KERYX BIOPHARMACEUTICALS INC, 424B1, 2000-07-28

KERYX BIOPHARMACEUTICALS INC
424B1, 2000-07-28
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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Filed pursuant to Rule 424(b)(1)
Registration No. 333-37402

PROSPECTUS

4,600,000 Shares

[LOGO OF KERYX]
Common Stock

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We are selling shares of our common stock. This is our initial public
offering.

Prior to this offering, there has been no public market for our common stock.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.

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Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public offering price.................................... $10.00 $46,000,000
Underwriting discounts and commissions................... $ 0.70 $ 3,220,000
Proceeds, before expenses, to us......................... $ 9.30 $42,780,000
</TABLE>

We have granted the underwriters a 30-day option to purchase up to an
additional 690,000 shares of common stock to cover over-allotments at the
initial public offering price less the underwriting discount.

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The underwriters are offering the common stock as described under
"Underwriting." Delivery of the shares will be made on or about August 2, 2000.

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Global Coordinators

Roth Capital Partners, Inc. WestLB Panmure Limited

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U.S. Managers

Roth Capital Partners, Inc. Gruntal & Co., L.L.C.

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The date of this Prospectus is July 28, 2000.
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Inside front cover:

KinAce Drug Discovery
Technology

Select Kinase Target

Apply KinAce Technology to Genomic Data

Screen Ten to Twenty Compounds

Discover New Drug Candidate

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 5
Forward-Looking Statements........ 12
Use of Proceeds................... 13
Dividend Policy................... 13
Capitalization.................... 14
Dilution.......................... 15
Selected Financial Data........... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 17
Business.......................... 22
Management........................ 35
Related Party Transactions........ 46
Principal Stockholders............ 48
Description of Our Corporate
Structure and Capital Stock...... 50
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Our Certificate of
Incorporation and Bylaws.......... 53
Our Authorized and Issued Capital.. 55
Tax Considerations................. 56
Shares Eligible for Future Sale.... 64
Underwriting....................... 66
Legal Matters...................... 69
Experts............................ 69
Where You Can Find More
Information....................... 69
Additional Information for the
Alternative Investment Market..... 70
Index to Financial Statements...... F-1
Appendix: Independent Expert's
Report............................ A-1
</TABLE>

(i)
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PROSPECTUS SUMMARY

This summary highlights what we consider to be the most important features
of this offering and the information contained elsewhere in this prospectus. To
understand this offering and our business fully, you should carefully read the
entire prospectus including the risk factors beginning on page 5 and the
financial statements. Unless otherwise indicated, all share, per share and
financial information in this prospectus gives effect to a common stock
dividend of one share for each two shares held by a stockholder as of July 15,
2000, which will take effect on the closing of this offering.

Our Business

We use data discovered through the mapping of the human genome to generate
drug candidates that target the regulation of protein kinases. Protein kinases
play a key role in the way cells communicate. We believe that our approach to
drug design allows us to discover more drug candidates in less time and with
lower levels of toxicity than our competitors. Our KinAce platform has produced
13 lead compounds, eight of which have already produced positive results in
animal (in vivo) tests. In addition to developing drug candidates with our
KinAce platform, we have obtained a license for sulodexide (KRX-101) and are
developing it for the treatment of a kidney disease known as diabetic
nephropathy. To date, none of our drug candidates has received approval for
sale in any market.

KinAce Drug Discovery Platform

When protein kinases give an inappropriate signal, the result is often a
disease or other unwanted medical condition. Our KinAce platform uses a
computer program that seeks out unique regulatory regions within each kinase.
Once this regulatory region is identified, we can duplicate it to form the
basis of a compound that can potentially inhibit or stimulate the activity of
that kinase. To date, by targeting specific portions of protein kinases, our
approach has produced 13 lead drug compounds. It has taken us an average of
approximately four months to develop a drug candidate from concept to in vivo
testing.

We expect to file an application to begin human clinical trials in Israel
for our first KinAce compound, KRX-123 for hormone-resistant prostate cancer,
in 2000. We believe hormone-resistant prostate cancer, for which there is
currently no curative treatment, represents a potential market in excess of
$450 million. We are developing our 12 other KinAce compounds through a
combination of in-house efforts and research and development agreements with
others. We recently entered into research and development agreements relating
to five of these compounds with third parties including the National Institutes
of Health, or NIH, Novo Nordisk A/S and Osteotech Inc.

KRX-101

In addition to our KinAce platform, we have obtained a license to develop
sulodexide (KRX-101) to treat diabetic nephropathy and other conditions.
Sulodexide is a drug that has been sold in Europe for many years by our
licensor for other medical conditions and has a well-established safety
profile. We have filed an application with the FDA to begin clinical trials in
2000 of KRX-101 to treat Type II diabetic nephropathy. This application
contains data from a 200-person clinical trial for this condition conducted in
Europe by the licensor. We have requested expedited FDA review, known as "fast
track" review, for KRX-101 on the basis that it satisfies an unmet medical need
for a life-threatening condition. We estimate that the potential annual market
for KRX-101 is in excess of $800 million. In addition, we believe that KRX-101
has significant potential to treat other diseases.

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Our Strategy

We intend to:

. advance KRX-101 into clinical trials for diabetic nephropathy and pursue
its use to treat additional diseases;

. complete pre-clinical development of KRX-123 for hormone-resistant
prostate cancer and file an application to enter clinical trials in
Israel for this drug candidate in 2000;

. use our KinAce platform to generate new drug candidates for a variety of
conditions, such as cancer and metabolic, cardiovascular, immunological
and neurological diseases;

. develop our drug candidates internally or license them to others based on
an assessment of clinical and financial resources; and

. further develop and expand our relationships with corporate collaborators
for the development, marketing and distribution of our drug candidates.

Corporate Information

We are a Delaware corporation. Although we started operating our business in
November 1999, many of our principal technologies and drug candidates were
developed by our predecessor company, Partec Ltd., and its subsidiaries during
the period from January 1997 until November 1999. Consequently, in this
prospectus, "we," "us" and "our" refer to Keryx Biopharmaceuticals, Inc., its
predecessor company and their respective subsidiaries unless the context
requires otherwise. Our registered office is at 1013 Centre Road, Wilmington,
Delaware 19805. Our executive offices are located at Kiryat Mada 5, Har
Hotzvim, Jerusalem, Israel 91326. Our telephone number is +972-2-537-4997. Our
e-mail address is [email protected].

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The Offering

<TABLE>
<C> <S>
Common stock offered by us................... 4,600,000 shares(1)

Common stock outstanding after the offering.. 18,823,268 shares(1)(2)(3)

Use of proceeds.............................. To fund clinical trials for
KRX-101 and KRX-123; to fund
the discovery and further
development of compounds using
our KinAce platform; and to use
as working capital and for
general corporate purposes.

Proposed Nasdaq National Market symbol....... KERX

Proposed Alternative Investment
Market symbol............................... KRX
</TABLE>

Unless otherwise indicated, the information included in this prospectus
gives effect to a 3-for-2 common stock dividend to be completed prior to the
effectiveness of this offering.
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(1) Excludes a 30-day option granted to the underwriters to purchase up to
690,000 additional shares of common stock to cover over-allotments, if
any.
(2) Excludes 8,685,000 shares of common stock that are reserved for issuance
under our stock option plans and 1,034,922 shares of common stock that
are reserved for issuance under various warrants and non-plan options
previously granted. On May 31, 2000 there was an aggregate of 4,387,032
options and 794,922 warrants outstanding at a weighted average exercise
price of $0.14 per share.
(3) Includes 6,114,962 shares of common stock that will be issued immediately
prior to the offering upon conversion of our outstanding shares of Series
A convertible preferred stock.

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Summary Consolidated Financial Information

This table summarizes our statements of operations data and our balance
sheet data. The as-adjusted balance sheet data reflects the sale of 4,600,000
shares of our common stock in this offering at a public offering price of
$10.00 per share, after deducting the estimated underwriting discount and
offering expenses, and the mandatory conversion of all of our outstanding
shares of convertible preferred stock.

<TABLE>
<CAPTION>
Three Months Ended
March 31,
Years Ended December 31, (unaudited)
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(As restated)
1997 1998 1999 1999 2000
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(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue from management
fees....................... $ 233 $ 66 $ -- $ -- $ --
Expenses:
Research and development .. 569 1,407 6,923 414 1,401
General and administrative
.......................... 525 1,011 1,813 263 1,094
------- -------- -------- ------ -------
Total operating expenses.. 1,094 2,418 8,736 677 2,495
------- -------- -------- ------ -------
Operating loss.............. (861) (2,352) (8,736) (677) (2,495)
Financing
income/(expenses).......... (11) (157) (257) (10) 55
------- -------- -------- ------ -------
Net loss before taxes on
income..................... (872) (2,509) (8,993) (687) (2,440)
======= ======== ======== ====== =======
Net loss.................... $ (882) $ (2,539) $ (9,003) $ (687) $(2,467)
======= ======== ======== ====== =======
Basic and diluted net loss
per share.................. $ (0.11) $ (0.31) $ (1.11) $(0.08) $ (0.30)
======= ======== ======== ====== =======
</TABLE>

<TABLE>
<CAPTION>
As of
March 31, 2000
(unaudited)
------------------
Actual As Adjusted
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(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................... $6,551 $47,831
Working capital.............................................. 6,469 47,749
Total assets................................................. 7,607 48,887
Long-term obligations........................................ 129 129
Total stockholders' equity................................... 7,073 48,353
</TABLE>

See notes to our financial statements for explanations of the determination
of the number of shares used in computing per share data and the inclusion of
data with respect to our predecessor company for the periods indicated.

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RISK FACTORS

An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. If any of the following risks actually occur, our business could be
materially harmed.

Risks Related to Our Business

We have a limited operating history and have incurred operating losses since
our inception. We expect to incur losses in the future, and we may never become
profitable.

We have a limited operating history. You should consider our prospects in
light of the risks and difficulties frequently encountered by early stage
companies. In addition, we have incurred operating losses since our inception
and expect to incur operating losses for the foreseeable future. As of March
31, 2000, we had an accumulated deficit of approximately $15 million. We expect
to expand our research and development efforts significantly, which will result
in increasing losses. We may continue to incur substantial operating losses
even if we begin to generate revenues from our drug candidates or technologies.

We have not yet commercialized any products or technologies, and we cannot
be sure that we will ever be able to do so. Even if we commercialize one or
more of our drug candidates or technologies, we may not become profitable. Our
ability to achieve profitability depends on a number of factors, including our
ability to complete our development efforts, to obtain regulatory approval for
our drug candidates and to successfully commercialize our drug candidates and
technologies.

Our drug discovery methods are unproven and may not lead to commercially viable
drugs.

There is limited scientific understanding of protein kinase regulation and
its role in complex diseases. Our drug discovery efforts are focused on a
number of protein kinases whose functions have not yet been fully identified.
As a result, the safety and effectiveness of our KinAce drug candidates have
not yet been established, and our research and development activities may not
result in commercially viable products. In addition, because the compounds we
develop with our KinAce platform are made up of small peptides, we may be
unable to produce drugs that can be taken orally. If we are unable to formulate
an effective way to deliver our KinAce compounds, we may be unable to market
these drug candidates. To date, we believe that only one product based on
protein kinase regulation has been commercialized.

Our drug candidates are in early stages of development and may never receive
necessary regulatory approvals.

Our drug candidates are in early stages of development. We have not received
regulatory approval for clinical trials for any of these drug candidates. We
will need to conduct significant additional research and human testing before
we can apply for product approval with the Food and Drug Administration, or
FDA, or with regulatory authorities of other countries. Pre-clinical testing
and clinical development are long, expensive and uncertain processes.
Satisfaction of regulatory requirements typically depends on the nature,
complexity and novelty of the product and requires the expenditure of
substantial resources. Data obtained from pre-clinical and clinical tests can
be interpreted in different ways, which could delay, limit or prevent
regulatory approval. It may take us many years to complete the testing of our
drug candidates, and failure can occur at any stage of this process. Negative
or inconclusive results or medical events during a clinical trial could cause
us to delay or terminate our development efforts.

Clinical trials also have a high risk of failure. A number of companies in
the pharmaceutical industry, including biotechnology companies, have suffered
significant setbacks in advanced clinical trials, even after achieving
promising results in earlier trials. If we experience delays in the testing or

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approval process or if we need to perform more or larger clinical trials than
originally planned, our financial results and the commercial prospects for our
drug candidates may be impaired. In addition, we have limited experience in
conducting and managing the clinical trials necessary to obtain regulatory
approval in the United States and abroad and, accordingly, may encounter
unforeseen problems and delays in the approval process.

Recently we submitted an Investigational New Drug (IND) application for our
KRX-101 drug candidate for the treatment of a complication of Type II diabetes
known as diabetic nephropathy (a type of kidney disease). However, we do not
know whether the FDA or regulatory authorities of other countries will allow us
to commence clinicals trials for this drug candidate. Our IND proposes a
reduction in the albumin excretion rate as a measure of the effectiveness of
the drug (a clinical endpoint). In the past, the FDA has rejected this endpoint
as a sufficient basis for approval. If the FDA does not accept our proposed
endpoint for KRX-101 trials, we will need to resort to a combined clinical
endpoint, which would significantly delay commercialization and significantly
increase our costs. The commercialization of KRX-101 will also be delayed if we
do not receive FDA "fast track" review of our IND application or if the FDA
requires us to expand the size and/or scope of our clinical trials. In
addition, we need to obtain additional pre-clinical data on our KRX-123 drug
candidate before we can submit an application to conduct clinical trials in
Israel for treatment of hormone-resistant prostate cancer. If we do not receive
approval to conduct clinical trials for KRX-101 or KRX-123, or if approval is
delayed, we will be unable to carry out our present business strategy.

Because we license our primary proprietary technologies, termination of these
agreements would prevent us from developing our lead drug candidates.

We do not own the proprietary technologies underlying KRX-101 and our KinAce
platform. We have licensed these technologies from others. These license
agreements require us to meet development and financing milestones. In
addition, under these agreements we must pay royalties on sales of products
resulting from licensed technologies and pay the patent filing, prosecution and
maintenance costs related to the licenses. If we do not meet our obligations in
a timely manner or otherwise breach the terms of our agreements, our licensors
could terminate the agreements, and we would lose the rights to KRX-101 and our
KinAce technology.

Because we rely on a sponsored research agreement with a third party,
termination of this agreement would delay the development of our drug
candidates.

We do not currently have our own laboratory facilities and depend on Yissum
Research Development Company of the Hebrew University of Jerusalem, referred to
in this prospectus as Yissum, to conduct research for our KinAce project. Under
our research agreement, we must pay quarterly research fees and make other
payments to Yissum. This agreement expires in November 2001. If we fail to make
these payments, Yissum could terminate the research agreement. If the agreement
is terminated and we are unable to quickly replace Yissum with another
qualified research laboratory, our research would be delayed and we may be
unable to complete development of or commercialize our drug candidates as
planned or at all.

If we are unable to adequately protect our intellectual property, third parties
may be able to use our technology, which could adversely affect our ability to
compete in the market.

Our commercial success will depend in part on our ability and the ability of
our licensors to obtain and maintain patent protection on our drug products and
technologies and successfully defend these patents and technologies against
third-party challenges. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, the patents we use
may not be sufficiently broad to prevent others from practicing our
technologies or from developing competing products. Furthermore, others may

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independently develop similar or alternative technologies or design around our
patented technologies. The patents we use may be challenged, invalidated or
fail to provide us with any competitive advantage.

We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require our employees, collaborators and
consultants to enter into confidentiality agreements, this may not be
sufficient to adequately protect our trade secrets or other proprietary
information. In addition, we share ownership and publication rights to data
relating to some of our drug candidates with our research collaborators and
scientific advisors. If we cannot maintain the confidentiality of this
information, our ability to receive patent protection or protect our
proprietary information will be at risk.

Litigation or third-party claims of intellectual property infringement could
require us to spend substantial time and money and adversely affect our
ability to develop and commercialize products.

Third parties may assert that we are using their proprietary technology
without authorization. In addition, third parties may have or obtain patents
in the future and claim that our technologies infringe their patents. If we
are required to defend against patent suits brought by third parties, or if we
sue to protect our patent rights, we may be required to pay substantial
litigation costs, and our management's attention may be diverted from
operating our business. In addition, any legal action against our licensors or
us that seeks damages or an injunction of our commercial activities relating
to the affected technologies could subject us to monetary liability and
require our licensors or us to obtain a license to continue to use the
affected technologies. We cannot predict whether we or our licensors would
prevail in any of these types of actions or that any required license would be
made available on commercially acceptable terms, if at all.

If we lose our key personnel or are unable to attract and retain additional
personnel, our operations would be disrupted and our business would be harmed.

We have 10 employees and 27 persons working under sponsored research
agreements or consulting agreements. To successfully develop our drug
candidates, we must be able to attract and retain highly skilled scientists
and clinical development personnel. In addition, if we lose the services of
our current personnel, in particular, Dr. Morris Laster, our Chief Executive
Officer, or Professor Shmuel Ben-Sasson, the Chief Scientist of our KinAce
project, our ability to continue to develop our lead drug candidates will be
materially impaired. We have purchased a $2.0 million keyman life insurance
policy covering each of Dr. Laster and Dr. Ben-Sasson. This amount may not be
sufficient to compensate us for the loss of either of their services. We have
employment agreements with some of our key executives and a consulting
agreement with Dr. Ben-Sasson; however, these agreements would not prevent any
of them from terminating their employment with us.

If we do not establish drug development, manufacturing and marketing
arrangements with third parties, we may be unable to commercialize our
technologies into products.

A key part of our strategy is to establish drug development collaboration
arrangements with third parties and enter into manufacturing and marketing
arrangements with third parties. We are a young company and do not possess
these capabilities on our own. We must successfully contract with third
parties to:

. assist us in developing, testing, obtaining regulatory approval for and
commercializing some of our compounds and technologies;

. manufacture our drug candidates; and

. market and distribute our drug candidates.

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If we are unable to successfully contract with third parties for these
services, or if existing arrangements for these services are terminated,
whether or not through our actions, we may have to delay, scale back or end one
or more of our drug development programs.

If our competitors develop and market products that are more effective than
ours, our commercial opportunity may be reduced or eliminated.

Our commercial opportunity will be reduced or eliminated if our competitors
develop and market products that are more effective, have fewer side effects or
are less expensive than our drug candidates. Other companies have products or
drug candidates in various stages of pre-clinical or clinical development to
treat diseases for which we are seeking to discover and develop drug
candidates. Some of these potential competing drugs are further advanced in
development than our drug candidates and may be commercialized earlier. Even if
we are successful in developing effective drugs, our products may not compete
successfully with products produced by our competitors.

Our competitors include pharmaceutical companies and biotechnology
companies, as well as universities and public and private research
institutions. In addition, companies active in different but related fields
represent substantial competition for us. Many of our competitors have
significantly greater capital resources, larger research and development staffs
and facilities and greater experience in drug development, regulation,
manufacturing and marketing than we do. These organizations also compete with
us to recruit qualified personnel, attract partners for joint ventures or other
collaborations, and license technologies that are competitive with ours. As a
result, our competitors may be able to more easily develop technologies and
products that would render our technologies or our drug candidates obsolete or
noncompetitive.

Because our principal operations are located in Israel, any significant
political, economic or military instability in the region could materially
disrupt our business.

Although we are incorporated in the State of Delaware, we maintain our
principal offices and our research and development activities in the State of
Israel. Currently, almost all of our personnel are located in Israel. Our
business may be disrupted by political, economic and military conditions
affecting Israel and other risks that are inherent in international business.
These include:

. political and economic instability;

. the difficulty of administering business abroad;

. the need to comply with export laws, tariff regulations and regulatory
requirements;

. currency fluctuations; and

. the obligation of male residents of Israel, including some of our
employees, to perform annual military reserve duty and possibly to be
called to active duty under emergency circumstances.

Risks Related to This Offering

If we are unable to obtain additional funds on terms favorable to us, or at
all, our business would be harmed.

