisition, purchase or sale of a significant amount of shares (including
without limitation by way of a tender or exchange offer) or assets or other
business combination or change in control of Celtrix or similar transaction
involving Celtrix or any of its Subsidiaries, other than the transactions
contemplated by this Agreement (each a "Celtrix Third Party Acquisition
Offer"); provided, however, that nothing contained in this Agreement shall
prevent Celtrix, or its Board of Directors, from (A) the issuance and sale of
securities to the extent permitted pursuant to Sections 7.1 and 7.3 and (B)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Celtrix Third Party Acquisition Offer by such person or entity or
modifying or withdrawing its recommendation with respect to the transactions
contemplated hereby or recommending an unsolicited bona fide written Celtrix
Third Party Acquisition Offer to the shareholders of Celtrix, if and only to
the extent that (1) the Celtrix Board of Directors believes in good faith
(after consultation with its financial advisor) that such Celtrix Third Party
Acquisition Offer is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits

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anticipated to be derived from the Merger and Exchange and the prospects of
Insmed and Celtrix as a combined company, would, if consummated, result in a
transaction more favorable to the shareholders of Celtrix over the long term
than the transaction contemplated by this Agreement (an "Celtrix Superior
Proposal") and the Celtrix Board of Directors determines in good faith after
consultation with outside legal counsel that such action is required for the
Celtrix Board of Directors to comply with its fiduciary duties to shareholders
under applicable Law and (2) prior to furnishing such non-public information
to, or entering into discussions or negotiations with, such person or entity,
the Celtrix Board of Directors receives from such person or entity an executed
confidentiality and standstill agreement. Celtrix shall notify Insmed within 24
hours after receipt by Celtrix (or any of its advisors) of any Celtrix Third
Party Acquisition Offer or any request for nonpublic information in connection
with a Celtrix Third Party Acquisition Offer or for access to the properties,
books or records of Celtrix by any person or entity that informs Celtrix that
it is considering making, or has made, a Celtrix Third Party Acquisition Offer.
Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact. Celtrix shall continue to keep Insmed
informed, on a current basis, of the status of any such discussions or
negotiations and the terms being discussed or negotiated.

Section 7.5. Meetings of Shareholders. Each of Insmed and Celtrix shall take
all action necessary, in accordance with the DGCL and VSCA, and each of their
respective charters and bylaws, to duly call, give notice of, convene and hold
the Special Meeting of their respective shareholders as promptly as
practicable, to consider and vote upon the adoption and approval of this
Agreement and the transactions contemplated hereby. The shareholder votes
required for the adoption and approval of the transactions contemplated by this
Agreement shall be the vote required by the DGCL and VSCA and each of Celtrix's
and Insmed's respective charter and bylaws. Celtrix and Insmed will, through
their respective Boards of Directors, recommend to their respective
shareholders approval of such matters. Celtrix and Insmed shall coordinate and
cooperate with respect to the timing of the Special Meetings and shall use
their best efforts to hold the Special Meetings on the same day and as soon as
practicable after the date hereof.

Section 7.6. Nasdaq Listing. The parties shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger and Exchange
and the shares of Parent Common Stock to be reserved for issuance upon exercise
of Celtrix Stock Options, Celtrix Warrants or Insmed Stock Options, and Insmed
Warrants to be approved for listing on Nasdaq National Market, or if such
shares do not satisfy the necessary listing requirements, then on Nasdaq
SmallCap, subject to, in either case, official notice of issuance, prior to the
Effective Time.

Section 7.7. Employee Benefits; Stock Option and Employee Purchase Plans.

The parties agree to work together prior to the Effective Time to cause
Parent to develop and adopt an incentive plan authorizing the issuance of up to
[13 million shares] of Parent Common Stock pursuant to stock options or other
incentive awards to employees, consultants and nonemployee directors of Parent
and its subsidiaries.

Section 7.8. The Registration Statement.

(a) [Intentionally Deleted]

(b) Parent, Celtrix and Insmed shall, as soon as practicable following the
execution of this Agreement, prepare and file with the SEC a draft of the
Registration Statement.

Parent shall:

(i) after consultation with Celtrix and Insmed respond promptly to any
comments made by the SEC with respect thereto; provided, however, that
Parent will not file any amendment or supplement to the Registration
Statement without first furnishing to Celtrix and Insmed a copy thereof for
its review and will not file any such proposed amendment or supplement to
which Celtrix or Insmed reasonably and promptly objects;

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(ii) use its best efforts to cause the Registration Statement to become
effective under the Securities Act as soon as practicable, and Celtrix and
Insmed shall cause the Joint Proxy Statement/Prospectus to be mailed to
their respective shareholders at the earliest practicable time after
effectiveness of the Registration Statement;

(iii) cause the registration or qualification of the Parent Common Stock
to be issued upon conversion of shares of (i) Celtrix Capital Stock in
accordance with this Agreement and the Certificate of Merger and (ii)
Insmed Capital Stock in accordance with the Plan of Exchange under the
state securities or "Blue Sky" laws of each state of residence of a record
holder of Celtrix Capital Stock and Insmed Capital Stock as reflected in
its respective stock transfer ledger;

(iv) promptly advise Celtrix and Insmed (A) when the Registration
Statement becomes effective, (B) when, prior to the Effective Time, any
amendment to the Registration Statement shall be filed or become effective,
(C) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (D) of the receipt by
Parent of any notification with respect to the suspension of the
registration or qualification of Parent Common Stock for sale in any
jurisdiction or the institution or threatening of any proceeding for that
purpose; and

(v) use its best efforts to prevent the issuance of any such stop order
and, if issued, to obtain as soon as possible the withdrawal thereof.

If, at any time when the Joint Proxy Statement/Prospectus is required to be
delivered under the Securities Act or the Exchange Act, any event occurs as a
result of which the Joint Proxy Statement/Prospectus as then amended or
supplemented would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading, or if it
shall be necessary to amend the Registration Statement or supplement the Joint
Proxy Statement/Prospectus to comply with the Securities Act or the Exchange
Act or the respective rules thereunder, Celtrix and Insmed will cooperate to
permit Parent promptly to prepare and file with the SEC an amendment or
supplement (in a form mutually agreeable to Parent, Celtrix and Insmed) that
will correct such statement or omission or effect such compliance.

Section 7.9. Access to Information. Between the date of this Agreement and
the Effective Time, the parties hereto will give one another and their
authorized representatives reasonable access during normal business hours to
all plants, offices, warehouses and other facilities and to all books and
records of one another, will permit one another to make such inspections as
each may reasonably require and will cause their officers and those of their
Subsidiaries and Partnerships to furnish such financial and operating data and
other information with respect to their businesses and properties as may from
time to time reasonably be requested. Subject to Section 7.12 hereof, all such
information shall be kept confidential in accordance with Section 7.18.

Section 7.10. Best Efforts. Subject to the terms and conditions herein
provided and subject to fiduciary obligations under applicable Law as advised
by counsel, each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper and advisable under applicable Law, to consummate and make
effective the transactions contemplated by this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary action. Celtrix and
Insmed will execute any additional instruments necessary to consummate the
transactions contemplated hereby.

Section 7.11. Consents. Celtrix and Insmed each will use its best efforts to
obtain consents of all third parties and governmental authorities necessary to
the consummation of the transactions contemplated by this Agreement.

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Section 7.12. Public Announcements. Celtrix and Insmed will consult with
each other before issuing any press release or otherwise making any public
statement with respect to this Agreement, the Merger or the Exchange and shall
not issue any such press release or make any such public statement prior to
such consultation or as to which the other party promptly and reasonably
objects, except as may be required by Law in the written opinion of such
party's counsel or by obligations pursuant to any listing agreement with any
national securities exchange or inter-dealer quotation system, in which case
the party proposing to issue such press release or make such public
announcement shall use its best efforts to consult in good faith with the other
party before issuing any such press release or making any such public
announcements.

Section 7.13. Certain Agreements. Parent hereby agrees that from and after
the Effective Time, Parent shall honor those contracts, agreements and
commitments of Celtrix and certain of its Subsidiaries, that are applicable to
certain current or former employees of Celtrix or its Subsidiaries, that are
specifically listed on Schedule 7.13 of the Celtrix Disclosure Letter.

Section 7.14. Letter of Celtrix's Accountants. Celtrix shall use its best
efforts to cause to be delivered to Insmed a letter of Ernst & Young LLP, dated
a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Celtrix, in form and
substance reasonably satisfactory to Celtrix and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.

Section 7.15. Letter of Insmed's Accountants. Insmed shall use its best
efforts to cause to be delivered to Celtrix a letter of Ernst & Young LLP,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Celtrix, in form and
substance reasonably satisfactory to Celtrix and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.

Section 7.16. Indemnification.

(a) To the extent, if any, not provided by an existing right under one of
the parties' directors and officers liability insurance policies, from and
after the Effective Time, Parent shall, to the fullest extent permitted by
applicable Law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective Time
and whether asserted or claimed prior to, at or after the Effective Time) that
are in whole or in part (i) based on, or arising out of the fact that such
person is or was a director, officer or employee of such party or a subsidiary
of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the
Effective Time), (i) Parent shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the VSCA or Parent's articles of incorporation or bylaws, (ii)
Parent will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under the VSCA and
Parent's articles of incorporation or bylaws shall be made by independent
counsel mutually acceptable to Parent and the Indemnified Party; provided,
however, that Parent shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm with respect to
each related matter except to the extent there is, in the opinion of counsel to
an Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of any two or more
Indemnified Parties.

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(b) For a period of five years after the Effective Time, Parent shall cause
to be maintained in effect the policies of directors' and officers' liability
insurance maintained by Celtrix and Insmed for the benefit of those persons who
are covered by such policies at the Effective Time (or Parent may substitute
therefor policies of substantially equivalent coverage with respect to matters
occurring prior to the Effective Time).

(c) In the event Parent or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity or such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set forth in this
Section 7.16.

(d) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of Celtrix and Insmed and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided in
Celtrix's and Insmed's respective charters or bylaws, in effect on the date
thereof or otherwise in effect on the date hereof, shall survive the Merger and
Exchange and shall continue in full force and effect for a period of not less
than three years from the Effective Time.

(e) The provisions of this Section 7.16 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.

Section 7.17. Affiliate Letters.

(a) Attached hereto as Exhibit 7.17(a)(i) is a list of all Persons who, to
the best of Celtrix's Knowledge, may be deemed to be "affiliates" of Celtrix
for purposes of Rule 145(c) under the Securities Act. Celtrix shall use
commercially reasonable efforts to cause each such Person who is so identified
to deliver to Parent on or prior to the Effective Time a letter agreement to
the effect that such person will not offer to sell, sell or otherwise dispose
of any shares of Parent Common Stock issued in the Merger or the Exchange,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to Parent, is exempt from
the registration requirements of the Securities Act and, in any case, not until
after the results covering 30 days of post-Merger and Exchange combined
operations of Celtrix and Insmed have been filed with the SEC, sent to
shareholders of Parent or otherwise publicly issued, substantially in the form
of Exhibit 7.17(a)(ii) to this Agreement.

(b) Attached hereto as Exhibit 7.17(b)(i) is a list of all Persons who, to
the best of Insmed's Knowledge, may be deemed to be "affiliates" of Insmed for
purposes of Rule 145(c) under the Securities Act. Insmed shall use commercially
reasonable efforts to cause each such Person who is so identified to deliver to
Parent on or prior to the Effective Time to the effect that such person will
not offer to sell, sell or otherwise dispose of any shares of Parent Common
Stock issued in the Merger or the Exchange, except, in each case, pursuant to
an effective registration statement or in compliance with Rule 145, as amended
from time to time, or in a transaction which, in the opinion of legal counsel
satisfactory to Parent, is exempt from the registration requirements of the
Securities Act and, in any case, not until after the results covering 30 days
of post-Merger and Exchange combined operations of Celtrix and Insmed have been
filed with the SEC, sent to shareholders of Parent or otherwise publicly
issued, substantially in the form of Exhibit 7.17(b)(ii) to this Agreement.

Section 7.18. Confidentiality.

(a) Prior to the Effective Time and after any termination of this Agreement
each party hereto will hold, and will use its best efforts to cause its
officers, directors, employees, accountants, counsel, consultants, advisors,
affiliates (as such term is used in Rule 12b-2 under the Exchange Act) and
representatives (collectively, the "Representatives"), to hold, in confidence
all confidential documents and information concerning the other parties hereto
and the Subsidiaries furnished to such party in connection with the
transactions contemplated by this Agreement, including, without limitation, all
analyses, compilations, studies

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or records prepared by the party receiving the information or by such party's
Representatives, that contain or otherwise reflect or are generated from such
information (collectively, the "Confidential Material"). The party furnishing
any Confidential Material is herein referred to as the "Delivering Company" and
the party receiving any Confidential Material is herein referred to as the
"Receiving Company."

(b) The Receiving Company agrees that the Confidential Material will not be
used other than for the purpose of the transaction contemplated by this
Agreement, and that such information will be kept confidential by the Receiving
Company and its Representatives; provided, however, that (i) any of such
information may be disclosed to the Representatives who need to know such
information for the purpose described above (it being understood that (a) each
such Representative shall be informed by the Receiving Company of the
confidential nature of such information, shall be directed by the Receiving
Company to treat such information confidentially and not to use it other than
for the purpose described above and shall agree to be bound by the terms of
this Section 7.18 and (b) in any event, the Receiving Company shall be
responsible for any breach of this Agreement by any of its Representatives),
and (ii) any other disclosure of such information may be made if the Delivering
Company has, in advance, consented to such disclosure in writing. The Receiving
Company will make all reasonable, necessary and appropriate efforts to
safeguard the Confidential Material from disclosure to anyone other than as
permitted hereby.

(c) Notwithstanding the foregoing, if the Receiving Company or any of its
Representatives is requested or required (by oral question or request for
information or documents in legal proceedings, interrogatories, subpoena, civil
investigative demand or similar process) to disclose any Confidential Material,
the Receiving Company will promptly notify the Delivering Company of such
request or requirement so that the Delivering Company may seek an appropriate
protective order and/or waive the Receiving Company's compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Receiving Company or any of its
Representatives is nonetheless, in the reasonable written opinion of the
Receiving Company's counsel, compelled to disclose Confidential Material to any
tribunal, the Receiving Company or such Representative, after notice to the
Delivering Company, may disclose such information to such tribunal. The
Receiving Party shall exercise reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded the Confidential Material so
disclosed. The Receiving Company or such Representative shall not be liable for
the disclosure of Confidential Material hereunder to a tribunal compelling such
disclosure unless such disclosure to such tribunal was caused by or resulted
from a previous disclosure by the Receiving Company or any of its
Representatives not permitted by this Agreement.

(d) This Section 7.18 shall be inoperative as to particular portions of the
Confidential Material if such information (i) is or becomes generally available
to the public other than as a result of a disclosure by the Receiving Company
or its Representatives, (ii) was available to the Receiving Company on a non-
confidential basis prior to its disclosure to the Receiving Company by the
Delivering Company or the Delivering Company's Representatives as demonstrated
by documents of the Receiving Company, or (iii) becomes available to the
Receiving Company on a non-confidential basis from a source other than the
Delivering Company or the Delivering Company's Representatives, provided that
such source is not known by the Receiving Company, after reasonable inquiry, to
be bound by a confidentiality agreement with the Delivering Company or the
Delivering Company's Representatives and is not otherwise prohibited from
transmitting the information to the Receiving Company by a contractual, legal
or fiduciary obligation. The fact that information included in the Confidential
Material is or becomes otherwise available to the Receiving Company or its
Representatives under clauses (i) through (iii) above shall not relieve the
Receiving Company or its Representatives of the prohibitions of the
confidentiality provisions of this Section 7.18 with respect to the balance of
the Confidential Material.

(e) If this Agreement is terminated, each party hereto will, and will use
its best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to destroy or deliver to the party
from whom such Confidential Material was obtained, upon request, all documents
and other materials, and all copies thereof, obtained by such party or on its
behalf from any such other parties in connection with this Agreement that are
subject to such confidence.

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Section 7.19. Antitrust Matters.

(a) To the extent required by the HSR Act, the parties hereto promptly will
complete all documents required to be filed with the Federal Trade Commission
and the Department of Justice in order to comply with the HSR Act and, together
with the Persons who are required to join in such filings, will file the same
with the appropriate Governmental Authorities. The parties hereto promptly will
furnish all materials thereafter required by any of the Governmental
Authorities having jurisdiction over such filings and will take all reasonable
actions and file and use all reasonable efforts to have declared effective or
approved all documents and notifications with any such Governmental
Authorities, as may be required under the HSR Act for the consummation of the
Merger and Exchange.

(b) The parties hereto will use their best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any antitrust, competition or trade
regulatory laws, rules or regulations of any domestic or foreign Governmental
Entity ("Antitrust Laws"). If any suit is threatened or instituted challenging
the Merger and Exchange as violating any Antitrust Law, the parties hereto will
take such action as may be required (i) by the applicable Governmental Entity
in order to resolve such objections as such Governmental Entity may have to
such transactions under such Antitrust Law or (ii) by any domestic or foreign
court or similar tribunal, in any suit brought by a private party or
governmental authority challenging the Merger and Exchange as violating any
Antitrust Law, in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order or other order that has the effect
of preventing the consummation of the Merger and Exchange. The entry by a
court, in any suit brought by a private party or Governmental Entity
challenging the Merger and Exchange as violating any Antitrust Law, of an order
or decree permitting the Merger and Exchange but requiring that any of the
businesses or assets of any party hereto be divested or held separate by
Parent, or that would otherwise limit Parent's freedom of action with respect
to, or its ability to retain, both Insmed and Celtrix or any portion thereof,
will not be deemed a failure to satisfy the conditions specified in Section
8.1(d) herein below.

(c) Each party promptly will inform the others of any material communication
from the Federal Trade Commission, the Department of Justice, the FCC or any
other domestic or foreign Governmental Entity regarding any of the transactions
contemplated by this Agreement. If any party or any Affiliate thereof receives
a request for additional information or documentary material from any such
government or authority with respect to the transactions contemplated by this
Agreement, such party will endeavor in good faith to make, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response to such request. Each party hereto promptly will advise
the other parties hereto in respect of any understandings, undertakings or
agreements which the advising party proposes to make or enter into with the
Federal Trade Commission, the Department of Justice or any other domestic or
foreign Governmental Entity in connection with the transactions contemplated by
this Agreement.

Section 7.20. Voting Agreements.

(a) On or before the filing of the Registration Statement, certain
shareholders of Celtrix shall have executed and delivered to Insmed a voting
agreement in the form of Exhibit 7.20A hereto with respect to, among other
things, such shareholder's agreement to vote all shares of Celtrix Capital
Stock over which such shareholder exercises voting control for approval of the
transactions contemplated in this Agreement at the Celtrix Special Meeting.

(b) On or before the filing of the Registration Statement, certain
shareholders of Insmed shall have executed and delivered to Celtrix a voting
agreement in the form of Exhibit 7.20B hereto with respect to, among other
things, such shareholder's agreement to vote all shares of Insmed Capital Stock
over which such shareholder exercises voting control for approval of the Plan
of Exchange at the Insmed Special Meeting.

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ARTICLE VIII

Conditions Precedent to Consummation of the Merger and Exchange

Section 8.1. Conditions Precedent to Each Party's Obligation to Consummate
Merger and Exchange. The respective obligation of each party to consummate the
Merger and Exchange is subject to the satisfaction at or prior to the Effective
Time of the following conditions precedent:

(a) this Agreement shall have been adopted by the affirmative vote of
the shareholders of Celtrix and Merger Subsidiary by the requisite votes in
accordance with applicable Law and the Plan of Exchange shall have been
approved by the affirmative vote of the shareholders of Parent and Insmed
by the requite votes in accordance with applicable Law;

(b) no statue, rule, regulation, order, ruling, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United
States court of competent jurisdiction or any United States governmental
authority which prohibits, restrains, enjoins or restricts the consummation
of the Merger and Exchange; provided, however, that the parties hereto
shall use their best efforts to have any such statue, rule, regulation,
order, ruling, decree or injunction vacated or reversed;

(c) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order or proceedings
seeking a stop order suspending such effectiveness shall have been issued
and remain in effect;

(d) all applicable requirements of the Exchange Act shall have been
satisfied and any applicable filings under state securities, "Blue Sky" or
takeover laws shall have been made and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received;

(e) the receipt by the parties hereto of the respective tax opinions
described in Sections 8.2(d) and 8.3(d);

(f) the shares of Parent Common Stock required to be issued hereunder
shall have been approved for inclusion on Nasdaq National or Nasdaq
SmallCap, subject to official notice of issuance;

(g) the receipt of all necessary and material governmental, regulatory,
shareholder and third party lender, customer or other clearances, consents,
licenses or approvals; and

(h) Celtrix and Insmed shall each have received from each person
specified in Section 7.17 hereof the written agreement referred to in such
Section 7.17.

Section 8.2. Conditions Precedent to Obligations of Celtrix. The obligations
of Celtrix to consummate the Merger are subject to the satisfaction or waiver
at or prior to the Effective Time of the following conditions precedent:

(a) the representations and warranties of Insmed contained in this
Agreement (other than any representations and warranties made as of a
specific date) shall be true in all material respects (except to the extent
any representation and warranty is already qualified by materiality, in
which case it shall be true in all respects) on and as of the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date, except as contemplated or permitted by this
Agreement and except that the capitalization of Insmed set forth in Section
6.2 of this Agreement may change between the date hereof and the Effective
Time to the extent permitted by Section 7.2(b) hereof, and Celtrix shall
have received a certificate to that effect dated the Closing Date and
executed on behalf of Insmed by the chief executive officer and chief
financial officer.

(b) each of the covenants, agreements and obligations of Insmed and
Parent to be performed at or before the Effective Time pursuant to the
terms of this Agreement shall have been duly performed in all material
respects at or before the Effective Time and at the Closing Insmed and
Parent shall have delivered to Celtrix a certificate to that effect;

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(c) the shares of Parent Common Stock issuable to the Celtrix
shareholders pursuant to this Agreement and such other shares required to
be reserved for issuance in connection with the Merger and Exchange shall
have been authorized for listing on Nasdaq National or Nasdaq SmallCap upon
official notice of issuance;

(d) Celtrix shall have received the opinion of Venture Law Group, a
Professional Corporation, counsel to Celtrix, dated the Closing Date and
addressed to Celtrix, to the effect that (i) the merger of Merger
Subsidiary into Celtrix will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code or part
of an exchange described in Section 351 of the Code; and (ii) no gain or
loss for Federal income tax purposes will be recognized by Celtrix or
Parent or a shareholder of Celtrix as a result of the Merger (other than
with respect to cash received by a shareholder of Celtrix in lieu of a
fractional share of Parent Common Stock), and such opinion shall not have
been withdrawn or modified in any material respect. No opinion will be
expressed as to Parent Common Stock received with respect to any accrued
but unpaid dividends on shares of Celtrix Preferred Stock. Such opinion may
be conditioned upon the receipt of representations of Insmed, Celtrix and
Parent, all in form and substance reasonably satisfactory to such counsel
and other reasonable assumptions set forth therein, and clause (ii) above
shall not apply to the extent a shareholder of Celtrix receives property or
rights (other than Parent Common Stock) in exchange for Celtrix Capital
Stock;

(e) there shall have been no events, changes or effects with respect to
Insmed or its Subsidiaries having or which could reasonably be expected to
have a Material Adverse Effect on Insmed; and

(f) all proceedings, corporate or other, to be taken by Insmed in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Celtrix and Celtrix's counsel, and Insmed shall have made
available to Celtrix for examination the originals or true and correct
copies of all documents that Celtrix may reasonably request in connection
with the transactions contemplated by this Agreement.