Based on our current plans, we believe our existing cash and cash
equivalents, together with the net proceeds of this offering, will be
sufficient to fund our operating expenses and capital requirements for at least
the next 24 months. However, the actual amount of funds that we will need

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during or after the next 24 months will be determined by many factors, some of
which are beyond our control. As a result, we may need funds sooner than we
currently anticipate. These factors include:

. the progress of our research activities;

. the number and scope of our research programs;

. the progress of our pre-clinical and clinical development activities;

. the progress of the development efforts of parties with whom we have
entered into research and development agreements;

. our ability to establish and maintain current and new research and
development and licensing arrangements;

. our ability to achieve our milestones under licensing arrangements;

. the costs involved in enforcing patent claims and other intellectual
property rights; and

. the costs and timing of regulatory approvals.

If our capital resources are insufficient to meet future capital
requirements, we will have to raise additional funds. If we are unable to
obtain additional funds on terms favorable to us, we may be required to cease
or reduce our operating activities or sell or license to third parties some or
all of our technology. If we raise additional funds by selling additional
shares of our capital stock, the ownership interests of our stockholders will
be diluted. If we raise additional funds through the sale or license of our
technology, we may be unable to do so on terms favorable to us.

Concentration of ownership of our common stock among our existing executive
officers, directors and principal stockholders may prevent new investors from
influencing significant corporate decisions.

Upon completion of this offering, our executive officers, directors and
principal stockholders (including their affiliates) will, in the aggregate,
beneficially own approximately 45% of our outstanding common stock, or 43% if
the underwriters' over-allotment option is exercised in full. As a result,
these persons, acting together, will have the ability to effectively determine
the outcome of all matters submitted to our stockholders for approval,
including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets. In addition, such persons,
acting together, will have the ability to effectively control our management
and affairs. Accordingly, this concentration of ownership may harm the market
price of our common stock by discouraging a potential acquiror from attempting
to acquire our company.

You may not be able to resell your shares at or above the initial offering
price.

An active trading market for our common stock may not develop following this
offering. As a result, you may not be able to sell your shares quickly or at
the market price. The initial public offering price will be determined by
negotiations between us and the Global Coordinators based upon a number of
factors. The initial public offering price may not be indicative of prices that
will prevail in the trading market.

Our stock price could be volatile and your investment could decline in value.

The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:

. developments concerning our drug candidates;

. announcements of technological innovations by us or our competitors;

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. new products introduced or announced by us or our competitors;

. changes in financial estimates by securities analysts;

. actual or anticipated variations in quarterly operating results;

. expiration or termination of licenses, research contracts or other
collaboration agreements;

. conditions or trends in the regulatory climate and the biotechnology,
pharmaceutical and genomics industries;

. changes in the market valuations of similar companies;

. additions or departures of key personnel; and

. sales of our common stock.

In addition, equity markets in general, and the market for biotechnology and
life sciences companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of companies traded in those markets. These broad market
and industry factors may materially affect the market price of our common
stock, regardless of our development and operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against that
company. Such litigation, if instituted against us, could cause us to incur
substantial costs and divert management's attention and resources, which could
seriously harm our business.

Future sales of our common stock could cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market after
this offering could seriously harm prevailing market prices for our common
stock. These sales may make it difficult for us to sell additional securities
when we need to raise capital.

There will be 18,823,268 shares of common stock outstanding immediately
following the offering, assuming the underwriters do not exercise their over-
allotment option. The following will be available for sale in the public
market:

. other than the 4,600,000 shares offered hereby, no shares will be
eligible for sale upon completion of this offering;

. 1,520,635 shares will be eligible for sale at various times 110 days
after the date of this prospectus;

. 5,322,980 shares will be eligible for sale upon the expiration of lock-
up agreements, beginning 180 days after the date of this prospectus;
and

. 7,379,653 shares will be eligible for sale upon the expiration of lock-
up agreements, beginning one year after the date of this prospectus.

Anti-takeover provisions in our charter documents and Delaware law could make a
third-party acquisition of us difficult. This could limit the price investors
might be willing to pay in the future for our common stock.

Provisions in our certificate of incorporation and 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, or control us. These
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Our certificate of incorporation
allows us to issue preferred stock with rights senior to those of the common
stock without any further vote or action by the

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stockholders and our bylaws eliminate the right of stockholders to call a
special meeting of stockholders, which could make it more difficult for
stockholders to effect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of our common stock or could adversely affect the
rights and powers, including voting rights, of such holders. In certain
circumstances, such issuance could have the effect of decreasing the market
price of our common stock.

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FORWARD-LOOKING STATEMENTS

Some statements contained in this prospectus are forward-looking statements
concerning our operations, economic performance and financial condition. These
forward-looking statements are included, for example, in the discussions about:

. our strategy;

. our need for additional capital in the future;

. revenues we may earn from collaborations;

. product development;

. our research and development and other expenses; and

. our operational and legal risks.

These statements involve risks and uncertainties. Actual results may differ
materially from those expressed or implied in these statements. Factors that
could cause these differences include, but are not limited to, those discussed
under "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

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

This prospectus contains trademarks and trade names of Keryx
Biopharmaceuticals, Inc., including our name and logo, and the KinAce mark.

12
<PAGE>

USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of 4,600,000
shares of common stock offered through this prospectus (after deducting
underwriting discounts and commissions and estimated offering expenses) of
$41.3 million (or $47.7 million if the underwriters exercise their over-
allotment option in full). We intend to use the net proceeds of this offering
as follows:

. approximately $11.8 million to fund clinical trials for KRX-101 for
diabetic nephropathy;

. approximately $2.7 million to fund clinical trials for KRX-123 for
hormone-resistant prostate cancer;

. approximately $14.8 million to fund expansion of our KinAce platform and
to further develop the compounds we have generated with it; and

. approximately $12.0 million to use as working capital and for general
corporate purposes.

The timing and amounts of our actual expenditures will depend on several
factors, including the timing of our entry into collaboration agreements, the
progress of our clinical trials, the progress of our research and development
programs, the results of other pre-clinical and clinical studies and the timing
and costs of regulatory approvals.

Until we use the net proceeds, we intend to invest the funds in short-term,
investment-grade, interest-bearing instruments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We do
not anticipate paying any cash dividends for the foreseeable future. The
declaration of dividends is subject to the discretion of our board of directors
and will take into account such matters as general business conditions, our
financial results, capital requirements, contractual, legal and regulatory
restrictions and such other factors as our board may deem relevant.

13
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

. on an actual basis;

. on a pro forma basis to give effect to the mandatory conversion of all
of our outstanding shares of convertible preferred stock into 6,114,962
shares of common stock upon the completion of the offering; and

. on a pro forma adjusted basis to reflect (i) the sale of 4,600,000
shares of our common stock in this offering at a public offering price
of $10.00 per share, after deducting the estimated underwriting
discount, commissions and offering expenses; and (ii) the mandatory
conversion of all of our outstanding shares of convertible preferred
stock into 6,114,962 shares of common stock upon the completion of the
offering.

The information set forth below is unaudited and should be read in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of March 31, 2000
(unaudited)
(As restated)
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted(1)
------------ ----------- --------------
<S> <C> <C> <C>
Long-term obligations................ $ 129,160 $ 129,160 $ 129,160
------------ ----------- ------------
Stockholders' equity:
Preferred stock, $0.001 par value;
4,830,000 shares authorized, none
issued and outstanding, actual;
none issued and outstanding, pro
forma and pro forma as adjusted... -- -- --
Series A convertible preferred
stock; $0.001 par value, 170,000
shares authorized, 118,645 issued
and outstanding, actual; none
issued and outstanding, pro forma
and pro forma as adjusted......... 118 -- --
Common stock, $0.001 par value;
20,000,000 shares authorized,
8,108,306 issued and outstanding,
actual; 40,000,000 shares
authorized, 14,223,268 issued and
outstanding, pro forma, 40,000,000
shares authorized and 18,823,268
issued and outstanding, pro forma
as adjusted....................... 1,208 7,323 11,923
Additional paid-in capital......... 30,198,108 30,192,111 71,467,511
Deferred stock option
compensation...................... (8,235,691) (8,235,691) (8,235,691)
Accumulated deficit................ (14,890,736) (14,890,736) (14,890,736)
------------ ----------- ------------
Total stockholders' equity........... 7,073,007 7,073,007 48,353,007
------------ ----------- ------------
Total capitalization................. $ 7,202,167 $ 7,202,167 $ 48,482,167
============ =========== ============
</TABLE>
--------
(1) The number of shares as adjusted for this offering assumes no exercise of
stock options and warrants outstanding as of March 31, 2000. As of March
31, 2000, there were 4,387,032 shares of common stock issuable upon
conversion of outstanding stock options at a weighted average exercise
price of $0.12 per share and 794,922 shares of common stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$0.29 per share.

14
<PAGE>

DILUTION

The net tangible book value of our common stock as of March 31, 2000 was
$6.7 million, or $0.47 per share. After giving effect to our sale of 4,600,000
shares of common stock in this public offering at a public offering price of
$10.00 per share, assuming that the underwriters' over-allotment option is not
exercised, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses, the adjusted net tangible book
value as of March 31, 2000, would have been $48.0 million, or $2.55 per share.
Net tangible book value per share before this offering has been determined by
dividing net tangible book value (total tangible assets less total liabilities)
by the number of shares of common stock outstanding as of March 31, 2000,
adjusted to give effect to shares that will be issued in a common stock
dividend of one share for each two shares held by a stockholder as of July 15,
2000 which will take effect on the closing of this offering. This offering will
result in an immediate increase in net tangible book value per share of $2.08
to existing stockholders and an immediate dilution per share of $7.45 to new
investors. Dilution is determined by subtracting net tangible book value per
share after this offering from the public offering price of $10.00 per share.
The following table illustrates this dilution:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Public offering price...................................... $10.00
Net tangible book value per share prior to conversion..... $0.83
Effect of conversion of 6,114,962 shares that will be
issued immediately prior to the offering upon conversion
of our outstanding shares of Series A convertible
preferred stock.......................................... (0.36)
-----
Net tangible book value per share at March 31, 2000....... 0.47
Increase per share attributable to offering............... 2.08
----
Net tangible book value per share after this offering...... 2.55
------
Dilution .................................................. $ 7.45
======
</TABLE>

If the underwriters' over-allotment option is exercised in full, the net
tangible book value per share after the offering would be $2.79 per share, the
increase in net tangible book value per share to existing stockholders would be
$2.32 per share and the dilution in net tangible book value to new investors
would be $7.21 per share.

The following table summarizes, as of March 31, 2000, the differences
between the total consideration paid to us and the average price per share paid
by the existing stockholders and the new investors purchasing common stock in
this offering, based on a public offering price of $10.00 per share:

<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 14,223,268 75.6% $14,606,995 24.1% $ 1.03
New investors.................... 4,600,000 24.4 46,000,000 75.9% 10.00
---------- ----- ----------- -----
Total.......................... 18,823,268 100.0% $60,606,995 100.0%
========== ===== =========== =====
</TABLE>

These tables assume no exercise of stock options and warrants outstanding as
of March 31, 2000. As of March 31, 2000, there were 4,387,032 shares of common
stock issuable upon exercise of outstanding stock options at a weighted average
exercise price of $0.12 per share and 794,922 shares of common stock issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$0.29 per share.

15
<PAGE>

SELECTED FINANCIAL DATA

The statements of operations data for the years ended December 31, 1997,
1998 and 1999, and the balance sheet data as of December 31, 1997, 1998 and
1999, have been derived from our audited financial statements included
elsewhere in this prospectus, which have been audited by Somekh Chaikin, a
member firm of KPMG International, independent auditors. The statements of
operations data for the three months ended March 31, 1999 and 2000, and the
balance sheet data as of March 31, 2000, have been derived from our unaudited
financial statements included elsewhere in this prospectus. Historical results
are not necessarily indicative of future results. The data presented below have
been extracted from our financial statements that have been prepared in
accordance with generally accepted accounting principles and should be read
with our financial statements, including the notes, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December March 31,
31, (unaudited)
------------------------ --------------------
(As restated
see below)
1997 1998 1999 1999 2000
------ ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Statements of Operations
Data:
Revenue from management
fees...................... $ 233 $ 66 $ -- $ -- $ --
Expenses:
Research and development.. 569 1,407 6,923 414 1,401
General and
administrative............ 525 1,011 1,813 263 1,094
------ ------- ------- ------ -------
Total operating
expenses.................. 1,094 2,418 8,736 677 2,495
------ ------- ------- ------ -------
Operating loss............. (861) (2,352) (8,736) (677) (2,495)
Financing
income/(expenses)......... (11) (157) (257) (10) 55
------ ------- ------- ------ -------
Net loss before taxes on
income.................... (872) (2,509) (8,993) (687) (2,440)
====== ======= ======= ====== =======
Net loss................... $ (882) $(2,539) $(9,003) $ (687) $(2,467)
====== ======= ======= ====== =======
Basic and diluted net loss
per share................. $(0.11) $ (0.31) $ (1.11) $(0.08) $ (0.30)
====== ======= ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
As
of March 31, 2000
As of December 31, (unaudited)
-------------------- ------------------
1997 1998 1999 Actual As Adjusted
----- ----- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data:
Cash and cash equivalents............... $ 647 $ 128 $4,127 $6,551 $47,831
Working capital......................... 35 (157) 3,984 6,469 47,749
Total assets............................ 832 620 4,948 7,607 48,887
Long-term obligations................... 1,028 527 118 129 129
Total stockholders' equity.............. (882) (241) 4,436 7,073 48,353
</TABLE>

The Company's previously issued unaudited interim financial statements as of
and for the three- month period ended March 31, 2000 have been restated. The
Company increased its original estimate of the market value of certain issued
options and warrants after evaluating certain additional information.
Accordingly, the Company recorded an additional non-cash charge for
compensation expenses (classified as an operating expense) of $627,873 for the
three-month period ended March 31, 2000. The change also had the effect of
increasing the Company's net loss by the same amount and its basic and diluted
net loss per common share by $0.07 for the same period.

The as adjusted balance sheet data reflects the sale of 4,600,000 shares of
our common stock in this offering at a public offering price of $10.00 per
share, after deducting the estimated underwriting discount and offering
expenses, and the mandatory conversion of all of our outstanding shares of
convertible preferred stock.

16
<PAGE>

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

The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this prospectus. This
discussion includes forward-looking statements that involve risks and
uncertainties. As a result of many factors, such as those set forth under "Risk
Factors" and elsewhere in this prospectus, our actual results may differ
materially from those anticipated in these forward-looking statements.

General

We were incorporated as a Delaware corporation in October 1998. We commenced
operations in November 1999, following our acquisition of substantially all of
the assets and certain liabilities of Partec Ltd., a company under common
control. Consequently, our financial statements for previous periods include
the activities of Partec by aggregating its financial information with our
financial statements, as if it had formed a discrete operation under common
management. From January 1997 until November 1999, Partec focused its drug
discovery and development operations on obtaining the technology rights to the
KinAce platform and on generating 6 of the 13 lead compounds we are currently
developing. Partec had four subsidiaries, SignalSite, Inc. (85% owned) and its
wholly owned subsidiary, SignalSite Israel Ltd., and Vectagen, Inc. (87.25%
owned) and its wholly owned subsidiary, Vectagen Israel Ltd.

Since commencing operations, our activities have been primarily devoted to
developing our technologies as well as business development, raising capital,
purchasing assets and recruiting personnel. We are a development stage company
and have no product sales to date. Our major sources of working capital have
been proceeds from various private financings. We have a 100% wholly-owned
subsidiary, Keryx (Israel) Limited, which engages in research and development
activities and administrative functions in Israel.

Research and development expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers for
laboratory development, legal expenses resulting from intellectual property
prosecution and organizational affairs and other expenses relating to the
design, development, testing, and enhancement of our product candidates. We
expense our research and development costs as they are incurred.

General and administrative expenses consist primarily of salaries and
related expenses for executive, finance and other administrative personnel,
recruitment expenses, professional fees and other corporate expenses, including
business development and general legal activities.

Our results include non-cash compensation expense as a result of the
issuance of stock and stock option grants. Compensation expense for options
granted to employees represents the difference between the fair value of our
common stock and the exercise price of the options at the date of grant. We
account for stock-based employee compensation arrangements in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and comply with the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." Compensation for options granted to consultants has been
determined in accordance with SFAS No. 123 as the fair value of the equity
instruments issued. APB Opinion No. 25 has been applied in accounting for fixed
and milestone-based stock options to employees and directors as allowed by SFAS
No. 123. This amount is being recorded over the respective vesting periods of
the individual stock options. The expense is included in the respective
categories of expense in the statement of operations. We expect to record
additional non-cash compensation expense in the future, which may be
significant. However, because some of the options are milestone-based, the
total expense is uncertain.

17
<PAGE>

Results of Operations

Three Months Ended March 31, 2000 and 1999

Revenues. We are a development stage company and have not had revenues from
our planned principal operations.

Research and Development Expenses. Research and development expenses
increased by $987,000 to $1,401,000 for the quarter ended March 31, 2000 as
compared to $414,000 for the quarter ended March 31, 1999. This increase was
primarily attributable to non-cash compensation expense of $529,000 related to
stock options for the quarter ended March 31, 2000, as well as to the expansion
of our existing research and development activities during the period. We
expect our research and development costs to increase significantly over the
next several years as we expand our research and product development efforts
and implement our business strategy.

General and Administrative Expenses. General and administrative expenses
increased by $831,000 to $1,094,000 for the quarter ended March 31, 2000 as
compared to $263,000 for the quarter ended March 31, 1999. This increase was
primarily attributable to non-cash compensation expense of $814,000 related to
stock options for the quarter ended March 31, 2000, and professional advisor
fees aggregating $126,000. We expect general and administrative expenses to
continue to increase over the next several years as we implement our business
strategy and commercialize our products.

Income Taxes. Most of our operating losses are attributable to our
predecessor company and stock-based compensation, and accordingly, as of March
31, 2000, we had a minimal net operating loss carryforward for US federal
income tax purposes. This loss carryforward is available to offset against
future federal taxable income, if any, and begins expiring in 2019. Our net
operating loss carryforward could significantly increase as a result of the
exercise of options granted to employees, consultants and directors. However,
utilization of net operating losses and credits in the US may be substantially
limited due to the change in ownership provisions of the Internal Revenue Code
of 1986 and similar state provisions. In addition, an annual limitation may
result in the expiration of net operating losses and credits before
utilization. Management believes that there is sufficient uncertainty regarding
the realization of deferred tax assets such that a full valuation allowance is
appropriate, and accordingly, no asset was recorded. Income tax expense
attributable to income from the continuing operations of our subsidiary in
Israel was $27,000 for the quarter ended March 31, 2000.

Years Ended December 31, 1999 and 1998

Revenue. We did not have any revenues for the year ended December 31, 1999
and had insignificant revenues for the year ended December 31, 1998. The
revenues received in 1998 were in the form of management fees generated from
formerly affiliated companies. We no longer have management fee arrangements.

Research and Development Expenses. Research and development expenses
increased by $5,516,000 to $6,923,000 for the year ended December 31, 1999 as
compared to $1,407,000 in 1998. This increase was primarily attributable to
non-cash compensation expense of $5,426,000 related to stock option grants in
1999.

General and Administrative Expenses. General and administrative expenses
increased by $801,000 to $1,812,000 for the year ended December 31, 1999 as
compared to general and administrative expenses of $1,011,000 in 1998. This
increase was primarily attributable to non-cash compensation expense of
$588,000 related to stock option grants in 1999.

18
<PAGE>

Income Taxes. We incurred a net operating loss for the year ended December
31, 1999 for US federal income tax purposes. The income tax expense
attributable to income from continuing operations related to our subsidiary and
predecessor company in Israel, and totalled $10,000 in 1999 and $30,000 in
1998.

Years Ended December 31, 1998 and 1997

Revenues. Revenues from management fees generated from formerly affiliated
companies decreased by $167,000 from $233,000 for the year ended December 31,
1997 to $66,000 for the year ended December 31, 1998. This decrease was due to
the cessation of our management activities in 1998.

Research and Development Expenses. Research and development expenses
increased by $838,000 to $1,407,000 for the year ended December 31, 1998 as
compared to $569,000 in 1997. This increase was due primarily to 12 months of
research and development activities in 1998 as compared to nine months in the
prior period.

General and Administrative Expenses. General and administrative expenses
increased by $486,000 to $1,011,000 for the year ended December 31, 1998 as
compared to $525,000 in 1997. This increase was due primarily to the hiring of
additional employees and increased professional fees in 1998 and 12 months of
operations as compared to nine months in the prior period.

Income Taxes. The income tax expense for the years ended December 31, 1998
and 1997, totalled $30,000 and $10,000, respectively, and was attributable to
the predecessor company in Israel.

Liquidity and Capital Resources

We have financed our operations from inception primarily through various
private financings. As of March 31, 2000, we had received gross proceeds of
$11.6 million from issuances of common and preferred stock and $3.2 million
through the contribution of notes by holders in our predecessor company.

As of March 31, 2000, we had $6.6 million in cash and cash equivalents. Cash
used in operating activities for the quarter ended March 31, 2000 was $1.2
million as compared to $0.8 million for the quarter ended March 31, 1999. This
increase was due primarily to increased losses associated with the expansion of
our business. Net cash used in investing activities was $0.2 million for the
quarter ended March 31, 2000, consisting primarily of prosecution of patent
applications and related capital expenditures.

In connection with research services provided to us, we are obligated to
make annual payments totaling $466,000 to Yissum until December 15, 2001. In
addition, in connection with our license agreement for KRX-101, we are
obligated to make milestone payments to Alfa Wassermann of up to $2,950,000 and
annual payments in the aggregate of up to $900,000.

Current and Future Financing Needs. We have incurred negative cash flow from
operations since we started our business. We have spent, and expect to continue
to spend, substantial amounts in connection with implementing our business
strategy, including our planned product development efforts, our clinical
trials, and our research and discovery efforts. Based on our current plans, we
believe that our cash and cash equivalents and net proceeds from this offering
will be sufficient to enable us to meet our planned operating needs for at
least the next 24 months. Over the next 24 months we expect to spend
approximately $14 million on clinical trials, $15 million on discovery research
(including $1.2 million in connection with sponsored research arrangements), $6
million on general corporate, $4 million on capital expenditures, $900,000 on
patents and $500,000 on facilities rent, including a four-year operating lease
obligation amounting to approximately $200,000. We expect to fund the $4
million estimated capital expenditures through financial leasing arrangements.

19
<PAGE>

However, the actual amount of funds we will need to operate is subject to many
factors, some of which are beyond our control.

These factors include the following:

. the progress of our research activities;

. the number and scope of our research programs;

. the progress of our pre-clinical and clinical development activities;

. the progress of the development efforts of parties with whom we have
entered into research and development agreements;

. our ability to maintain current research and development programs and to
establish new research and development and licensing arrangements;

. our ability to achieve our milestones under licensing arrangements;

. the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and

. the costs and timing of regulatory approvals.

We have based our estimate on assumptions that may prove to be wrong. We may
need to obtain additional funds sooner or in greater amounts than we currently
anticipate. Potential sources of financing include strategic relationships,
public or private sales of our shares or debt and other sources. We may seek to
access the public or private equity markets when conditions are favorable due
to our long-term capital requirements. We do not have any committed sources of
financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at all. If
we raise funds by selling additional shares of common stock or other securities
convertible into common stock, the ownership interest of our existing
stockholders will be diluted. If we are not able to obtain financing when
needed, we may be unable to carry out our business plan. As a result, we may
have to significantly limit our operations and our business, financial
condition and results of operations would be materially harmed.

Plan of Operation

Our plan of operation for the remainder of the year ending December 31, 2000
and for the first six months of 2001 is to begin to implement our business
strategy, including the clinical development of two of our compounds and to
further develop our KinAce platform. We expect our principal expenditures
during the next 18 months to include:

. operating expenses, including expanded research and development and
general and administrative expenses;

. product development expenses, including the costs incurred with respect
to applications to conduct clinical trials in Israel and the United
States for KRX-123, filing an IND application with the FDA for KRX-101
and the initiation of such clinical trials; and

. the cost of new laboratory and computer equipment and software.

As part of our planned expansion, we anticipate hiring additional scientific
and business development staff. In addition, we intend to use clinical research
organizations and third parties to perform our clinical studies and
manufacturing.

Financings

In February and April 1999, our predecessor company raised gross proceeds of
$2.7 million through the issuance of 12% convertible notes. These notes,
together with accrued interest of $253,000, were contributed to us in November
1999 in return for the issuance to the noteholders of 29,465 shares of Series A
convertible preferred stock and ten-year warrants to purchase 303,832 shares of
common stock at an exercise price of $0.0067 per share. The Series A
convertible preferred stock will automatically convert into shares of common
stock immediately prior to the closing of this offering at a ratio of 51.54
shares of common stock for each share of Series A preferred stock.

20
<PAGE>

During December 1999 and January 2000, we raised gross proceeds of $8.9
million through the sale of 89,180 shares of Series A preferred stock. The
Series A convertible preferred stock will automatically convert into shares of
common stock immediately prior to the closing of this offering at a ratio of
51.54 shares of common stock for each share of Series A preferred stock.

Impact of Inflation

The effects of inflation and changing prices on our operations were not
significant during the periods presented.

Recent Accounting Pronouncements

In April 1998, the Accounting Standards Executive Committee issued SOP 98-5
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs and requires
costs of start-up activities and organization costs to be expensed as they are
incurred.

The SOP broadly defines start-up activities as those one-time activities
related to opening a new facility, introducing a new product or service,
conducting business in a new territory, conducting business with a new class of
customers, initiating a new process in an existing facility, or commencing
certain new operations. Start-up activities include activities related to
organizing a new entity, known as organizational costs. We have adopted SOP 98-
5 and have determined that its impact on our financial position and results of
operations will not be material.

In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as
amended, establishes methods for valuing derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. We are required to adopt FAS No. 133 effective January 1, 2001.
Because we do not currently hold any derivative instruments and do not engage
in hedging activities, we do not currently believe that the adoption of FAS No.
133, as amended, will have a significant impact on our financial position,
results of operations or cash flow.

Disclosure About Market Risk

Interest Rate Risk. The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities
that we invest in may have market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate
at the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. We currently maintain
an investment portfolio of primarily money market investments and certificates
of deposits with maturities of less than 90 days. After the offering, we intend
to maintain our portfolio in cash equivalents and short-term, interest bearing
securities, including commercial paper, money market funds and government debt
securities. The average duration of all of our investments in 1999 was less
than one year. Due to the short-term nature of these investments, we believe we
have no material exposure to interest rate risk arising from our investments.
Therefore, no quantitative tabular disclosure is required.

Foreign Currency Rate Fluctuations. While our Israeli subsidiary primarily
operates in New Israel Shekels or NIS, most operating expenses and commitments
are linked to the US dollar. As a result, there is currently minimal exposure
to foreign currency rate fluctuations. Any foreign currency revenues and
expenses are translated using the daily average exchange rates prevailing
during the year and any transaction gains and losses are included in net
income. In the future, our subsidiary may enter into NIS-based commitments that
may expose us to foreign currency rate fluctuations. We may use hedging
instruments, including forward contracts, to minimize any foreign currency rate
fluctuation exposure. Any hedging transactions that we enter into may not
adequately protect us against currency rate fluctuations and may result in
losses to us.

21
<PAGE>

BUSINESS

Overview

Our Strategy

We intend to:

. advance KRX-101 into clinical trials for diabetic nephropathy and pursue
its use to treat additional diseases;

. complete pre-clinical development of KRX-123 for hormone-resistant
prostate cancer and file an application to enter clinical trials in
Israel for this drug candidate in 2000;

. use our KinAce platform to generate new drug candidates for a variety of
conditions, such as cancer and metabolic, cardiovascular, immunological
and neurological diseases;

. develop our drug candidates internally or license them to others based on
an assessment of clinical and financial resources; and

. further develop and expand our relationships with corporate collaborators
for the development, marketing and distribution of our drug candidates.

KRX-101

Overview

We have obtained a license to develop sulodexide (KRX-101) to treat diabetic
nephropathy and other conditions. Sulodexide is a drug that has been sold in
Europe for many years by our licensor for other medical conditions and has a
well-established safety profile. We have filed an application with the FDA to
begin clinical trials in 2000 of KRX-101 to treat nephropathy in Type II
diabetics. This application contains data from a 200-person clinical trial for
this condition conducted in Europe by the licensor. We have requested FDA fast
track review for KRX-101 on the basis that it satisfies an unmet medical need
for a life-threatening condition.

According to the American Diabetes Association (ADA) website, there are an
estimated 10.3 million diagnosed diabetics in the United States, of whom
approximately 90% have been diagnosed with Type II diabetes. Type II diabetes
results from the body's inability to properly use insulin as distinguished from
Type I diabetes, which results from the body's inability to manufacture
insulin. The ADA estimates that between 10 and 20% of diagnosed Type II
diabetics have nephropathy. These figures imply that between one and two
million diagnosed Type II diabetics in the United States have nephropathy.
Accordingly, we believe the potential annual market for KRX-101 for the
treatment of diabetic nephropathy is in excess of $800 million.

Scientific Background

Diabetes often damages the intricate system of delicate capillary loops
(glomeruli) in the human kidney. As these loops lose their structural
integrity, their ability to selectively filter the blood's contents diminishes
and protein, chiefly albumin, is lost into the urine, resulting in diabetic

22
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nephropathy. The presence of albumin in urine, known as albuminuria, causes
direct damage to other crucial kidney structures. This damage may eventually
result in kidney failure, which can be treated only by dialysis or kidney
transplantation.

KRX-101 repairs and maintains glomerular membranes, thus reducing protein
leakage, and directly inhibits the inflammation and scarring of structures
within the kidney. We believe these beneficial effects may delay or prevent
kidney failure resulting from diabetic nephropathy.

Development Status

There have been more than 20 studies published in leading medical journals
assessing the safety of KRX-101 in humans. KRX-101 has been administered to
more than 3,000 patients in clinical trials conducted in Europe for the
treatment of certain diabetic and non-diabetic conditions and, to our
knowledge, has not demonstrated any significant side effects for those uses.

Captopril is an ACE inhibitor that was approved by the FDA for Type I
diabetes with macroalbuminuria. However, the FDA has not approved the use of
ACE inhibitors for Type II diabetic nephropathy as clinical trials have not
conclusively demonstrated the beneficial effects of ACE inhibitors in this
patient population. In the absence of approved drugs for Type II diabetic
nephropathy, the ADA has recommended the use of ACE inhibitors for Type II
diabetic nephropathy. ACE inhibitors, however, are not as effective for
nephropathy of Type II diabetes as they are for nephropathy of Type I diabetes.
In addition, patients with Type II diabetes experience more frequent side
effects from ACE inhibitors than the general population.

The licensor of KRX-101 conducted the DiNAS study (diabetic nephropathy and
sulodexide) in 200 patients in Europe between 1996 and 1999. The trial was a
four-month dose response trial that showed a clear relationship between dosage
levels and reduction in albuminuria. This trial also demonstrated a reduction
in albuminuria in patients with Type II diabetes being treated with ACE
inhibitors. In June 2000, we filed an IND application with the FDA for
permission to conduct a clinical trial for Type II diabetic nephropathy. This
application contains data from the 200-person clinical trial for this condition
conducted by the licensor. We have also requested "fast track" review for KRX-
101 on the basis that there is currently no FDA-approved treatment for
nephropathy in Type II diabetes. We have proposed that our clinical trial will
involve approximately 200 Type II diabetic patients with nephropathy on ACE
inhibitors with a reduction in albuminuria as the endpoint.

The FDA has not yet accepted a reduction in albuminuria as a valid endpoint,
although the National Kidney Foundation has emphasized the role of albuminuria
as a cause of progressive kidney failure and recommended that it be reduced to
the greatest extent possible. (Source: Keane, W.F. and Eknoyan, G. Proteinuria,
Albuminuria, Risk, Assessment, Detection, Elimination : A Position Paper of the
National Kidney Foundation. American Journal of Kidney Diseases 33(5): 1004
(1999)). We believe the FDA would accept glomerular filtration rate as a
clinical endpoint. We believe that a trial with this endpoint may take between
18 to 24 months. We believe a clinical trial with the reduction in albuminuria
as the endpoint would take approximately 12 months. If the FDA does not change
its current position, we will be required to conduct clinical trials with
different endpoints that take longer than we currently anticipate, which would
significantly lengthen the amount of time it takes us to develop KRX-101 for
diabetic nephropathy.

Additional Indications

We believe KRX-101 has significant potential to treat other diseases. These
conditions include pre-eclampsia, a complication of pregnancy involving a
sudden rise in blood pressure; diabetic retinopathy, a disorder of the retina
associated with diabetes; and thrombosis, a disorder in which harmful blood
clots form within the body.

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KinAce Drug Discovery Platform

Overview

We believe our KinAce platform represents one of the first practical uses of
the genomics database to systematically generate drug candidates that target
protein kinases. We use computer programs to analyze genomic data which then
enables us to create compounds that aim to regulate kinases.

Protein kinases play a key role in the way cells communicate. When protein
kinases give an inappropriate signal, the result is often a disease or other
unwanted medical condition. Our KinAce platform uses a computer program to
discover unique regulatory regions within each kinase. Once this regulatory
region is identified, we can duplicate it to form the basis of a compound that
can potentially inhibit or stimulate the activity of that kinase. By targeting
these specific portions of protein kinases, our approach has produced 13 lead
drug compounds. Eight of these compounds have already produced positive results
in in vivo tests. It has taken us an average of approximately four months to
develop a drug candidate from concept to in vivo testing.

We expect to file an application to enter human clinical trials in Israel
for our first KinAce compound, KRX-123 for hormone-resistant prostate cancer,
in 2000. We will conduct these trials according to FDA good clinical practice,
or GCP, guidelines. We believe hormone-resistant prostate cancer, for which
there is currently no curative treatment, represents a potential annual market
in excess of $450 million. We are developing our 12 other KinAce compounds
through a combination of in-house efforts and research and development
agreements with others. We recently entered into research and development
agreements relating to five of these compounds with third parties including the
NIH, Novo Nordisk and Osteotech.

Scientific Background

Cells within the human body, like those within all living organisms,
communicate with each other to coordinate their growth and differentiation. The
primary mechanism by which cells communicate is a messenger system comprising
the transmission of biochemical signals. These "signals" are soluble molecules
that are secreted by cells. In general, signals from outside a cell come into
contact with a receptor on the cell surface and are then "transduced" across
the cell membrane. Once a signal enters the cell, it is relayed as a message
inside the cell. Protein kinases function as these cellular messengers.

Scientists have estimated that over 1,100 distinct protein kinases exist in
the human genome. (Source: T. Hunter. Signaling--2000 and Beyond, Cell, 100:
122-123, 2000). Protein kinases control a variety of functions carried out by
cells and may contribute to disease if they are "turned on" when they should be
"turned off," or "turned off" when they should be "turned on." For example, in
certain cancers, the excess activity of protein kinases allows uncontrolled
cell division. "Turning off" these protein kinases may provide one method of
halting the growth of malignancies. Conversely, increasing protein kinase
activity when it is not sufficient may improve other unwanted medical
conditions.

We use our KinAce platform technology to develop small compounds designed to
inhibit or stimulate the activity of a precise region of a specific kinase.
Each small compound mimics the precise region unique to the target kinase.

Advantages of the KinAce Approach

We believe that our KinAce platform has the following advantages over
traditional drug discovery methods:

. Increased hit rate. Our KinAce platform targets highly specific kinase
regions, and once identified it is less complicated to ascertain
precisely which compound will have the desired

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<PAGE>

biological effect on that region. Accordingly, we are able to focus our
efforts on only ten to twenty compounds for testing per kinase target.

. Reduced time to discovery. Our approach enables us to generate compounds
in an average time from concept to in vivo testing of approximately four
months. The industry standard ranges from two to four years.

. Reduced toxicity. We believe the increased specificity of our drug
candidates should result in less toxicity. Our drug candidates are
designed to regulate a region unique to a particular kinase and cause
biological changes that are specific to the functions of that kinase
alone. Other drug discovery methods target a region that is common to
many kinases and consequently are more likely to also cause biological
changes in healthy cells. Toxicity may occur when the treatment has a
negative impact on the functions of healthy cells as well as on the
targeted site.

. Greater versatility. We believe that our ability to stimulate, as well as
inhibit, protein kinases makes our drug candidates more versatile in the
treatment of diseases and conditions. Compounds of our competitors
typically aim only to inhibit kinase activity.

Product Development Pipeline

The following table outlines the drug candidates we have generated to date
using our KinAce platform:

<TABLE>
<CAPTION>
Compound Indication Development Status
-------- ------------------------------------------------- ---------------------
<C> <C> <S>
KRX-123 Oncology: Hormone-Resistant Prostate Cancer in vivo-preparing for
clinical trials

KRX-131 Oncology: Chemotherapy-Induced Hair Loss in vivo-research and
development agreement

KRX-211 Immunology: Septic Shock in vivo-research and
development agreement

KRX-167 Orthopedics: Bone Growth Stimulant in vivo-research and
development agreement

KRX-291 Quality of Life: Sunless Tanning in vitro-research and
development agreement

KRX-613 Metabolism: Diabetes in vitro-research and
development agreement

KRX-168 Surgical Implants: Anti-Adhesion/Anti-Fibrotic in vivo-under
development

KRX-252 Immunology: Autoimmune Disease in vivo-under
development

KRX-341 Cardiovascular: Ischemic Heart Disease/Peripheral in vivo-under
Vascular Disease development

KRX-683 Metabolism: Type II Diabetes/Obesity in vivo-under
development

KRX-120 Oncology: Neuroblastoma in vitro-under
development

KRX-324 Oncology: Breast Cancer in vitro-under
development

KRX-411 Neurology: Neurodegenerative Disease in vitro-under
development
</TABLE>

Lead KinAce Drug Candidate

KRX-123--Hormone-Resistant Prostate Cancer

Our leading KinAce drug candidate is KRX-123 for the treatment of hormone-
resistant prostate cancer, referred to as HRPC, a currently incurable condition
with a potential annual market size in excess of $450 million. Some Src protein
kinases are over-expressed in HRPC, and we believe that by regulating these
protein kinases we can treat HRPC. We have generated in vitro and in vivo data
showing that HRPC can be treated through the regulation of a specific Src
protein kinase. We also

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<PAGE>

have observed significant regression in hormone-resistant prostate tumors
during pre-clinical testing when compared to control groups. We have conducted
several in vivo tests on mice, using three sample groups. The first group
received chemotherapy treatment for HRPC, the second group received no
treatment, while the third group received four shots of KRX-123. After four
months, the KRX-123 groups had a survival rate of between 75 and 100%, compared
to no survivors in either the group treated with chemotherapy or the control
group.

We plan to file an application in 2000 with the Israeli Ministry of Health
for a clinical trial for HRPC to be conducted in accordance with FDA GCP
guidelines. In addition, we intend to file an IND application with the FDA by
the end of 2000. Due to the rapidly fatal nature of HRPC and the absence of any
FDA approved curative treatment for this condition, we believe we can attain
FDA fast track review status for our IND application. If we obtain marketing
approval for KRX-123, we intend to develop it to treat hormone-sensitive, or
earlier stage, prostate cancers.

Other KinAce Drug Candidates

KRX-131--Chemotherapy-Induced Hair Loss

According to the American Cancer Society website, over 1.2 million cases of
cancer are diagnosed annually in the United States (excluding most skin
cancers). It has been estimated that more than 80% of cancer patients receive
chemotherapy, which results in hair loss for the duration of treatment in
nearly all recipients. (Source: Seminars in Oncology 25: 562, 1998). Hair loss
poses a significant quality of life problem for chemotherapy patients.

TGF-^ is a protein that regulates hair growth. Chemotherapy causes over-
expression of TGF-^ in the skin, resulting in hair loss. Using our KinAce
platform, we designed KRX-131 to target and inhibit the activity of the TGF-^
receptor protein kinase. We believe that KRX-131 can prevent chemotherapy-
induced hair loss and address this unmet healthcare need.

We have demonstrated the in vivo effectiveness of KRX-131 by treating mice
undergoing chemotherapy with increasing doses of KRX-131. The test subjects
treated with KRX-131 experienced hair retention in a dose-dependent manner,
while members of the control group lost all of their hair.

We recently signed a research and development agreement for the testing of
KRX-131. Following our evaluation of the results of these tests, we intend
either to license KRX-131 or to continue to develop it internally through pre-
clinical and Phase I clinical trials.