Section 8.3. Conditions Precedent to Obligations of Insmed. The obligations
of Insmed to consummate the Exchange are subject to the satisfaction or waiver
at or prior to the Effective Time of the following conditions precedent:

(a) the representations and warranties of Celtrix and Parent contained
in this Agreement (other than any representations and warranties made as of
a specific date) shall be true in all material respects (except to the
extent any representation and warranty is already qualified by materiality,
in which case it shall be true in all respects) on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date, except as contemplated or permitted by
this Agreement and except that the capitalization of Celtrix set forth in
Section 5.2 of the Agreement may change between the date hereof and the
Effective Time to the extent permitted by Section 7.1(b) hereof, and Insmed
shall have received a certificate to that effect dated the Closing Date and
executed on behalf of Celtrix and Parent by the chief executive officer and
chief financial officer;

(b) each of the covenants, agreements and obligations of Celtrix and
Parent to be performed at or before the Effective Time pursuant to the
terms of this Agreement shall have been duly performed in all material
respects at or before the Effective Time and at the Closing Celtrix and
Parent shall have delivered to Insmed a certificate to that effect;

(c) the shares of Parent Common Stock issuable to the Insmed
shareholders pursuant to this Agreement and such other shares to be
reserved for issuance in connection with the Exchange shall have been
authorized for listing on Nasdaq National or Nasdaq SmallCap upon official
notice of issuance;

(d) Insmed shall have received the opinion of Hunton & Williams, counsel
to Insmed, dated the Closing Date and addressed to Insmed, to the effect
that (i) the Exchange will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code or part of
an exchange described in Section 351 of the Code; and (ii) no gain or loss
for Federal income tax purposes

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will be recognized by Insmed or Parent or a shareholder of Insmed as a
result of the Exchange (other than with respect to cash received by a
shareholder of Insmed in lieu of a fractional share of Parent Common
Stock), and such opinion shall not have been withdrawn or modified in any
material respect. Such opinion may be conditioned upon the receipt of
representations of Insmed, Celtrix and Parent, all in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions
set forth therein;

(e) there shall have been no events, changes or effects with respect to
Celtrix having or which could reasonably be expected to have a Material
Adverse Effect on Celtrix; and

(f) all proceedings, corporate or other, to be taken by Celtrix in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Insmed and Insmed's counsel, and Celtrix shall have made
available to Insmed for examination the originals or true and correct
copies of all documents that Insmed may reasonably request in connection
with the transactions contemplated by this Agreement.

ARTICLE IX

Termination; Amendment; Waiver

Section 9.1. Termination. This Agreement may be terminated and the Merger
and Exchange contemplated hereby may be abandoned at any time notwithstanding
approval thereof by the respective shareholders of Celtrix and Insmed, but
prior to the Effective Time:

(a) by mutual written consent of Celtrix and Insmed;

(b) by Celtrix or Insmed, if the Effective Time shall not have occurred
on or before May 31, 2000 (provided that the right to terminate this
Agreement under this Section 9.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Effective Time to occur on
or before such date);

(c) by Celtrix if (i) the transactions contemplated in this Agreement
shall have been voted on by holders of Insmed Capital Stock at a meeting
duly convened therefor, and the votes shall not have been sufficient to
satisfy the condition set forth in Section 8.1(a) hereof, (ii) there has
been a material breach by Insmed or Parent of any representation, warranty,
covenant or agreement set forth in this Agreement, which breach has not
been cured within ten business days following receipt by the breaching
party of notice of such breach; or (iii) the Board of Directors of Insmed
should fail to recommend to its shareholders approval of the transactions
contemplated by this Agreement or such recommendation shall have been made
and subsequently withdrawn;

(d) by Insmed if (i) the transactions contemplated in this Agreement
shall have been voted on by holders of Celtrix Capital Stock at a meeting
duly convened therefor and the votes shall not have been sufficient to
satisfy the condition set forth in Section 8.1(a), (ii) there has been a
material breach by Celtrix of any representation, warranty, covenant or
agreement set forth in this Agreement, which breach has not been cured
within ten business days following receipt by the breaching party of notice
of such breach; or (iii) the Board of Directors of Celtrix should fail to
recommend to its shareholders approval of the transactions contemplated by
this Agreement or such recommendation shall have been made and subsequently
withdrawn;

(e) by Celtrix if, prior to the Effective Time, (i) Celtrix, based on
the advice of outside legal counsel to Celtrix that such action is
consistent with the Board of Director's fiduciary duties under applicable
Law and the determination by the Board of Directors of Celtrix in good
faith that such action is in the best interests of Celtrix and its
shareholders, subject to complying with the terms of this Agreement, is
fully prepared to enter into a binding written agreement concerning a
transaction that constitutes a Celtrix Superior Proposal and Celtrix
notifies Insmed in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, (ii)
Insmed does not make, within five

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business days of receipt of Celtrix's written notification of its intention
to enter into a binding agreement for a Celtrix Superior Proposal, an offer
to enter into an amendment to this Agreement such that the Board of
Directors of Celtrix determines, in good faith after consultation with its
financial advisors, that this Agreement as so amended is at least as
favorable, from a financial point of view, to the shareholders of Celtrix
as a Celtrix Superior Proposal, (iii) Celtrix prior to such termination
pays to Insmed in immediately available funds any fees required to be paid
pursuant to Section 9.3(a) and (iv) substantially simultaneously with such
termination, Celtrix enters into the binding written agreement referred to
in clause (i) above. Celtrix agrees (A) that it will not enter into a
binding agreement referred to in clause (i) above until at least the sixth
business day after it has provided the notice to Insmed required thereby
and (B) to notify Insmed promptly if its intention to enter into a written
agreement referred to in its notification shall change at any time after
giving such notification;

(f) by Insmed if, prior to the Effective Time, (i) Insmed, based on the
advice of outside legal counsel to Insmed that such action is consistent
with the Board of Director's fiduciary duties under applicable Law and the
determination by the Board of Directors of Insmed in good faith that such
action is in the best interests of Insmed and its shareholders, subject to
complying with the terms of this Agreement, is fully prepared to enter into
a binding written agreement concerning a transaction that constitutes an
Insmed Superior Proposal and Insmed notifies Celtrix in writing that it
intends to enter into such an agreement, attaching the most current version
of such agreement to such notice, (ii) Celtrix does not make, within five
business days of receipt of Insmed's written notification of its intention
to enter into a binding agreement for an Insmed Superior Proposal, an offer
to enter into an amendment to this Agreement such that the Board of
Directors of Insmed determines, in good faith after consultation with its
financial advisors, that this Agreement as so amended is at least as
favorable, from a financial point of view, to the shareholders of Insmed as
an Insmed Superior Proposal, (iii) Insmed prior to such termination pays to
Celtrix in immediately available funds any fees required to be paid
pursuant to Section 9.3(b), and (iv) substantially simultaneously with such
termination, Insmed enters into the binding written agreement referred to
in clause (i) above. Insmed agrees (A) that it will not enter into a
binding agreement referred to in clause (a) above until at least the sixth
business day after it has provided the notice to Celtrix required thereby
and (B) to notify Celtrix promptly if its intention to enter into a written
agreement referred to in its notification shall change at any time after
giving such notification; or

(g) by Celtrix or Insmed, if any court of competent jurisdiction in the
United States or other United States Governmental Authority shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger or the Exchange and such
order, decree, ruling or other action shall have become final and
nonappealable.

Section 9.2. Effect of Termination. If this Agreement is so terminated and
the Merger and Exchange are not consummated, this Agreement shall forthwith
become void and have no effect, without any liability on the part of any party
or its directors, officers or shareholders, other than the provisions of this
Section 9.2, Section 7.18, Section 9.3 and Section 10.10. Nothing contained in
this Section 9.2 shall relieve any party from liability for any breach of this
Agreement.

Section 9.3. Termination Fee.

(a) If this Agreement is terminated pursuant to any subsection of Section
9.1(d) or Section 9.1(e) hereof or if the condition contained in Section 8.1(h)
hereof is not satisfied prior to the Effective Time because of the failure of
any affiliate (as defined in Section 7.17 hereof) of Celtrix to deliver the
written agreement specified in such Section and if Celtrix is not entitled to
terminate this Agreement by reason of Section 9.1(c) hereof, then, in addition
to any other rights or remedies that may be available, Celtrix shall promptly
(and in any event within two days of receipt by Celtrix of written notice from
Insmed) pay to Insmed (by wire transfer of immediately available funds to an
account designated by Insmed) a termination fee of $2,500,000 and shall
reimburse Insmed for all out-of-pocket expenses not to exceed $250,000
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Insmed or on its behalf in connection with the
transactions contemplated by this Agreement.

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(b) If this Agreement is terminated pursuant to any subsection of Section
9.1(c) or Section 9.1(f) hereof or if the condition contained in Section 8.1(h)
hereof is not satisfied prior to the Effective Time because of the failure of
any affiliate (as defined in Section 7.17 hereof) of Insmed to deliver the
written agreement specified in such Section and if Insmed is not entitled to
terminate this Agreement by reason of Section 9.1(d) hereof, then, in addition
to any other rights or remedies that may be available, Insmed shall promptly
(and in any event within two days of receipt by Insmed of written notice from
Celtrix) pay to Celtrix (by wire transfer of immediately available funds to an
account designated by Celtrix) a termination fee of $2,500,000 and shall
reimburse Celtrix for all out-of-pocket expenses not to exceed $250,000
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Celtrix or on its behalf in connection with the
transactions contemplated by this Agreement.

Section 9.4. Amendment. This Agreement, the Certificate of Merger, the
Articles of Exchange and the Plan of Exchange may be amended by action taken by
Parent, Merger Subsidiary, Celtrix and Insmed at any time before or after
adoption of this Agreement or Plan of Exchange by the respective shareholders
of Parent, Merger Subsidiary, Celtrix and Insmed but, after any such approval,
no amendment shall be made which under applicable Law requires the approval of
such shareholders without the approval of the shareholders affected thereby.
This Agreement may not be amended except by an instrument in writing signed on
behalf of both of the parties hereto.

Section 9.5. Extension; Waiver. At any time prior to the Effective Time,
either party hereto may to the extent legally allowed (i) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document, certificate or writing delivered pursuant
hereto by the other party hereto or (iii) waive compliance with any of the
agreements or conditions contained herein by the other party hereto. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.

ARTICLE X

Miscellaneous

Section 10.1. Survival of Representations, Warranties and Covenants. The
representations and warranties made herein shall not survive beyond the
Effective Time. This Section 10.1 shall not limit any covenant or agreement of
the parties hereto which by its terms requires performance after the Effective
Time.

Section 10.2. Brokerage Fees and Commissions. No broker, finder or
investment banker (other than PGE whose fees shall be paid by Celtrix) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Celtrix; and no broker, finder or investment banker
(other than BancBoston, whose fees shall be paid by Insmed) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Insmed.

Section 10.3. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties or any of them with respect to the
subject matter hereof, and (b) shall not be assigned by operation of Law or
otherwise.

Section 10.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in

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person, by cable, telecopy, telegram or telex, overnight delivery service from
a national carrier or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:

if to Celtrix:

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place
Suite 600
San Jose, California 95110
Attention: Andreas Sommer, Ph.D.
President & Chief
Executive Officer

with a copy to:

Venture Law Group
2880 Sand Hill Road
Menlo Park, California
Attention: Edmund S. Ruffin, Jr., Esq.

if to Insmed:

Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Suite 206
Richmond, Virginia 23219
Attention: Geoffrey Allan
President & Chief
Executive Officer

with a copy to:

Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: T. Justin Moore, III, Esq.

or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.

Section 10.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.

Section 10.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.

Section 10.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.

Section 10.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

Section 10.9. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and

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that the parties shall be entitled to specific performance of the terms hereof,
in addition to any other remedy at law or equity.

Section 10.10. Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger and
Exchange is consummated, except that the expenses incurred in connection with
printing and mailing the Joint Proxy Statement/Prospectus and printing the
Registration Statement, and the filing fees related to the Registration
Statement, shall be shared equally by the parties hereto.

Section 10.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.

Section 10.12. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect shareholder of Celtrix, Insmed, Parent or Merger
Subsidiary or any officer, director, employee, agent, representative or
investor of any party hereto.

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.

CELTRIX PHARMACEUTICALS, INC.

/s/ Andreas Sommer
By: _________________________________
Andreas Sommer
President and Chief Executive
Officer

INSMED PHARMACEUTICALS, INC.

/s/ Geoffrey Allan
By: _________________________________
Geoffrey Allan
President and Chief Executive
Officer

INSMED, INC.

/s/ Geoffrey Allan
By: _________________________________
Geoffrey Allan
President and Chief Executive
Officer

CELTRIX MERGERSUB, INC.

/s/ Geoffrey Allan
By: _________________________________
Geoffrey Allan
President and Chief Executive
Officer

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Annex B

February 9, 2000

Special Committee of the Board of Directors
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, California 95054-1815

Members of the Special Committee of the Board of Directors:

You asked for our opinion as to the fairness, from a financial, point of
view, to the holders of common stock, par value $0.001 per share ("Celtrix
Common Stock") of Celtrix Pharmaceuticals, Inc. a Delaware corporation
("Celtrix" or the "Company") of certain transactions in which Celtrix is
considering participating, as set forth in the Agreement and Plan of
Reorganization dated as of November 30, 1999 (the "Original Agreement"). That
opinion was delivered to the Board on November 29, 1999. You have informed us
that the Original Agreement is to be amended and restated on the date hereof,
and you have provided us with a copy of the Amended and Restated Agreement and
Plan of Reorganization dated as of February 9, 2000 (the "Restated Agreement"),
which we have read. You have now requested our opinion as to the fairness as of
November 29, 1999, from a financial point of view, to the holders of the
Celtrix Common Stock of the transactions provided for in the Restated
Agreement.

Background of Transactions

Celtrix Corporation entered into the Original Agreement with Insmed, Inc., a
Virginia corporation, Insmed Pharmaceuticals, Inc., a Virginia corporation
("Insmed"), and Celtrix Merger Sub, Inc., a Delaware corporation pursuant to
which the businesses and operations of Celtrix and Insmed would be combined
into a newly formed holding company, Insmed, Inc. (the "Reorganization"). That
combination (the "Combination") is to be accomplished through the exchange of
all of the outstanding shares of Insmed Capital Stock and all of the
outstanding shares of Celtrix Capital Stock for Insmed, Inc. Common Stock at
conversion ratios specified in the Agreement. The Restated Agreement provides
that each holder of Celtrix Common Stock will receive one (1) share of Insmed,
Inc. common stock for each outstanding share of Celtrix Common Stock and each
shareholder of Insmed Pharmaceuticals will receive 3.5 shares of Insmed, Inc.
Common Stock for each outstanding share of Insmed Pharmaceuticals Common Stock.
Pursuant to the Restated Agreement, the Reorganization is to be accounted for
under purchase accounting as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended.

Investigation and Analysis

In conducting our investigation and analysis and in arriving at the opinion
set forth below, we reviewed such information and took into account such
financial and economic factors, as we deemed relevant under the circumstances.
In that connection, we, among other things: (i) reviewed available information
about Insmed provided by Insmed, including but not limited to their Private
Placement Memorandum dated July 1, 1999; (ii) conducted interviews with various
members of Insmed's senior management, (iii) reviewed publicly available
information about Celtrix, including but not limited to Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, proxy and other information filed with
the Securities and Exchange Commission; (iv) analyzed information regarding the
market price of Celtrix over various periods; (v) analyzed information on
publicly-traded comparable companies; and (vi) analyzed information about the
pricing of recent Initial Public Offerings for Biotechnology companies in
similar states of development to Insmed.

We reviewed with senior management of Celtrix the state of Celtrix's
business and operations prepared and furnished to us by the Company. We held
discussions with certain members of Celtrix's and Insmed's senior management
concerning Celtrix's and Insmed's respective historical and current business
condition and operating results. We considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that we deemed relevant for the preparation of this opinion. We
did not

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consider any benefits that may inure to any stockholder of the Company as a
result of the Merger or any related transactions other than in such party's
capacity as a stockholder of the Company.

In arriving at our opinion, we assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to us by or
on behalf of Celtrix, and all of the publicly available financial and other
information referred to above, and did not attempt independently to verify any
such information. We also assumed, with your consent, that the Reorganization
would be consummated in accordance with the terms of the Restated Agreement
dated as of February 9, 2000, without any additional amendment thereto and
without waiver by Celtrix or Insmed of any of the conditions to their
respective obligations thereunder. We relied upon assurances of senior
management of Celtrix and Insmed that such management was unaware of any fact
that would make their respective information provided to us incomplete or
misleading.

Our opinion necessarily was based upon economic, monetary and market
conditions as they existed and could be evaluated on the date hereof, and did
not predict or take into account any changes that could have occurred, or
information that could have become available, after the date of our opinion,
including without limitation changes in the terms of the Agreement. It should
be understood that subsequent developments may have affected this opinion and
we do not have any obligation to update, revise or reaffirm this opinion.
Except as noted above, this opinion did not address the relative merits of the
Reorganization and any other potential transactions or business strategies
considered by the Special Committee of the Board of Directors of Celtrix (the
"Special Committee").

Pacific Growth Equities, Inc. ("PGE") received a fee for rendering this
written opinion pursuant to the terms of an engagement letter. PGE and/or its
employees may from time to time trade the securities of the Company for its or
their own account/s or the accounts of PGE's customers and, accordingly, may at
any time hold long or short positions in such securities.

Opinion

Based upon and subject to the foregoing, we are of the opinion that, as of
November 29, 1999, the Reorganization as set forth in the Restated Agreement,
is fair, from a financial point of view, to the holders of Celtrix Common
Stock.

We hereby consent to (i) the inclusion of this opinion letter as Appendix B
to the Joint Proxy Statement/Prospectus, forming part of a Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission,
which Joint Proxy Statement/Prospectus is also to be delivered to the
respective stockholders of Celtrix and Insmed; and (ii) references made to our
firm and such opinion in such Joint Proxy Statement/Prospectus, including but
not limited to, the reference under the captions entitled "SUMMARY--Opinion of
Celtrix's Financial Advisors", "THE REORGANIZATIONS--Background and
Negotiations of the Reorganizations", "THE REORGANIZATIONS--Celtrix Reasons for
the Reorgaizations", "THE REORGANIZATIONS--Recommendations of the Board of
Directors", "THE REORGANIZATIONS--Opinion of Celtrix's Financial Advisors."

In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations promulgated
thereunder, and we do not admit that we are experts with respect to any part of
the Registration Statement on Form S-4 within the meaning of the term "expert"
as used in the Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.

Very truly yours,

/s/ George J. Milstein
Pacific Growth Equities, Inc.

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Annex C

DELAWARE GENERAL CORPORATION LAW

262 APPRAISAL RIGHTS.

(a.) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S)228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.

(b,) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:

(1.) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and
to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of (S)251 of this title.

(2.) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

(3.) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.

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(c.) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d.) Appraisal rights shall be perfected as follows:

(1.) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at
a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who
was such on the record date for such meeting with respect to
shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or
consolidation has become effective; or

(2.) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled
to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of
such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any
class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger
or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of
such constituent corporation that are entitled to appraisal rights
of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of
such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For
purposes of

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determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.

(e.) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f.) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g.) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h.) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's

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certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

(i.) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j.) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k.) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.

(l.) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

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Annex D

Virginia Stock Corporation Act
(S)(S) 13.1-729--740
Dissenters' Rights

(S) 13.1-729. Definitions.

In this article:

"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.

"Dissenter" means a shareholder who is entitled to dissent from corporate
action under (S) 13.1-730 and who exercises that right when and in the manner
required by (S)(S) 13.1-732 through 13.1-739.

"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.

"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.

"Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.

"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.

"Shareholder" means the record shareholder or the beneficial shareholder.

(S) 13.1-730. Right to dissent.

A. A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:

1. Consummation of a plan of merger to which the corporation is a party (i)
if shareholder approval is required for the merger by (S) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on
the merger or (ii) if the corporation is a subsidiary that is merged
with its parent under (S) 13.1-719;

2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

3. Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale
will be distributed to the shareholders within one year after the date
of sale;

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4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

B. A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.

C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:

1. The articles of incorporation of the corporation issuing such shares
provide otherwise;

2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange
to accept for such shares anything except:

a. Cash;

b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any
other corporation or limited liability company which, at the record
date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share
exchange is to be acted on, were either listed subject to notice of
issuance on a national securities exchange or held of record by at
least 2,000 record shareholders or members; or

c. A combination of cash and shares or membership interests as set
forth in subdivisions 2 a and 2 b of this subsection; or

3. The transaction to be voted on is an "affiliated transaction" and is not
approved by a majority of "disinterested directors" as such terms are
defined in (S) 13.1-725.

D. The right of a dissenting shareholder to obtain payment of the fair value
of his shares shall terminate upon the occurrence of any one of the following
events:

1. The proposed corporate action is abandoned or rescinded;

2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or

3. His demand for payment is withdrawn with the written consent of the
corporation.

E. Notwithstanding any other provision of this article, no shareholder of a
corporation located in a county having a county manager form of government and
which is exempt from income taxation under (S) 501 (c) or (S) 528 of the
Internal Revenue Code and no part of whose income inures or may inure to the
benefit of any private shareholder or individual shall be entitled to dissent
and obtain payment for his shares under this article.

(S) 13.1-731. Dissent by nominees and beneficial owners.

A. A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.

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B. A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:

1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and

2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.

(S) 13.1-732. Notice of dissenters' rights.

A. If proposed corporate action creating dissenters' rights under (S) 13.1-
730 is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.

B. If corporate action creating dissenters' rights under (S) 13.1-730 is
taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in (S) 13.1-734.

(S) 13.1-733. Notice of intent to demand payment.

A. If proposed corporate action creating dissenters' rights under (S) 13.1-
730 is submitted to a vote at a shareholders' meeting, a shareholder who wishes
to assert dissenters' rights (i) shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (ii) shall not vote such shares in favor
of the proposed action.

B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.

(S) 13.1-734. Dissenters' notice.

A. If proposed corporate action creating dissenters' rights under (S) 13.1-
730 is authorized at a shareholders' meeting, the corporation, during the ten-
day period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the
requirements of (S) 13.1-733.

B. The dissenters' notice shall:

1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;

2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;

3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before or after that date;

4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after
the date of delivery of the dissenters' notice; and

5. Be accompanied by a copy of this article.

(S) 13.1-735. Duty to demand payment.

A. A shareholder sent a dissenters' notice described in (S) 13.1-734 shall
demand payment, certify that he acquired beneficial ownership of the shares
before or after the date required to be set forth in the dissenters'

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notice pursuant to subdivision 3 of subsection B of (S) 13.1-734, and, in the
case of certificated shares, deposit his certificates in accordance with the
terms of the notice.

B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.

C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.

(S) 13.1-736. Share restrictions.

A. The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received.

B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.

(S) 13.1-737. Payment.

A. Except as provided in (S) 13.1-738, within thirty days after receipt of a
payment demand made pursuant to (S) 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this
Commonwealth, where its registered office is located or (ii) at the election of
any dissenter residing or having its principal office in the Commonwealth, by
the circuit court in the city or county where the dissenter resides or has its
principal office. The court shall dispose of the complaint on an expedited
basis.

B. The payment shall be accompanied by:

1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;

2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;

3. A statement of the dissenters' right to demand payment under (S) 13.1-
739; and

4. A copy of this article.

(S) 13.1-738. After-acquired shares.

A. A corporation may elect to withhold payment required by (S) 13.1-737 from
a dissenter unless he was the beneficial owner of the shares on the date of the
first publication by news media or the first announcement to shareholders
generally, whichever is earlier, of the terms of the proposed corporate action,
as set forth in the dissenters' notice.

B. To the extent the corporation elects to withhold payment under subsection
A of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall offer
to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (S) 13.1-739.

D-4
<PAGE>

(S) 13.1-739. Procedure if shareholder dissatisfied with payment or offer.