KRX-211--Septic Shock

There are an estimated 500,000 cases of septic shock in the United States
each year. (Source: New England Journal of Medicine 340: 207, 1999). Septic
shock is a life-threatening reaction to a severe infection, for which there is
currently no FDA-approved treatment. During septic shock, bacteria produce
toxins that cause a cascade of events resulting in extremely low blood pressure
and subsequent multiple organ failure. The mortality rate for those with septic
shock is approximately 50%.

We have designed KRX-211 to inhibit JAK3, a protein kinase that has been
implicated in septic shock. We have demonstrated the effectiveness of KRX-211
in an in vivo model of septic shock. One hour after symptoms of septic shock
arose, half of the test group was injected with KRX-211, and a control group
was injected with a placebo solution. After 48 hours, 80% of the test group
treated with KRX-211 survived, while none in the control group remained alive.

The NIH has selected KRX-211 to undergo extensive in vivo testing in
preparation for clinical trials. Clinical testing for septic shock will be very
expensive. Therefore, following NIH testing, we intend to license KRX-211 to a
partner with the resources to clinically develop this compound.

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<PAGE>

KRX-167--Bone Growth Stimulant

There is a growing need to accelerate bone healing following medical
procedures that affect bone structure. These procedures include joint
replacements, bone grafts, spinal fusion and dental implants. The number of
such procedures performed annually in the United States is estimated to exceed
500,000. (Source: Interpore Cross International, Annual Report, 1998). We
estimate that a similar number of procedures are performed outside the United
States each year.

Bone morphogenic proteins, referred to as BMPs, are involved in the
regulation of the growth and differentiation of cartilage and bone. We designed
KRX-167 to promote bone growth by stimulating BMP receptor protein kinases. We
have tested KRX-167 in an in vivo fracture model. In these trials, bones
treated with KRX-167 have consistently shown evidence of enhanced bone
formation and increased relative bone density when compared to the control
groups.

We have entered into a research and development agreement with Osteotech, a
leading company in the field of bone grafts, for the testing of KRX-167. After
we evaluate the results of these tests, we intend either to license KRX-167 or
to continue to develop it internally through pre-clinical and Phase I trials.

KRX-291--Sunless Tanning

The American Cancer Society website estimates that there will be
approximately 1.3 million cases of skin cancer diagnosed in the U.S. this year.
Skin cancer can result from overexposure to the sun. Exposure to the sun also
causes tanning by increasing the skin pigment, known as melanin. We designed
KRX-291 to stimulate synthesis of melanin in skin cells without exposing them
to the risks associated with overexposure to the sun. In in vitro testing of
KRX-291, we have been able to demonstrate dose-dependent production of melanin.
We believe that KRX-291 can be used to induce tanning without the risk of skin
cancer.

We recently signed a research and development agreement for the testing of
KRX-291. Following our evaluation of the results of these tests, we intend
either to license KRX-291 or to continue to develop it internally through pre-
clinical and Phase I trials.

KRX-613--Diabetes

Diabetes is among the most prevalent chronic diseases in the world and
represents the fourth most common reason for patient contact with a physician
in the United States. It is a major cause of disability and mortality.
Historically, the mainstay of treatment of Type I diabetic patients and many
Type II diabetic patients has been insulin. We believe the market size for
insulin worldwide is in excess of $2 billion. Insulin is expensive to
synthesize and must be administered by injection. As a result, many companies
are searching for alternatives to insulin therapy for the treatment of
diabetes.

Insulin acts by binding to a specific receptor on the cell surface. This
receptor contains a protein kinase known as Insulin Receptor Kinase (IRK). When
insulin binds to the receptor, IRK transduces a signal in the cell that results
in an increase in glucose uptake. We believe KRX-613 stimulates the activity of
IRK without requiring insulin. In vitro tests have shown that the application
of KRX-613 leads to glucose uptake comparable to levels achieved with insulin.

We recently signed a research and development agreement with Novo Nordisk,
the second largest purveyor of insulin products in the world, for the testing
of KRX-613. Following our evaluation of the results of these tests, we intend
either to license KRX-613 or to continue to develop it internally through pre-
clinical and Phase I clinical trials.

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<PAGE>

Competition

KRX-101

ACE inhibitors are the current standard of care recommended by the ADA to
treat diabetic nephropathy. ACE inhibitors are marketed by a number of
companies. However, ACE inhibitors are not FDA-approved for, or as effective
in, nephropathy of Type II diabetes as they are for nephropathy of Type I
diabetes. Preliminary clinical evidence suggests that KRX-101 may be additive
with ACE inhibitors for nephropathy of both Type I and Type II diabetes by
reducing albuminuria further than ACE therapy alone.

Other companies are developing drugs designed to treat diabetic
complications, including Exocell, Inc., which has one compound aimed at
nephropathy in a Phase III clinical trial. In addition, if the FDA accepts the
reduction of albumin excretion as the endpoint for KRX-101 clinical trials,
other drug companies may be encouraged to submit drug candidates based on this
endpoint.

KinAce Platform

Several biotechnology and pharmaceutical companies are active in the field
of signal transduction, including Sugen, Inc. (recently acquired by Pharmacia-
Upjohn), Ariad Pharmaceuticals Inc., Tularik, Inc., Ligand Pharmaceuticals Inc.
and ICOS Corporation. In addition, Vertex Pharmaceuticals, Inc. and Novartis
Pharma AG recently announced a major alliance to discover eight kinase
inhibitors.

Generally, our competitors target common, non-specific regions within
protein kinases to identify lead compounds. This drug discovery method
generates a large number of compounds which must be tested by high throughput
screening before a drug candidate is found. We believe that our targeted
approach to drug discovery gives us a significant advantage over our
competitors by allowing us to generate more drug candidates in less time and
with potentially lower toxicities.

In addition, a significant number of products are in clinical development
for HRPC. These products adopt a variety of therapeutic approaches and may
compete with KRX-123 in the future.

Intellectual Property

General

Patents and other proprietary rights are very important to the development
of our business. We will be able to protect our proprietary technologies from
unauthorized use by third parties only to the extent that our proprietary
rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets. It is our intention to seek and maintain patent
protection for our drug candidates and our proprietary technologies.

KRX-101

Pursuant to our license for KRX-101, we have obtained rights to eleven
families of patents and applications. These include at least 46 patents issued
in various countries, of which nine are issued in the United States. The
licensed patent families cover the use of KRX-101 to treat diabetic nephropathy
and retinopathy, the use of related compounds to treat diabetic nephropathy,
neuropathy and retinopathy, and processes for making diverse heparin
derivatives. The licensed patent families also cover multiple processes for
making a wide variety of heparin derivatives. These patents and applications
are being maintained throughout the territories in which they were filed. In
addition, as part of our effort to expand the indications for KRX-101, we have
filed two new patent applications for novel indications for KRX-101. The KRX-
101 related patents and applications, if issued, expire at

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<PAGE>

various times between 2009 and 2019. We believe that we will have sufficient
time to commercially exploit these inventions covered by these patents during
their effective lives.

KinAce Platform

We have an exclusive license to four families of patent applications
associated with our KinAce platform, which have been filed in various
countries, including the United States, countries of the European Union, Japan,
Canada, Australia and China. These applications identify and claim large
classes of peptides that modulate the activity of protein kinases, which
encompass our lead drug candidates. In addition, the applications describe a
wide variety of therapeutic uses for these classes of peptides, including the
treatment of various cancers, diabetes, septic shock, multiple sclerosis and
inflammatory bowel disease. The applications also identify and claim specific
portions of these protein kinases upon which the selection of peptide drug
candidates is based. We intend to continue to file patent applications to cover
additional members of protein kinase families, specific drug candidates and
additional therapeutic indications as they are developed. The KinAce related
patent applications, if issued, will expire at various times between 2017 and
2019. We believe that we will have sufficient time to commercially exploit the
inventions covered by these applications during their effective lives.

Other Intellectual Property Rights

In April 2000, we applied to register the names "Keryx" and "KinAce" as
trademarks with the U.S. Patent and Trademark Office. In addition, we depend
upon trade secrets, know-how and continuing technological advances to develop
and maintain our competitive position. To maintain the confidentiality of trade
secrets and proprietary information, we require our employees, scientific
advisors, consultants and collaborators, upon commencement of a relationship
with us, to execute confidentiality agreements and, in the case of parties
other than our research and development collaborators, to agree to assign their
inventions to us. These agreements are designed to protect our proprietary
information and to grant us ownership of technologies that are developed in
connection with their relationship with us. These agreements may not, however,
provide protection for our trade secrets in the event of unauthorized
disclosure of such information.

Agreements

KRX-101

License Agreement. Our license with Alfa Wassermann SpA grants us the
exclusive rights to KRX-101 for diabetic nephropathy, diabetic retinopathy and
diabetic neuropathy in the United States, Canada, Japan, Australia, New
Zealand, South Africa and Israel, and entitles Alfa Wassermann to annual
royalties of up to $900,000 and fixed milestone payments of up to $2,950,000.
To date, we have paid $200,000 in annual royalties and no milestone payments.
The license includes rights to at least 46 patents that have been registered in
these countries, and rights in additional patent applications, and grants us
exclusive, worldwide ownership of any novel indication for KRX-101 that we
develop. Under the license, we must use our reasonable best efforts to
commercialize and market KRX-101. Alfa Wassermann must pay us a royalty to the
extent that it or its sub-licensees receive revenues from products that
incorporate information or know-how developed by us. Alfa Wassermann must share
a portion of the costs of data or intellectual property developed by us that it
decides to utilize. Unless terminated for reason of breach or other customary
termination provisions, the license terminates upon the later of the expiration
of all underlying patent rights or ten years from the first commercial sale of
KRX-101 by us. The most recent patent application was filed in April 1999 and,
if granted, will expire in April 2019, subject to any extensions which may be
granted.

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<PAGE>

Manufacturing Agreements. We have two manufacturing agreements for the
production of KRX-101. Opocrin S.p.A., a manufacturer of bulk biological
products, has agreed to manufacture and supply our raw requirements for
sulodexide until 2009. Our agreement with Opocrin may be terminated by us or
them on 180 days' notice for any reason. Pharmaceutics International, Inc., a
manufacturer of medicinal gelcaps, has agreed to produce the KRX-101 gelcaps
necessary for the proposed clinical trial. Until the agreed-upon manufacturing
is completed, this agreement may be terminated only by us. Both Opocrin and
Pharmaceutics International maintain cGMP-certified manufacturing facilities
that will be used for the manufacture of KRX-101.

KinAce Platform

License Agreement. Pursuant to a license with Children's Medical Center
Corporation, referred to as CMCC, we have the exclusive right to commercialize
the KinAce platform and practice the claims contained in four patent
applications owned by CMCC. The license gives us the right to develop, produce,
manufacture, market and sublicense products based on CMCC's patent
applications, any subsequently issued patents and future patent applications.
Unless terminated for breach or other customary termination provisions, the
license terminates upon the later of November 2014 or the expiration of the
last patent covered by the license. The most recent patent application was
filed in December 1999 and, if granted, will expire in December 2019, subject
to the granting of any extensions.

Under the license, we must use our reasonable best efforts to commercialize
and market one or more products based upon the signal transduction technology.
The license contains certain development and financing milestones. To date, we
have met all of our milestones under this agreement. According to the
development milestones, we must file an IND application for a licensed product
with the FDA (or a foreign equivalent) by December 2001, and we must file a New
Drug Application, or NDA, with the FDA (or a foreign equivalent) within six
years from our first filing of an IND application. If we fail to meet any of
the development milestones that remain to be fulfilled, the license could be
terminated, which would materially harm our business.

Sponsored Research Agreement. Professor Shmuel Ben-Sasson directs our KinAce
research program pursuant to a research agreement with Yissum Research
Development Company of the Hebrew University of Jerusalem. We also entered into
a consulting agreement with Professor Ben-Sasson. Under the consulting
agreement, Professor Ben-Sasson must provide consulting services to us to
develop the KinAce platform. The consulting agreement may be terminated by us
or him on 180 days' notice for any reason. We issued to Professor Ben-Sasson
402,768 shares of our common stock in connection with his consulting agreement.
Under the research agreement, we must pay quarterly fees to Yissum totalling
$466,000 per year until December 15, 2001. To date, we have made $349,500 in
quarterly payments to Yissum. The research agreement expires in November 2001,
although it may be extended by mutual agreement for additional periods of 180
days. We may terminate the research agreement and cease making payments to
Yissum should Professor Ben-Sasson fail to meet any milestones contained in
that agreement. In general, the milestones are project-specific and require
Professor Ben-Sasson to meet enumerated product development timetables. The
loss of Professor Ben-Sasson's services as a result of the termination of
either the research agreement or the consulting agreement would disrupt and
delay our KinAce research program.

Research and Development Agreements. We recently entered into research and
development agreements for the advancement of five of our lead KinAce compounds
with third parties, including the NIH, Novo Nordisk and Osteotech. In general,
these agreements provide that the researcher will conduct pre-clinical testing
at its own expense for up to three to six months. Upon completion of the
testing, we will give the for-profit researchers an exclusive two- to three-
month right of first negotiation to license from us the compounds covered by
the agreement for further development and commercialization.

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<PAGE>

Partec Acquisition

Contribution Agreement. In November 1999, in connection with our purchase of
assets from Partec Ltd., holders of Partec's 12% convertible notes exchanged
their notes for an aggregate of 29,465 shares of our Series A preferred stock
and ten-year warrants to purchase 303,832 shares of common stock at an exercise
price of $0.0067 per share.

Asset Purchase Agreements. In November 1999, we entered into an asset
purchase agreement with Partec pursuant to which we acquired substantially all
of Partec's assets, which consisted primarily of intellectual property rights
in exchange for $570,361 (plus accrued interest) of Partec's 12% convertible
notes, which we had previously acquired from the holders thereof. In addition,
we entered into employment agreements with Morris Laster, M.D., Benjamin Corn,
M.D., Ira Weinstein and Bob Trachtenberg. Also in November 1999, our subsidiary
Keryx (Israel) Ltd., pursuant to a separate agreement with Partec, purchased in
exchange for $54,908, certain assets and assumed certain liabilities associated
with Partec's business, including Partec's fixed assets, leases and employment
and consultant agreements.

Government Regulation

Numerous governmental authorities in the United States, Israel and other
countries regulate the manufacture and marketing of our drug candidates and our
ongoing research and development activities. None of our drug candidates has
been approved for sale in any market. Before marketing in the United States,
any drug developed by us must undergo rigorous pre-clinical testing and
clinical trials and an extensive regulatory approval process implemented by the
FDA under the Federal Food, Drug, and Cosmetic Act. The FDA regulates, among
other things, the development, testing, approval, manufacture, record keeping,
labeling, storage, advertising, promotion, sale and distribution of
biopharmaceutical products.

The regulatory review and approval process is lengthy, expensive and
uncertain. We will have to submit extensive pre-clinical and clinical data and
supporting information to the FDA for each indication or use to establish a
drug candidate's safety and efficacy before we can secure FDA approval. The
approval process takes many years, requires the expenditure of substantial
resources, involves post-marketing surveillance, and may involve ongoing
requirements for post-marketing studies. Before commencing clinical trials in
humans, we must submit to, and receive approval from, the FDA of an IND
application. We expect to rely on some of our collaborative partners to file
IND applications and generally direct the regulatory approval process for some
of our drug candidates.

The FDA permits expedited development, evaluation, and marketing of new
therapies intended to treat persons with serious or life-threatening conditions
for which there is an unmet medical need under its Fast Track Drug Development
Program. A sponsor can apply for fast track designation at the time of
submission of an IND application, or at any time prior to receiving marketing
approval of the NDA. To receive fast track designation, an applicant must
demonstrate:

. that the drug is intended to treat a serious or life-threatening
condition;

. that the drug is intended to treat a serious aspect of the condition; and

. that the drug has the potential to address unmet medical needs, and this
potential is being evaluated in the planned drug development program.

The FDA generally responds to a request for fast track designation within 60
calendar days of receipt of the request. Over the course of drug development, a
product in a fast track development program must continue to meet the criteria
for fast track designation. Sponsors of products in fast track drug development
programs must be in regular contact with the reviewing division of the FDA to
ensure that the evidence necessary to support marketing approval will be
developed and presented in a format conducive to an efficient review.

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Sponsors of products in fast track drug development programs ordinarily are
eligible for priority review and may be permitted to submit portions of an NDA
to the FDA for review before the complete application is submitted. Sponsors
of drugs designated as "fast track" also may seek approval under the
accelerated approval regulations, which permit the FDA to grant accelerated
approval based on a determination that the effect on a surrogate endpoint is
reasonably likely to predict clinical benefit. A surrogate endpoint is defined
as a laboratory or physical sign that is used in therapeutic trials as a
substitute for a clinically meaningful endpoint and the surrogate is expected
to predict the effect of the therapy. Requirements for submitting "substantial
evidence" to demonstrate effectiveness and for payment of user fees must still
be met under accelerated approval regulations. Further, where an accelerated
approval is based on a surrogate endpoint, postmarket studies ordinarily will
be required to verify the drug's clinical benefit and the relationship of the
surrogate endpoint to clinical benefit.

Before receiving FDA approval to market a product, we must demonstrate that
the product is safe and effective on the patient population that will be
treated. If the FDA grants approval, this approval will be limited to those
disease states and conditions for which the product is effective, as
demonstrated through clinical studies. The FDA prohibits marketing or
promoting a drug for an unapproved indication or use. Clinical testing must
meet requirements for institutional review board oversight, informed consent
and good clinical practices, and must be conducted under FDA oversight. Upon
approval, a product may be marketed only in those dosage forms and for those
indications approved in the NDA. However, pursuant to recent US federal court
decisions, drug marketers may, in some limited circumstances, distribute peer-
reviewed materials concerning uses for an approved drug other than those uses
approved by the FDA.

Clinical trials are conducted in sequential phases. In Phase I, the drug is
administered to a small group of humans, either healthy volunteers or
patients, to test for safety, dosage tolerance, absorption, metabolism,
excretion, and clinical pharmacology. In Phase II, a slightly larger number of
patients are studied to assess the efficacy of the product, to ascertain dose
tolerance and the optimal dose range, and to gather additional data relating
to safety and potential adverse events. In Phase III, studies establish safety
and efficacy in an expanded patient population. The FDA can require Phase IV
post-marketing studies.

The length of time necessary to complete clinical trials varies
significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Additional factors that can cause delay or termination
of our clinical trials, or that may increase the costs of these trials,
include:

. slow patient enrollment due to the nature of the clinical trial plan, the
proximity of patients to clinical sites, the eligibility criteria for
participation in the study or other factors;

. inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials; or delays in
approvals from a study site's review board;

. longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;

. insufficient supplies of the drug candidate;

. adverse medical events or side effects in treated patients; and

. ineffectiveness of the drug candidate.

Any drug is likely to produce some toxicity or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for
a sufficiently long time. Unacceptable toxicity or side effects may occur at
any dose level at any time in the course of studies in animals designed to
identify unacceptable effects of a drug candidate, known as toxicological
studies, or clinical trials of

32
<PAGE>

drug candidates. The appearance of any unacceptable toxicity or side effect
could cause us or regulatory authorities to interrupt, limit, delay or abort
the development of any of our drug candidates and could ultimately prevent
approval by the FDA or foreign regulatory authorities for any or all targeted
indications.

We must submit and receive approval of an NDA and pay user fees prior to
commercial marketing of the drug. As part of the approval process, the FDA must
inspect and approve each manufacturing facility. Among the conditions of
approval is the requirement that a manufacturer's quality control and
manufacturing procedures conform to current good manufacturing practices, or
cGMP. Manufacturers must expend time, money and effort to insure compliance
with cGMP, and the FDA conducts periodic inspections to certify compliance.
Violations may result in restrictions on the product or manufacturer, including
costly recalls or withdrawal of the product from the market. It may be
difficult for our manufacturers or us to comply with the applicable cGMP and
other FDA regulatory requirements. If we or our contract manufacturers fail to
comply, then the FDA will not allow us to market products that have been
affected by our failure.