A. A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under (S) 13.1-737), or reject the corporation's
offer under (S) 13.1-738 and demand payment of the fair value of his shares and
interest due, if the dissenter believes that the amount paid under (S) 13.1-737
or offered under (S) 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated.

B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for
his shares.

(S) 13.1-740. Court action.

A. If a demand for payment under (S) 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described
in subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.

B. The corporation shall commence the proceeding in the city or county where
its principal office is located, or, if none in this Commonwealth, where its
registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.

C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.

D. The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.

E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.

F. Each dissenter made a party to the proceeding is entitled to judgment (i)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation or (ii) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under (S) 13.1-738.

(S) 13.1-741. Court costs and counsel fees.

A. The court in an appraisal proceeding commenced under (S) 13.1-740 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters did not act in good faith in demanding
payment under (S) 13.1-739.

D-5
<PAGE>

B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:

1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of (S)(S) 13.1-732 through 13.1-739; or

2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the
rights provided by this article.

C. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.

D. In a proceeding commenced under subsection A of (S) 13.1-737 the court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.

D-6
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annex E

STOCKHOLDER VOTING AGREEMENT

AMONG

INSMED, INC.

CELTRIX PHARMACEUTICALS, INC.

AND

CERTAIN HOLDERS OF SHARES

INSMED PHARMACEUTICALS, INC.

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

Dated as of December 15, 1999

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

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

E-1
<PAGE>

STOCKHOLDER VOTING AGREEMENT

THIS STOCKHOLDER VOTING AGREEMENT, dated as of December 15, 1999 (this
"Agreement"), by and among the persons or entities designated as Stockholders
on the signature page hereto (the "Stockholders" and each a "Stockholder"),
Insmed, Inc., a Virginia corporation ("Parent"), and Celtrix Pharmaceuticals,
Inc., a Delaware corporation ("Celtrix"), recites and provides as follows.

WHEREAS, the Stockholders collectively own or will own of record and
beneficially certain shares of common stock, $.01 par value per share (the
"Company Common Stock") of Insmed Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), certain shares of the Company's Series A Convertible
Participating Preferred Stock, $.01 par value per share (the "Insmed Series A
Preferred Stock"), and/or certain shares of the Company's Series B Convertible
Preferred Stock, $.01 par value per share (the "Insmed Series B Preferred", and
together with the Insmed Series A Preferred Stock, the "Company Preferred
Stock"), each Stockholder, respectively, owning of record and/or beneficially
the number of shares of Company Common Stock and Company Preferred Stock, if
any, set forth next to its name on Annex A attached hereto and incorporated by
reference herein (such Stockholder's shares of Company Common Stock and Company
Preferred Stock, together with any other voting or equity securities of the
Company hereafter acquired by such Stockholder prior to the termination of this
Agreement, being referred to collectively as the "Shares"); and

WHEREAS, Parent, Celtrix Mergersub, Inc., a Delaware Corporation ("Merger
Subsidiary"), Celtrix, and the Company, have entered into an Agreement and Plan
of Reorganization, dated as of November 30, 1999 (as amended from time to time,
the "Reorganization Agreement"), which provides, among other things, that, upon
the terms and subject to the conditions therein, all outstanding shares of
Insmed capital stock will be exchanged for shares of Parent capital stock (the
"Exchange"); and

WHEREAS, pursuant to Section 7.20(b) of the Reorganization Agreement, the
Stockholders have agreed to enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the terms and conditions set forth herein,
the parties hereto hereby agree as follows:

1. Representations and Warranties of the Stockholders.

Each Stockholder represents and warrants to Parent and Celtrix severally as
to itself and with respect to its Shares, as follows:

(a) Such Stockholder's Shares constitute all of the shares of Company
Common Stock and Company Preferred Stock, if any, beneficially owned,
directly or indirectly, by such Stockholder as of the date hereof,
except as otherwise noted on Annex A hereto. Such Stockholder's Shares
are owned of record and beneficially by such Stockholder with good and
valid title thereto, free and clear of any and all mortgages, liens,
encumbrances, charges, claims, restrictions, pledges, security
interests, or impositions (collectively, "Liens").

(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance by such Stockholder of its obligations
hereunder will not, constitute a violation of, conflict with, result in
a default (or an event which, with notice or lapse of time or both,
would result in a default) under, or result in the creation of any Lien
on any of such Stockholder's Shares under (i) any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to
which such Stockholder is a party or by which such Stockholder is
bound, (ii) any judgment, writ, decree, order or ruling applicable to
such Stockholder, or (iii) the organizational documents of such
Stockholder, if applicable.

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<PAGE>

(c) Such Stockholder has full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized and no other actions on the part of such
Stockholder are required in order to consummate the transaction
contemplated hereby. This Agreement has been duly and validly executed
and delivered by such Stockholder and, assuming due authorization,
execution and delivery by Parent and Celtrix, constitutes a valid and
binding agreement of such Stockholder, enforceable against such
Stockholder in accordance with its terms, except to the extent that
enforceability may be limited by applicable law.

(d) Neither the execution and delivery of this Agreement nor the
performance by such Stockholder of its obligations hereunder will (i)
violate any order, writ, injunction or judgment applicable to such
Stockholder or (ii) violate any law, decree, statute, rule or
regulation applicable to such Stockholder or require any consent,
authorization or approval of, filing with or notice to, any court,
administrative agency or other governmental body or authority, other
than any required notices or filings pursuant to the federal securities
laws.

2. Representations and Warranties of Parent.

Parent represents and warrants to the Stockholders as follows:

(a) Parent is (i) duly organized and validly existing and in good standing
under the laws of the Commonwealth of Virginia, (ii) has the requisite
corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby, and (iii) has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and constitutes the legal, valid and
binding obligation of Parent, enforceable against Parent in accordance
with its terms, except to the extent that enforceability may be limited
by applicable bankruptcy, organization, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.

(b) The execution and delivery of this Agreement by Parent does not, and
the performance by Parent of its obligations hereunder will not,
constitute a violation of, conflict with, or result in a default (or an
event which, with notice or lapse of time or both, would result in a
default) under, its charter or bylaws or any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to
which Parent is a party or by which Parent is bound or any judgment,
writ, decree, order or ruling applicable to Parent.

(c) Neither the execution and delivery of this Agreement nor the
performance by Parent of its obligations hereunder will violate any
order, writ, injunction, judgment, law, decree, statute, rule or
regulation applicable to Parent or require any consent, authorization
or approval of, filing with, or notice to, any court, administrative
agency or other governmental body or authority, other than any required
notices or filings pursuant to the federal securities laws.

3. Representations and Warranties of Celtrix.

(a) Celtrix represents and warrants to the Stockholders as follows: Celtrix
is (i) duly organized and validly existing and in good standing under the laws
of the State of Delaware, (ii) has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and (iii) has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement. This
Agreement has been duly and validly executed and delivered by and constitutes
the legal, valid and binding obligation of Celtrix, enforceable against Celtrix
in accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, organization, insolvency, moratorium or

E-3
<PAGE>

other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.

(b) The execution and delivery of this Agreement by Celtrix does not, and
the performance by Celtrix of its obligations hereunder will not, constitute a
violation of, conflict with, or result in a default (or an event which, with
notice or lapse of time or both, would result in a default) under, its charter
or bylaws or any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Celtrix is a party or by which Celtrix is
bound or any judgment, writ, decree, order or ruling applicable to Celtrix.

(c) Neither the execution and delivery of this Agreement nor the performance
by Celtrix of its obligations hereunder will violate any order, writ,
injunction, judgment, law, decree, statute, rule or regulation applicable to
Celtrix or require any consent, authorization or approval of, filing with, or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.

4. Transfer of the Shares.

During the term of this Agreement, except as otherwise provided herein, no
Stockholder shall (a) offer to sell, sell, pledge or otherwise dispose of or
transfer any interest in or encumber with any Lien any of such Stockholder's
Shares, except for transfer or sale to any affiliate of such Stockholder who
agrees to be bound by this Agreement, (b) deposit such Stockholder's Shares
into a voting trust, enter into a voting agreement or arrangement with respect
to such Shares or grant any proxy or power of attorney with respect to such
Shares, or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition or sale,
assignment or other disposition of or transfer of any interest in or the voting
of any shares of Company Common Stock or Company Preferred Stock or any other
securities of the Company.

5. No Solicitation.

Each Stockholder agrees that it will immediately cease and cause to be
terminated any existing activities, discussion or negotiations, if any, with
any parties conducted heretofore with respect to any Takeover Proposal (as
defined below). In addition, each Stockholder will not, directly or indirectly:
(i) initiate, solicit or encourage, or take any action to facilitate the making
of, any offer of proposal which constitutes or is reasonably likely to lead to
any Takeover Proposal, (ii) enter into any agreement with respect to any
Takeover Proposal, or (iii) in the event of an unsolicited written Takeover
Proposal for the Company, engage in negotiations or discussions with, or
provide any information or data to, any person (other than Parent and Celtrix
and any of their affiliates or representatives and except for information which
has been previously publicly disseminated by the Company) relating to any
Takeover Proposal. As used in this Agreement, "Takeover Proposal" shall mean
any tender or exchange offer involving the Company, any proposal for a merger,
consolidation or other business combination involving the Company, any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the business or assets of, the Company, or any proposal
or offer with respect to any other transaction similar to any of the foregoing
with respect to the Company, other than pursuant to the Exchange.

6. Waiver of Appraisal Rights.

Each Stockholder hereby irrevocably waives any rights of appraisal or rights
to dissent from the Exchange that such Stockholder may have.

7. Voting of Shares; Irrevocable Proxy.

E-4
<PAGE>

adoption of the terms thereof and hereof; and (2) except as otherwise agreed to
in writing in advance by Parent and Celtrix, against the following actions
(other than the Exchange and the other transactions contemplated by the
Reorganization Agreement): (i) any extraordinary corporate transaction, such as
a merger, consolidation or other business combination involving the Company or
its subsidiaries; (ii) a sale, lease or transfer of a material amount of assets
of the Company or one of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of the Company or its
subsidiaries; or (iii) (A) any change in a majority of the persons who
constitute the Board of Directors of the Company as of the date hereof; (B) any
change in the present capitalization of the Company or any amendment of the
Company's articles of incorporation or bylaws, as amended to date; (C) any
other material change in the Company's corporate structure or business; or (D)
any Takeover Proposal or any action that is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or adversely affect the
Exchange and the other transactions contemplated by this Agreement and the
Reorganization Agreement.

(b) Each Stockholder hereby irrevocably constitutes and appoints Andreas
Sommer, Ph.D. and Donald D. Huffman, and each of them as its sole and exclusive
and true and lawful agent and attorney-in-fact, with full power of
substitution, to vote all Company Common Stock and Company Preferred Stock that
the holder is entitled to vote as indicated in Section 7(a) above, to the same
extent and with the same effect as the Stockholder might or could do under any
applicable laws or regulations governing the rights and powers of stockholders
of a Virginia corporation. This proxy shall become effective as of the date
hereof and shall expire upon termination of this Agreement. This proxy is
coupled with an interest and shall be irrevocable and binding upon any and all
transferees of the Company Common Stock and Company Preferred Stock so long as
it remains in effect pursuant to the terms hereof. This proxy/power of attorney
shall not terminate on disability of the principal. Each Stockholder will take
such further action as may be necessary to effect the foregoing and hereby
revokes any proxy previously granted by such Stockholder with respect to such
Stockholder's Company Common Stock and Company Preferred Stock.

8. Enforcement of the Agreement.

Each Stockholder acknowledges that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent and Celtrix will be entitled (i) to an
injunction or injunctions to prevent breaches of this Agreement and (ii) to
specifically enforce the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which it is entitled at law or in equity.

9. Adjustments.

The number and type of securities subject to this Agreement will be
appropriately adjusted in the event of any stock dividends, stock splits,
recapitalizations, combinations, exchanges of shares or the like or any other
action that would have the effect of changing any Stockholder's ownership of
the Company's capital stock or other securities.

10. Termination.

This Agreement will terminate on the earlier of (a) the effective time of
the Exchange or (b) the date on which the Reorganization Agreement is
terminated in accordance with its terms. Upon termination of this Agreement,
all obligations of the parties hereto shall terminate except to the extent that
any such party has committed a material breach of this Agreement prior to such
termination.

11. Expenses.

All fees and expenses incurred by any of the parties hereto shall be borne
by the party incurring such fees and expenses.

E-5
<PAGE>

12. Brokerage.

Except as disclosed in the Reorganization Agreement (including the exhibits
and schedules thereto), each party represents and warrants to the others that
there are no claims for finder's fees or brokerage commissions or other like
payments in connection with this Agreement or the transactions contemplated
hereby, and each party agrees to indemnify and hold harmless the other parties
from and against any and all claims or liabilities for finder's fees or
brokerage commissions or other like payments incurred in connection with the
transactions contemplated hereby.

13. Miscellaneous.

(a) All representations and warranties contained herein expire upon the
termination of this Agreement pursuant to Section 10 hereof.

(b) Any provision of this Agreement may be waived at any time by the party
that is entitled to the benefits thereof. No such waiver, amendment or
supplement shall be effective unless in writing signed by the party or parties
sought to be bound thereby. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision
of this Agreement. The failure of a party to insist upon strict adherence to
any term of this Agreement or one or more sections hereof shall not be
considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.

(c) This Agreement contains the entire agreement among Parent, Celtrix and
the Stockholders with respect to the subject matter hereof, and supersedes all
prior agreements among Parent, Celtrix and the Stockholders with respect to
such matters. This Agreement may not be amended, changed, supplemented, waived
or otherwise modified, except upon the delivery of a written agreement executed
by the parties hereto.

(d) The descriptive headings contained herein are for convenience and
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.

(e) Any notice provided for in this Agreement will be in writing and will be
either personally delivered, sent by reliable overnight courier, telecopied or
mailed by first class mail, return receipt requested, to the recipient at the
address below indicated, or if to a Stockholder, the address listed below such
Stockholder's name on Annex A hereto.

Notices to the Parent:

Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attention: Geoffrey Allan, Ph.D.
Telephone Number: (804) 828-6893
Telecopy Number: (804) 828-6894

With a copy (which will not constitute
Notice to the Parent) to:

Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: T. Justin Moore, III, Esq.
Telephone Number: (804) 788-8464
Telecopy Number: (804) 788-8218

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<PAGE>

Notices to Celtrix:

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
Attention: Andreas Sommer, Ph.D.
Telephone Number: (408) 988-2500
Telecopy Number: (408) 573-6228

With a copy (which will not constitute
Notice to Celtrix) to:

Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Edmund S. Ruffin, Jr., Esq.
Telephone Number: (650) 854-4488
Telecopy Number: (650) 233-8386

or to such other address or to the attention of such other party as any party
may have furnished to the other parties in writing in accordance herewith.

(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.

(h) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any such right, power or remedy, by
either party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.

(j) Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal, or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.

(k) All questions concerning the construction, validity and interpretation
of this Agreement will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice of law provision
or rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.

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<PAGE>

IN WITNESS WHEREOF, each of the parties hereto as caused this Agreement to
be duly executed as of the date first written above.

INSMED, INC.

/s/ Geoffrey Allan, Ph.D.
By: _________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive
Officer

CELTRIX PHARMACEUTICALS, INC.

/s/ Andreas Sommer
By: _________________________________
Name:
Title:

STOCKHOLDERS:

Boston University Nominee
Partnership

/s/ Kenneth G. Condon
By: _________________________________
Kenneth G. Condon

Ticonderoga Associates, III, L.L.C.,
general partner of Ticonderoga
Partners, III, LP

/s/ Graham K. Crooke
By: _________________________________
Graham K. Crooke
Partner

Intersouth Associates III, LP,
general partner of Intersouth
Partners, III, LP

/s/ Dennis J. Dougherty
By: _________________________________
Dennis J. Dougherty
General Partner

KS Teknoinvest V

/s/ Bjorn Bjora
By: _________________________________
Bjorn Bjora
General Manager

E-8
<PAGE>

BioAsia Investments, LLC, general
partner for Biotechnology
Development Fund, L.P. and
Biotechnology Development Fund III,
L.P.

/s/ Edgar G. Engleman
By: _________________________________
Edgar G. Engleman
General Partner

Warburg Dillon Read, LLC, as Agent

/s/ Stephen Chappra
By: _________________________________
Stephen Chrappa
Associate Director

/s/ Dr. Geoffrey Allan
By: _________________________________
Dr. Geoffrey Allan

E-9
<PAGE>

ANNEX A

<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock
Common Stock Owned Owned Beneficially Owned Beneficially
Name and Address Beneficially and of Record and of Record and of Record
- ---------------- -------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Boston University
Nominee Partnership.... 356,038 466,343 25,000
c/o Office of the
Treasurer
881 Commonwealth Ave.
Boston, MA 02215
Ticonderonga Associates, 2,296,035 128,250
III, L.L.C. ...........
Suite 4360
555 California Street
San Francisco, CA 94101
Intersouth Associates 866,355 48,250
III, LP................
1000 Park Forty Plaza
Suite 290
Durham, NC 27713
KS Teknoinvest V........ 1,000,000
Grev Wedels, Plass, 5
P.O. Box 556 Sentrum
Oslo, Norway 0105
BioAsia Investments, 917,500
LLC....................
575 High Street
Suite 201
Palo Alto, CA 94301
Warburg Dillon Read, 386,143 17,411
LLC, As Agent..........
299 Park Avenue,
37th Floor
New York, NY 10171
Dr. Geoffrey Allan...... 285,384
800 E. Leigh Street
Richmond, Virginia
23219
</TABLE>

E-10
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annex G

STOCKHOLDER VOTING AGREEMENT

AMONG

INSMED, INC.

CELTRIX MERGERSUB, INC.

AND

CERTAIN HOLDERS OF SHARES

CELTRIX PHARMACEUTICALS, INC.

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

Dated as of December 15, 1999

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

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

G-1
<PAGE>

STOCKHOLDER VOTING AGREEMENT

THIS STOCKHOLDER VOTING AGREEMENT, dated as of December 15, 1999 (this
"Agreement"), by and among the persons or entities designated as Stockholders
on the signature page hereto (the "Stockholders" and each a "Stockholder"),
Insmed, Inc., a Virginia corporation ("Parent"), and Celtrix Mergersub, Inc., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger
Subsidiary"), recites and provides as follows.

WHEREAS, the Stockholders collectively own or will own of record and
beneficially certain shares of common stock, $.01 par value per share (the
"Company Common Stock") of Celtrix Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), certain shares of the Company's Series A Preferred
Stock, $.01 par value per share (the "Celtrix Series A Preferred Stock") and/or
certain shares of the Company's Series B Preferred Stock, $.01 par value per
share (the "Celtrix Series B Preferred Stock," and together with the Celtrix
Series A Preferred Stock, the "Company Preferred Stock"), each Stockholder,
respectively, owning of record and/or beneficially the number of shares of
Company Common Stock and Company Preferred Stock, if any, set forth next to its
name on Annex A attached hereto and incorporated by reference herein (such
Stockholder's shares of Company Common Stock and Company Preferred Stock,
together with any other voting or equity securities of the Company hereafter
acquired by such Stockholder prior to the termination of this Agreement, being
referred to collectively as the "Shares");

WHEREAS, Parent, Merger Subsidiary, Insmed Pharmaceuticals, Inc., a Virginia
corporation ("Insmed") and the Company, have entered into an Agreement and Plan
of Reorganization, dated as of November 30, 1999 (as amended from time to time,
the "Reorganization Agreement"), which provides, among other things, that, upon
the terms and subject to the conditions therein, Merger Subsidiary shall merge
with and into the Company, whereupon the separate existence of Merger
Subsidiary shall cease, and the Company shall be the surviving corporation and
shall become a wholly-owned subsidiary of Parent (the "Merger"); and

WHEREAS, as a condition to the willingness of Parent, Insmed and Merger
Subsidiary to enter into the Reorganization Agreement, Parent, Insmed and
Merger Subsidiary have requested that the Stockholders agree, and in order to
induce Parent, Insmed and Merger Subsidiary to enter into the Reorganization
Agreement, the Stockholders have agreed, to enter into this Agreement.

1. Representations and Warranties of the Stockholders.

Each Stockholder represents and warrants to Parent, Insmed and Merger
Subsidiary, severally as to itself and with respect to its Shares, as follows:

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<PAGE>

Stockholder is a party or by which such Stockholder is bound, (ii) any
judgment, writ, decree, order or ruling applicable to such Stockholder,
or (iii) the organizational documents of such Stockholder, if
applicable.

(c) Such Stockholder has full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized and no other actions on the part of such
Stockholder are required in order to consummate the transaction
contemplated hereby. This Agreement has been duly and validly executed
and delivered by such Stockholder and, assuming due authorization,
execution and delivery by Parent and Merger Subsidiary, constitutes a
valid and binding agreement of such Stockholder, enforceable against
such Stockholder in accordance with its terms, except to the extent
that enforceability may be limited by applicable law.

2. Representations and Warranties of Parent.

Parent represents and warrants to the Stockholders as follows:

3. Representations and Warranties of Merger Subsidiary.

Merger Subsidiary represents and warrants to the Stockholders as follows:

(a) Merger Subsidiary is (i) duly organized and validly existing and in
good standing under the laws of the State of Delaware, (ii) has the
requisite corporate power and authority to execute and deliver this

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<PAGE>

Agreement and to consummate the transactions contemplated hereby, and
(iii) has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement. This Agreement
has been duly and validly executed and delivered by Merger Subsidiary
and constitutes the legal, valid and binding obligation of Merger
Subsidiary, enforceable against Merger Subsidiary in accordance with its
terms, except to the extent that enforceability may be limited by
applicable bankruptcy, organization, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.

(b) The execution and delivery of this Agreement by Merger Subsidiary does
not, and the performance by Merger Subsidiary of its obligations
hereunder will not, constitute a violation of, conflict with, or result
in a default (or an event which, with notice or lapse of time or both,
would result in a default) under, its charter or bylaws or any
contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Merger Subsidiary is a party or by
which Merger Subsidiary is bound or any judgment, writ, decree, order
or ruling applicable to Merger Subsidiary.

(c) Neither the execution and delivery of this Agreement nor the
performance by Merger Subsidiary of its obligations hereunder will
violate any order, writ, injunction, judgment, law, decree, statute,
rule or regulation applicable to Merger Subsidiary or require any
consent, authorization or approval of, filing with, or notice to, any
court, administrative agency or other governmental body or authority,
other than any required notices or filings pursuant to the federal
securities laws.

4. Transfer of the Shares.

During the term of this Agreement, except as otherwise provided herein, no
Stockholder shall (a) offer to sell, sell, pledge or otherwise dispose of or
transfer any interest in or encumber with any Lien any of such Stockholder's
Shares, except for transfer or sale to any affiliate of such Stockholder who
agrees to be bound by this Agreement, (b) deposit such Stockholder's Shares
into a voting trust, enter into a voting agreement or arrangement with respect
to such Shares or grant any proxy or power of attorney with respect to such
Shares, or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition or sale,
assignment or other disposition of or transfer of any interest in or the
voting of any shares of Company Common Stock or Company Preferred Stock or any
other securities of the Company.

5. No Solicitation.

Each Stockholder agrees that it will immediately cease and cause to be
terminated any existing activities, discussion or negotiations, if any, with
any parties conducted heretofore with respect to any Takeover Proposal (as
defined below). In addition, each Stockholder will not, directly or
indirectly: (i) initiate, solicit or encourage, or take any action to
facilitate the making of, any offer of proposal which constitutes or is
reasonably likely to lead to any Takeover Proposal, (ii) enter into any
agreement with respect to any Takeover Proposal, or (iii) in the event of an
unsolicited written Takeover Proposal for the Company, engage in negotiations
or discussions with, or provide any information or data to, any person (other
than Parent, Insmed and Merger Subsidiary and any of their affiliates or
representatives and except for information which has been previously publicly
disseminated by the Company) relating to any Takeover Proposal. As used in
this Agreement, "Takeover Proposal" shall mean any tender or exchange offer
involving the Company, any proposal for a merger, consolidation or other
business combination involving the Company, any proposal or offer to acquire
in any manner a substantial equity interest in, or a substantial portion of
the business or assets of, the Company, or any proposal or offer with respect
to any other transaction similar to any of the foregoing with respect to the
Company, other than pursuant to the Merger.