Should we wish to market our products outside the United States, we must
receive marketing authorization from the appropriate regulatory authorities.
The requirements governing the conduct of clinical trials, marketing
authorization, pricing and reimbursement vary widely from country to country.
At present, foreign marketing authorizations are applied for at a national
level, although within the European Union, or EU, registration procedures are
available to companies wishing to market a product in more than one EU member
state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. This foreign regulatory approval process involves all of the risks
associated with FDA approval discussed above.

Sales and Marketing

We do not intend to build our own sales force. Instead, we intend to market
any future products through corporate partnerships with leading biotechnology
or pharmaceutical companies. By contracting with corporate partners for the
manufacturing, marketing and distribution of products, we hope to limit our
exposure to capital-intensive activities beyond our expertise and concentrate
on developing new compounds and technologies.

Employees

We have 10 employees, four of whom hold M.D. degrees and four of whom hold
other advanced degrees, and 27 persons working under sponsored research
agreements or consulting agreements. Of these 37 persons, 30 are working in
research and development, and seven are working in administration and finance.
None of our employees is represented by a collective bargaining agreement, nor
have we ever experienced a work stoppage. We consider our relations with our
employees and consultants to be good.

Properties

Our current facilities consist of 3,600 square feet of leased space in
Jerusalem's primary high technology park, Har Hotzvim. The lease for this space
extends to the end of 2008, but may be terminated earlier by us at our
discretion in 2004. This facility provides space for our administrative and
financial functions and will house an on-site laboratory devoted to
bioinformatics and drug compound formulation to be completed during the second
half of 2000. In addition, through our sponsored research agreements, we
maintain two research and development facilities at the Hebrew University of
Jerusalem, staffed by research personnel and equipped with advanced scientific

33
<PAGE>

equipment. We believe that our Har Hotzvim facility and the Hebrew University
space will be sufficient for our needs until the end of 2001. We are confident
that additional space will be available for future expansion.

We intend to open an office in Boston, Massachusetts in the third quarter of
2000. Personnel in this office will coordinate both our clinical trial programs
and our financial, business development and investor relations functions.

Legal Proceedings

We are not a party to any legal or arbitration proceedings, nor are we aware
of any that are pending or threatened, that may have, or have had in the
previous twelve months, a significant effect on our financial position.

34
<PAGE>

MANAGEMENT

The following table sets forth certain information regarding our executive
officers and directors as of June 15, 2000.

Executive Officers and Directors

<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Morris Laster, M.D......... 36 Chairman and Chief Executive Officer, Director
Benjamin Corn, M.D......... 39 President
Robert E. Gallahue, Jr. ... 40 Chief Financial Officer and Treasurer
Ira Weinstein.............. 44 Chief Operating Officer
Bob Trachtenberg........... 43 General Counsel and Secretary
Peter Morgan Kash (1)...... 38 Director (Non-executive)
S. Leslie Misrock (2)...... 72 Director (Non-executive)
Mark H. Rachesky, M.D.
(1)(2).................... 40 Director (Non-executive)
Lindsay A. Rosenwald,
M.D....................... 45 Director (Non-executive)
Wayne Rothbaum (1)(2)...... 32 Director (Non-executive)
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Morris Laster, M.D., has served as our Chairman and Chief Executive Officer
since November 1999. From December 1996 to November 1999, Dr. Laster served as
the Chief Executive Officer and President of Partec Ltd., our predecessor
company. From 1990 to 1996, Dr. Laster was employed as Vice President of
Medical Venture Capital with Paramount Capital Investments LLC., a New York-
based biotechnology venture group. Dr. Laster received his M.D. from Downstate
Medical Center, performed post-doctoral training in surgery at Case Western
Reserve University Hospital and served as a physician and officer with the
paratroopers of the Israel Defense Forces.

Benjamin Corn, M.D., has served as our President since November 1999. From
October 1998 to November 1999, Professor Corn was the Chief Executive Officer
of SignalSite, Inc., a subsidiary of Partec Ltd., our predecessor company. From
1994 to 1998, he served as Professor and Vice-Chairman in the Department of
Radiation Oncology at Thomas Jefferson University Hospital in Philadelphia.
Professor Corn received his B.A. and M.D. degrees from Boston University and
completed residency training at the University of Pennsylvania, where he later
served as Assistant Professor of Radiation Oncology.

Robert E. Gallahue has served as our Chief Financial Officer and Treasurer
since June 2000. From January 2000 to May 2000, Mr. Gallahue served as Senior
Director, Finance at Millennium Pharmaceuticals. From November 1993 to December
1999, he served as Controller and then Senior Director, Finance at LeukoSite,
Incorporated until its recent merger with Millennium Pharmaceuticals. From 1989
to 1993, Mr. Gallahue served as accounting manager and then Senior Financial
Analyst at RepliGen Incorporated. From 1985 to 1989, he was an auditor at
Coopers & Lybrand. Mr. Gallahue received his B.A. from Middlebury College and
his M.S.A. from Bentley College and is a certified public accountant.

Ira Weinstein has served as our Chief Operating Officer since June 2000 and
was our Chief Financial Officer and Treasurer from November 1999 to June 2000.
From January 1997 to November 1999, Dr. Weinstein was the Chief Financial
Officer of Partec Ltd. From 1989 to 1997, Dr. Weinstein was an accountant with
the Association of Americans and Canadians in Israel. He has also served as a
consultant to the New York State Department of Health and taught business
management at

35
<PAGE>

Baruch College, Touro College and St. John's University. Dr. Weinstein holds a
Doctorate of Business Administration from Newport University and an M.B.A. in
Management and a B.B.A. in Accountancy from Baruch College.

Bob Trachtenberg has served as our General Counsel and Secretary since
November 1999. Prior to that date, from October 1998, he was the General
Counsel of Partec Ltd. From June 1994 to October 1998, Mr. Trachtenberg was
Senior Vice President for Administration and Legal Affairs at Accent Software
International, Ltd. (now known as LanguageWare.net, Ltd.), a publicly traded
software development company. Mr. Trachtenberg received his B.A. from the State
University of New York at Binghamton and his J.D. from New York University.

Peter Morgan Kash has served on our board since October 1998. Mr. Kash has
been a Senior Managing Director of Paramount Capital, Inc. and a Director of
Paramount Capital Asset Management, Inc. since 1990. From 1989 to 1991, Mr.
Kash served as an Associate Professor at the Polytechnic University. In
addition, since 1996, he has served as a Lecturer in Entrepreneurship and
International Venture Capital at the Wharton School of the University of
Pennsylvania and has accepted an appointment as a visiting professor in
entrepreneurship at Nihon University in Tokyo, Japan from 1999 to 2001. He
holds a B.S. in Management Science from the State University of New York at
Binghamton and an M.B.A. in Finance and Banking from Pace University.

S. Leslie Misrock has served on our board since November 1999. Mr. Misrock
has been a partner of the law firm of Pennie & Edmonds LLP, a New York-based
intellectual property firm, since 1961 and a senior partner since 1970. He is a
member of the Visiting Committee of the Department of Biology and Chemistry at
MIT, the Association for the Cure of Prostate Cancer (CaP CURE), the Board of
Visitors of Fordham Law School, the Health Sciences Board of Columbia
University's College of Physicians and Surgeons, and the National Prostate
Cancer Coalition. Mr. Misrock is a Director of Cytogen Corporation, a publicly
held biopharmaceutical company, as well as a director of several privately held
biotechnology and medical informatics companies, including DirectGene Inc.,
Molecular Staging Inc., OANDA Corporation, Timbrel Systems Inc. and SerOptix
Inc. Mr. Misrock is a managing director of Quintessential Technologies LLC, a
technology investment company, and he is a general partner of Misrock Holdings
LP, a Delaware limited partnership. Mr. Misrock holds an S.B. in Chemistry from
the Massachusetts Institute of Technology, an A.M. in Chemistry from Columbia
University and an L.L.B. degree from Fordham University.

Mark H. Rachesky, M.D., has served on our board since February 2000. Dr.
Rachesky is the President of MHR Fund Management LLC, which he founded in 1996.
MHR is an investment manager of various private investment funds. Prior to
founding MHR, from 1990 to 1996, Dr. Rachesky was employed in various
capacities by Carl C. Icahn. He currently also serves as a director of the
Samsonite Corporation and Neose Technologies, Inc. Dr. Rachesky received his
B.S. from the University of Pennsylvania, and his M.D. and M.B.A. from Stanford
University.

Lindsay A. Rosenwald, M.D., has served on our board since March 2000. He is
an investment banker, as well as a venture capitalist and fund manager. Dr.
Rosenwald has served as Chairman of Paramount Capital, Inc., an NASD-member
broker-dealer since 1992, Chairman of Paramount Capital Investments LLC, a
merchant and investment bank, since 1995, and Chairman of Paramount Capital
Asset Management, Inc., which manages the investments of several funds
specializing in the technology and biotechnology sectors, since 1994. He is
also a director of Neose Technologies, Inc., Interneuron Pharmaceuticals, Inc.,
and Nephros, Inc. Dr. Rosenwald received his B.S. in Finance from Pennsylvania
State University, and his M.D. from Temple University School of Medicine.

Wayne Rothbaum has served on our board since February 2000. He is a Managing
Director at the Carson Group, a strategic consulting firm providing capital
markets intelligence to over 400

36
<PAGE>

publicly traded companies. Mr. Rothbaum has co-managed The Carson Group's life
sciences team, which provides services ranging from traditional investor
relations to strategic consulting to corporate finance for over 50 life
sciences companies, since 1993. In addition, he is a principal at Evolution
Capital, an NASD registered broker-dealer focusing on the life sciences, which
is a wholly owned subsidiary of The Carson Group. Mr. Rothbaum is also an
advisory director to Enzon, Inc. and Maxim Pharmaceuticals, Inc. He received an
M.A. from the Elliot School of International Relations at the George Washington
University and a B.A. in Cognitive Psychology and Political Science from the
State University of New York at Binghamton.

The business address of each of Morris Laster, Benjamin Corn, Robert
Gallahue, Ira Weinstein and Bob Trachtenberg is Kiryat Mada 5, Har Hotzvim,
Jerusalem, Israel 91326. The business address of Peter Kash and Lindsay
Rosenwald is Paramount Capital, Inc., 787 Seventh Avenue, New York, New York
10019. The business address of S. Leslie Misrock is Pennie & Edmonds LLP, 1155
Avenue of the Americas, New York, New York 10036. The address of Mark Rachesky
is 985 Fifth Avenue, New York, New York 10021. The business address of Wayne
Rothbaum is 156 W. 56th Street, 10th Floor, New York, New York 10019.

Scientific Advisors

We rely on prominent scientists and physicians to advise us on our KinAce
platform and the clinical development of KRX-101.

Prof. Shmuel Ben-Sasson is the inventor of the KinAce platform and serves as
the Chief Scientific Officer. Dr. Ben-Sasson is the incumbent of the Joseph I.
Bluestone Chair in Experimental Medicine at Hebrew University Hadassah Medical
School in Jerusalem. He is the holder of multiple patents and the inventor of
the TUNEL Assay, the most commonly cited assay for apoptosis in the medical
literature. Dr. Ben-Sasson also maintains an appointment as a Visiting
Professor in the Department of Surgical Research at Harvard Medical School.

The KinAce Scientific Advisory Board

<TABLE>
<CAPTION>
Name Current Position
------------------------------------ ---------------------------------------
<C> <S>
James Broach, Ph.D. ................ Professor of Molecular Biology at
Princeton University
Moshe Oren, Ph.D. .................. Dean of Life Sciences at Weizmann
Institute (Rehovot, Israel)
Susan S. Taylor, Ph.D. ............. Professor of Biochemistry at the Howard
Hughes Medical Institute of the
University of California, San Diego
David Lawrence, Ph.D. .............. Professor of Biochemistry at the Albert
Einstein College of Medicine of the
Yeshiva University
</TABLE>

We have entered into agreements with each of these advisors obligating them
to provide scientific advisory services to us for a three-year period. The
agreements are terminable by us upon agreement of a majority of our board of
directors, or by the advisor, upon 30 days' written notice. In addition to a
daily fee, each advisor will receive an option to purchase 1,500 shares of our
common stock at the public offering price, half of which vest on the grant date
and the balance of which vest in equal installments on each of the first and
second anniversary of the grant date.

37
<PAGE>

The KRX-101 Scientific Advisory Board

<TABLE>
<CAPTION>
Name Current Position
------------------------------------ -----------------------------------------
<C> <S>
Steven M. Haffner, Ph.D. ........... Professor of Internal Medicine in the
Department of Medicine/Clinical
Epidemiology at the University of Texas
Health Science Center
Job Harenberg, Ph.D. ............... Professor of Internal Medicine and Head
of the Department of Haemostaseology at
the University of Heidelberg (Heidelberg,
Germany)
Michael Mauer, Ph.D. ............... Professor of Pediatrics at the University
of Minnesota
Guisseppe Remuzzi, Ph.D. ........... Director of the Bergamo Laboratories of
the Mario Negri Institute for
Pharmacological Research (Bergamo, Italy)
Bernard Zinman, Ph.D. .............. Professor of Medicine and Director of the
Banting & Best Diabetes Center at the
University of Toronto
</TABLE>

We have entered into agreements with each of these advisors obligating them
to provide scientific advisory services to us for a three-year period. Each
agreement entitles the advisor to a per diem fee and is terminable by us upon
agreement of a majority of our board of directors, or by the advisor, upon 30
days' written notice.

Committees of the Board

Audit Committee. We have an audit committee composed of non-employee
directors. The audit committee will recommend to our board the independent
auditors to be retained by us and will meet with our independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements. The audit committee will also receive and consider the
accountants' comments as to controls, adequacy of staff, management performance
and procedures in connection with audit and financial controls. Current members
of the audit committee are Dr. Rachesky and Messrs. Rothbaum and Misrock.

Compensation Committee. Our compensation committee reviews and recommends to
our board of directors the compensation and benefits of all our officers and
reviews general policies relating to compensation and benefits of our
employees. The compensation committee also administers the issuance of stock
options under our stock option plan and otherwise. Current members of the
compensation committee are Messrs. Kash, Rothbaum and Dr. Rachesky.

We have adopted the Model Code for AIM-listed companies with respect to the
dealings of our directors in our common stock.

Appointment of Directors

Our bylaws provide that our directors are elected by our stockholders and,
at each election, the persons receiving the greatest number of votes, up to the
number of persons being elected, shall be the persons then elected. Our board
consists of the number of directors determined by resolution of the board.
Currently the number of directors is six. Each director holds office until a
successor is elected and qualified or the director resigns or is removed. Any
director or the entire board may be removed, with or without cause, by the
holders of a majority of shares then entitled to vote at an election of
directors. Any vacancy in the board, whether because of death, resignation,
disqualification, an increase in the number of directors or any other cause,
may be filled by vote of the majority of the remaining directors, even if less
than a quorum, or by a sole remaining director.

38
<PAGE>

Compensation of Directors

Non-employee directors do not receive any cash compensation from us for
their services as members of our board of directors or for attendance at
committee meetings. These directors may be reimbursed for expenses in
connection with attendance at board of directors and committee meetings. In
November 1999, we granted to each of our non-employee directors, including
Messrs. Kash and Misrock, options to purchase 37,500 shares of our common stock
at an exercise price of $0.10 per share pursuant to our 1999 stock option plan.
In February 2000, we granted to Dr. Rachesky and Mr. Rothbaum options to
purchase 60,000 shares of our common stock. At the same time, we granted to Mr.
Misrock additional options to purchase 22,500 shares of common stock, and we
granted to Mr. Kash, in recognition of his efforts on our behalf in our most
recent private placement, options to purchase 75,000 shares of common stock.
All the February 2000 option grants carry an exercise price of $0.33 per share.
In June 2000, our stockholders approved our 2000 Stock Option Plan. Part of
this plan provides that any new non-employee directors will receive an option
to purchase 25,000 shares of common stock upon their appointment to the board
and all non-employee directors will receive an option to purchase 5,000 shares
of common stock each year after our annual meeting. The exercise price of these
options will be the fair market value of the shares on the date of the grant.

We estimate that, under the arrangements in place at the date of expected
admission to listing of our shares on Nasdaq and the Alternative Investment
Market, the aggregate remuneration payable and benefits in kind to be granted
to our directors for the period of the current financial year, up to December
31, 2000, will amount to approximately $279,000, all of which is payable to Dr.
Laster as salary and benefits for his services as Chief Executive Officer. The
aggregate remuneration paid and benefits in kind granted to our directors for
the year ended December 31, 1999, all of which was payable to Dr. Laster, was
$259,000. We have not granted or provided any loan or guarantee to any director
or any person connected with them.

Limitation of Directors' and Officers' Liability

Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to
the fullest extent permitted by Delaware law. We are also permitted by our
bylaws to enter into indemnification contracts with our directors and officers
and to purchase insurance on behalf of any person we are required or permitted
to indemnify.

We have obtained insurance to cover the liabilities that our officers and
directors may incur in connection with their services to us, including matters
arising under the Securities Act. In addition, our certificate of incorporation
provides that, to the fullest extent permitted by Delaware law, our directors
will not be liable for monetary damages for breach of their fiduciary duty of
care to us and our stockholders. This provision does not eliminate the duty of
care of our directors and, in appropriate circumstances, equitable remedies
including an injunction or other forms of non-monetary relief would remain
available under Delaware law. Under Delaware law, a director's liability to us
or our stockholders may not be limited:

. for any breach of the director's duty of loyalty to us or our
stockholders;

. for acts or omissions not in good faith or involving intentional
misconduct;

. for knowing violations of law;

. for any transaction from which the director derived an improper personal
benefit;

. for improper transactions between the director and us; and

. for improper distributions to stockholders and loans to directors and
officers.

This provision does not affect a director's responsibilities under any other
laws, including the federal securities laws or state or federal environmental
laws.

39
<PAGE>

There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought, nor are we aware of
any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

Executive Compensation

The table below summarizes for the year ended December 31, 1999 the
compensation earned for services rendered to us in all capacities by our chief
executive officer and our other most highly compensated executive officer
whose total compensation exceed $100,000 in such period. No individual who
would otherwise have been includable in such table on the basis of total
compensation earned during the year ended December 31, 1999 has resigned or
otherwise terminated his or her employment during such period.

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------
------------------------------ Securities
Name and Principal Other Annual Underlying All Other
Position Salary Bonus Compensation(1) Options Compensation(2)
------------------ -------- ----- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Morris Laster, M.D...... $225,000 -- $34,000 1,972,100 $7,645
Chief Executive
Officer,
Chairman and Director
Benjamin Corn, M.D...... $150,000 -- $22,000 274,026 --
President
</TABLE>
--------
(1) Includes national insurance, pension, disability insurance premiums,
payments in lieu of statutory severance and continuing education plans.
(2) Includes reimbursement for automobile expenses.

Option Grants in Last Fiscal Year

The following table sets forth certain information with respect to stock
options granted to each of the named executive officers in the year ended
December 31, 1999, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and
10% over the exercise price, compounded annually. These assumed rates of
appreciation comply with the rules of the SEC and do not represent our
estimates of our future stock price. Actual gains, if any, on stock option
exercises will depend on the future performance of our common stock.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------- Value at Assumed
Number of Percentage Annual Rates of Stock
Securities of Total Exercise Price Appreciation
Underlying Options Price for Option Term(4)
Options Granted in Per Expiration ---------------------
Name(1) Granted 1999(2) Share Date(3) 5%($) 10%($)
------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Morris Laster, M.D...... 1,522,100 37.11% $0.10 11/19/24 24,641,195 39,327,144
450,000 10.97% $0.10 11/19/09 7,285,026 11,626,841
Benjamin Corn, M.D...... 79,026 1.93% $0.10 11/19/24 1,279,348 2,041,828
195,000 4.75% $0.10 11/19/09 3,156,845 5,038,298
</TABLE>

--------
(1) The securities reflected in this chart are held by Delaware corporate
entities controlled by irrevocable trusts of which the named executive
officers are beneficiaries but over which they have no control. See
"Principal Stockholders."
(2) Percentages shown under "Percentage of Total Options Granted in 1999"
are based on an aggregate of 4,102,032 options granted to certain of
our employees, consultants and directors under our share option plan
during 1999.
(3) The options with an expiration date of November 19, 2024, all vested
immediately upon grant. The options with an expiration date of November
19, 2009, vest, or have vested, as follows:

40
<PAGE>

one-third on December 6, 1999; one-sixth on May 19, 2000; one-sixth on
November 19, 2000; one-sixth on May 19, 2001; and one-sixth on November
19, 2001. The options will fully vest upon a merger or acquisition of
our company, as defined in our 1999 option plan, unless the acquiring or
merging entity assumes the options or substitutes similar options.

(4) The potential realizable value of our options is calculated based on an
assumed ten-year term of the option at the time of the grant even
though some of the options have a 25-year term. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by
the Securities and Exchange Commission and does not represent our
prediction of our stock price performance. The potential realizable
values of 5% and 10% appreciation are calculated by:

. multiplying the number of shares of common stock subject to a
given option by the public offering price of $10.00 per share;

. assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the
table until the expiration of the options; and

. subtracting from that result the aggregate option exercise price.
Aggregate Option Exercises During the Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth information with respect to exercisable and
unexercisable options held as of December 31, 1999, by the named executive
officers.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In- Shares
Options at the-Money Options at Acquired on Value
December 31, 1999 December 31, 1999 Exercise Realized
------------------------- ------------------------- ----------- --------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Morris Laster, M.D.(1).. 1,672,100 300,000 $16,553,790 $2,970,000 -- --
Benjamin Corn, M.D.(1).. 144,027 129,999 1,425,867 1,286,990 -- --
</TABLE>
--------
(1) Our compensation committee has applied traditional valuation
methodologies in order to arrive at the fair market values of our
common stock on the date that options were granted. These methodologies
include comparing us to similar early stage biotechnology companies and
determining whether any significant operational or other developments
occurred since the last arm's-length sale of securities.

Employment Agreements

Our Israeli operating subsidiary has entered into an employment agreement
with Morris Laster, M.D., and we, as the US parent, have entered into a
complementary employment agreement with Dr. Laster. Dr. Laster has been
retained to serve as our chief executive officer at a base salary of $225,000
per year for three years from November 18, 1999, with an annual discretionary
bonus of up to 100% of his base salary based upon specific development and
business milestones and achievements. The US agreement grants Dr. Laster a
ten-year option to purchase 450,000 shares of our common stock at an exercise
price of $0.10 per share. This option vests over a period of two years, with
one-half having already vested, and the remaining one-half vesting in three
equal portions each six months from November 19, 2000. Each agreement may be
terminated on three months' notice and each contains both non-competition and
non-solicitation provisions. The agreements also provide that if Dr. Laster's
employment is terminated without cause or because of death or disability, he
or his heirs will be paid his then-current salary for 15 months in monthly
installments, in addition to the three-month notice payment, and our board of
directors will cause any outstanding, unvested options to vest immediately and
will extend the period in which they may be exercised for two years from the
date of the termination of his employment.

41
<PAGE>

Our Israeli operating subsidiary has entered into an employment agreement
with Benjamin Corn, M.D., and we, as the US parent, entered into a
complementary employment agreement with Dr. Corn. We have retained Dr. Corn to
serve as our president at a current base salary of $157,500 per year for three
years from November 18, 1999, with bonuses at the discretion of our chief
executive officer acting in consultation with our board of directors. The US
agreement grants Dr. Corn a ten-year option to purchase 195,000 shares of our
common stock at an exercise price of $0.10 per share. This option vests over a
period of two years, with one-half having already vested, and the remaining
one-half vesting in three equal portions, each six months from November 19,
2000. Each agreement may be terminated on three months' notice and each
contains both non-competition and non-solicitation provisions. The agreements
also provide that if Dr. Corn's employment is terminated without cause or
because of death or disability, he or his heirs will be paid his then-current
salary for three months in monthly installments, inclusive of the three-month
termination notice, and our board of directors will cause any outstanding,
unvested options to vest immediately and will extend the period in which they
may be exercised for two years from the date of the termination of his
employment.

We require all of our officers and employees at the commencement of their
employment to sign an employment agreement specifying basic terms and
conditions of employment. Each of these agreements includes, at a minimum,
obligations of confidentiality and assignment of inventions, which provide that
the employee will not disclose any confidential information received during the
course of employment and that the employee will assign to us any and all
inventions conceived or developed during the course of employment.

Stock Incentive Plans

In November 1999, we adopted the 1999 Share Option Plan, referred to as the
1999 Plan. The 1999 Plan will expire in November 2009, unless terminated
earlier by our board of directors at their discretion. In June 2000, our
stockholders approved the 2000 Stock Option Plan, referred to as the 2000 Plan.
Unless otherwise indicated, the following discussion refers to both the 1999
and 2000 Plans. Both the 1999 and 2000 Plans provide for the grant of options
to purchase shares of our common stock, including:

. incentive stock options, as defined by Section 422 of the Internal
Revenue Code, that may be granted solely to employees, including
officers; and

. non-qualified stock options, being stock options other than incentive
stock options, that may be granted to employees, including officers,
non-employee directors and individuals with whom we have consulting
agreements.

In addition, the 2000 Plan permits the grant of:

. restricted stock awards;

. stock bonuses;

. unrestricted stock awards;

. performance share awards; and

. stock appreciation rights.

Our board of directors has delegated the responsibility to administer the 1999
and 2000 Plans to its compensation committee.

Share Reserve. We initially authorized the issuance of 5,430,000 shares of
our common stock pursuant to the 1999 Plan. In December 1999, our board of
directors amended the 1999 Plan to change the number of shares reserved to
4,230,000 shares of common stock. As of May 31, 2000, non-qualified options to
purchase 4,147,032 shares of our common stock were held by all participants
under the 1999 Plan and 82,968 shares of our common stock remained available
for grant.

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<PAGE>

The 2000 Plan calls for a reserve of 4,455,000 shares of common stock for
issuance in accordance with awards granted by the compensation committee. As of
the date of this prospectus, the compensation committee has issued incentive
stock options to purchase 10,000 shares of common stock and non-qualified
options to purchase 84,500 shares of common stock. 4,360,500 shares of our
common stock remain available for grant under the 2000 Plan.

Shares subject to awards under either Plan that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of awards under the Plans. Shares issued under either Plan may be
previously unissued shares or reacquired shares of common stock.

Awards. Stock options may be granted under both the 1999 Plan and the 2000
Plan to our employees, non-employee directors and individuals with whom we have
consulting agreements. The stock options granted will be either incentive stock
options or non-qualified stock options.

An incentive stock option is a stock option that has met the requirements of
Section 422 of the Internal Revenue Code and, except as set forth below, must
be granted with an exercise price of at least 100% of the fair market value at
the date of grant. Under current U.S. tax laws, no taxable income is recognized
by an optionee upon the grant or exercise of an incentive stock option. If no
disposition of the shares is made by the optionee within two years after the
date of grant or within one year after the issuance of the shares to the
optionee, then upon the optionee's resale of the shares, any amount realized in
excess of the option exercise price will be treated as long-term capital gain
and any loss sustained will be long-term capital loss. If the shares are
disposed of before either of the holding periods described above, there has
been a disqualifying disposition, and the difference between the exercise price
and the fair market value of the shares on the exercise date will be taxed at
ordinary income rates. The difference between the fair market value on date of
exercise and the exercise price is an item of adjustment for purposes of the
alternative minimum tax unless there is a disqualifying disposition in the year
of exercise.

Under current U.S. tax laws, incentive stock options may be granted only to
our employees. The aggregate fair market value, determined at the time of
grant, of shares of our common stock with respect to incentive stock options
that are exercisable for the first time by an option holder during any calendar
year under all of our stock plans may not exceed $100,000. No incentive stock
option, and, prior to our stock being publicly traded, no non-qualified stock
option, may be granted to any person, who, at the time of the grant, owns or is
deemed to own stock possessing more than 10% of the total combined voting power
of our company or any affiliate, unless the following conditions are satisfied:

. the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and

. the term of any incentive stock option award must not exceed five years
from the date of grant.

A non-qualified stock option is a stock option not intended to qualify as an
incentive stock option. Under current U.S. tax laws, no taxable income is
recognized by an optionee on the date of grant. An optionee generally will
recognize ordinary income on the date of exercise equal to the difference
between exercise price and the fair market value of the shares on the date of
exercise. If the optionee is also an employee at the time of grant, any income
recognized upon exercise of a nonstatutory stock option will constitute wages
for which withholding will be required. Generally, non-qualified options may be
transferred without consideration to members of the optionee's family, to
trusts for the benefit of such family members, to partnerships in which such
family members are the only partners and to charities.

In addition, under the 2000 Plan restricted stock awards, unrestricted stock
awards, performance share awards and stock appreciation rights may be granted.

. A restricted stock award is an offer to purchase shares of our common
stock at par value or a price determined by the compensation committee.
However, we may reacquire the shares

43
<PAGE>

under this type of award at the original purchase price, if any, if the
recipient's service to us and our affiliates is terminated before the
shares vest. At the time the award vests, the recipient will generally
recognize income equal to the difference between the fair market value of
the restricted stock at the time of vesting and the amount paid for the
restricted stock, if any.

. An unrestricted stock award is either a grant of shares of common stock
to a grantee or an offer to sell common stock at a price determined by
the compensation committee, free of any restrictions under the 2000 Plan.
The right to receive such an award may not be transferred other than by
will or the laws of descent.

. A performance share award is an award entitling the recipient to receive
common stock upon the attainment of specified goals, either for no cost
or for a price determined by the compensation committee. The right to
receive such an award may not be transferred other than by will or the
laws of descent.

. A stock appreciation right is an award entitling the recipient to receive
an amount in cash in an amount equal to the excess of the fair market
value of a share of our common stock over the exercise price per stock
appreciation right set by the compensation committee at the time of
grant, which price shall not be less than 85% of fair market value of a
share of common stock at the time of grant.

The compensation committee may grant, subject to other applicable restrictions,
any of these awards in tandem as it deems appropriate.

Plan Administration. Our board of directors has delegated the administration
of the 1999 Plan and the 2000 Plan to the compensation committee. Subject to
the terms of the Plans, the compensation committee determines recipients, the
numbers and types of stock awards to be granted, and the terms and conditions
of the stock awards, including the period of their vesting. The compensation
committee also determines the exercise price of awards granted and may amend
any outstanding award to accelerate vesting, extend the exercisability and
waive conditions or restrictions applicable to any award. The exercise price of
options granted under the 2000 Plan may not be less than 85% of their fair
market value at the date of grant.

Term of Awards. In general, the term of stock options granted under the 1999
and 2000 Plans is ten years. In the event an awardee's service relationship
with us ends, other than upon the awardee's death or disability, the award may
be exercised within a period of 90 days following termination, provided that
the award has already vested. If the awardee's termination of service is for
cause, such period will not exceed thirty days. Any award not already vested,
or not exercised within these periods shall terminate. If the awardee dies, any
vested award may be exercised within the time period specified in the award
agreement, being at least six months, or if no time is specified, twelve
months.

Payment of Exercise Price. Awardees may pay the exercise price of their
awards, if any, as determined by the compensation committee, and acceptable
consideration includes cash, checks, and promissory notes. Generally, an option
holder may not transfer a stock option to any entity other than a spouse or
descendants or to a trust, or other entity owned by such a trust, for the
primary benefit of the option holder, his spouse and/or his descendants.

Changes in Control. Upon specified changes in control as provided under the
Plans, all outstanding awards under the Plans either will be assumed or
substituted by any surviving entity or its parent or subsidiary corporation, if
any. If the surviving entity or its parent or subsidiary corporation, if any,
determines not to assume or substitute the awards, our board of directors shall

44
<PAGE>

provide for the awards to be fully exercisable for a period of at least 15 days
from the date of notice, following which unexercised awards will terminate.

Additional Provisions. The compensation committee may, in its sole
discretion, include additional provisions in any option or award granted or
made under the Plans that are not inconsistent with the Plans or applicable
law. The compensation committee may also, in its sole discretion, accelerate or
extend the date or dates on which all or any particular award or awards granted
under the Plans may be exercised.

45
<PAGE>

RELATED PARTY TRANSACTIONS

Investments in our Company. The following table summarizes the material
terms of transactions during the last three fiscal years, other than stock
option exercises, in which our directors, executive officers, major
stockholders and related persons purchased shares of our stock or the stock of
our majority-owned subsidiaries for more than $60,000 or in which our founders
purchased shares of our stock. In each transaction, the director, executive
officer, major stockholder or related person purchased stock either at the
same price and on the same terms as independent third-party investors
purchased stock at the same time or, in the case of the purchases made in
October 1998, at the same price and on the same terms as independent third
parties could reasonably be expected to have invested.

<TABLE>
<CAPTION>
Aggregate
Directors and Number of Purchase
Executive Officers Purchase Date Class of Stock Shares Price
----------------------------- ------------- ------------------ --------- ---------
<S> <C> <C> <C> <C>
Lindsay A. Rosenwald, M.D.(1) 10/98 Common Stock 5,496,750 $3,665
11/99 Series A Preferred 6,224 $622,400
Peter Morgan Kash 10/98 Common Stock 867,750 $578
Mark Rachesky, M.D. 1/00 Series A Preferred 2,500 $250,000

<CAPTION>
Principal Stockholders
-----------------------------
<S> <C> <C> <C> <C>
Children's Medical Center 11/99 Common Stock 805,538 --(2)
Corporation
</TABLE>
--------
(1) 4,860 shares of the Series A preferred stock listed under the name of Dr.
Rosenwald are held by Paramount Capital Investments LLC, an affiliate of
Dr. Rosenwald. See "Principal Stockholders" for more detail on these
shares.

(2) These shares were issued in connection with the KinAce license agreement.
David Kirshner, the Chief Financial Officer of Children's Medical Care
Corporation, has voting and investment power over these shares.

We have entered into the following agreements or arrangements with certain
of our stockholders and directors.

Private Placement. In connection with our private placement of Series A
preferred stock, Paramount Capital, Inc. received consideration of $375,400
and three-year warrants to buy 116,090 shares of common stock at an exercise
price of $1.94 per share. Lindsay A. Rosenwald owns 100% of Paramount Capital.

Predecessor Company. Our predecessor company, Partec Ltd., was incorporated
in Israel in December 1996 to pursue opportunities in the biotechnology field.
Partec pursued individual biotechnology projects through the provision of
management services to Delaware corporations set up around those projects. In
October 1998, Dr. Rosenwald exchanged his interests in those companies for a
77% interest in Partec. In November 1999, we acquired substantially all of the
assets and liabilities of Partec. At the time of this acquisition, Dr.
Rosenwald and his affiliates owned approximately 77% of our outstanding common
stock.

In connection with this acquisition, we agreed to retain Partec's
management and staff in exchange for approximately $570,000, plus accrued
interest, of Partec's indebtedness arising from a series of notes that it had
issued in February and April 1999, which we had subsequently acquired in
exchange for Series A preferred stock and warrants to purchase common stock.
We also assumed various trade payables and financial obligations owed by
Partec to the employees that we retained. To facilitate the transaction, we
established an Israeli subsidiary named Keryx (Israel) Ltd. in November 1999.
This subsidiary acts as our legal representative in Israel to conduct research
and development and employ our Israel-based staff.

KinAce License Agreement. On November 18, 1999, we acquired a license to
the KinAce platform from CMCC in exchange for certain royalty obligations and
the issuance of 805,538 shares

46
<PAGE>

of our common stock to CMCC. In addition, we granted CMCC warrants to purchase
375,000 additional shares of common stock at an exercise price of $0.0067 per
share that expire ten years after they vest. Half of the warrants vest upon
first approval of an IND application by the FDA for a product arising from
patents we have licensed from CMCC, and the other half vest upon final
marketing approval for such a product.

Controlling Stockholder. In accordance with UK best practice, we have
entered into agreements with each of Dr. Rosenwald and Mr. Kash whereby they
have agreed with us that we will be capable at all times of acting
independently of them and that all transactions between us and them in the
future will be on an arm's length basis.

Intercompany Agreement. Pursuant to an intercompany agreement, our Israeli
subsidiary provides us with certain services for which we reimburse it for its
costs plus a profit margin of 10% and value added tax. Except for income tax
paid in Israel on the profits of the subsidiary, this arrangement has no effect
on our consolidated financial statements.

Patent Attorneys. Pennie & Edmonds LLP acts as one of our patent counsel.
S. Leslie Misrock, a director of our company, is a senior partner of Pennie &
Edmonds.

We believe that all of the transactions discussed above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. A majority of our board of directors, including a majority of the
independent and disinterested directors, will approve all future transactions,
including loans, between us and our officers, directors, principal stockholders
and their affiliates and will be on terms no less favorable to us than could be
obtained from unaffiliated third parties. In addition to the transactions
discussed above, Dr. Laster and Mr. Weinstein are brothers-in-law.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of May 31, 2000, and as
adjusted to reflect the sale of our common stock offered by this prospectus,
by:

. all persons who are beneficial owners of three percent (3%) or more of
our common stock;

. each of our directors;

. each of our executive officers; and

. all current directors and executive officers as a group.

Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table below have sole voting and investment
power with respect to all shares of common stock held by them.

Applicable percentage ownership in the following table is based on
14,223,268 shares of common stock outstanding as of May 31, 2000, as adjusted
to reflect the automatic conversion of all shares of Series A preferred stock
outstanding immediately prior to this offering into 6,114,962 shares of common
stock.

Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within 60
days of May 31, 2000 are deemed outstanding. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.

The business address of Children's Medical Center Corporation is 300
Longwood Avenue, Boston, Massachusetts 02115. The business address of Nomura
Bank Switzerland is Kasernanstr. I, Zurich, Switzerland 1021. The business
address of Drax Holdings, L.P. is 2 North LaSalle Street, Suite 2200, Chicago,
Illinois 60602. The business addresses of the other beneficial owners may be
found in the "Management" section of this prospectus.

<TABLE>
<CAPTION>
Percentage Beneficially
Owned
Number of Shares ----------------------------
Beneficially Owned Before After
Name of Beneficial Owner Prior to Offering Offering Offering(1)
------------------------ ------------------ ----------- -------------
<S> <C> <C> <C>
Morris Laster, M.D.(2)...... 1,747,100 10.94% 8.49%
Benjamin Corn, M.D.(3)...... 176,526 1.23% *
Robert E. Gallahue, Jr. .... -- -- *
Ira Weinstein(4)............ 282,620 1.95% 1.48%
Bob Trachtenberg(5)......... 263,870 1.82% 1.38%
Lindsay A. Rosenwald,
M.D.(6).................... 5,997,800 41.64% 31.56%
Peter Morgan Kash(7)........ 980,250 6.84% 5.18%
Mark Rachesky, M.D.(8)...... 128,850 * *
S. Leslie Misrock(9)........ 60,000 * *
Wayne Rothbaum.............. -- -- --
Children's Medical Center
Corporation(10)............ 805,538 5.66% 4.28%
Nomura Bank (Switzerland)
Ltd.(11)................... 663,012 4.63% 3.50%
Drax Holdings, L.P.(12)..... 542,396 3.81% 2.88%
All executive officers and
directors as a group
(9 persons)(13)............ 9,637,016 56.53% 44.52%
</TABLE>
--------
* Represents beneficial ownership of less than one percent.

(1) Assumes no exercise of the underwriters' over-allotment option.

48
<PAGE>

(2) Includes 1,747,100 shares of common stock issuable upon the exercise of
vested options. All 1,747,100 options are held in the name of Mogul LLC,
a Delaware limited liability company, the sole member of which is an
irrevocable trust of which Dr. Laster is a beneficiary, but over which he
has no control.

(3) Includes 176,526 shares of common stock issuable upon the exercise of
vested options. All 176,526 options are held in the name of Crown
Investment Holdings, Inc., a Delaware corporation, the sole stockholder
of which is an irrevocable trust of which Dr. Corn is a beneficiary, but
over which he has no control.

(4) Includes 282,620 shares of common stock issuable upon the exercise of
vested options. All 282,620 options are held in the name of Radio Eon,
LLC, a Delaware limited liability company, the sole member of which is an
irrevocable trust of which Dr. Weinstein is a beneficiary, but over which
he has no control.

(5) Includes 263,870 shares of common stock issuable upon the exercise of
vested options. All 263,870 options are held in the name of Manzello
Associates, LLC, a Delaware limited liability company, the sole member of
which is an irrevocable trust of which Mr. Trachtenberg is a beneficiary,
but over which he has no control.