6. Waiver of Appraisal Rights.

Each Stockholder hereby irrevocably waives any rights of appraisal or
rights to dissent from the Merger that such Stockholder may have.

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<PAGE>

7. Voting of Shares; Irrevocable Proxy.

(a) During the term of this Agreement, each Stockholder in its capacity as
such hereby agrees to vote each of its Shares at any annual, special or
adjourned meeting of the stockholders of the Company (1) in favor of the
Merger, the execution and delivery by the Company of the Reorganization
Agreement and the approval and adoption of the terms thereof and hereof; and
(2) except as otherwise agreed to in writing in advance by Parent, against the
following actions (other than the Merger and the other transactions
contemplated by the Reorganization Agreement): (i) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or its subsidiaries; (ii) a sale, lease or transfer of a
material amount of assets of the Company or one of its subsidiaries, or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; or (iii) (A) any change in a majority of the persons who
constitute the Board of Directors of the Company as of the date hereof; (B) any
change in the present capitalization of the Company or any amendment of the
Company's certificate of incorporation or bylaws, as amended to date; (C) any
other material change in the Company's corporate structure or business; or (D)
any Takeover Proposal or any action that is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, or adversely affect the
Merger and the other transactions contemplated by this Agreement and the
Reorganization Agreement.

(b) Each Stockholder hereby irrevocably constitutes and appoints Geoffrey
Allan, Ph.D. and Michael D. Baer, and each of them as its sole and exclusive
and true and lawful agent and attorney-in-fact, with full power of
substitution, to vote all Company Common Stock and Company Preferred Stock that
the holder is entitled to vote as indicated in Section 7(a) above, to the same
extent and with the same effect as the Stockholder might or could do under any
applicable laws or regulations governing the rights and powers of stockholders
of a Delaware corporation. This proxy shall become effective as of the date
hereof and shall expire upon termination of this Agreement. This proxy is
coupled with an interest and shall be irrevocable and binding upon any and all
transferees of the Company Common Stock and Company Preferred Stock so long as
it remains in effect pursuant to the terms hereof. This proxy/power of attorney
shall not terminate on disability of the principal. Each Stockholder will take
such further action as may be necessary to effect the foregoing and hereby
revokes any proxy previously granted by such Stockholder with respect to such
Stockholder's Company Common Stock and Company Preferred Stock.

8. Enforcement of the Agreement.

Each Stockholder acknowledges that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent and Merger Subsidiary will be entitled (i) to an
injunction or injunctions to prevent breaches of this Agreement and (ii) to
specifically enforce the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which it is entitled at law or in equity.

9. Adjustments.

10. Termination.

This Agreement will terminate on the earlier of (a) the effective time of
the Merger or (b) the date on which the Reorganization Agreement is terminated
in accordance with its terms. Upon termination of this Agreement, all
obligations of the parties hereto shall terminate except to the extent that any
such party has committed a material breach of this Agreement prior to such
termination.

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<PAGE>

11. Expenses.

All fees and expenses incurred by any of the parties hereto shall be borne
by the party incurring such fees and expenses.

12. Brokerage.

13. Miscellaneous.

(a) All representations and warranties contained herein expire upon the
termination of this Agreement pursuant to Section 10 hereof.

(c) This Agreement contains the entire agreement among Parent, Merger
Subsidiary and the Stockholders with respect to the subject matter hereof, and
supersedes all prior agreements among Parent, Merger Subsidiary and the
Stockholders with respect to such matters. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified, except upon the delivery
of a written agreement executed by the parties hereto.

(d) The descriptive headings contained herein are for convenience and
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.

Notices to the Parent or Merger Subsidiary:

Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attention: Geoffrey Allan, Ph.D.
Telephone Number: (804) 828-6893
Telecopy Number: (804) 828-6894

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<PAGE>

With a copy (which will not constitute Notice to the Parent or Merger
Subsidiary) to:

or to such other address or to the attention of such other party as any party
may have furnished to the other parties in writing in accordance herewith.

(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.

(g) This Agreement is binding upon and is solely for the benefit of the
parties hereto and their respective successors, legal representatives and
assigns. Except as provided herein, neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that Merger Subsidiary shall have the right to assign to Parent or any
other direct or indirect wholly-owned Subsidiary of Parent any and all rights
and obligations of Merger Subsidiary under this Agreement, provided that any
such assignment shall not relieve Merger Subsidiary from any of its obligations
hereunder.

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<PAGE>

IN WITNESS WHEREOF, each of the parties hereto as caused this Agreement to
be duly executed as of the date first written above.

INSMED, INC.

/s/ Geoffrey Allan, Ph.D.
By: _________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive
Officer

Celtrix Mergersub, Inc.

/s/ Geoffrey Allan, Ph.D.
By: _________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive
Officer

STOCKHOLDERS:

Warburg Pincus Investors, LP By: Its
General Partner, Warburg Pincus and
Co.

/s/ James E. Thomas
By: _________________________________
Name: James E. Thomas

Vernon International Limited

/s/ Joseph W. K. Leung
By: _________________________________
Name: Joseph W. K. Leung, Director

Biotechnology Development Fund, L.P.

/s/ Frank Kung, Ph.D.
By: _________________________________
Name: Frank Kung, Ph.D.

Biotechnology Development Fund, III

/s/ Frank Kung, Ph.D.
By: _________________________________
Name: Frank Kung, Ph.D.

Genzyme Corporation

/s/ Peter Wirth
By: _________________________________
Name: Peter Wirth
Title: Executive Vice President

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<PAGE>

Elan Pharmaceuticals Investments,
Ltd.

/s/ Kevin Insley
By: _________________________________
Name: Kevin Insley

/s/ Andreas Sommer, Ph.D.
By: _________________________________
Name: Andreas Sommer

/s/ Henry E. Blair
By: _________________________________
Name: Henry E. Blair

/s/ Malcolm J. McKay, Ph.D.
By: _________________________________
Name: Malcolm J. McKay, Ph.D.

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<PAGE>

ANNEX A

<TABLE>
<CAPTION>
Number of Shares of Company Number of Shares of
Stockholder Name and Common Stock Owned Company Preferred Stock Owned
Address Beneficially and of Record Beneficially and of Record
-------------------- --------------------------- -----------------------------
<S> <C> <C>
Warburg Pincus 3,181,732
Investors, L.P. .......
Attention: James E.
Thomas
466 Lexington Avenue
10th Floor
New York, NY 10017
Veron International 1,555,258
Limited................
Chinachem Golden Plaza
77 Mody Road
Tsiu Sha Tsui East
Kowloon Hong Kong
Biotechnology 1,730,516
Development Fund,
L.P. ..................
575 High Street,
Suite 201
Palo Alto, CA 94301
Biotechnology 1,000,000
Development Fund, III..
575 High Street,
Suite 201
Palo Alto, CA 94301
Genzyme Corporation..... 3,023,217
One Kendall Square
Cambridge, MA 02139
Elan Pharmaceuticals 1,508,751 8,010
Investments, Ltd. .....
102 St. James Court
Flatts, Smith Parish
Bermuda, FL 04
Andreas Sommer, Ph.D. .. 21,461
Celtrix
Pharmaceuticals, Inc.
2033 Gateway Place,
Suite 600
San Jose, CA 95110
Henry E. Blair.......... 5,000
2580 Main Street
Box 648
Barnstoble, MA 02630
Malcolm J. McKay, 1,817
Ph.D. .................
Celtrix
Pharmaceuticals, Inc.
2033 Gateway Place,
Suite 600
San Jose, CA 95110
</TABLE>

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<PAGE>

Annex H

ARTICLES OF INCORPORATION
of
INSMED, INC.

ARTICLE I

The name of the Corporation shall be Insmed, Inc.

ARTICLE II

The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles of
Incorporation, for which corporations may be incorporated under the Virginia
Stock Corporation Act, as amended from time to time, and any legislation
succeeding thereto (the "VSCA").

ARTICLE III

The aggregate number of shares that the Corporation shall have authority to
issue shall be 200,000,000 shares of Preferred Stock, par value $.01 per share
(hereinafter called "Preferred Stock"), and 500,000,000 shares of Common Stock,
par value $.01 per share (hereinafter called "Common Stock"). The following is
a description of each of such classes of stock, and a statement of the
preferences, limitations, voting rights and relative rights in respect of the
shares of each such class:

1. Authority to Fix Rights of Preferred Stock. The Board of Directors shall
have authority, by resolution or resolutions, at any time and from time to time
to divide and establish any or all of the unissued shares of Preferred Stock
not then allocated to any series of Preferred Stock into one or more series,
and, without limiting the generality of the foregoing, to fix and determine the
designation of each such series, the number of shares that shall constitute
such series and the following relative rights and preferences of the shares of
each series so established:

(a) The annual or other periodic dividend rate payable on shares of such
series, the time of payment thereof, whether such dividends shall be
cumulative or non-cumulative, and the date or dates from which any
cumulative dividends shall commence to accrue;

(b) the price or prices at which and the terms and conditions, if any, on
which shares of such series may be redeemed;

(c) the amounts payable upon shares of such series in the event of the
voluntary or involuntary dissolution, liquidation or winding-up of the
affairs of the Corporation;

(d) the sinking fund provisions, if any, for the redemption or purchase of
shares of such series;

(e) the extent of the voting powers, if any, of the shares of such series;

(f) the terms and conditions, if any, on which shares of such series may be
converted into shares of stock of the Corporation of any other class or
classes or into shares of any other series of the same or any other
class or classes;

(g) whether, and if so the extent to which, shares of such series may
participate with the Common Stock in any dividends in excess of the
preferential dividend fixed for shares of such series or in

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<PAGE>

any distribution of the assets of the Corporation, upon a liquidation,
dissolution or winding-up thereof, in excess of the preferential amount
fixed for shares of such series; and

(h) any other preferences and relative, optional or other special rights,
and qualifications, limitations or restrictions of such preferences or
rights, of shares of such series not fixed and determined by law or in
this Article III.

2. Distinctive Designations of Series. Each series of Preferred Stock shall
be so designated as to distinguish the shares thereof from the shares of all
other series. Different series of Preferred Stock shall not be considered to
constitute different voting groups of shares for the purpose of voting by
voting groups except as required by the VSCA or as otherwise specified by the
Board of Directors with respect to any series at the time of the creation
thereof.

3. Restrictions on Certain Distributions. So long as any shares of Preferred
Stock are outstanding, the Corporation shall not declare and pay or set apart
for payment any dividends (other than dividends payable in Common Stock or
other stock of the Corporation ranking junior to the Preferred Stock as to
dividends) or make any other distribution on such junior stock if, at the time
of making such declaration, payment or distribution, the Corporation shall be
in default with respect to any dividend payable on, or any obligation to
redeem, any shares of Preferred Stock.

4. Redeemed or Reacquired Shares. Shares of any series of Preferred Stock
that have been redeemed or otherwise reacquired by the Corporation (whether
through the operation of a sinking fund, upon conversion or otherwise) shall
have the status of authorized and unissued shares of Preferred Stock and may be
redesignated and reissued as a part of such series (unless prohibited by the
articles of amendment creating such series) or of any other series of Preferred
Stock. Shares of Common Stock that have been reacquired by the Corporation
shall have the status of authorized and unissued shares of Common Stock and may
be reissued.

5. Voting Rights. Subject to the provisions of the VSCA or of the Bylaws of
the Corporation as from time to time in effect with respect to the closing of
the transfer books or the fixing of a record date for the determination of
shareholders entitled to vote, and except as otherwise provided by the VSCA or
in resolutions of the Board of Directors establishing any series of Preferred
Stock pursuant to the provisions of paragraph 1 of this Article III, the
holders of outstanding shares of Common Stock of the Corporation shall
exclusively possess voting power for the election of directors and for all
other purposes, with each holder of record of shares of Common Stock of the
Corporation being entitled to one vote for each share of such stock standing in
his name on the books of the Corporation.

6. No Preemptive Rights. No holder of shares of stock of any class of the
Corporation shall, as such holder, have any right to subscribe for or purchase
(a) any shares of stock of any class of the Corporation, or any warrants,
options or other instruments that shall confer upon the holder thereof the
right to subscribe for or purchase or receive from the Corporation any shares
of stock of any class, whether or not such shares of stock, warrants, options
or other instruments are issued for cash or services or property or by way of
dividend or otherwise, or (b) any other security of the Corporation that shall
be convertible into, or exchangeable for, any shares of stock of the
Corporation of any class or classes, or to which shall be attached or
appurtenant any warrant, option or other instrument that shall confer upon the
holder of such security the right to subscribe for or purchase or receive from
the Corporation any shares of its stock of any class or classes, whether or not
such securities are issued for cash or services or property or by way of
dividend or otherwise, other than such right, if any, as the Board of
Directors, in its sole discretion, may from time to time determine. If the
Board of Directors shall offer to the holders of shares of stock of any class
of the Corporation, or any of them, any such shares of stock, options,
warrants, instruments or other securities of the Corporation, such offer shall
not, in any way, constitute a waiver or release of the right of the Board of
Directors subsequently to dispose of other securities of the Corporation
without offering the same to said holders.

7. Control Share Acquisition Statute. The provisions of Article 14.1 of the
VSCA shall not apply to acquisitions of shares of any class of capital stock of
the Corporation.

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<PAGE>

ARTICLE IV

1. The number of directors shall be as specified in the By-laws of the
Corporation but such number may be increased or decreased from time to time in
such manner as may be prescribed in the By-laws, provided that in no event
shall the number of directors exceed twelve. In the absence of a By-law
specifying the number of directors, the number shall be seven. Commencing with
the 2000 annual meeting of shareholders (or by unanimous written consent in
lieu thereof), the Board of Directors shall be divided into three classes,
Class I, Class II, and Class III, as nearly equal in number as possible. The
initial term of each class of directors shall expire at the annual meeting of
shareholders to be held in the following years: Class I--2001; Class II--2002;
and Class III--2003. At each annual meeting of shareholders after the 2000
annual meeting of shareholders, the successors to the class of directors whose
term shall then expire shall be identified as being of the same class of
directors they succeed and shall be elected to hold office for a term expiring
at the third succeeding annual meeting of shareholders. When the number of
directors is changed, any newly-created directorships or any decrease in
directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible;
provided, however, that no decrease in the number of directors shall shorten or
terminate the term of any incumbent director.

2. Subject to the rights of the holders of any Preferred Stock then
outstanding, directors may be removed only with cause and only by the
affirmative vote of at least 75 percent of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single voting group.

3. Subject to the rights of the holders of any Preferred Stock then
outstanding and to any limitations set forth in the VSCA, newly-created
directorships resulting from any increase in the number of directors and any
vacancies in the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely (i) by the
Board of Directors or (ii) at an annual meeting of shareholders by the
shareholders entitled to vote on the election of directors. If the directors
remaining in office constitute fewer than a quorum of the Board, they may fill
the vacancy by the affirmative vote of a majority of the directors remaining in
office.

4. Notwithstanding any other provision of the Articles of Incorporation or
any provision of law that might otherwise permit a lesser vote, but in addition
to any affirmative vote of the holders of any particular voting group required
by the VSCA, the Articles of Incorporation or the terms of any Preferred Stock
outstanding, the affirmative vote of at least 75 percent of the voting power of
the then outstanding Voting Stock, voting together as a single voting group
shall be required to alter, amend, repeal or adopt any provision inconsistent
with any provision of this Article IV.

ARTICLE V

Except as expressly otherwise required in the Articles of Incorporation, an
amendment or restatement of the Articles of Incorporation requiring shareholder
approval shall be approved by a majority of the votes entitled to be cast by
each voting group that is entitled to vote on the matter, unless in submitting
any such amendment or restatement to the shareholders the Board of Directors
shall require a greater vote.

ARTICLE VI

1. Every person who is or was a director, officer or employee of the
Corporation, or who, at the request of the Corporation, serves or has served in
any such capacity with another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise shall be indemnified by the
Corporation against any and all liability and reasonable expense that may be
incurred by him in connection with or resulting from any claim, action or
proceeding (whether brought in the right of the Corporation or any such other
corporation,

H-3
<PAGE>

entity, plan or otherwise), in which he may become involved, as a party or
otherwise, by reason of his being or having been a director, officer or
employee of the Corporation, or such other corporation, entity or plan while
serving at the request of the Corporation, whether or not he continues to be
such at the time such liability or expense is incurred, unless such person
engaged in willful misconduct or a knowing violation of the criminal law.

As used in this Article VI: (a) the terms "liability" and "expense" shall
include, but shall not be limited to, counsel fees and disbursements and
amounts of judgments, fines or penalties against, and amounts paid in
settlement by, a director, officer or employee; (b) the terms "director,"
"officer" and "employee," unless the context otherwise requires, include the
estate or personal representative of any such person; (c) a person is
considered to be serving an employee benefit plan as a director, officer or
employee of the plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or, in connection with the plan, to participants in or beneficiaries of
the plan; (d) the term "occurrence" means any act or failure to act, actual or
alleged, giving rise to a claim, action or proceeding; and (e) service as a
trustee or as a member of a management or similar committee of a partnership,
joint venture or limited liability company shall be considered service as a
director, officer or employee of the trust, partnership, joint venture or
limited liability company.

The termination of any claim, action or proceeding, civil or criminal, by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that a director, officer or employee
did not meet the standards of conduct set forth in this paragraph 1. The burden
of proof shall be on the Corporation to establish, by a preponderance of the
evidence, that the relevant standards of conduct set forth in this paragraph 1
have not been met.

2. Any indemnification under paragraph 1 of this Article VI shall be made
unless (a) the Board, acting by a majority vote of those directors who were
directors at the time of the occurrence giving rise to the claim, action or
proceeding involved and who are not at the time parties to such claim, action
or proceeding (provided there are at least five such directors), finds that the
director, officer or employee has not met the relevant standards of conduct set
forth in such paragraph 1, or (b) if there are not at least five such
directors, the Corporation's principal Virginia legal counsel, as last
designated by the Board as such prior to the time of the occurrence giving rise
to the claim, action or proceeding involved, or in the event for any reason
such Virginia counsel is unwilling to so serve, then Virginia legal counsel
mutually acceptable to the Corporation and the person seeking indemnification,
deliver to the Corporation their written advice that, in their opinion, such
standards have not been met.

3. Expenses incurred with respect to any claim, action or proceeding of the
character described in paragraph 1 shall, except as otherwise set forth in this
paragraph 3, be advanced by the Corporation prior to the final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to
repay such amount if it is ultimately determined that he is not entitled to
indemnification under this Article VI. No security shall be required for such
undertaking and such undertaking shall be accepted without reference to the
recipient's final ability to make repayment. Notwithstanding the foregoing, the
Corporation may refrain from, or suspend, payment of expenses in advance if at
any time before delivery of the final finding described in paragraph 2, the
Board or Virginia legal counsel, as the case may be, acting in accordance with
the procedures set forth in paragraph 2, find by a preponderance of the
evidence then available that the officer, director or employee has not met the
relevant standards of conduct set forth in paragraph 1.

4. No amendment or repeal of this Article VI shall adversely affect or deny
to any director, officer or employee the rights of indemnification provided in
this Article VI with respect to any liability or expense arising out of a
claim, action or proceeding based in whole or substantial part on an occurrence
the inception of which takes place before or while this Article VI, as set
forth in these Articles of Incorporation, is in effect. The provisions of this
paragraph 4 shall apply to any such claim, action or proceeding whenever
commenced, including any such claim, action or proceeding commenced after any
amendment or repeal to this Article VI.

H-4
<PAGE>

5. The rights of indemnification provided in this Article VI shall be in
addition to any rights to which any such director, officer or employee may
otherwise be entitled by contract or as a matter of law.

6. In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence
or course of conduct, whether prior or subsequent to the effective date of this
Article VI, except for liability resulting from such person's having engaged in
willful misconduct or a knowing violation of the criminal law or any federal or
state securities law.

ARTICLE VII

In furtherance of, and not in limitation of, the powers conferred by the
VSCA, the Board of Directors is expressly authorized and empowered to adopt,
amend or repeal the Bylaws of the Corporation; provided, however, that the
Bylaws adopted by the Board of Directors under the powers hereby conferred may
be altered, amended or repealed by the Board of Directors or by the
shareholders having voting power with respect thereto, provided further that,
in the case of any such action by shareholders, the affirmative vote of the
holders of at least 75 percent of the voting power of the then outstanding
Voting Stock, voting together as a single voting group, shall be required in
order for the shareholders to alter, amend or repeal any provision of the
Bylaws or to adopt any additional Bylaw. Notwithstanding any other provision of
the Articles of Incorporation or any provision of law that might otherwise
permit a lesser vote, but in addition to any affirmative vote of the holders of
any particular voting group required by the VSCA, the Articles of Incorporation
or the terms of any Preferred Stock outstanding, the affirmative vote of at
least 75 percent of the voting power of the then outstanding Voting Stock,
voting together as a single voting group, shall be required to alter, amend,
repeal or adopt any provision inconsistent with any of the provisions of this
Article VII.

ARTICLE VIII

The initial registered office shall be located at 951 E. Byrd Street,
Riverfront Plaza, East Tower, in the City of Richmond, Virginia, and the
initial registered agent shall be T. Justin Moore, III, who is a resident of
Virginia and a member of the Virginia State Bar, and whose business address is
the same as the address of the initial registered office.

/s/ T. Justin Moore, III
By: _________________________________
T. Justin Moore, III
Incorporator

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<PAGE>

ARTICLES OF AMENDMENT
of the
ARTICLES OF INCORPORATION
of
INSMED, INC.

These Articles of Amendment are filed in accordance with Section 13.1-710
of the Virginia Stock Corporation Act:

A. The name of the corporation (which is hereinafter referred to as the
"Corporation") is Insmed, Inc.

B. The amendment to the Corporation's Articles of Incorporation adopted on
March 13, 2000 by written consent of the Corporation's sole shareholder is as
follows:

1. "ARTICLE I" of said Articles of Incorporation is deleted and is replaced
by the following to change the name of the Corporation to Insmed
Incorporated:

"ARTICLE I

The name of the Corporation shall be Insmed Incorporated."

. The amendment was adopted by the written consent of the Corporation's
sole shareholder.

Insmed, Inc.

/s/ Michael D. Baer
By: __________________________________
Michael D. Baer
Chief Financial Officer

Dated: March 13, 2000

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<PAGE>

Annex I

AMENDED AND RESTATED BYLAWS
of
INSMED, INC.
(Effective as of February 4, 2000)

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

ARTICLE I.

Meetings of Shareholders.

Section 1. Place of Meetings. All meetings of the shareholders of Insmed,
Inc. (hereinafter called the "Corporation") shall be held at such place, either
within or without the Commonwealth of Virginia, as may from time to time be
fixed by the Board of Directors of the Corporation (hereinafter called the
"Board").

Section 2. Annual Meetings. The annual meeting of the shareholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the second
Monday in May in each year (or, if that day shall be a legal holiday, then on
the next succeeding business day), or on such other day and/or in such other
month as may be fixed by the Board, at such hour as may be specified in the
notice thereof.

Section 3. Special Meetings. A special meeting of the shareholders for any
purpose or purposes, unless otherwise provided by law or in the Articles of
Incorporation of the Corporation as from time to time amended (hereinafter
called the "Articles"), may be held at any time upon the call of the Board, the
Chairman of the Board or the President. No other person shall be authorized or
entitled to call a special meeting of the shareholders.