(6) Includes 70,301 shares of common stock to be issued upon the conversion
of 1,364 shares of Series A preferred stock held by Dr. Rosenwald, and
250,485 shares of common stock to be issued upon the conversion of 4,860
shares of Series A preferred stock held by Paramount Capital Investments
LLC, an affiliate of Paramount Capital, Inc., of which Dr. Rosenwald is
Chairman. It also includes 14,064 shares of common stock issuable upon
the exercise of a vested warrant held by Dr. Rosenwald, 50,110 shares of
common stock issuable upon the exercise of a vested warrant held by
Paramount Capital Investments LLC, and 116,090 shares of common stock
issuable upon the exercise of a vested warrant held by Paramount Capital,
Inc.

(7) Includes 112,500 shares of common stock issuable upon the exercise of
vested options. 30,000 shares of common stock beneficially owned by Mr.
Kash are subject to a 10-year purchase option that Mr. Kash granted to an
irrevocable family trust, and 1,500 shares are subject to a 10-year
purchase option granted to a charitable foundation. In addition, Mr. Kash
has granted each of three family members 10-year options to purchase
30,000 shares.

(8) Includes 128,850 shares of common stock to be issued upon the conversion
of 2,500 shares of Series A preferred stock.

(9) Includes 60,000 shares of common stock issuable upon the exercise of
vested options.

(10) David Kirshner, the Chief Financial Officer of Children's Medical Care
Corporation, has voting and investment power over these shares.

(11) Ahmed Hakki of Nomura Bank (Switzerland) has voting and investment power
over these shares.

(12) Linda Hamilton, Vice President of Inman Corporation, which is the General
Partner of Drax Holdings, L.P., has voting and investment power over
these shares.

(13) Includes 2,642,616 shares of common stock issuable upon the exercise of
vested options, 180,264 shares of common stock issuable upon the exercise
of vested warrants and 449,634 shares of common stock to be issued upon
the conversion of 8,724 shares of Series A preferred stock.

49
<PAGE>

DESCRIPTION OF OUR CORPORATE STRUCTURE AND CAPITAL STOCK

Corporate Structure

We incorporated as a Delaware corporation under the Delaware General
Corporation Law on October 22, 1998, with the name Paramount Pharmaceuticals,
Inc. On November 22, 1999, we changed our name to Lakaro Biopharmaceuticals,
Inc. On January 6, 2000, we changed our name to Keryx Biopharmaceuticals, Inc.

We have one subsidiary, Keryx (Israel) Ltd., which is incorporated in
Israel. We hold 99 shares of NIS1.00 nominal value each in Keryx (Israel) Ltd.
An additional one share of nominal value NIS1.00 is held by Morris Laster in
trust for our benefit. No other shares in Keryx (Israel) have been issued, nor
have any options or other rights been granted to any person to acquire or
receive any Keryx (Israel) shares. Our subsidiary is our main operating company
and operates primarily in and from Israel. Its registered office is located at
Kiryat Mada 5, Har Hotzvim, Jerusalem, Israel 91326.

We currently hold 211,500 shares of $0.001 each nominal value in MTR
Technologies, Inc., a company for which our predecessor company provided
management services. We value these shares in our accounts at their nominal
value. Our interest represents less than 5% of the issued share capital of MTR
Technologies, Inc. We have not held any interests in any other undertakings
since the date of our incorporation.

General Description of Our Capital Stock

Our authorized capital stock currently consists of 40,000,000 shares of
common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001
par value. On June 14, 2000, our board of directors declared a common stock
dividend of one share for each two shares held by a stockholder as of July 15,
2000 which will take effect on the closing of this offering. Immediately prior
to the completion of this offering, there will be 14,223,268 shares of common
stock outstanding (assuming conversion of all outstanding Series A preferred
stock, but no exercise of outstanding stock options or warrants) and
outstanding options and warrants to purchase 5,181,954 shares of common stock.
The liability of our stockholders is limited to the value of their shares and
any amount payable by them in respect of shares they have agreed to purchase.

The following summary of the terms and provisions of our capital stock does
not purport to be complete. Reference should be made to our certificate of
incorporation and our bylaws, and to applicable law, for the complete
description of the terms and provisions of our capital stock.

Common Stock

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, holders of common stock are entitled to receive ratably any dividends
that may be declared by our board of directors out of funds legally available
for dividend payments. Upon a liquidation, dissolution or winding up of our
company, holders of the common stock are entitled to share ratably in all
assets remaining after payment of liabilities and amounts due to the holders of
outstanding shares of preferred stock, if any. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions that apply to
our common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and non-assessable.

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<PAGE>

Preferred Stock

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon the preferred stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of a series, without any further vote or action by the
stockholders. Our board of directors, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of common stock. The issuance of preferred
stock could have the effect of delaying, deferring or preventing a change in
control. On December 6, 1999, our board of directors designated 170,000 shares
of preferred stock as Series A convertible preferred stock.

As of May 31, 2000, there were 118,645 shares of Series A preferred stock
outstanding. All outstanding shares of Series A preferred stock will be
converted into shares of common stock immediately prior to this offering.
Following such conversion there will be no preferred stock outstanding, and we
have no current plans to issue any further shares of preferred stock.

Warrants

As of May 31, 2000, the following warrants were outstanding:

. Warrants issued to CMCC to purchase 375,000 shares of common stock at an
exercise price of $0.0067 per share. Half of these warrants vest upon
the first approval of an IND application with the FDA for a product
arising from patents we have licensed from CMCC and the other half vest
upon the final marketing approval for such a product. These warrants
expire ten years after they vest.

. Ten-year warrants to purchase 303,832 shares of common stock at an
exercise price of $0.0067 per share issued to holders of Series A
preferred stock. All of these warrants are fully vested.

. Three-year warrants issued to Paramount Capital, Inc. to purchase
116,090 shares of common stock at an exercise price of $1.94. All of
these warrants are fully vested.

Each of these warrants contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise of
the warrant in the event of stock dividends, stock splits, reorganizations,
reclassifications or consolidations.

Registration Rights of Stockholders

In connection with the sale of our Series A preferred stock and warrants, we
have agreed to register the common shares issuable pursuant to those securities
under the Securities Act in the event we propose to register any of our
securities in an offering under the Securities Act. The holders of these shares
will be entitled to include, at our expense, their shares of common stock in up
to two such registrations. In addition, we will be required to use our
reasonable best efforts to have the registration statement declared effective.
These rights become effective on the first anniversary of this offering, and
shall terminate on the earlier of five years after the execution of the
agreement providing for these rights, or when a holder is able to sell all its
shares pursuant to Rule 144 under the Securities Act in any 90-day period.
Attached to these registration rights are conditions and limitations, including
the right of the underwriters to limit the number of shares included in the
registration statement.

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<PAGE>

Anti-Takeover Provisions of Delaware Law and Charter Provisions

Delaware Anti-Takeover Law

We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless the "business combination" or the transaction in which the
person became an "interested stockholder" is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns 15% or more of a corporation's outstanding
voting stock at any time within the prior three years, other than "interested
stockholders" prior to the time its common stock is publicly traded. This
provision has an anti-takeover effect with respect to transactions not approved
in advance by our board of directors, including discouraging takeover attempts
that might result in a premium over the market price for the shares of our
common stock held by stockholders.

Change of Control

Our certificate of incorporation and bylaws include provisions that may have
the effect of deterring hostile takeovers or delaying or preventing changes in
control or management. Our certificate of incorporation provides that our board
of directors can issue up to 5,000,000 shares of "blank check" preferred stock.
Our bylaws provide that special meetings of stockholders may be called only by
our board of directors, a committee thereof or an executive officer pursuant to
a resolution adopted by a majority of the total number of authorized directors.

Stock Transfer Agent and Registrar

American Stock Transfer and Trust Company will serve as transfer agent and
registrar for all of our common stock. The register will be maintained in the
United States.

Listing

Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "KERX." We have applied to have our common stock listed on the
Alternative Investment Market of the London Stock Exchange under the symbol
"KRX." The Nasdaq shares may be exchanged for AIM shares, and vice versa,
through the applicable procedures of the relevant clearing agency.

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<PAGE>

SUMMARY OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Objects of the Company

Our certificate of incorporation provides that we are permitted to engage
in any lawful act or activity for which corporations may be organized under
the Delaware General Corporation Law.

Variation of Capital

No change in the aggregate number of authorized shares of a class, increase
or decrease in par value of shares of such class, nor any change in the
powers, preferences or special rights of such class so as to affect them
adversely, may be effected unless a majority of the outstanding shares of such
class have voted in favor.

Reduction of Capital

Our certificate of incorporation and bylaws contain no provisions relating
to reduction of capital.

Issue of Shares

Our bylaws permit our board to make such rules and regulations as it deems
expedient, not inconsistent with our bylaws, concerning the issuance of
certificates for shares of our stock. Under Delaware law, our board may issue
shares of our capital stock in exchange for such consideration as it deems
appropriate, provided that such consideration shall not be less than the par
value of the shares issued.

Transfer of Shares

Shares of our common stock are transferable except to the extent such
transfer violates a restriction on transfer. Our certificate of incorporation
and bylaws currently do not contain any restrictions on transfer. No
restriction on transfer of shares that are owned by any person or group of
persons may be binding on the holders of shares issued prior to the adoption
of the restriction unless the holders of the shares are parties to an
agreement providing for the restriction or voted in favor of the restriction.
Our board may make such rules and regulations as it deems expedient concerning
the issue, transfer and registration of certificates for shares of our capital
stock.

Dividends

Such dividends as are declared and paid, in cash, in property or in shares
of capital stock, pursuant to a resolution of our board at any regular or
special meeting may be paid out of surplus or, if there is no surplus, out of
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. No dividends may be declared or paid out of such net
profits for so long as our capital is diminished to an amount less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The directors
have absolute discretion to set aside out of any funds available for dividends
such sums as they deem proper as a reserve to meet contingencies, or to
equalize dividends, or to repair or maintain any of our property, or for any
proper purpose. Our board may also abolish such reserve.

Unclaimed Dividends

Delaware law provides that dividends declared with respect to shares of
stock of a Delaware corporation that remain unclaimed for a period of five
years or more devolve to the State of Delaware if at the end of such five-year
period the issuer does not know the location of the owner.

Stockholder Meetings

Annual meetings of our stockholders may be held at such time, date and
place as our board of directors determines by resolution. Our board of
directors may call special meetings of our

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stockholders at any time. Notice of every meeting of our stockholders will be
given no more than 60 and no less than 10 days before the meeting. Prior notice
is not required for action by written consent in lieu of a stockholders'
meeting. Unless otherwise provided by law, the holders of shares of our stock
representing the majority of the outstanding voting interests will constitute a
quorum.

Delivery of Stock Certificates

Each owner of our stock is entitled to have a certificate or certificates in
the form prescribed by our board of directors certifying the number and class
of shares of our stock owned by him.

Borrowing

Under Delaware law, we have the power to borrow money at such rates of
interest as we may determine and to issue debt instruments.

Interested Transactions

No contract or transaction between us and one or more of our directors or
any other corporation, partnership, association or other organization in which
one or more of the directors are directors or officers or have a financial
interest shall be void or voidable solely because the director is present at or
participates in the meeting of the board of directors or committee which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purpose if:

. the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors, and the board of directors in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors are
less than a quorum;

. the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the disinterested
stockholders; or

. the contract or transaction is fair as to our company as of the time it
is authorized, approved or ratified, by the board of directors.
Interested directors may be counted for the purpose of determining the
presence of a quorum at a meeting of the board of directors or of a
committee which authorizes the contract or transaction.

Amendments

Our certificate of incorporation can be amended by a majority vote of our
stockholders, except for certain matters for which Delaware law requires
supermajority approval. Our bylaws can be amended by a majority vote of our
stockholders or by a majority vote of our board of directors, except for
amendments providing for a staggered board, which require stockholder approval.

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<PAGE>

OUR AUTHORIZED AND ISSUED CAPITAL

History of Authorized and Issued Capital

On October 26, 1998, we issued 6,900,000 shares of common stock at $0.001
per share.

On November 17, 1999, in connection with the KinAce license agreement, we
issued 805,538 shares of our common stock to CMCC. On November 19, 1999, in
connection with our entry into a consulting agreement with Professor Shmuel
Ben-Sasson, we issued 402,768 shares of our common stock to him.

On November 17, 1999, the directors designated 170,000 shares of our
preferred stock as Series A convertible preferred stock, par value $0.001 each.
In November and December 1999, a total of 79,465 shares of our Series A
convertible preferred stock was issued for $100 per share. In January 2000, a
total of 39,180 shares of our Series A convertible preferred stock was issued
for $100 per share. The 118,645 outstanding shares of preferred stock will
convert into 6,114,962 shares of common stock on the closing of this offering.

On June 14, 2000, our board of directors declared a common stock dividend of
one share for each two shares held by a stockholder as of July 15, 2000, which
will take effect on the closing of this offering.

On June 26, 2000, our stockholders approved an increase in our authorized
capital stock from 20,000,000 to 40,000,000 shares of common stock, par value
$0.001, which increase will take effect on the closing of this offering.

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<PAGE>

TAX CONSIDERATIONS

United States

The following is a summary of the material US federal income tax
consequences relevant to the purchase, ownership and disposition of our common
stock. The following summary is not binding on the US Internal Revenue Service,
or IRS, and the IRS could take an opposing view with respect to the tax
consequences described below.

This summary is based on the current provisions of the Internal Revenue Code
of 1986, as amended, Treasury regulations and judicial and administrative
authority, all of which are subject to change, possibly on a retroactive basis.
This summary applies only to persons who hold common stock as capital assets,
within the meaning of section 1221 of the Internal Revenue Code. This summary
does not discuss the tax consequences to special classes of investors,
including:

. brokers or dealers in securities or currencies;

. financial institutions;

. tax-exempt entities;

. life insurance companies;

. persons holding common stock as a part of a hedging, short sale,
conversion or straddle transaction;

. persons who are US Holders (as defined below) whose functional currency
is not the US dollar;

. persons who hold common stock through partnerships or other pass-through
entities; or

. except as specifically noted, foreign holders and certain US
expatriates.

Other than UK tax consequences, which are discussed below, state, local and
foreign tax consequences of ownership of our common stock are not summarized.

We have not requested, and do not intend to request, any rulings from the
IRS concerning the federal income tax consequences of an investment in our
common stock. Prospective US Holders are advised to consult with their tax
advisors regarding the consequences of acquiring, holding or disposing of our
common stock in light of current tax laws, their particular investment
circumstances, and the application of state, local and foreign tax laws.

References in the summary to a "US Holder" mean a beneficial owner of our
common stock that is:

. a citizen or resident of the US for US federal income tax purposes;

. a corporation created or organized in the US or under the laws of the US
or of any political subdivision thereof;

. an estate whose income is includable in gross income for US federal
income tax purposes regardless of its source; or

. a trust if a court within the US is able to exercise primary supervision
of the administration of the trust and one or more US persons have the
authority to control all substantial decisions of the trust or a trust
that has a valid election in effect under applicable US Treasury
regulations to be treated as a US person.

References in the summary to a "Non-US Holder" mean a beneficial owner of
our common stock that is not a US Holder.

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<PAGE>

US Holders

Taxation of Dividends

A cash distribution on our common stock will be treated as a dividend to the
extent of our current or accumulated earnings and profits allocable to the
distribution as determined under US federal income tax principles. The amount
of our earnings and profits at any time will depend upon our future actions and
financial performance. If the amount of the distribution exceeds current and
accumulated earnings and profits allocable to the distribution, the
distribution will be treated as a non-taxable return of capital and will be
applied against and reduce the US Holder's adjusted tax basis in our common
stock, but not below zero. The reduction in tax basis will increase the amount
of any gain, or reduce the amount of any loss, that the US Holder would
otherwise realize on the sale or other taxable disposition of our common stock.
If the distribution exceeds both our current and accumulated earnings and
profits allocable to the distribution and the US Holder's adjusted tax basis in
our common stock, the excess will be treated as capital gain and will be either
long-term or short-term capital gain, depending on the US Holder's holding
period for our common stock.

Corporate investors in our common stock generally should be eligible for the
70% dividends-received deduction with respect to the portion of any
distribution on our common stock taxable as a dividend. However, corporate
investors should consider certain provisions that may limit the availability of
the dividends-received deduction, including:

. the 46-day holding period required by section 246(c) of the Internal
Revenue Code,

. the rules in section 246A of the Internal Revenue Code that reduce the
dividends-received deduction for dividends on certain debt-financed
stock, and

. the rules in section 1059 of the Internal Revenue Code that reduce the
basis of stock in respect of certain extraordinary dividends.

Corporate investors should also consider the effect of the dividends-
received deduction on the determination of alternative minimum tax liability.

Taxation of Capital Gains

If a US Holder sells or disposes of our common stock in a taxable
transaction, the US Holder will recognize capital gain or loss equal to the
difference between the amount of cash and the fair market value of property
received and the US Holder's adjusted tax basis in the common stock disposed.
The gain or loss will be long-term capital gain or loss if the US Holder's
holding period for the common stock exceeds one year. For corporate taxpayers,
long-term capital gains are taxed at the same rate as ordinary income. For
individual taxpayers, net capital gains -- the excess of the taxpayer's net
long-term capital gains over his or her net short-term capital losses -- are
subject to a maximum tax rate of 20%.

Non-US Holders

Taxation of Dividends

Cash distributions received in respect of our common stock by a person that
is a Non-US Holder, to the extent considered dividends for US federal income
tax purposes, generally will be subject to withholding of US federal income tax
at a 30% rate or at a lower rate specified by an applicable income tax treaty,
unless the dividend is effectively connected with the Non-US Holder's conduct
of a trade or business within the US or, where a tax treaty applies, is
attributable to a US

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permanent establishment maintained by the Non-US Holder. The US withholding tax
rate on dividends paid by us to an individual who is a tax resident of the UK
will be 15%. The US withholding tax rate on dividends paid by us to a UK
corporation that owns 10% or more of our voting stock will be 5%.

If the dividend is effectively connected with the Non-US Holder's conduct of
a trade or business within the United States or, where a tax treaty applies, is
attributable to the Non-US Holder's US permanent establishment, the dividend
will be subject to US federal income tax on a net income basis at applicable
graduated individual or corporate rates and will be exempt from the withholding
tax. In addition, such dividends may, under some circumstances, be subject to
an additional "branch profits tax" at a 30% rate or at a lower rate specified
by an applicable income tax treaty.

For purposes of obtaining a reduced rate of withholding under an income tax
treaty, the Non-US Holder will be required to provide information concerning
the Non-US Holder's country of residence and entitlement to tax treaty benefits
on an appropriate form, currently IRS Form 1001 or Form W-8BEN. However, where
a Non-US Holder is required to file a form after December 31, 2000 to obtain a
reduced rate of withholding under an income tax treaty, whether by reason of
the expiration of a form filed earlier or otherwise, such Non-US Holder will be
required to file IRS Form W-8BEN and may be required to provide a taxpayer
identification number thereon. If the Non-US Holder claims exemption from
withholding with respect to dividends effectively connected with the Non-US
Holder's conduct of a business within the US, the Non-US Holder must provide
appropriate certification, currently IRS Form 4224 or Form W-8ECI, to us or our
paying agent. If the Non-US Holder is eligible for a reduced rate of US federal
withholding tax under an income tax treaty, the Non-US Holder may obtain a
refund of any excess amounts withheld by timely filing an appropriate claim for
refund.

If a distribution exceeds our current and accumulated earnings and profits
allocable to the distribution, it will be treated first as a return of the Non-
US Holder's tax basis in our common stock to the extent of the Non-US Holder's
adjusted tax basis in our common stock and then as gain from the sale of a
capital asset, which would be taxable as described below. Any withholding tax
on distributions in excess of our current and accumulated earnings and profits
will be refundable to the Non-US Holder upon the timely filing of an
appropriate claim for refund with the IRS.

Under currently applicable Treasury regulations, dividends paid to an
address outside the US are presumed to be paid to a resident of that country
unless the payor has knowledge to the contrary, for purposes of the withholding
discussed above, and, under the current interpretation of these Treasury
regulations, for purposes of determining the applicability of a tax treaty
rate. Under Treasury regulations currently scheduled to be effective with
respect to dividends paid after December 31, 2000, a Non-US Holder of our
common stock that wishes to claim the benefit of an applicable treaty rate, and
to avoid backup withholding as discussed below, will be required to satisfy
applicable certification and other requirements. However, under either set of
regulations, some payments to foreign partnerships and other fiscally
transparent entities may not be eligible for a reduced rate of withholding tax
under an applicable income tax treaty.