Section 4. Notice of Meetings. Except as otherwise provided by law or the
Articles, not less than ten nor more than sixty days' notice in writing of the
place, day, hour and purpose or purposes of each meeting of the shareholders,
whether annual or special, shall be given to each shareholder of record of the
Corporation entitled to vote at such meeting, either by the delivery thereof to
such shareholder personally or by the mailing thereof to such shareholder in a
postage prepaid envelope addressed to such shareholder at his address as it
appears on the stock transfer books of the Corporation. Notice of any meeting
of shareholders shall not be required to be given to any shareholder who shall
attend the meeting in person or by proxy, unless attendance is for the express
purpose of objecting to the transaction of any business because the meeting was
not lawfully called or convened, or who shall waive notice thereof in writing
signed by the shareholder before, at or after such meeting. Notice of any
adjourned meeting need not be given, except when expressly required by law. Any
previously scheduled annual meeting of the shareholders may be postponed, and
any special meeting of the shareholders may be canceled, by resolution of the
Board of Directors upon public announcement given prior to the time previously
scheduled for such annual or special meeting of the shareholders.

Section 5. Quorum. Shares representing a majority of the votes entitled to
be cast on a matter by all classes or series which are entitled to vote thereon
and be counted together collectively, represented in person or by proxy at any
meeting of the shareholders, shall constitute a quorum for the transaction of
business thereat with respect to such matter, unless otherwise provided by law
or the Articles. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, shares representing a majority of the
votes cast on the matter of adjournment, either in person or by proxy, may
adjourn such meeting from time to time until a quorum is obtained. At any such
adjourned meeting at which a quorum has been obtained, any business may be
transacted which might have been transacted at the meeting as originally
called.

Section 6. Voting. Unless otherwise provided by law or the Articles, at each
meeting of the shareholders each shareholder entitled to vote at such meeting
shall be entitled to one vote for each share of

I-1
<PAGE>

stock standing in his name on the books of the Corporation upon any date fixed
as hereinafter provided, and may vote either in person or by proxy in writing.
Unless demanded by a shareholder present in person or represented by proxy at
any meeting of the shareholders and entitled to vote thereon or so directed by
the Chairman of the Board, the vote on any matter need not be by ballot. On a
vote by ballot, each ballot shall be signed by the shareholder voting or his
proxy, and it shall show the number of shares voted.

Section 7. Judges. One or more judges or inspectors of election for any
meeting of shareholders may be appointed by the Chairman of the Board, for the
purpose of receiving and taking charge of proxies and ballots and deciding all
questions as to the qualification of voters, the validity of proxies and
ballots and the number of votes properly cast.

Section 8. Conduct of Meeting. At each meeting of shareholders, the Chairman
of the Board shall have all the powers and authority vested in presiding
officers by law or practice, without restriction, as well as the authority to
conduct an orderly meeting and to impose reasonable limits on the amount of
time taken up in remarks by any one shareholder.

Section 9. Business Proposed by a Shareholder. At each meeting of the
shareholders, the Chairman of the Board shall act as chairman and preside. In
his absence, the Chairman of the Board may designate another officer of the
Corporation who need not be a director to preside. The Secretary of the
Corporation or an Assistant Secretary, or in their absence, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting.
At any annual or special meeting of the shareholders, only such business shall
be conducted as shall have been properly brought before such meeting. To be
properly brought before an annual or special meeting of shareholders, business
must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(iii) in the case of an annual meeting of shareholders, properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
given, either by personal delivery or by United States registered or certified
mail, postage prepaid, to the Secretary of the Corporation not later than 90
days nor more than 120 days before the anniversary of the date of the first
mailing of the Corporation's proxy statement for the immediately preceding
year's annual meeting. In no event shall the public announcement of an
adjournment or postponement of an annual meeting or the fact that an annual
meeting is held before or after the anniversary of the preceding annual meeting
commence a new time period for the giving of a shareholder's notice as
described above. A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting, including the complete text of any resolutions to be presented at the
annual meeting with respect to such business, and the reasons for conducting
such business at the annual meeting, (ii) the name and address of record of the
shareholder proposing such business and any other person on whose behalf the
proposal is being made, (iii) the class and number of shares of the Corporation
that are beneficially owned by the shareholder and any other person on whose
behalf the proposal is made, (iv) a representation that the shareholder is a
holder of record of shares of the Corporation entitled to vote at such annual
meeting and intends to appear in person or by proxy at the annual meeting to
propose such business and (v) any material interest of the shareholder and any
other person on whose behalf the proposal is made, in such business. In the
event that a shareholder attempts to bring business before a meeting without
complying with the procedures set forth in this Article I, Section 9, such
business shall not be transacted at such meeting. The Chairman of the Board of
Directors shall have the power and duty to determine whether any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this Article I, Section 9 and, if any business is not
proposed in compliance with this Article 1, Section 9, to declare that such
defective proposal shall be disregarded and that such proposed business shall
not be transacted at such meeting. For purposes of these Bylaws, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the

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<PAGE>

Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended.

Section 10. Nominations by Shareholders. Subject to the rights of holders of
any Preferred Stock outstanding, nominations for the election of directors may
be made by the Board or a committee appointed by the Board or by any
shareholder entitled to vote in the election of directors generally. Any such
shareholder may nominate one or more persons for election as directors at a
meeting only if it is an annual meeting and such shareholder has given timely
written notice of such shareholder's intent to make such nomination or
nominations. To be timely, a shareholder's notice must be delivered either by
personal delivery or by United States registered or certified mail, postage
prepaid, to the Secretary of the Corporation not later than 90 days nor more
than 120 days before the anniversary of the date of the first mailing of the
Corporation's proxy statement for the immediately preceding year's annual
meeting. In no event shall the public announcement of an adjournment or
postponement of an annual meeting or the fact that an annual meeting is held
before or after the anniversary of the preceding annual meeting commence a new
time period for the giving of a shareholder's notice as described above. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and any other person on whose behalf the
nomination is being made, and of the person or persons to be nominated; (b) the
class and number of shares of the Corporation that are owned by the shareholder
and any other person on whose behalf the nomination is being made, (c) a
representation that the shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (d) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; and (e) such other information regarding each nominee
proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is otherwise required to be disclosed, pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated or intended
to be nominated by the Board of Directors, and shall include a consent signed
by each such nominee to being named in the Proxy Statement as a nominee and to
serve as a director of the Corporation if so elected. In the event that a
shareholder attempts to nominate any person without complying with the
procedures set forth in this Article I, Section 10, such person shall not be
nominated and shall not stand for election at such meeting. The Chairman of the
Board of Directors shall have the power and duty to determine whether a
nomination proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Article I, Section 10 and, if any
proposed nomination is not in compliance with this Article I. Section 10, to
declare that such defective proposal shall be disregarded.

ARTICLE II.

Board of Directors.

Section 1. Number, Classification, Term, Election. The property, business
and affairs of the Corporation shall be managed under the direction of the
Board as from time to time constituted. The Board shall be divided into three
classes having staggered terms of office as specified in the Articles of
Incorporation. The Board shall consist of seven directors. No director need be
a shareholder. Directors shall be elected at the 2000 annual meeting of
shareholders (or by unanimous written consent in lieu thereof) to fill each of
the three classes of directors for the terms of office specified in the
Articles of Incorporation.

Commencing with the 2001 annual meeting of shareholders, directors shall be
elected at each annual meeting to succeed those directors whose terms have
expired and to fill any vacancies then existing. Each director who is re-
elected or elected to succeed a director whose term has expired shall hold
office for the term of three years as specified in the Articles of
Incorporation and until his successor is elected.

Section 2. Compensation. Each director, in consideration of his serving as
such, shall be entitled to receive from the Corporation such amount per annum
or such fees for attendance at Board and Committee

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<PAGE>

meetings, or both, in cash or other property, including securities of the
Corporation, as the Board shall from time to time determine, together with
reimbursements for the reasonable expenses incurred by him in connection with
the performance of his duties. Nothing contained herein shall preclude any
director from serving the Corporation, or any subsidiary or affiliated
corporation, in any other capacity and receiving proper compensation therefor.
If the Board adopts a resolution to that effect, any director may elect to
defer all or any part of the annual and other fees hereinabove referred to for
such period and on such terms and conditions as shall be permitted by such
resolution.

Section 3. Place of Meetings. The Board may hold its meetings at such place
or places within or without the Commonwealth of Virginia as it may from time to
time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.

Section 4. Organization Meeting. After each annual election of directors, as
soon as conveniently may be, the newly constituted Board shall meet for the
purposes of organization. At such organization meeting, the newly constituted
Board shall elect officers of the Corporation and transact such other business
as shall come before the meeting. Notice of organization meetings of the Board
need not be given. Any organization meeting may be held at any other time or
place which shall be specified in a notice given as hereinafter provided for
special meetings of the Board, or in a waiver of notice thereof signed by all
the directors.

Section 5. Regular Meetings. Regular meetings of the Board may be held at
such time and place as may from time to time be specified in a resolution
adopted by the Board then in effect; and, unless otherwise required by such
resolution, or by law, notice of any such regular meeting need not be given.

Section 6. Special Meetings. Special meetings of the Board shall be held
whenever called by the Chief Executive Officer, or by the Secretary at the
request of any three directors. Notice of a special meeting shall be mailed to
each director, addressed to him at his residence or usual place of business,
not later than twenty-four hours before such meeting is to be held, or shall be
sent addressed to him at such place by e-mail or facsimile, or be delivered
personally or by telephone, not later than twenty-four hours before such
meeting is to be held. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board need be specified in
the notice of such meeting, unless required by the Articles.

Section 7. Quorum. At each meeting of the Board the presence of a majority
of the number of directors fixed by these Bylaws shall be necessary to
constitute a quorum. The act of a majority of the directors present at a
meeting at which a quorum shall be present shall be the act of the Board,
except as may be otherwise provided by law or by these Bylaws. Any meeting of
the Board may be adjourned by a majority vote of the directors present at such
meeting. Notice of any adjourned meeting need not be given.

Section 8. Waivers of Notice of Meetings. Notwithstanding anything in these
Bylaws or in any resolution adopted by the Board to the contrary, notice of any
meeting of the Board need not be given to any director if such notice shall be
waived in writing signed by such director before, at or after the meeting, or
if such director shall be present at the meeting. Any meeting of the Board
shall be a legal meeting without any notice having been given or regardless of
the giving of any notice or the adoption of any resolution in reference
thereto, if every member of the Board shall be present thereat. Except as
otherwise provided by law or these Bylaws, waivers of notice of any meeting of
the Board need not contain any statement of the purpose of the meeting.

Section 9. Telephone Meetings. Members of the Board or any committee may
participate in a meeting of the Board or such committee by means of a
conference telephone or other means of communications whereby all directors
participating may simultaneously hear each other during the meeting, and
participation by such means shall constitute presence in person at such
meeting.

Section 10. Actions Without Meetings. Any action that may be taken at a
meeting of the Board or of a committee may be taken without a meeting if a
consent in writing, setting forth the action, shall be signed,

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<PAGE>

either before or after such action, by all of the directors or all of the
members of the committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote.

ARTICLE III.

Committees.

Section 1. Standing Committees.

(a) Number. There shall be four standing Committees of the Board which shall
be comprised only of directors. The standing committees are as follows:
Executive, Audit, Compensation and Governance.

Upon recommendation by the Chairman of the Board as to the membership of
each Committee, the Board, by resolution adopted by a majority of the number of
directors fixed by these By-laws, shall elect the membership of each committee,
who shall serve at the pleasure of the Board.

(b) Quorum and Manner of Acting. A majority of the members of any Committee
serving at the time of any meeting thereof shall constitute a quorum for the
transaction of business at such meeting. The action of a majority of those
members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.

(c) Conduct of Meetings. Any action required or permitted to be taken by any
Committee may be taken without a meeting if all members of the Committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and written consents of the members shall be filed with the minutes
of the proceedings of the Committee.

(d) Meetings and Minutes. Subject to the foregoing, and unless the Board
shall otherwise decide, each Committee shall fix its rules of procedure,
determine its action and fix the time and place of its meetings. Special
meetings of a Committee may be held at anytime and any place upon the call of
the Chairman of the Board, the Chairman of the Committee, or any two members of
the Committee. Each Committee shall keep minutes of all meetings which shall be
at all times available to Directors. Action taken by a Committee shall be
reported promptly to the Board but not less frequently than quarterly.

(e) Term of Office. Members of any Committee shall be elected as above
provided and shall hold office until their successors are elected by the Board
or until such Committee is dissolved by the Board.

(f) Resignation and Removal. Any member of a Committee may resign at any
time by giving written notice of his intention to do so to the Chairman of the
Board or the Secretary of the Corporation, or may be removed, with or without
cause, at any time by such vote of the Board as would suffice for his election.

(g) Vacancies. Any vacancy occurring in a Committee resulting from any cause
whatever may be filled by a majority of the number of directors fixed by these
By-laws.

Section 2. Executive Committee.

(a) How Constituted. The Executive Committee shall consist of not less than
three directors, including the Chairman of the Board. Except for the Chairman
of the Board, all members of the Executive Committee shall be outside
directors. An outside director shall be a non-management director free of any
material business or professional relationship with the Corporation or its
management. The Chairman of the Board shall be Chairman of the Committee. If
the Chairman of the Committee will not be present at a meeting, he or she may
designate any member of the Committee to preside at the meeting.

(b) Primary Responsibilities. When the Board is not in session, the
Executive Committee shall have all power vested in the Board of Directors by
law, by the Articles of Incorporation, or by these By-laws, provided

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<PAGE>

that the Executive Committee shall not have power to (i) approve or recommend
to shareholders action that the Virginia Stock Corporation Act requires to be
approved by shareholders; (ii) fill vacancies on the Board or on any of its
committees; (iii) amend the Articles of Incorporation pursuant to Section 13.1-
706 of the Virginia Stock Corporation Act; (iv) adopt, amend, or repeal the By-
laws; (v) approve a plan of merger not requiring shareholder approval; (vi)
authorize or approve a distribution, except according to a general formula or
method prescribed by the Board; or (vii) authorize or approve the issuance or
sale or contract for sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares, except
that the Board may authorize a committee, or a senior executive officer of the
Corporation, to do so within limits specifically prescribed by the Board. The
Executive Committee shall report at the next regular or special meeting of the
Board all action which the Executive Committee may have taken on behalf of the
Board since the last regular or special meeting of the Board.

Section 3. Audit Committee.

(a) How Constituted. The Audit Committee shall consist of not less than
three outside Directors, as defined in Article III, Section 2 above, all of
whom shall have requisite working familiarity with basic finance and accounting
practices. The Chairman of the Committee shall be appointed by the Board. If
the Chairman of the Committee will not be present at a meeting, he or she may
designate any member of the Committee to preside at the meeting. The Chairman
of the Board, who shall not be a member of the Committee, may attend Committee
meetings upon the invitation of the Chairman of the Committee.

(b) Primary Responsibilities. The primary responsibilities of the Audit
Committee shall consist of: recommending the selection of independent
accountants and auditors; reviewing the scope of the accountant's audit and
approval of any non-audit services to be performed by the independent
accountants; and reviewing annual audits and accounting practices. The Board
shall approve a Charter of the Audit Committee setting forth in detail the
purposes, objectives and duties of the Audit Committee

Section 4. Compensation Committee.

(a) How Constituted. The Compensation Committee shall consist of not less
than two outside Directors, as defined in Article III, Section 2 above. The
Chairman shall be appointed by the Board. If the Chairman of the Committee will
not be present at a meeting, he or she may designate any member of the
Committee to preside at the meeting. The Chairman of the Board, who shall not
be a member of the Committee, may attend Committee meetings upon the invitation
of the Chairman of the Committee.

(b) Primary Responsibilities. The primary responsibilities of the
Compensation Committee shall consist of: reviewing Board compensation policies
and evaluating the compensation of the CEO and senior management based on
criteria as set forth below; evaluating annually the performance of the CEO and
reviewing senior management performance evaluations, using such criteria as
performance of the business, accomplishments of long-term strategic objectives
and management development and any other criteria the Committee deems
appropriate; reviewing and reporting to the Board the recommended compensation
of all officers of the Corporation; reviewing total compensation and benefit
designs and practices for all Corporation employees; and reviewing stock option
programs.

Section 5. Governance Committee.

(a) How Constituted. The Governance Committee shall consist of not less than
three outside Directors, as defined in Article III, Section 2 above, and the
Chairman of the Board. The Chairman of the Committee shall be appointed by the
Board of Directors. If the Chairman of the Committee will not be present at a
meeting, he or she may designate any member of the Committee to preside at the
meeting.

(b) Primary Responsibilities. The primary responsibilities of the Governance
Committee shall include: reviewing the composition of the Board of Directors to
insure that there is a balance of appropriate skills and

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characteristics reflected on the Board including age, diversity and experience;
developing criteria for Director searches and making recommendations to the
Board for the addition of any new Board members after proper search and
investigation; reviewing, in consultation with the Chairman of the Board, each
Director's continuation on the Board every three years prior to their standing
for re-election; monitoring procedures for corporate decision-making;
evaluating shareholder proposals; reviewing public policy issues which affect
the image of the Corporation within the Corporation's customer service areas;
recommending actions to increase the Board's effectiveness; and reviewing
annually the format used by the Corporation's management to report to the
Board.

Section 6. Other Committees.

The Board, by resolution adopted by a majority of the number of directors
fixed by these By-laws, may establish such other standing or special committees
of the Board as it may deem advisable, consisting of not less than two
directors; and the members, terms and authority of such committees shall be as
set forth in the resolutions establishing the same.

The Chairman of the Board may establish such other special committees of the
Board as he deems advisable, and may appoint the members of such committees.
Any such committees shall have the authority to consider, review, advise and
recommend to the Chairman of the Board with respect to such matters as may be
referred to it by the Chairman of the Board, but shall have no authority to act
for the Corporation except with the prior approval of the Board.

ARTICLE IV.

Officers.

Section 1. Number, Term, Election. The officers of the Corporation shall be
a Chief Executive Officer, a Chairman of the Board, a President, one or more
Vice Presidents, a Treasurer, a Controller and a Secretary. The Board may
appoint such other officers and such assistant officers and agents with such
powers and duties as the Board may find necessary or convenient to carry on the
business of the Corporation. Such officers and assistant officers shall serve
until their successors shall be chosen, or as otherwise provided in these
Bylaws. Any two or more offices may be held by the same person.

Section 2. Chief Executive Officer. The Chief Executive Officer shall,
subject to the control of the Board and the Executive and Finance Committee,
have full authority and responsibility for directing the conduct of the
business, affairs and operations of the Corporation. In addition to acting as
Chief Executive Officer of the Corporation, he or she shall perform such other
duties and exercise such other powers as may from time to time be prescribed by
the Board and shall see that all orders and resolutions of the Board and the
Executive Committee are carried into effect. In the event of the inability of
the Chief Executive Officer to act, the Board will designate an officer of the
Corporation to perform the duties of that office.

Section 3. Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Board and of the shareholders and, in the absence of the
Chairman of the Executive Committee, at all meetings of the Executive
Committee. He or she shall perform such other duties and exercise such other
powers as may from time to time be prescribed by the Board or, if he or she
shall not be the Chief Executive Officer, by the Chief Executive Officer.

Section 4. President. The President shall have such powers and perform such
duties as may from time to time be prescribed by the Board or, if he or she
shall not be the Chief Executive Officer, by the Chief Executive Officer.

Section 5. Vice-Presidents. Each Vice President shall have such powers and
perform such duties as may from time to time be prescribed by the Board, the
Chief Executive Officer or any officer to whom the Chief Executive Officer may
have delegated such authority.

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Section 6. Treasurer. The Treasurer shall have the general care and custody
of the funds and securities of the Corporation. He or she shall perform such
other duties and exercise such other powers as may from time to time be
prescribed by the Board, the Chief Executive Officer or any officer to whom the
Chief Executive Officer may have delegated such authority. If the Board shall
so determine, he or she shall give a bond for the faithful performance of his
or her duties, in such sum as the Board may determine to be proper, the expense
of which shall be borne by the Corporation. To such extent as the Board shall
deem proper, the duties of the Treasurer may be performed by one or more
assistants, to be appointed by the Board.

Section 7. Controller. The Controller shall be the accounting officer of the
Corporation. He or she shall keep full and accurate accounts of all assets,
liabilities, receipts and disbursements and other transactions of the
Corporation and cause regular audits of the books and records of the
Corporation to be made. He or she shall also perform such other duties and
exercise such other powers as may from time to time be prescribed by the Board,
the Chief Executive Officer or any officer to whom the Chief Executive Officer
may have delegated such authority. If the Board shall so determine, he or she
shall give a bond for the faithful performance of his duties, in such sum as
the Board may determine to be proper, the expense of which shall be borne by
the Corporation. To such extent as the Board shall deem proper, the duties of
the Controller may be performed by one or more assistants, to be appointed by
the Board.

Section 8. Secretary. The Secretary shall keep the minutes of meetings of
shareholders, of the Board, and, when requested, of Committees of the Board;
and he or she shall attend to the giving and sending of notices of all meetings
thereof. He or she shall keep or cause to be kept such stock and other books,
showing the names of the shareholders of the Corporation, and all other
particulars regarding them, as may be required by law. He or she shall also
perform such other duties and exercise such other powers as may from time to
time be prescribed by the Board, the Chief Executive Officer or any officer to
whom the Chief Executive Officer may have delegated such authority. To such
extent as the Board shall deem proper, the duties of the Secretary may be
performed by one or more assistants, to be appointed by the Board.

Section 9. Powers and Duties of Other Officers. The powers and duties of all
other officers of the Corporation shall be those usually pertaining to their
respective offices, subject to the direction and control of the Board and as
otherwise provided in these Bylaws, or as prescribed by the Chairman of the
Board.

ARTICLE V.

Removals And Resignations.

Section 1. Removal of Officers. Any officer, assistant officer or agent of
the Corporation may be removed at any time, either with or without cause, by
the Board in its absolute discretion. Any such removal shall be without
prejudice to the recovery of damages for breach of the contract rights, if any,
of the officer, assistant officer or agent removed. Election or appointment of
an officer, assistant officer or agent shall not of itself create contract
rights.

Section 2. Resignation. Any director, officer or assistant officer of the
Corporation may resign as such at any time by giving written notice of his
resignation to the Board, the Chief Executive Officer or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein
or, if no time is specified therein, at the time of delivery thereof, and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.

Section 3. Vacancies. Any vacancy in the office of any officer or assistant
officer caused by death, resignation, removal or any other cause, may be filled
by the Board for the unexpired portion of the term.

I-8
<PAGE>

ARTICLE VI.

Contracts, Loans, Checks, Drafts, Deposits, Etc.

Section 1. Execution of Contracts. Except as otherwise provided by law or by
these Bylaws, the Board (i) may authorize any officer, employee or agent of the
Corporation to execute and deliver any contract, agreement or other instrument
in writing in the name and on behalf of the Corporation, and (ii) may authorize
any officer, employee or agent of the Corporation so authorized by the Board to
delegate such authority by written instrument to other officers, employees or
agents of the Corporation. Any such authorization by the Board may be general
or specific and shall be subject to such limitations and restrictions as may be
imposed by the Board. Any such delegation of authority by an officer, employee
or agent may be general or specific, may authorize re-delegation, and shall be
subject to such limitations and restrictions as may be imposed in the written
instrument of delegation by the person making such delegation.

Section 2. Loans. No loans shall be contracted on behalf of the Corporation
and no negotiable paper shall be issued in its name unless authorized by the
Board. When authorized by the Board, any officer, employee or agent of the
Corporation may effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness of
the Corporation and when so authorized may pledge, hypothecate or transfer any
securities or other property of the Corporation as security for any such loans
or advances. Such authority may be general or confined to specific instances.

Section 3. Checks, Drafts, etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes of other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by the
Board.

Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select or as may
be selected by the Treasurer or any other officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by the Board.

Section 5. Voting of Securities. Unless otherwise provided by the Board, the
Chief Executive Officer may from time to time appoint an attorney or attorneys,
or agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
the holder of stock or other securities in any other corporation, any of whose
stock or other securities may be held by the Corporation, at meetings of the
holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, all such written
proxies or other instruments as such officer may deem necessary or proper in
the premises.
ARTICLE VII.

Capital Stock.

Section 1. Shares. Shares of the Corporation may but need not be represented
by certificates. When shares are represented by certificates, the Corporation
shall issue such certificates in such form as shall be required by the Virginia
Stock Corporation Act (the "VSCA") and as determined by the Board of Directors,
to every shareholder for the fully paid shares owned by such shareholder. Each
certificate shall be signed by, or shall bear the facsimile signature of, the
Chairman of the Board, the President or a Vice President and the Secretary or
an Assistant Secretary of the Corporation and may bear the corporate seal of
the Corporation or its facsimile. All certificates for the Corporation's shares
shall be consecutively numbered or otherwise identified.

I-9
<PAGE>

The name and address of the person to whom shares (whether or not
represented by a certificate) are issued, with the number of shares and date of
issue, shall be entered on the share transfer books of the Corporation. Such
information may be stored or retained on discs, tapes, cards or any other
approved storage device relating to data processing equipment; provided that
such device is capable of reproducing all information contained therein in
legible and understandable form, for inspection by shareholders or for any
other corporate purpose.

When shares are not represented by certificates, then within a reasonable
time after the issuance or transfer of such shares, the Corporation shall send
the shareholder to whom such shares have been issued or transferred a written
statement of the information required by the VSCA to be included on
certificates.

Section 2. Stock Transfer Books and Transfer of Shares. The Corporation, or
its designated transfer agent or other agent, shall keep a book or set of books
to be known as the stock transfer books of the Corporation, containing the name
of each shareholder of record, together with such shareholder's address and the
number and class or series of shares held by such shareholder. Shares of stock
of the Corporation shall be transferable on the stock books of the Corporation
by the holder in person or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or the transfer agent, but,
except as hereinafter provided in the case of loss, destruction or mutilation
of certificates, no transfer of stock shall be entered until the previous
certificate, if any, given for the same shall have been surrendered and
canceled. Transfer of shares of the Corporation represented by certificates
shall be made on the stock transfer books of the Corporation only upon
surrender of the certificates for the shares sought to be transferred by the
holder of record thereof or by such holder's duly authorized agent, transferee
or legal representative, who shall furnish proper evidence of authority to
transfer with the Secretary of the Corporation or its designated transfer agent
or other agent. All certificates surrendered for transfer shall be canceled
before new certificates for the transferred shares shall be issued. Except as
otherwise provided by law, no transfer of shares shall be valid as against the
Corporation, its shareholders or creditors, for any purpose, until it shall
have been entered in the stock records of the Corporation by an entry showing
from and to whom transferred.

Section 3. Holder of Record. Except as otherwise required by the VSCA, the
Corporation may treat the person in whose name shares of stock of the
Corporation (whether or not represented by a certificate) stand of record on
its books or the books of any transfer agent or other agent designated by the
Board of Directors as the absolute owner of the shares and the person
exclusively entitled to receive notification and distributions, to vote, and to
otherwise exercise the rights, powers and privileges of ownership of such
shares.

Section 4. Record Date. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board may fix
in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof unless the Board
fixes a new record date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.

Section 5. Lost, Destroyed or Mutilated Certificates. In case of loss,
destruction or mutilation of any certificate of stock, another may be issued in
its place upon proof of such loss, destruction or mutilation and upon the
giving of a bond of indemnity to the Corporation in such form and in such sum
as the Board may direct; provided that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to do.

Section 6. Transfer Agent and Registrar; Regulations. The Corporation may,
if and whenever the Board of Directors so determines, maintain in the
Commonwealth of Virginia or any other state of the United States, one or more
transfer offices or agencies and also one or more registry offices which
offices and agencies

I-10
<PAGE>

may establish rules and regulations for the issue, transfer and registration of
certificates. No certificates for shares of stock of the Corporation in respect
of which a transfer agent and registrar shall have been designated shall be
valid unless countersigned by such transfer agent and registered by such
registrar. The Board of Directors may also make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of shares represented by certificates and shares without
certificates.

ARTICLE VIII.

Inspection of Records.

The Board from time to time shall determine whether, to what extent, at what
times and places, and under what conditions and regulations the accounts and
books and papers of the Corporation, or any of them, shall be open for the
inspection of the shareholders, and no shareholder shall have any right to
inspect any account or book or paper of the Corporation except as expressly
conferred by statute or by these Bylaws or authorized by the Board.

ARTICLE IX.

Auditor.

The Board shall annually appoint an independent accountant who shall
carefully examine the books of the Corporation. One such examination shall be
made immediately after the close of the fiscal year and be ready for
presentation at the annual meeting of shareholders of the Corporation, and such
other examinations shall be made as the Board may direct.

ARTICLE X.

Seal.

The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation and the year "1999."

ARTICLE XI.

Fiscal Year.

The fiscal year of the Corporation shall end on the 31st day of December in
each year.

I-11
<PAGE>

EMERGENCY BYLAWS.

Section 1. Definitions. As used in these Emergency Bylaws,

(a) the term "period of emergency" shall mean any period during which a
quorum of the Board cannot readily be assembled because of some catastrophic
event.

(b) the term "incapacitated" shall mean that the individual to whom such
term is applied shall not have been determined to be dead but shall be missing
or unable to discharge the responsibilities of his office; and

(c) the term "senior officer" shall mean the Chairman of the Board, the
Chief Executive Officer, the President, any corporate Vice President, the
Treasurer, the Controller and the Secretary, and any other person who may have
been so designated by the Board before the emergency.

Section 2. Applicability. These Emergency Bylaws, as from time to time
amended, shall be operative only during any period of emergency. To the extent
not inconsistent with these Emergency Bylaws, all provisions of the regular
Bylaws of the Corporation shall remain in effect during any period of
emergency. No officer, director or employee shall be liable for actions taken
in good faith in accordance with these Emergency Bylaws.

Section 3. Board of Directors. (a) A meeting of the Board may be called by
any director or senior officer of the Corporation. Notice of any meeting of the
Board need be given only to such of the directors as it may be feasible to
reach at the time and by such means as may be feasible at the time, including
publication or radio, and at a time less than twenty-four hours before the
meeting if deemed necessary by the person giving notice.

(b) At any meeting of the Board, three directors (or such lesser number as
may be fixed by these Bylaws as the number of members of the Board of
Directors) in attendance shall constitute a quorum. Any act of a majority of
the directors present at a meeting at which a quorum shall be present shall be
the act of the Board. If less than three directors (or such lesser number as
specified above) should be present at a meeting of the Board, any senior
officer of the Corporation in attendance at such meeting shall serve as a
director for such meeting, selected in order of rank and within the same rank
in order of seniority.

(c) In addition to the Board's powers under the regular Bylaws of the
Corporation to fill vacancies on the Board, the Board may elect any individual
as a director to replace any director who may be incapacitated and to serve
until the latter ceases to be incapacitated or until the termination of the
period of emergency, whichever first occurs. In considering officers of the
Corporation for election to the Board, the rank and seniority of individual
officers shall not be pertinent.

(d) The Board, during as well as before any such emergency, may change the
principal office or designate several alternative offices or authorize the
officers to do so.

Section 4. Appointment of Officers. In addition to the Board's powers under
the regular Bylaws of the Corporation with respect to the election of officers,
the Board may elect any individual as an officer to replace any officer who may
be incapacitated and to serve until the latter ceases to be incapacitated.

Section 5. Amendments. These Emergency Bylaws shall be subject to repeal or
change by further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the provisions
of the last sentence of Section 2 with regard to action or inaction prior to
the time of such repeal or change. Any such amendment of these Emergency Bylaws
may make any further or different provision that may be practical and necessary
for the circumstances of the emergency.

I-12
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Virginia Stock Corporation Act permits, and the registrant's Articles
of Incorporation require, indemnification of the registrant's directors and
officers in a variety of circumstances, which may include indemnification for
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
Under Sections 13.1 697 and 13.1-702 of the Virginia Stock Corporation Act, a
Virginia corporation generally is authorized to indemnify its directors and
officers in civil or criminal actions if they acted in good faith and believed
their conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. Insmed Incorporated's Articles of Incorporation require
indemnification of directors and officers with respect to certain liabilities,
expenses and other amounts imposed upon them because of having been a director
or officer, except in the case of willful misconduct or a knowing violation of
criminal law.

In addition, Insmed Incorporated carries insurance on behalf of directors,
officers, employees or agents that may cover liabilities under the Securities
Act. Insmed Incorporated's Articles of Incorporation also provide that, to the
full extent the Virginia Stock Corporation Act (as it presently exists or may
hereafter be amended) permits the limitation or elimination of the liability of
directors and officers, no director or officer of Insmed Incorporated shall be
liable to Insmed Incorporated or its shareholders for monetary damages with
respect to any transaction, occurrence or course of conduct. Section 13.1-692.1
of the Virginia Stock Corporation Act presently permits the elimination of
liability of directors and officers in any proceeding brought by or in the right
of a company or brought by or on behalf of shareholders of a company, except for
liability resulting from such person's having engaged in willful misconduct or a
knowing violation of the criminal law or any federal or state securities law,
including, without limitation, any unlawful insider trading or manipulation of
the market for any security. Sections 13.1-692.1 and 13.1-696 to -704 of the
Virginia Stock Corporation Act are hereby incorporated by reference herein.

<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization, by and
among Insmed Incorporated, Insmed Pharmaceuticals, Inc., Celtrix
Pharmaceuticals, Inc. and Celtrix MergerSub, Inc., dated as of
February 9, 2000 (Included as Annex A to the accompanying Joint Proxy
Statement/Prospectus).

3.1 Articles of Incorporation of Insmed Incorporated, as amended (Included
as Annex H to the accompanying Joint Proxy Statement/Prospectus).

3.2 Amended and Restated Bylaws of Insmed Incorporated (Included as Annex
I to the accompanying Joint Proxy Statement/Prospectus).

4.1 Article VI of the Articles of Incorporation of Insmed Incorporated
(Included as part of Exhibit 3.1 to this Registration Statement).

4.2# Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.

5.1# Opinion of Hunton & Williams as to the validity of the shares of
Insmed Incorporated Common Stock.

8.1# Opinion of Hunton & Williams as to certain tax matters.

8.2 Opinion of Venture Law Group, a Professional Corporation, as to
certain tax matters.

10.1 Insmed Incorporated 2000 Stock Purchase Plan.

10.2 Insmed Incorporated 2000 Stock Incentive Plan.

10.3# Amended and Restated License Agreement between Insmed Pharmaceuticals,
Inc. and the University of Virginia Patent Foundation, dated June 11,
1991, as amended by a First Amendment dated February 29, 1996 and a
Second Amendment dated November 23, 1999.

10.4# Form of Indemnification Agreement between Celtrix Pharmaceuticals,
Inc. and each of its executive officers and directors.

10.5# License and Development Agreement dated June 24, 1994, between
Celtrix Pharmaceuticals, Inc. and Genzyme Corporation as amended by
Amendment No. 1 dated December 31, 1997.

10.6# Employment Agreement dated January 7, 1997 between Celtrix
Pharmaceuticals, Inc. and Dr. Andreas Sommer as amended by an
Extension dated December 16, 1998 and an Extension dated November 2,
1999.

10.7# License Agreement dated December 18, 1997, between Celtrix
Pharmaceuticals, Inc. and Genzyme Corporation.

10.8t# Subscription, Joint Development and Operating Agreement by and among
Celtrix Pharmaceuticals, Inc., Elan Corporation, plc, Elan
International Services, Ltd., and Celtrix Newco Ltd. dated as of April
21, 1999.

10.9t# License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.

10.10t# License Agreement by and between Celtrix Newco Ltd. and Elan
Pharmaceutical Technologies, a division of Elan Corporation, plc,
dated as of April 21, 1999.

10.11# License Agreement, dated as of April 1, 1993, between Genentech,
Inc. and Celtrix Pharmaceuticals, Inc.

10.12# Purchase Agreement among Insmed Incorporated, Insmed
Pharmaceuticals, Inc. and certain investors named therein dated
January 13, 2000.
</TABLE>

II-2
<PAGE>

10.13# Form of Warrant of Insmed to be issued pursuant to Purchase Agreement
among Insmed Incorporated, Insmed Pharmaceuticals, Inc. and certain
investors dated January 13, 2000 and included as Exhibit 10.12 to this
Registration Statement.

10.14# Form of Registration Rights Agreement among Insmed Incorporated,
Insmed Pharmaceuticals, Inc. and certain investors party to the
Purchase Agreement among Insmed Incorporated, Insmed Pharmaceuticals,
Inc. and certain investors dated January 13, 2000 and included as
Exhibit 10.12 to this Registration Statement.

21.1# Subsidiaries of the Registrant.

23.1 Consent of Hunton & Williams (Included as part of Exhibit 5.1 and
Exhibit 8.1 to this Registration Statement).

23.2 Consent of Venture Law Group, a Professional Corporation (Included as
part of Exhibit 8.2 to this Registration Statement).

23.3 Consent of Ernst & Young LLP.

23.4 Consent of Ernst & Young LLP.

23.5 Consent of Pacific Growth Equities (Included as part of Exhibit 99.4
to this Registration Statement).

24.1# Power of Attorney (Included on the signature page of this
Registration Statement).

27.1# Financial Data Schedule of Insmed Pharmaceuticals, Inc.

27.2# Financial Data Schedule of Celtrix Pharmaceuticals, Inc.

99.1 Shareholders Agreement, dated as of December 15, 1999, between Insmed
Incorporated, Celtrix Pharmaceuticals, Inc. and certain shareholders
of Insmed Pharmaceuticals, Inc. (Included as Annex E to the
accompanying Joint Proxy Statement/Prospectus).

99.2 Stockholders Agreement, dated as of December 15, 1999, between Insmed
Incorporated, Celtrix MergerSub, Inc. and certain stockholders of
Celtrix Pharmaceuticals, Inc. (Included as Annex G to the accompanying
Joint Proxy Statement/Prospectus).

99.3# Letter Agreement dated November 30, 1999 between Celtrix
Pharmaceuticals, Inc. and Elan Pharmaceutical Investments Ltd.

99.4 Opinion of Pacific Growth Equities, Inc. (Included as Annex B to the
accompanying Joint Proxy Statement/Prospectus).

99.5# Form of Proxy for Special Meeting of Shareholders of Insmed
Pharmaceuticals, Inc.

99.6# Form of Proxy for Annual Meeting of Stockholders of Celtrix
Pharmaceuticals, Inc.

99.7# Consent of Director Designees of Insmed Incorporated
</TABLE>

_________________________________

* To be filed by amendment.

t Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.

# Previously filed with the initial Registration Statement on Form S-4 on
February 10, 2000 or Amendment No. 1 to the Registration Statement on Form
S-4 on March 24, 2000.

(b) Financial Statement Schedules.

All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes attached
thereto.

ITEM 22. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This

II-3
<PAGE>

includes information contained in documents filed after the effective date of
the registration statement through the date of responding to the request.

(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.

(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.

(4) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.

(5) 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 section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement 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.

(6) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities 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 Securities
Act and will be governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No.2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Richmond, Commonwealth of Virginia, on the fourteenth day of April, 2000.

INSMED INCORPORATED
a Virginia corporation
(Registrant)

By: /s/ Michael D. Baer
------------------
Michael D. Baer
Chief Financial Officer
(Principal Financial and
Accounting Officer)

II-5
<PAGE>

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No.2 to the Registration Statement has been signed by the following persons on
the fourteenth day of April, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------- ---------- --------
<S> <C> <C>
Chairman of the Board, April 14, 2000
* President and Chief Executive
- ------------------------ Officer
Geoffrey Allan, Ph.D. (Principal Executive Officer)

/s/ Michael D. Baer Chief Financial Officer April 14, 2000
- ------------------------ (Principal Financial and
Michael D. Baer Accounting Officer)

* Director April 14, 2000
- ------------------------
Kenneth G. Condon

* Director April 14, 2000
- ------------------------
Graham K. Crooke, MB.BS

* Director April 14, 2000
- ------------------------
Steinar J. Engelsen, M.D.

* Director April 14, 2000
- ------------------------
Edgar G. Engleman, M.D.

*By: /s/ Michael D. Baer
----------------------
Michael D. Baer
Attorney-In-Fact
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization, by and
among Insmed Incorporated, Insmed Pharmaceuticals, Inc., Celtrix
Pharmaceuticals, Inc. and Celtrix MergerSub, Inc., dated as of
February 9, 2000 (Included as Annex A to the accompanying Joint Proxy
Statement/Prospectus).

3.1 Articles of Incorporation of Insmed Incorporated, as amended (Included
as Annex H to the accompanying Joint Proxy Statement/Prospectus).

3.2 Amended and Restated Bylaws of Insmed Incorporated (Included as Annex
I to the accompanying Joint Proxy Statement/Prospectus).

4.1 Article VI of the Articles of Incorporation of Insmed Incorporated
(Included as part of Exhibit 3.1 to this Registration Statement).

4.2# Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.

5.1# Opinion of Hunton & Williams as to the validity of the shares of
Insmed Incorporated Common Stock.

8.1# Opinion of Hunton & Williams as to certain tax matters.

8.2 Opinion of Venture Law Group, a Professional Corporation, as to
certain tax matters.

10.1 Insmed Incorporated 2000 Stock Purchase Plan.

10.2 Insmed Incorporated 2000 Stock Incentive Plan.

10.3# Amended and Restated License Agreement between Insmed Pharmaceuticals,
Inc. and the University of Virginia Patent Foundation dated June 11,
1991, as amended by a First Amendment dated February 29, 1996 and a
Second Amendment dated November 23, 1999.

10.4# Form of Indemnification Agreement between Celtrix Pharmaceuticals,
Inc. and each of its executive officers and directors.

10.5# License and Development Agreement dated June 24, 1994, between
Celtrix Pharmaceuticals, Inc. and Genzyme Corporation as amended by
Amendment No. 1 dated December 31, 1997.

10.7# License Agreement dated December 18, 1997, between Celtrix
Pharmaceuticals, Inc. and Genzyme Corporation.

10.9t# License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.

10.10t# License Agreement by and between Celtrix Newco Ltd. and Elan
Pharmaceutical Technologies, a division of Elan Corporation, plc,
dated as of April 21, 1999.

10.11# License Agreement, dated as of April 1, 1993, between Genentech, Inc.
and Celtrix Pharmaceuticals, Inc.

10.12# Purchase Agreement among Insmed Incorporated, Insmed Pharmaceuticals,
Inc. and certain investors named therein dated January 13, 2000.

10.13# Form of Warrant of Insmed to be issued pursuant to Purchase
Agreement among Insmed Incorporated, Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 and included as Exhibit 10.12
to this Registration Statement.
</TABLE>

II-7
<PAGE>

<TABLE>
<S> <C>
10.14# Form of Registration Rights Agreement among Insmed Incorporated,
Insmed Pharmaceuticals, Inc. and certain investors party to the
Purchase Agreement among Insmed Incorporated, Insmed Pharmaceuticals,
Inc. and certain investors dated January 13, 2000 and included as
Exhibit 10.12 to this Registration Statement.

21.1# Subsidiaries of the Registrant.

23.1 Consent of Hunton & Williams (Included as part of Exhibit 5.1 and
Exhibit 8.1 to this Registration Statement).

23.2 Consent of Venture Law Group, a Professional Corporation (Included as
part of Exhibit 8.2 to this Registration Statement).

23.3 Consent of Ernst & Young LLP.

23.4 Consent of Ernst & Young LLP.

23.5 Consent of Pacific Growth Equities (Included as part of Exhibit 99.4
to this Registration Statement).

24.1# Power of Attorney (Included on the signature page of this Registration
Statement).

27.1# Financial Data Schedule of Insmed Pharmaceuticals, Inc.

27.2# Financial Data Schedule of Celtrix Pharmaceuticals, Inc.

99.2 Stockholders Agreement, dated as of December 15, 1999, between Insmed
Incorporated, Celtrix MergerSub and certain stockholders of Celtrix
Pharmaceuticals, Inc. (Included as Annex G to the accompanying Joint
Proxy Statement/Prospectus).

99.3# Letter Agreement dated November 30, 1999 between Celtrix
Pharmaceuticals, Inc. and Elan Pharmaceutical Investments Ltd.

99.4 Opinion of Pacific Growth Equities, Inc. (Included as Annex B to the
accompanying Joint Proxy Statement/Prospectus).

99.5# Form of Proxy for Special Meeting of Shareholders of Insmed
Pharmaceuticals, Inc.

99.6# Form of Proxy for Annual Meeting of Stockholders of Celtrix
Pharmaceuticals, Inc.

99.7# Consent of Director Designees of Insmed Incorporated
</TABLE>
_________________________________
* To be filed by amendment.
t Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.

# Previously filed with the initial Registration Statement on Form S-4 on
February 10, 2000 or Amendment No. 1 to the Registration Statement on Form
S-4 on March 24, 2000.

II-8

<PAGE>

Exhibit 8.2

March 22, 2000

Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110

Ladies and Gentlemen:

This opinion is being delivered to you in connection with the Amended
and Restated Agreement and Plan of Reorganization dated as of November 30, 1999,
and amended as of February 9, 2000 (including all amendments thereto, the
"Agreement") by and among Insmed Incorporated, a Virginia corporation
---------
("Parent"), Celtrix Pharmaceuticals, Inc., a Delaware corporation ("Celtrix"),
------ -------
Celtrix Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), and Insmed Pharmaceuticals, Inc., a Virginia corporation
---
("Insmed"). Pursuant to the Agreement, (i) Sub will merge with and into Celtrix
------
and Celtrix will become a wholly owned subsidiary of Parent (the "Merger"), and
------
(ii) shareholders of Insmed will exchange all of their Insmed Shares for Parent
Common Stock and Insmed will also become a wholly owned subsidiary of Parent
(the "Capital Contribution" and collectively with the Merger, the
--------------------
"Transaction").
-----------

Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
----
We have acted as legal counsel to Celtrix in connection with the Merger
and the Transaction. As such, and for the purpose of rendering this opinion, we
have examined and are relying upon (without any independent investigation or
review thereof) the truth and accuracy, at all relevant times, of the
statements, covenants, representations and warranties contained in the following
documents (including all exhibits and schedules attached thereto):

1. The Agreement (including exhibits);

2. Representations made to us by Celtrix, Sub, Insmed and Parent in
certificates of even date herewith delivered to us by authorized officers of
those corporations ("Officer's Tax Certificates");
--------------------------

3. The Registration Statement filed by Insmed Incorporated with the
Securities Exchange Commission (which includes a proxy statement-prospectus
relating to the Merger) (the "Registration Statement").
----------------------
<PAGE>

Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 2

4. Such other instruments and documents related to the operation of
Celtrix, Sub, Insmed and Parent, or to the consummation of the Merger, the
Transaction, and the transactions contemplated thereby, as we have deemed
necessary or appropriate.

In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:

1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;

2. Any representation or statement made "to the best knowledge of" or
otherwise similarly qualified is correct without such qualification. As to all
matters in which a person or entity making a representation has represented that
such person or entity either is not a party to, does not have, or is not aware
of any present plan, intention, understanding or agreement to take an action,
there is in fact no plan, intention, understanding or agreement and such action
will not be taken;

3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us by Celtrix, Sub, Insmed
or Parent, their managements, employees, officers, directors and stockholders in
connection with the Merger and the Transaction, including without limitation the
Agreement and the Officer's Tax Certificates, are true and correct in all
material respects and will continue to be true and correct in all material
respects as of the Effective Time and all other relevant times, and no actions
have been (or will be) taken which are inconsistent with such statements,
descriptions and representations;

4. The Merger will be reported by Parent, Insmed and Celtrix on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;

5. The Merger and Transaction will be consummated in accordance with
the Agreement (and without any waiver, breach or amendment of any of the
provisions thereof) and will be effective under the applicable state law;

6. In the Merger, shares of Celtrix capital stock possessing at least
80% of the total combined voting power of all classes of stock entitled to vote
and at least 80% of the total number of shares of all other classes of Celtrix
capital stock will be exchanged solely for Parent voting stock (taking into
account as Celtrix capital stock outstanding at the Effective Time of the Merger
shares of Celtrix capital stock exchanged, or redeemed by Celtrix, including
without limitation shares of Celtrix's Series A and Series B Preferred Stock,
for
<PAGE>

Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 3

cash or other property originating with, or reimbursed to Celtrix by, Parent,
Insmed or any other person other than Celtrix); and

7. The opinion of counsel to be issued by Hunton & Williams to Insmed
and Parent has been delivered and not withdrawn.

Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that:

(a) for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code, and

(b) the opinion ascribed to us in the Registration Statement under
the caption "Material Federal Income Tax Consequences," except as otherwise
indicated, represents our opinion as to the principal U.S. federal income tax
consequences of the Merger under applicable law.

This opinion does not apply to, and no conclusion is expressed regarding, the
treatment of Celtrix shareholders to the extent that they receive (i) Parent
Common Stock with respect to accrued but unpaid dividends, or (ii) property or
rights (other than Parent common stock) with respect to Celtrix capital stock.

This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.

This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger and the Transaction). In particular, we express no
opinion regarding the tax consequences of the exchange of shares of Insmed
capital stock for shares of Parent capital stock in the capital contribution.

No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger and the capital contribution, if all the transactions described in the
Agreement are not consummated in
<PAGE>

Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 4

accordance with the terms of such Agreement and without waiver or breach of any
material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at all
relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.

We consent to the use of this opinion as an exhibit to the Registration
Statement, to references to this opinion in the Registration Statement and to
the use of our name in the Registration Statement under the heading "Material
Federal Income Tax Consequences" therein. In giving this consent, we do not
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules or regulations
promulgated thereunder.

Very truly yours,

VENTURE LAW GROUP
A PROFESSIONAL CORPORATION

<PAGE>

INSMED INCORPORATED

EMPLOYEE STOCK PURCHASE PLAN
<PAGE>

INSMED INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINITIONS 1
1.01. Administrator............................................... 1
1.02. Affiliate................................................... 1
1.03. Beneficiary................................................. 1
1.04. Board....................................................... 1
1.05. Code........................................................ 1
1.06. Committee................................................... 2
1.07. Common Stock................................................ 2
1.08. Company..................................................... 2
1.09. Compensation................................................ 2
1.10. Date of Exercise............................................ 2
1.11. Date of Grant............................................... 2
1.12. Election Date............................................... 2
1.13. Election Form............................................... 2
1.14. Employee.................................................... 3
1.15. Exchange Act................................................ 3
1.16. Fair Market Value........................................... 3
1.17. Five Percent Shareholder.................................... 3
1.18. Option...................................................... 3
1.19. Participant................................................. 3
1.20. Plan........................................................ 4

ARTICLE II PURPOSES.................................................... 4

ARTICLE III ADMINISTRATION............................................. 4

ARTICLE IV ELIGIBILITY................................................. 5

ARTICLE V COMPENSATION DEDUCTIONS...................................... 5
5.01. Amount of Deduction......................................... 5
5.02. Participant's Account....................................... 5
5.03. Changes in Payroll Deductions............................... 5

ARTICLE VI OPTION GRANTS............................................... 6
6.01. Number of Shares............................................ 6
6.02. Option Price................................................ 6

ARTICLE VII EXERCISE OF OPTION......................................... 6
7.01. Automatic Exercise.......................................... 6
7.02. Fractional Shares........................................... 6
</TABLE>

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<PAGE>

INSMED INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN

<TABLE>
<S> <C>
7.03. Nontransferability.......................................... 6
7.04. Employee Status............................................. 7
7.05. Delivery of Stock........................................... 7
7.06. Vesting..................................................... 7

ARTICLE VIII WITHDRAWAL AND TERMINATION OF EMPLOYMENT.................. 7
8.01. Generally................................................... 7
8.02. Subsequent Participation.................................... 8
8.03. Termination of Employment................................... 8
8.04. Death of Participant........................................ 8

ARTICLE IX STOCK SUBJECT TO PLAN....................................... 8
9.01. Shares Issued............................................... 8
9.02. Aggregate Limit............................................. 9
9.03. Reallocation of Shares...................................... 9

ARTICLE X ADJUSTMENT UPON CHANGE IN COMMON STOCK....................... 9

ARTICLE XI COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES....... 9

ARTICLE XII GENERAL PROVISIONS......................................... 10

12.01. Effect on Employment and Service........................... 10
12.02. Unfunded Plan.............................................. 10
12.03. Rules of Construction...................................... 10

ARTICLE XIII AMENDMENT................................................. 11

ARTICLE XIV DURATION OF PLAN........................................... 11

ARTICLE XV EFFECTIVE DATE OF PLAN...................................... 11
</TABLE>

-ii-
<PAGE>

INSMED INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
----------------------------

ARTICLE I
DEFINITIONS

1.01. Administrator.
-------------

Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.

1.02. Affiliate.
---------

Affiliate means any "parent corporation" or "subsidiary corporation"
(within the meaning of Section 424 of the Code) of the Company, including a
corporation that becomes an Affiliate after the adoption of this Plan, that the
Board designates as a participating employer in the Plan.

1.03. Beneficiary.
-----------

Beneficiary means the person or entity designated by a Participant on a
form prescribed by the Administrator, to receive any amount payable under the
Plan following a Participant's death. A Participant may change his Beneficiary
from time to time by filing a subsequent designation form and the change will be
effective when received by the Administrator. If a designated Beneficiary fails
to survive the Participant or be in existence on the date of his death or if the
Participant fails to designate a Beneficiary, the Participant's Beneficiary
shall be determined as follows: the Participant's surviving spouse (i.e., the
----
person to whom the Participant is legally married on the date of his death) or,
if none, the Participant's surviving children or, if none, the Participant's
estate.

1.04. Board.
-----

Board means the Board of Directors of the Company.

1.05. Code.
----

Code means the Internal Revenue Code of 1986, and any amendments thereto.
<PAGE>

1.06. Committee.
---------

Committee means the Compensation Committee of the Board or, if the
Compensation Committee is not composed solely of two or more persons, all of
whom are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act, Committee means such other committee of the Board composed solely
of persons who satisfy such criteria.

1.07. Common Stock.
------------

Common Stock means the common stock of the Company.

1.08. Company.
-------

Company means Insmed Incorporated.

1.09. Compensation.
------------

Compensation means an Employee's total earnings, including without
limitation salary, overtime, and any bonuses or special payment.

1.10. Date of Exercise.
----------------

Date of Exercise means each June 30 next following the January 2 Date of Grant
and each December 31 next following the July 1 Date of Grant.

1.11. Date of Grant.
-------------

Date of Grant means each January 2 and each July 1 during the term of the
Plan.

1.12. Election Date.
-------------

Election Date means each December 15 immediately preceding the January 2
Date of Grant and each June 15 immediately preceding the July 1 Date of Grant.

1.13. Election Form.
-------------

Election Form means the form, prescribed by the Administrator, that a
Participant uses to authorize a reduction in his Compensation in accordance with
Article V.

-2-
<PAGE>

1.14. Employee.
--------

Employee means any employee of the Company or an Affiliate, other than a
Five Percent Shareholder, who is regularly scheduled to work at least twenty
hours per week.

1.15. Exchange Act.
------------

Exchange Act means the Securities Exchange Act of 1934, as amended.

1.16. Fair Market Value.
-----------------

Fair Market Value means, on any given date, the reported "closing" price of
a share of Common Stock on the primary exchange on which shares of the Common
Stock are listed. If, on any given date, no share of Common Stock is traded on
an established stock exchange, then Fair Market Value shall be determined with
reference to the next preceding day that the Common Stock was so traded.

1.17. Five Percent Shareholder.
------------------------

Five Percent Shareholder means any individual who, immediately after the
grant of an Option owns more than five percent of the total combined voting
power or value of all classes of stock of the Company or of an Affiliate. For
this purpose, (i) an individual shall be considered to own any stock owned
(directly or indirectly) by or for his brothers, sisters, spouse, ancestors or
lineal descendants and shall be considered to own proportionately any stock
owned (directly or indirectly) by or for a corporation, partnership, estate or
trust of which such individual is a shareholder, partner or beneficiary, and
(ii) stock of the Company or an Affiliate that an individual may purchase under
outstanding options (whether or not granted under this Plan) shall be treated as
stock owned by the individual.

1.18. Option.
------

Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock on the terms and conditions
prescribed by the Plan.

1.19. Participant.
-----------

Participant means an Employee, including an Employee who is a member of the
Board, who satisfies the requirements of Article IV and who elects to receive an
Option.

-3-
<PAGE>

1.20. Plan.
----

Plan means the Insmed Incorporated Employee Stock Purchase Plan.

ARTICLE II
PURPOSES

The Plan is intended to assist the Company and its Affiliates in recruiting
and retaining individuals with ability and initiative by enabling such persons
to participate in the future success of the Company and its Affiliates and to
associate their interests with those of the Company and its shareholders. The
Plan is intended to permit the grant of Options qualifying under Section 423 of
the Code. No Option shall be invalid for failure to qualify under Section 423
of the Code. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.

ARTICLE III
ADMINISTRATION

The Plan shall be administered by the Administrator. The Administrator
shall have complete authority to interpret all provisions of this Plan; to
adopt, amend, and rescind rules and regulations pertaining to the administration
of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of any specific
power to the Administrator shall not be construed as limiting any power or
authority of the Administrator. Any decision made, or action taken, by the
Administrator or in connection with the administration of this Plan shall be
final and conclusive. Neither the Administrator nor any member of the Committee
shall be liable for any act done in good faith with respect to this Plan or any
Option. All expenses of administering this Plan shall be borne by the Company.

The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
grants and awards under this Plan. The Committee may revoke or amend the terms
of a delegation at any time but such action shall not invalidate any prior
actions of the Committee's delegate or delegates that were consistent with the
terms of the Plan.

-4-
<PAGE>

ARTICLE IV
ELIGIBILITY

Each Employee of the Company or an Affiliate (including a corporation that
becomes an Affiliate after the adoption of this Plan) is eligible to participate
in this Plan. Directors of the Company who are Employees of the Company or an
Affiliate may participate in this Plan. An Employee who has satisfied the
requirements set forth in the preceding sentence of this Article IV becomes a
Participant by completing an Election Form in accordance with Section 5.01 and
returning it to the Administrator on or before the Election Date.

ARTICLE V
COMPENSATION DEDUCTIONS

5.01. Amount of Deduction.
-------------------

A payroll deduction shall be made from the Compensation of each Participant
for each payroll period. The amount of such deduction shall be the percentage
specified by the Participant on his Election Form; provided that such percentage
shall be in multiples of one percent and shall not exceed fifteen percent. A
Participant may contribute to the Plan only by payroll deduction. A
Participant's Election Form will continue to be effective, and amounts will be
deducted from the Participant's Compensation, until the Election Form is changed
in accordance with Section 5.03 or the Participant withdraws from the Plan or
his participation otherwise ends in accordance with Article VIII.

5.02. Participant's Account.
---------------------

A recordkeeping account shall be established for each Participant. All
amounts deducted from a Participant's Compensation shall be credited to his
account. No interest will be paid or credited to the account of any
Participant.

5.03. Changes in Payroll Deductions.
-----------------------------

A Participant may discontinue his participation in the Plan as provided in
Section 8.01. Except as provided in Section 8.01, a Participant's direction to
change the percentage deduction specified on his Election Form shall be
effective as of the first Date of Grant following the date that written notice
of such change (either by revocation of participation or a new Election Form) is
delivered to the Administrator.

-5-
<PAGE>

ARTICLE VI
OPTION GRANTS

6.01. Number of Shares.
----------------

Each Employee who is a Participant on a Date of Grant shall be granted an
Option as of that Date of Grant. The number of shares of Common Stock subject
to such Option shall be determined by dividing the option price into the balance
credited to the Participant's account as of the Date of Exercise next following
the Date of Grant. Notwithstanding the preceding sentence, no Participant will
be granted an Option as of any Date of Grant for more than a number of shares of
Common Stock determined by dividing $12,500 by the Fair Market Value on the Date
of Grant.

6.02. Option Price.
------------

The price per share for Common Stock purchased on the exercise of an Option
shall be the lesser of (i) eighty-five percent of the Fair Market Value on the
applicable Date of Grant or (ii) eighty-five percent of the Fair Market Value on
the Date of Exercise.

ARTICLE VII
EXERCISE OF OPTION

7.01. Automatic Exercise.
------------------

Subject to the provisions of Articles VIII, IX and XI, each Option shall be
exercised automatically as of the Date of Exercise next following the Option's
Date of Grant for the number of whole shares of Common Stock that may be
purchased at the option price for that Option with the balance credited to the
Participant's account.

7.02. Fractional Shares.
-----------------

Fractional shares will not be issued under the Plan. Any amount remaining
to the credit of the Participant's account after the exercise of an Option shall
remain in the account and applied to the option price of the Option next granted
if the Participant continues to participate in the Plan or, if he does not,
shall be returned to the Participant.

7.03. Nontransferability.
------------------

Each Option granted under this Plan shall be nontransferable except by will
or by the laws of descent and distribution. During the lifetime of the

-6-
<PAGE>

Participant to whom the Option is granted, the Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.

7.04. Employee Status.
---------------

For purposes of determining the applicability of Section 423 of the Code,
and whether an individual is employed by the Company or an Affiliate, the
Administrator may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.

7.05. Delivery of Stock.
-----------------

Subject to the provisions of Articles IX and XI, as promptly as possible
following the date that such shares become transferable, the Company will
deliver certificates evidencing the Common Stock purchased upon the
Participant's exercise of his Option.

7.06. Vesting.
-------

Participant's interest in the Common Stock purchased upon the exercise of
his Option shall be immediately nonforfeitable and, subject to the provisions of
Article XI, transferable.

ARTICLE VIII
WITHDRAWAL AND
TERMINATION OF EMPLOYMENT

8.01. Generally.
---------

A Participant may withdraw the payroll deductions credited to his account
under the Plan by giving written notice to that effect to the Administrator at
least thirty days prior to the next Date of Exercise. In that event, all of the
payroll deductions credited to his account will be paid to him promptly after
receipt of his notice of withdrawal and no further payroll deductions will be
made from his Compensation until he submits a new Election Form to the
Administrator. A Participant shall be deemed to have elected to withdraw from
the Plan in accordance with this Section 8.01 if he ceases to be an Employee.

-7-
<PAGE>

8.02. Subsequent Participation.
------------------------

A Participant who has withdrawn his account under Section 8.01 may submit a
new Election Form to the Administrator and resume participation in the Plan as
of any subsequent Date of Grant, provided that the Administrator receives his
Election Form before the applicable Election Date.

8.03. Termination of Employment.
-------------------------

If a Participant's employment with the Company and its Affiliates
terminates for any reason other than death, his participation in the Plan shall
cease as of the date of termination. The balance credited to the Participant's
account as of the first day of the month following such termination of
employment shall be paid to the Participant or, in the case of the Participant's
death following his termination of employment, to his Beneficiary, as promptly
as possible thereafter.

8.04. Death of Participant.
--------------------

If a Participant's employment with the Company and its Affiliates
terminates on account of the Participant's death, his Beneficiary may elect, by
written notice received by the Administrator within thirty days of the
Participant's death (but in all events before the Date of Exercise), to either
(i) withdraw all of the payroll deductions credited to the Participant's account
or (ii) to exercise the Option as of the Date of Exercise and receive whole
shares of Common Stock and cash representing the value of a fractional share in
accordance with Section 5.02. If the Option is exercised, the number of shares
of Common Stock issuable to the Beneficiary shall be determined by dividing the
option price into the payroll deductions credited to the Participant's account.
If timely written notice of the Beneficiary's election is not received by the
Administrator, the Beneficiary shall be deemed to have elected to exercise the
Option.

ARTICLE IX
STOCK SUBJECT TO PLAN

9.01. Shares Issued.
-------------

Upon the exercise of any Option the Company may deliver to the Participant
(or the Participant's broker if the Participant so directs), shares of Common
Stock from its authorized but unissued Common Stock.

-8-
<PAGE>

9.02. Aggregate Limit.
---------------

The maximum aggregate number of shares of Common Stock that may be issued
under this Plan pursuant to the exercise of Options is 1,000,000 shares. The
maximum aggregate number of shares that may be issued under this Plan shall be
subject to adjustment as provided in Article X.

9.03. Reallocation of Shares.
----------------------

If an Option is terminated, in whole or in part, for any reason other than
its exercise, the number of shares of Common Stock allocated to the Option or
portion thereof may be reallocated to other Options to be granted under this
Plan.

ARTICLE X
ADJUSTMENT UPON CHANGE IN COMMON STOCK

The maximum number of shares as to which Options may be granted under this
Plan and the terms of outstanding Options shall be adjusted as the Committee
shall determine to be equitably required in the event that (a) the Company (i)
effects one or more stock dividends, stock split-ups, subdivisions or
consolidations of shares or (ii) engages in a transaction to which Section 424
of the Code applies or (b) there occurs any other event which, in the judgment
of the Committee necessitates such action. Any determination made under this
Article X by the Committee shall be final and conclusive.

The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the maximum
number of shares as to which Options may be granted or the terms of outstanding
Options.

ARTICLE XI
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES

No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal

-9-
<PAGE>

and state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which the Company is a party, and the
rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock for
which an Option is exercised may bear such legends and statements as the
Administrator may deem advisable to assure compliance with federal and state
laws and regulations. No Option shall be exercisable, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Administrator may deem advisable from regulatory bodies having jurisdiction
over such matters.

ARTICLE XII
GENERAL PROVISIONS

12.01. Effect on Employment and Service.
--------------------------------

Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof) shall confer upon any
individual any right to continue in the employ of the Company or an Affiliate or
in any way affect any right and power of the Company or an Affiliate to
terminate the employment of any individual at any time with or without assigning
a reason therefor.

12.02. Unfunded Plan.
-------------

The Plan, insofar as it provides for grants, shall be unfunded, and the
Company shall not be required to segregate any assets that may at any time be
represented by grants under this Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.

12.03. Rules of Construction.
---------------------

Headings are given to the articles and sections of this Plan solely as a
convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.

-10-
<PAGE>

ARTICLE XIII
AMENDMENT

The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan or (ii) the amendment changes the class
of individuals eligible to become Participants. No amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
Option outstanding at the time such amendment is made.

ARTICLE XIV
DURATION OF PLAN

No Option may be granted under this Plan more than ten years after the
earlier of the date this Plan is adopted by the Board or the date this Plan is
approved by shareholders in accordance with Article XV. Options granted before
that date shall remain valid in accordance with their terms.

ARTICLE XV
EFFECTIVE DATE OF PLAN

Options may be granted under this Plan upon its adoption by the Board,
provided that no Option shall be effective or exercisable unless this Plan is
approved by a majority of the votes entitled to be cast by the Company's
shareholders, voting either in person or by proxy, at a duly held shareholders'
meeting or by the written unanimous consent of the shareholders within twelve
months before or after this Plan is adopted by the Board.

-11-

<PAGE>

INSMED INCORPORATED

2000 STOCK INCENTIVE PLAN
<PAGE>

INSMED INCORPORATED
2000 STOCK INCENTIVE PLAN

<TABLE>
<S> <C>
ARTICLE I DEFINITIONS...................................................... 4

1.01. Acquiring Person.................................................... 4
1.02. Administrator....................................................... 4
1.03. Affiliate........................................................... 4
1.04. Agreement........................................................... 4
1.05. Associate........................................................... 4
1.06. Board............................................................... 4
1.07. Change in Control................................................... 5
1.08. Code................................................................ 5
1.09. Committee........................................................... 5
1.10. Common Stock........................................................ 5
1.11. Company............................................................. 6
1.12. Continuing Director................................................. 6
1.13. Control Affiliate................................................... 6
1.14. Exchange Act........................................................ 6
1.15. Fair Market Value................................................... 6
1.16. Option.............................................................. 6
1.17. Participant......................................................... 7
1.18. Performance Shares.................................................. 7
1.19. Person.............................................................. 7
1.20. Plan................................................................ 7
1.21. Related Entity...................................................... 7
1.22. Rule 16b-3.......................................................... 7
1.23. Stock Award......................................................... 7

ARTICLE II PURPOSES........................................................ 8

ARTICLE III ADMINISTRATION................................................. 8

ARTICLE IV ELIGIBILITY..................................................... 9

ARTICLE V COMMON STOCK SUBJECT TO PLAN..................................... 9

5.01. Common Stock Issued................................................. 9
5.02. Aggregate Limit..................................................... 9
5.03. Reallocation of Shares.............................................. 10

ARTICLE VI OPTIONS......................................................... 10

6.01. Award............................................................... 10
6.02. Option Price........................................................ 10
6.03. Maximum Option Period............................................... 11
</TABLE>

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<PAGE>

INSMED INCORPORATED
2000 STOCK INCENTIVE PLAN

<TABLE>
<S> <C>
6.04. Nontransferability.................................................. 11
6.05. Transferable Options................................................ 11
6.06. Status as Employee or Service Provider.............................. 11
6.07. Exercise............................................................ 12
6.08. Payment............................................................. 12
6.09. Shareholder Rights.................................................. 12
6.10. Disposition of Shares............................................... 12

ARTICLE VII PERFORMANCE SHARE AWARDS....................................... 12

7.01. Award............................................................... 13
7.02. Earning the Award................................................... 13
7.03. Payment............................................................. 14
7.04. Shareholder Rights.................................................. 14
7.05. Nontransferability.................................................. 14
7.06. Transferable Performance Shares..................................... 14
7.07. Status as Employee or Service Provider.............................. 14

ARTICLE VIII STOCK AWARDS.................................................. 15

8.01. Award............................................................... 15
8.02. Vesting............................................................. 15
8.03. Performance Objectives.............................................. 15
8.04. Status as Employee or Service Provider.............................. 15
8.05. Shareholder Rights.................................................. 16

ARTICLE IX ADJUSTMENT UPON CHANGE IN COMMON STOCK.......................... 16

ARTICLE X COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES............ 17

ARTICLE XI GENERAL PROVISIONS.............................................. 18

11.01. Effect on Employment and Service................................... 18
11.02. Unfunded Plan...................................................... 18
11.03. Rules of Construction.............................................. 18

ARTICLE XII AMENDMENT...................................................... 18

ARTICLE XIII DURATION OF PLAN.............................................. 19

ARTICLE XIV EFFECTIVE DATE OF PLAN......................................... 19
</TABLE>

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<PAGE>

ARTICLE I
DEFINITIONS
-----------

1.01. Acquiring Person
----------------

Acquiring Person means a Person who, considered alone or together with
all Control Affiliates and Associates of that Person, is or becomes directly or
indirectly the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of securities representing at least fifty percent (50%) of the Company's
then outstanding securities entitled to vote generally in the election of the
Board.

1.02. Administrator
-------------

Administrator means the Board, the Committee, or any delegate of the
Committee that is appointed in accordance with Article III.

1.03. Affiliate
---------

1.04. Agreement
---------

Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an award of Performance Shares or an Option
granted to such Participant.

1.05. Associate
---------

Associate, with respect to any Person, is defined in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act. An Associate does not
include the Company or a majority-owned subsidiary of the Company.

1.06. Board
-----

Board means the Board of Directors of the Company.

-4-
<PAGE>

1.07. Change in Control
-----------------

Change in Control means (i) a Person is or becomes an Acquiring Person;
(ii) holders of the securities of the Company entitled to vote thereon approve
any agreement with a Person (or, if such approval is not required by applicable
law and is not solicited by the Company, the closing of such an agreement) that
involves the transfer of all or substantially all of the Company's total assets
on a consolidated basis, as last reported in the Company's consolidated
financial statements filed with the Securities and Exchange Commission; (iii)
holders of the securities of the Company entitled to vote thereon approve a
transaction (or, if such approval is not required by applicable law and is not
solicited by the Company, the closing of such a transaction) pursuant to which
the Company will undergo a merger, consolidation, or statutory share exchange
with a Person, regardless of whether the Company is intended to be the surviving
or resulting entity after the merger, consolidation, or statutory share
exchange, other than a transaction that results in the voting securities of the
----- ----
Company carrying the right to vote in elections of persons to the Board
outstanding immediately prior to the closing of the transaction continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the
Company's voting securities carrying the right to vote in elections of persons
to the Company's Board, or such securities of such surviving entity, outstanding
immediately after the closing of such transaction; (iv) the Continuing Directors
cease for any reason to constitute a majority of the Board; or (v) holders of
the securities of the Company entitled to vote thereon approve a plan of
complete liquidation of the Company or an agreement for the sale or liquidation
by the Company of substantially all of the Company's assets (or, if such
approval is not required by applicable law and is not solicited by the Company,
the commencement of actions constituting such a plan or the closing of such an
agreement).

1.08. Code
----

Code means the Internal Revenue Code of 1986, and any amendments thereto.

1.09. Committee
---------

Committee means the Compensation Committee of the Board or, if the
Compensation Committee is not composed solely of two or more persons who satisfy
the "non-employee director" and "outside director" requirements of Rule 16b-3
and Section 162(m) of the Code, respectively, Committee means such other
committee of the Board composed solely of two or more individuals who satisfy
such criteria.

1.10. Common Stock
------------

Common Stock means the common stock of the Company.

-5-
<PAGE>

1.11. Company
-------

Company means Insmed Incorporated.

1.12. Continuing Director
-------------------

Continuing Director means any member of the Board, while a member of the
Board and (i) who was a member of the Board immediately following the closing of
the transactions contemplated by the Form S-4 filed by the Company with the
Securities and Exchange Commission in 2000, or (ii) whose nomination for or
election to the Board was recommended or approved by a majority of the
Continuing Directors.

1.13. Control Affiliate
-----------------

Control Affiliate with respect to any Person, means an affiliate as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.

1.14. Exchange Act
------------

Exchange Act means the Securities Exchange Act of 1934, as amended.

1.15. Fair Market Value
-----------------

Fair Market Value means, on any given date, the reported "closing" price
of a share of Common Stock on the primary exchange on which shares of Common
Stock are listed. If, on any given date, no share of Common Stock is traded on
an established stock exchange, then Fair Market Value shall be determined with
reference to the next preceding day that the Common Stock was so traded.

1.16. Option
------

Option means a stock option granted under this Plan that entitles the
holder to purchase from the Company a stated number of shares of Common Stock at
the price set forth in an Agreement. Where capitalized, the word "Option" is
not intended to include any option granted by an Affiliate as to which the
Company has assumed the Affiliate's obligation to deliver Common Stock.

-6-
<PAGE>

1.17. Participant
-----------

Participant means an employee of the Company or an Affiliate, a member of
the Board (whether or not such Board member is employed by the Company or an
Affiliate), or any non-employee advisor or service provider of the Company or an
Affiliate, who satisfies the requirements of Article IV and is selected by the
Administrator to receive, a Stock Award, an Option, a Performance Share, or a
combination thereof.

1.18. Performance Shares
------------------

Performance Shares means an award, in the amount determined by the
Administrator, stated with reference to a specified number of shares of Common
Stock, that in accordance with the terms of an Agreement entitles the holder to
receive a cash payment or shares of Common Stock or a combination thereof.

1.19. Person
------

Person means any human being, firm, corporation, partnership, or other
entity. "Person" also includes any human being, firm, corporation, partnership,
or other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange
Act. The term "Person" does not include the Company or any Related Entity, and
the term Person does not include any employee-benefit plan maintained by the
Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of
any such employee-benefit plan, unless the Board determines that such an
employee-benefit plan or such person or entity is a "Person".

1.20. Plan
----

Plan means the Insmed Incorporated 2000 Stock Incentive Plan.

1.21. Related Entity
--------------

Related Entity means any entity that is part of a controlled group of
corporations or is under common control with the Company within the meaning of
Sections 1563(a), 414(b) or 414(c) of the Code.

1.22. Rule 16b-3
----------

Rule 16b-3 means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act.

1.23. Stock Award
-----------

-7-
<PAGE>

Stock Award means shares of Common Stock awarded to a Participant under
Article VIII.

ARTICLE II
PURPOSES
--------

The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining individuals or entities with ability and initiative by
enabling such persons to participate in the future success of the Company and
its Affiliates and to associate their interests with those of the Company and
its shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive stock options") and Options
not so qualifying, and the grant of Stock Awards and Performance Shares, and to
permit issuance of shares of Common Stock on exercise of options granted by an
Affiliate if the Company has assumed the obligations of the Affiliate under
those options, all in accordance with the Plan and procedures that may be
established by the Administrator. No Option that is intended to be an incentive
stock option shall be invalid for failure to qualify as an incentive stock
option. The proceeds received by the Company from the sale of shares of Common
Stock pursuant to this Plan shall be used for general corporate purposes.

ARTICLE III
ADMINISTRATION
--------------

The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Stock Awards, Performance Shares, and Options upon
such terms (not inconsistent with the provisions of this Plan), as the
Administrator may consider appropriate. Such terms may include conditions (in
addition to those contained in this Plan), on the exercisability of all or any
part of an Option or on the transferability or forfeitability of a Stock Award
or an award of Performance Shares. Notwithstanding any such conditions, the
Administrator may, in its discretion, (i) accelerate the time at which any
Option may be exercised, or the time at which a Stock Award may become
transferable or nonforfeitable, or the time at which an award of Performance
Shares may be settled, including without limitation, providing for any of the
foregoing upon a Change in Control, or (ii) suspend the forfeiture of any award
made under this Plan. In addition, the Administrator shall have complete
authority to interpret all provisions of this Plan; to prescribe the form of
Agreements; to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or
advisable for the administration of this Plan. The express grant in

-8-
<PAGE>

the Plan of any specific power to the Administrator shall not be construed as
limiting any power or authority of the Administrator. Any decision made, or
action taken, by the Administrator or in connection with the administration of
this Plan shall be final and conclusive. Neither the Administrator nor any
member of the Committee shall be liable for any act done in good faith with
respect to this Plan or any Agreement, Option, Stock Award or award of
Performance Shares. All expenses of administering this Plan shall be borne by
the Company.

The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
grants and awards to individuals who are not subject to the reporting and other
provisions of Section 16 of the Exchange Act. The Committee may revoke or amend
the terms of a delegation at any time but such action shall not invalidate any
prior actions of the Committee's delegate or delegates that were consistent with
the terms of the Plan.

ARTICLE IV
ELIGIBILITY
-----------

Any employee of the Company or an Affiliate, any member of the Board
(whether or not such Board member is employed by the Company or an Affiliate),
and any other Person who provides services to the Company or an Affiliate is
eligible to participate in this Plan if the Administrator, in its sole
discretion, determines that such Person has contributed significantly or can be
expected to contribute significantly to the profits or growth of the Company or
an Affiliate.

ARTICLE V
COMMON STOCK SUBJECT TO PLAN
----------------------------

5.01. Common Stock Issued
-------------------

Upon the award of Common Stock pursuant to a Stock Award or in settlement
of a Performance Share award, the Company may issue Common Stock from its
authorized but unissued Common Stock. Upon the exercise of any Option or an
option granted by an Affiliate of the Company if the Company has assumed the
obligations of the Affiliate under those options, the Company may deliver to the
Participant (or the Participant's broker if the Participant so directs), shares
of Common Stock from its authorized but unissued Common Stock.

5.02. Aggregate Limit
---------------

-9-
<PAGE>

The maximum aggregate number of shares of Common Stock that may be issued
under this Plan as of the date it is adopted by the Board is 12,000,000 shares.
That maximum number of shares will be increased each January 1 during the term
of the Plan by a number of shares equal to 1.0% of the number of shares of
Common Stock outstanding on the preceding December 31. In no event, however, may
the annual increases cause the maximum number of shares that may be issued under
the Plan to exceed 25,000,000 shares of Common Stock. The maximum aggregate
number of shares of Common Stock that may be issued under this Plan shall be
subject to adjustment as provided in Article IX.

5.03. Reallocation of Shares
----------------------

If an Option or an option granted by an Affiliate as to which the Company
has assumed the Affiliate's obligation to deliver Common Stock is terminated, in
whole or in part, for any reason other than its exercise the number of shares
allocated to the Option, option, or portion thereof may be reallocated to other
Options, Performance Shares, and Stock Awards to be granted under this Plan. If
an award of Performance Shares is terminated, in whole or in part, for any
reason other than its settlement with shares of Common Stock, the number of
shares allocated to the Performance Share award or portion thereof may be
reallocated to other Options, Performance Shares and Stock Awards to be granted
under this Plan. If a Stock Award is forfeited, in whole or in part, for any
reason, the number of shares of Common Stock allocated to the Stock Award or
portion thereof may be reallocated to other Options, Performance Shares, and
Stock Awards to be granted under this Plan.

ARTICLE VI
OPTIONS
-------

6.01. Award
-----

In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom an Option is to be granted and will specify
the number of shares of Common Stock covered by such awards; provided, however,
that no Participant may be granted Options in any calendar year covering more
than 1,000,000 shares of Common Stock.

6.02. Option Price
------------

The price per share for shares of Common Stock purchased on the exercise
of an Option shall be determined by the Administrator on the date of grant, but
shall not be less than the Fair

-10-
<PAGE>

Market Value on the date the Option is granted in the case of an Option intended
to qualify as an incentive stock option.

6.03. Maximum Option Period
---------------------

The maximum period in which an Option may be exercised shall be
determined by the Administrator on the date of grant, except that no Option that
is an incentive stock option shall be exercisable after the expiration of ten
years from the date such Option was granted. The terms of any Option that is an
incentive stock option may provide that it is exercisable for a period less than
such maximum period.

6.04. Nontransferability
------------------

Except as provided in Section 6.05, each Option granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any transfer of an Option (by the Participant or
his transferee), the Option must be transferred to the same person or persons or
entity or entities. Except as provided in Section 6.05, during the lifetime of
the Participant to whom the Option is granted, the Option may be exercised only
by the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.

6.05. Transferable Options
--------------------

Section 6.04 to the contrary notwithstanding, if the Agreement provides,
an Option that is not an incentive stock option may be transferred by a
Participant to the Participant's spouse, children or grandchildren, to trusts
for the benefit of such persons, or to a partnership in which those persons are
the only partners, or to such other persons or entities permitted under Rule
16b-3 as in effect from time to time on such terms and conditions as may be
permitted under Rule 16b-3, as in effect from time to time. The holder of an
Option transferred pursuant to this Section shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the
Participant; provided, however, that such transferee may not transfer the Option
except by will or the laws of descent and distribution.

6.06. Status as Employee or Service Provider
--------------------------------------

For purposes of determining the applicability of Section 422 of the Code
(relating to incentive stock options), or in the event that the terms of any
Option provide that it may be exercised only during employment or service or
within a specified period of time after termination of employment or service,
the Administrator may decide to what extent leaves of absence for governmental
or military service, illness, temporary disability, or other reasons shall not
be deemed interruptions of continuous employment or service.

-11-
<PAGE>

6.07. Exercise
--------

Subject to the provisions of this Plan and the applicable Agreement, an
Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Administrator shall
determine; provided, however, that incentive stock options (granted under the
Plan and all plans of the Company and its Affiliates) may not be first
exercisable in a calendar year for shares of Common Stock having a Fair Market
Value (determined as of the date an Option is granted) exceeding $100,000. An
Option granted under this Plan may be exercised with respect to any number of
whole shares less than the full number for which the Option could be exercised.
A partial exercise of an Option shall not affect the right to exercise the
Option from time to time in accordance with this Plan and the applicable
Agreement with respect to the remaining shares subject to the Option.

6.08. Payment
-------

Subject to rules established by the Administrator and unless otherwise
provided in an Agreement, payment of all or part of the Option price may be made
in cash (including cash paid by a broker pursuant to a Participant's
instructions to sell shares subject to the Option and deliver the exercise
price), a cash equivalent acceptable to the Administrator, or with shares of
Common Stock. If shares of Common Stock are used to pay all or part of the
Option price, the sum of the cash and cash equivalent and the Fair Market Value
(determined as of the day preceding the date of exercise) of the shares
surrendered must not be less than the Option price of the shares for which the
Option is being exercised.

6.09. Shareholder Rights
------------------

No Participant shall have any rights as a shareholder with respect to
shares subject to his Option until the date of exercise of such Option.

6.10. Disposition of Shares
---------------------

A Participant shall notify the Company of any sale or other disposition
of shares acquired pursuant to an Option that was an incentive stock option if
such sale or disposition occurs (i) within two years of the grant of an Option
or (ii) within one year of the issuance of shares to the Participant. Such
notice shall be in writing and directed to the Secretary of the Company.

ARTICLE VII
PERFORMANCE SHARE AWARDS
------------------------

-12-
<PAGE>

7.01. Award
-----

In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom an award of Performance Shares is to be made
and will specify the number of shares covered by such awards; provided, however,
that no Participant may receive an award of Performance Shares in any calendar
year for more than 500,000 shares of Common Stock.

7.02. Earning the Award
-----------------

The Administrator, on the date of the grant of an award, shall prescribe
that the Performance Shares, or portion thereof, will be earned, and the
Participant will be entitled to receive payment pursuant to the award of
Performance Shares, only upon the satisfaction by the Company, an Affiliate or
the Participant of performance objectives and such other criteria as may be
prescribed by the Administrator for the performance measurement period. The
performance objectives may be based on Fair Market Value, Common Stock price
appreciation, gross revenues, operating profit, or net earnings before or after
taxes, return on equity, earnings per share, total earnings, earnings growth,
return on capital, return on assets, return on sales, cash flow per share, book
value per share, market share, economic value added, market value added,
productivity, level of expenses, new product development, peer group comparisons
of any of the foregoing, or other measures as the Administrator may select. No
payments will be made with respect to Performance Shares unless, and then only
to the extent that, the Administrator certifies that such objectives have been
achieved.

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<PAGE>

7.03. Payment
-------

In the discretion of the Administrator, the amount payable when an award
of Performance Shares is earned may be settled in cash, by the issuance of
shares of Common Stock, or a combination thereof.

7.04. Shareholder Rights
------------------

No Participant shall, as a result of receiving an award of Performance
Shares, have any rights as a shareholder until (and then only to the extent
that) the award of Performance Shares is earned and settled in shares of Common
Stock. After an award of Performance Shares is earned and settled in shares, a
Participant will have all the rights of a shareholder as described in Section
8.05.

7.05. Nontransferability
------------------

Except as provided in Section 7.06, Performance Shares granted under this
Plan shall be nontransferable except by will or by the laws of descent and
distribution. No right or interest of a Participant in any Performance Shares
shall be liable for, or subject to, any lien, obligation, or liability of such
Participant.

7.06. Transferable Performance Shares
-------------------------------

Section 7.05 to the contrary notwithstanding, if the Agreement provides,
an award of Performance Shares may be transferred by a Participant to the
Participant's spouse, children or grandchildren, to trusts for the benefit of
such persons, to a partnership in which such persons are the only partners, or
to such other persons or entities permitted under Rule 16b-3 as in effect from
time to time on such terms and conditions as may be permitted under Rule 16b-3
as in effect from time to time. The holder of Performance Shares transferred
pursuant to this Section shall be bound by the same terms and conditions that
governed the Performance Shares during the period that they were held by the
Participant; provided, however that such transferee may not transfer Performance
Shares except by will or the laws of descent and distribution.

7.07. Status as Employee or Service Provider
--------------------------------------

In the event that the terms of any Performance Share award provide that
no payment will be made unless the Participant completes a stated period of
employment or service, the Administrator may decide to what extent leaves of
absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment or
service.

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<PAGE>

ARTICLE VIII
STOCK AWARDS
------------

8.01. Award
-----

In accordance with the provisions of Article IV, the Administrator will
designate each individual to whom a Stock Award is to be made and will specify
the number of shares covered by such awards; provided, however, that no
Participant may receive Stock Awards in any calendar year for more than 500,000
shares.

8.02. Vesting
-------

The Administrator, on the date of the award, may prescribe that a
Participant's rights in a Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement.

8.03. Performance Objectives
----------------------

In accordance with Section 8.02, the Administrator may prescribe that
Stock Awards will become vested or transferable or both based on objectives
stated with respect to the Participant's continued employment or service with
the Company or an Affiliate for a specified period, or the Company's, an
Affiliate's, or the Participant's achievement of performance related objectives
such as those measured by Fair Market Value, Common Stock stock price
appreciation, gross, operating, or net earnings before or after taxes, return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets, return on sales, cash flow per share, book value per share,
market share, economic value added, market value added, productivity, level of
expenses, new product development, peer group comparisons of any of the
foregoing, or other measures the Administrator may select. If the Administrator,
on the date of award, prescribes that a Stock Award shall become nonforfeitable
and transferable only upon the attainment of performance objectives, the shares
subject to such Stock Award shall become nonforfeitable and transferable only to
the extent that the Administrator certifies that such objectives have been
achieved.

8.04. Status as Employee or Service Provider
--------------------------------------

In the event that the terms of any Stock Award provide that shares may
become transferable and nonforfeitable thereunder only after completion of a
specified period of employment or service, the Administrator may decide in each
case to what extent leaves of

-15-
<PAGE>

absence for governmental or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment or
service.

8.05. Shareholder Rights
------------------

Prior to their forfeiture (in accordance with the applicable Agreement
and while the shares of Common Stock granted pursuant to the Stock Award may be
forfeited or are nontransferable), a Participant will have all rights of a
shareholder with respect to a Stock Award, including the right to receive
dividends and vote the shares; provided, however, that during such period (i) a
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of shares granted pursuant to a Stock Award, (ii) the Company shall
retain custody of the certificates evidencing shares granted pursuant to a Stock
Award, and (iii) the Participant will deliver to the Company a stock power,
endorsed in blank, with respect to each Stock Award. The limitations set forth
in the preceding sentence shall not apply after the shares granted under the
Stock Award are transferable and are no longer forfeitable.

ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
--------------------------------------

The maximum number of shares as to which Options, Performance Shares, and
Stock Awards may be granted pursuant to this Plan; the terms of outstanding
Stock Awards, Options, and Performance Shares; and the per individual
limitations on the number of shares of Common Stock for which Options,
Performance Shares, and Stock Awards may be granted shall be adjusted as the
Committee shall determine to be equitably required in the event that (i) the
Company (a) effects one or more stock dividends, stock split-ups, subdivisions
or consolidations of shares or (b) engages in a transaction to which Section 424
of the Code applies or, (ii) there occurs any other event which, in the judgment
of the Committee necessitates such action. Any determination made under this
Article IX by the Committee shall be final and conclusive.

The issuance by the Company of stock of any class, or securities
convertible into stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of stock or obligations of the Company
convertible into such stock or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the maximum number
of shares as to which Options, Performance Shares, and Stock Awards may be
granted; the per individual limitations on the number of shares for which
Options, Performance Shares, and Stock Awards may be granted; or the terms of
outstanding Stock Awards, Options, or Performance Shares.

-16-
<PAGE>

The Board or Committee may make Stock Awards and may grant Options and
Performance Shares in substitution for performance shares, phantom shares, stock
awards, stock options, stock appreciation rights, or similar awards held by an
individual who becomes an employee or service provider of the Company or an
Affiliate in connection with a transaction described in the first paragraph of
this Article IX. Notwithstanding any provision of the Plan (other than the
limitation of Section 5.02), the terms of such substituted Stock Awards, Option
or Performance Shares shall be as the Board or Committee, in its discretion,
determines is appropriate.

ARTICLE X
COMPLIANCE WITH LAW AND APPROVAL OF
REGULATORY BODIES
-----------------

No Option shall be exercisable, no shares of Common Stock shall be
issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all applicable
federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. Any stock certificate issued to evidence
shares of Common Stock when a Stock Award is granted, Performance Share is
settled or for which an Option is exercised may bear such legends and statements
as the Administrator may deem advisable to assure compliance with federal and
state laws and regulations. No Option shall be exercisable, no Stock Award or
Performance Share shall be granted, no shares of Common Stock shall be issued,
no certificate for shares of Common Stock shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Administrator may deem advisable from regulatory bodies having
jurisdiction over such matters.

-17-
<PAGE>

ARTICLE XI
GENERAL PROVISIONS
------------------

11.01. Effect on Employment and Service
--------------------------------

Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof), shall confer upon
any individual any right to continue in the employ or service of the Company or
an Affiliate or in any way affect any right and power of the Company or an
Affiliate to terminate the employment or service of any individual at any time
with or without assigning a reason therefor.

11.02. Unfunded Plan
-------------

11.03. Rules of Construction
---------------------

ARTICLE XII
AMENDMENT
---------

The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan. No amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
Stock Award, Option, or Performance Share outstanding at the time such amendment
is made.

-18-
<PAGE>

ARTICLE XIII
DURATION OF PLAN
----------------

No Stock Award, Option or Performance Share, may be granted under this
Plan more than ten years after the earlier of the date that this Plan is adopted
by the Board or approved by the shareholders in accordance with Article XIV.
Stock Awards, Options, and Performance Shares granted before that date shall
remain valid in accordance with their terms.

ARTICLE XIV
EFFECTIVE DATE OF PLAN
----------------------

Options, Stock Awards and Performance Shares may be granted under this
Plan upon its adoption by the Board; provided that, unless this Plan is approved
by a majority of the votes cast by the Company's shareholders, voting either in
person or by proxy, at a duly held shareholders' meeting at which a quorum is
present or by the written unanimous consent of the shareholders within twelve
months before or after this Plan is adopted by the Board, no Option shall be
exercisable, no Performance Share shall be settled, and no Stock Award shall be
effective.

-19-

<PAGE>

Exhibit 23.3

Consent of Independent Auditors

We consent to the references to our firm under the captions "Experts" and
"Insmed Pharmaceuticals, Inc. -- Selected Historical Financial Data", and to the
use of our report dated January 13, 2000, with respect to the consolidated
financial statements of Insmed Pharmaceuticals, Inc., included in the Joint
Proxy Statement of Insmed Incorporated that is made a part of Amendment No. 2 to
Form S-4 (No. 333-30098) and Prospectus of Insmed Incorporated for the
registration of 116,500,000 shares of its common stock.

/s/ Ernst & Young LLP

Richmond, Virginia
April 13, 2000

<PAGE>

EXHIBIT 23.4

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Celtrix
Pharmaceuticals, Inc.-Selected Historical Financial Data" and "Experts" and to
the use of our report dated May 28, 1999, with respect to the consolidated
financial statements of Celtrix Pharmaceuticals, Inc. included in the Joint
Proxy Statement of Celtrix Pharmaceuticals, Inc. and Insmed Pharmaceuticals,
Inc. which is referred to, and made a part of, Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-30098) and related Prospectus of Insmed
Incorporated for the registration of 116,500,000 shares of its common stock.

/s/ ERNST & YOUNG LLP

Palo Alto, California
April 13, 2000