Taxation of Capital Gains

Generally, Non-US Holders will not be subject to US federal income tax on
any gain recognized upon the sale or other disposition of our common stock.
However, a Non-US Holder will be subject to federal income tax on the gain if:

(1) the gain is effectively connected with the Non-US Holder's US trade or
business or, if a tax treaty applies, attributable to the Non-US Holder's
US permanent establishment;

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(2) the Non-US Holder is an individual who is a former citizen of the US
who lost US citizenship within the preceding ten-year period, or a former
long-term resident of the US who relinquished US residency on or after
February 6, 1995, and the loss of citizenship or permanent residency had as
one of its principal purposes the avoidance of US tax; or

(3) the Non-US Holder is a non-resident alien individual, the Non-US Holder
is present in the US for 183 or more days in the taxable year of
disposition and either (a) the Non-US Holder has a "tax home" in the US for
US federal income tax purposes or (b) the gain is attributable to an office
or other fixed place of business that the Non-US Holder maintains in the
US.

The Non-US Holder will also be subject to US federal income tax on any gain
from the sale of our common stock if we are or have been a "US real property
holding corporation" within the meaning of section 897(c)(2) of the Internal
Revenue Code at any time the Non-US Holder held the stock, or within the five-
year period preceding the sale of the stock if the Non-US Holder holds the
stock for more than five years. We believe that:

. we are not now a "US real property holding corporation";

. we have not been a "US real property holding corporation" at any time
since we were formed; and

. based on the assumption that the fair market value of the US real
property interests of each company in our group will continue to be less
than 50 percent of the sum of the fair market value of our real property
interests plus the fair market value of any other assets in the US that
are used in a business, we should not be a "US real property holding
corporation" in the future.

If we were a "US real property holding corporation" or were to become a "US
real property holding corporation," the Non-US Holder would be subject to US
federal income tax on any gain from sale of common stock if the Non-US Holder
beneficially owned, or had owned at any time during the specified five-year
period, more than 5% of the total fair market value of the class of stock the
Non-US Holder sold.

Estate Tax

If a Non-US Holder is an individual Non-US Holder, common stock the Non-US
Holder holds or is treated as owning at the time of death will be included in
the Non-US Holder's US gross estate for US federal estate tax purposes and may
be subject to US federal estate tax, unless an applicable estate tax treaty
provides otherwise. The Estate and Gift Tax Treaty between the UK and the US
generally exempts from the US federal estate tax common stock held by an
individual who at the time of his death is domiciled in the UK.

Information Reporting and Backup Withholding

We generally will be required to report to certain US and Non-US Holders and
to the IRS the amount of any dividends paid to the US and Non-US Holder in each
calendar year and the amounts of tax withheld, if any, with respect to the
dividend payments. Copies of the information returns reporting the dividends
and withholding may also be made available to the tax authorities in the
country in which a Non-US Holder resides under the provisions of an applicable
income tax treaty.

Each holder of common stock, other than an exempt holder such as:

. a corporation, tax-exempt organization, or qualified pension or profit
sharing trust,

. an individual retirement account, or

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. a non-resident alien individual who provides certification as to his or
her status as a nonresident,

will be required to provide, under penalties of perjury, a certification
setting forth:

. the holder's name, address and correct federal taxpayer identification
number, and

. a statement that the holder is not subject to backup withholding.

If a non-exempt US or Non-US Holder fails to provide the required
certification, we will be required to withhold 31% of the amount otherwise
payable to the US or Non-US Holder, and remit the withheld amount to the IRS as
a credit against the US or Non-US Holder's federal income tax liability.
However, no backup withholding will be required with respect to any payment
subject to the 30% US withholding tax (or lower treaty rate) discussed above.
US or Non-US Holders should consult their own tax advisors regarding
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.

The IRS has finalized Treasury regulations regarding the backup withholding
and information reporting rules which are effective for payments made after
December 31, 2000, subject to certain transition rules. In general, these
regulations unify certification procedures and forms and clarify and modify
reliance standards. Among other provisions, these regulations also include the
new provisions discussed below regarding sales of stock outside the US by or
for a broker. A Non-US Holder should consult its own tax advisor regarding the
application of the new regulations.

Payment of the proceeds of a sale of our common stock by or through a US
office of a broker will be subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a Non-US Holder or otherwise establishes exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of common stock by or through a foreign office of a broker.
If, however, the broker is, for US federal income tax purposes:

. a US person,

. a "controlled foreign corporation,"

. a foreign person, 50% or more of whose gross income is effectively
connected with a US trade or business for a specified three-year period,
or

. for taxable years beginning after December 31, 2000, a foreign
partnership in which one or more US persons, in the aggregate, own more
than 50% of the income or capital interests in the partnership or if the
partnership is engaged in a trade or business in the US,

payment of the proceeds will be subject to information reporting, but not
backup withholding, unless:

. the broker has documentary evidence in its records that the beneficial
owner is a Non-US Holder and certain other conditions are met, or

. the beneficial owner otherwise establishes an exemption.

For payments after December 31, 2000, certification will be required in the
case of the disposition of shares of common stock held in an offshore account
if the disposition is made through a foreign broker described in the
immediately preceding paragraph.

Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the US or Non-US Holder's US federal income tax
liability, provided the required information is furnished to the IRS.

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The foregoing discussion is for general information and is not tax advice.
Accordingly, each US or Non-US Holder of our common stock should consult its
tax advisor as to the particular tax consequences to it of our common stock,
including the applicability and effect of any state, local or foreign income
tax laws, and any recent or prospective changes in applicable tax laws.

United Kingdom

The comments below are of a general nature and are based on current UK law
and Inland Revenue practice at the date of this prospectus and the provisions
of the double taxation treaty between the UK and the US. The summary only
covers the principal UK tax consequences of holding common stock for holders of
common stock (1) who are resident or ordinarily resident in the UK for tax
purposes; (2) who are not resident in the US; and (3) who do not have a
permanent establishment or fixed base in the US with which the holding of
common stock is connected ("UK Holders"). In addition, the summary (1) only
addresses the tax consequences for UK Holders who hold our common stock as an
investment; (2) assumes that the UK Holder is not a company that either
directly or indirectly controls 10% or more of the voting power of our company;
and (3) assumes that the UK Holder does not hold the common stock in trust.

Taxation of Dividends

A dividend paid by us may, depending on the circumstances of the person
entitled to it, be subject to US tax. Under the current double tax treaty
between the UK and the US, the amount of any tax withheld at source on
dividends paid by us to a UK Holder will be limited to 15% in normal
circumstances where the UK Holder is subject to UK tax on the dividend
concerned.

Where a UK Holder is entitled to a dividend from us, the dividend may,
depending upon the UK Holder's particular circumstances, be subject to UK
income tax or corporation tax. A credit for US withholding tax should be given
against any UK tax liability in respect of the dividend.

Where a UK paying agent makes a payment in respect of a dividend payable in
respect of our common stock, that person will be required to withhold on
account of UK income tax at the lower rate (currently 10%), subject to any
setoff of foreign withholding tax. Assuming a 15% US withholding, no additional
UK withholding will therefore be due. The payment may not, in any case, be a
relevant payment, and therefore not subject to UK withholding tax, in a number
of circumstances including:

. the common stock is held in a "recognized clearing system" (Euroclear
and Cedel have each been designated as a "recognized clearing system" as
such) and payments are made by the UK paying agent directly into this
system or to its depository;

. the beneficial owner of the common stock and the related dividends is
not resident in the UK or is specified by regulations;

. the dividends are payable to trustees of certain qualifying
discretionary and accumulation trusts where the trustees are not
resident in the UK and none of the beneficiaries of the trust are
resident in the UK;

. the person beneficially entitled to the dividends is eligible under
specified provisions for relief from UK tax in respect of the dividends;
or

. the dividends fall to be treated as the income of, or of the government
of, a sovereign power or of certain international organizations.

In each case the exemption is subject to any requirements under the paying
agent scheme which have to be satisfied, such as a requirement that a
declaration in the form required by law be

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given, on the occasion of each payment or otherwise, as the case may be, to the
person by whom, through whom or to whom the payment is made.

Where a UK person acts as a collecting agent, i.e., in the course of his
trade or profession:

. acts as a custodian of the common stock and receives dividends, or
directs that dividends be paid to another person, or consents to such
payment;

. collects or secures payment of, or receives dividends on, the common
stock for another person (except by means of clearing a cheque or
arranging for the clearing of a cheque); or

. otherwise acts for another person in arranging to collect or secure
payment of dividends on the common stock;

that person will be required to withhold on account of UK income tax at the
lower rate (currently 10%) subject to any setoff of foreign withholding tax.
Assuming a 15% US withholding, no additional UK withholding will therefore be
due. The payment may not in any case be a relevant receipt (and therefore not
subject to UK withholding tax) if:

. the common stock is held in a "recognized clearing system" (Euroclear
and Cedel amongst others have been designated as such) and payments are
made by the UK collecting agent into this system or to its depository;

. the beneficial owner of the common stock and the related dividends is
not resident in the UK or is specified by regulations;

. the person beneficially entitled to the dividends is eligible under
specified provisions for relief from UK tax in respect of the dividends;
or

. the dividends fall to be treated as the income of, or of the government
of, a sovereign power or of certain international organizations.

In each case the exemption is subject to any requirements under the
collecting agent scheme which have to be satisfied such as a requirement that a
declaration in the form required by law be given, on the occasion of each
payment or otherwise, as the case may be, to the person by whom, through whom
or to whom the payment is made.

Finance Bill 2000

The Finance Bill published on April 7, 2000 includes draft provisions
whereby the obligations on paying and collecting agents to withhold tax as
described above would be abolished in respect of payments and receipts on or
after 1 April 2001 and instead the Inland Revenue would be given powers to
obtain information from such paying and collecting agents.

The Finance Bill also contains various provisions which are designed to
improve the arrangements whereby the Inland Revenue exchanges information with
other countries.

The Finance Bill is due to be enacted in July 2000 and the draft provisions
referred to above could change prior to that date.

Taxation of Capital Gains

A gain arising to a UK Holder will not normally be subject to tax in the US.
The disposal or deemed disposal of our common stock by a UK Holder will
generally give rise to a chargeable gain

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or an allowable loss for the purposes of UK taxation of capital gains. In the
case of a UK Holder which is a company, an indexation allowance can be used to
reduce or eliminate the gain but not to create or increase an allowable loss.
If the UK Holder is an individual, in certain circumstances a tapering relief
may be available to reduce a capital gain. A UK Holder who is an individual is
entitled to an annual exemption from tax on capital gains, currently up to
(Pounds)7,200.

A UK Holder subject to capital gains tax in the US on a disposal or deemed
disposal of common stock should be entitled to a credit for such US taxation
against his or her liability to UK tax.

Stamp Duty and Stamp Duty Reserve Tax

No Stamp Duty Reserve Tax ("SDRT") will be payable on an agreement to
transfer shares of common stock unless they are registered in a register kept
in the UK on behalf of our company (a "UK Register"). No liability to UK stamp
duty will arise on a transfer of common stock provided that the instrument of
transfer is executed outside the UK, unless it relates to something done or to
be done in the UK.

UK stamp duty is generally paid at the rate of 0.5% of the price paid with
the duty rounded up to the next (Pounds)5. SDRT is generally paid at the rate
of 0.5% of the price paid.

Any instrument effecting or evidencing the transfer of common stock kept on
a UK Register will not be admissible as evidence in UK civil proceedings unless
duly stamped. There are no current proposals to register our shares of common
stock on a UK Register.

Inheritance Tax

UK inheritance tax may be chargeable on the death of, or in certain
circumstances on a gift of common stock by, the owner of common stock where the
owner is an individual who is either (a) domiciled or is deemed to be domiciled
in the UK, or (b) not domiciled in the UK and the common stock is primarily
dealt with on a UK Register.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for our common
stock. Sales of substantial amounts of common stock in the public market, or
the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair our future ability to raise capital
through the sale of equity securities.

Upon the closing of this offering, there will be an aggregate of 18,823,268
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
the outstanding shares, the 4,600,000 shares being sold in this offering will
be freely tradable, except that any shares held by our affiliates may only be
sold in compliance with the limitations described below. Those 14,223,268
shares of common stock which are held by our current stockholders will be
deemed "restricted securities" that may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144 or 701 under the Securities Act. These rules are summarized below.

Subject to the lock-up agreements described elsewhere in this prospectus and
the provisions of Rules 144 and 701, shares in addition to those being offered
by this prospectus will be available for sale in the public market as follows:

<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<C> <S>
None Immediately after the date of this prospectus

1,520,635 At various times 110 days after the date of
this prospectus (subject to limitations in
volume and manner of sale)

5,322,980 180 days after the date of this prospectus
(subject to limitations in volume and manner
of sale)

7,379,653 One year after the date of this prospectus
</TABLE>

Approximately 180 days after completion of this offering, we intend to file
a registration statement on Form S-8 under the Securities Act to register all
of the shares of common stock reserved for future issuance under our stock
option plans. Based on the number of shares reserved for issuance as of June
30, 2000 this registration statement would cover approximately 8,685,000
shares. As of June 30, 2000, there was an aggregate of 4,480,032 options
outstanding. Shares registered under the registration statement will generally
be available for sale in the open market after the lock-up agreements expire.

In general, under Rule 144, as currently in effect, a person who owns shares
that were acquired from the issuer or an affiliate of the issuer at least one
year prior to the proposed sale is entitled to sell, within any three-month
period commencing 90 days after the date of the prospectus, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of common
stock (approximately 188,000 shares immediately after this offering, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants) or the average weekly trading volume in the
common stock during the four calendar weeks preceding the date on which notice
of that sale is filed, subject to certain additional public information and
notification requirements. In addition, if the shares were acquired from the
issuer or an affiliate of the issuer at least two years prior to the proposed
sale, a person who has not been an affiliate of the issuer during the preceding
three months is entitled to sell those shares under Rule 144(k) without regard
to the requirements described above.

In addition, any of our employees, directors, consultants or officers who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701 of the Securities Act,
which permits non-affiliates to sell their Rule 701 shares without

64
<PAGE>

having to comply with the public information, holding period, volume limitation
or notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case commencing 90 days after the date of this prospectus.

As of the date of this prospectus, options to purchase a total of 4,387,032
shares of common stock are outstanding, of which options to purchase 3,274,032
shares are currently exercisable and 794,922 warrants are outstanding.
Subsequent to the closing of this offering, we intend to file a registration
statement to register 4,230,000 shares of common stock reserved for issuance
under our option plan. That registration statement will automatically become
effective upon filing. Accordingly, shares issued upon the exercise of stock
options granted under our option plan will be eligible for resale in the public
market from time to time, subject to vesting restrictions and, in the case of
some of the options, to lock-up agreements. See "Underwriting." At the closing
of this offering, 419,922 shares of common stock will be issuable upon the
exercise of outstanding warrants.

Beginning 12 months after this offering, some holders of our common stock
will have rights to have their shares registered for resale under the
Securities Act. See "Description of Our Corporate Structure and Capital Stock--
Registration Rights of Stockholders."

65
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement, dated July 27, 2000, we have agreed to sell to the underwriters
named below the following respective numbers of shares:

<TABLE>
<CAPTION>
U.S. Underwriters Number of Shares
----------------- ----------------
<S> <C>
Roth Capital Partners, Inc..................................... 575,000
Gruntal & Co., L.L.C. ......................................... 575,000
Subtotal..................................................... 1,150,000
<CAPTION>
International Underwriter
-------------------------
<S> <C>
WestLB Panmure Limited......................................... 3,450,000
---------
Total...................................................... 4,600,000
=========
</TABLE>

Roth Capital Partners, Inc. and WestLB Panmure Limited are acting as the
Global Coordinators in connection with this offering. Roth Capital Partners,
Inc. and Gruntal & Co., L.L.C. are acting as the US representatives for the
several US underwriters.

All sales in the US will be made through US registered broker-dealers. The
underwriting agreement provides that the underwriters are obligated to purchase
(or in the case of the international underwriter procure purchasers for) all of
the common stock in this offering other than the common stock covered by the
over-allotment option described below. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of non-defaulting
underwriters may be increased or this offering of common stock may be
terminated.

The underwriters propose to offer the common stock initially at the public
offering price listed on the cover page of this prospectus and to selling group
members at that price less a concession of $0.38 per share. After this
offering, the public offering price and concessions and discounts to dealers
may be changed by the Global Coordinators.

The following table summarizes the compensation and estimated expenses we
will pay:

<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $0.70 $0.70 $3,220,000 $3,703,000
Expenses payable by us.. $0.33 $0.28 $1,500,000 $1,500,000
</TABLE>

Pursuant to an agreement among the US and international underwriters, each
US underwriter has agreed that, as part of its distribution of the common stock
and subject to specified exceptions, it has not offered or sold, and will not
offer or sell, directly or indirectly, any common stock or distribute any
prospectus relating to the common stock to any person outside the United States
or Canada or to any other dealer who does not so agree. The international
underwriter has agreed that, as part of its distribution of our common stock,
it has not offered or sold, and will not offer or sell, directly or indirectly,
any common stock or distribute any prospectus relating to the common stock in
the United States or Canada. The foregoing limitations do not apply to
stabilization transactions or to transactions between the US and international
underwriters. As used herein, "United States" or "US" means the United States
of America, including each state and the District of Columbia, its territories,

66
<PAGE>

possessions and other areas subject to its jurisdiction. "Canada" means Canada,
its provinces, territories, possessions and other areas subject to its
jurisdiction. An offer or sale shall be in the United States or Canada if it is
made to (1) any individual resident in the United States or Canada or (2) any
corporation, partnership, pension, profit-sharing or other trust or entity,
including any such entity acting as an investment adviser with discretionary
authority, whose office most directly involved with the purchase is located in
the United States or Canada.

We have agreed not to offer, sell or contract to sell or otherwise dispose
of, directly or indirectly, or announce the offering of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
shares of common stock, for a period of 90 days after the date of this
prospectus without the prior written consent of the Global Coordinators. This
limitation does not apply to the issuance of shares pursuant to:

. the conversion or exchange of convertible or exchangeable securities
existing on the date of this prospectus;

. the exercise of warrants, options or subscription rights existing on the
date of this prospectus; or

. grants of employee stock options under the terms of a plan in effect on
the date of this prospectus (provided the options are granted or issued
at an exercise price not less than fair market value) and the exercise
of these options.

In connection with the AIM admission rules, the following persons have
agreed not to dispose of any interest in their common stock for a period of one
year from the date of our admission to AIM:

<TABLE>
<S> <C>
Lindsay A. Rosenwald Morris Laster
Paramount Capital, Inc. Ira Weinstein
Paramount Capital Investments LLC Bob Trachtenberg
Peter M. Kash Michael Spero
Mark C. Rogers Benjamin W. Corn
Shmuel Ben-Sasson Wayne Rothbaum
Mark A. Rachesky S. Leslie Misrock
</TABLE>

The restrictions on disposal do not apply in the event of an intervening court
order or a takeover offer for us becoming or being declared unconditional.

In addition to those persons who have agreed to the one-year lock-up, our
beneficial owners who hold in excess of 112,500 shares and who have not
otherwise agreed to the one-year lock-up as described above, and some of our
employees have agreed, subject to specified exceptions, not to, directly or
indirectly, offer, sell, contract to sell, pledge, hypothecate or otherwise
dispose of any common stock or any options or warrants to purchase any common
stock, or any securities convertible into or exchangeable for common stock
owned as of the date of this prospectus, without the prior written consent of
the Global Coordinators. This restriction terminates after the close of trading
of our common stock on the 180th day following the date of this prospectus.
However, the Global Coordinators may, in their sole discretion and at any time
or from time to time before the termination of the 180-day period, without
notice, release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the Global Coordinators
and any of our stockholders who have executed a lock-up agreement providing
consent to the sale of shares prior to the expiration of the lock-up period.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act as described in the underwriting agreement, or contribute to
payments which the underwriters may be required to make in respect thereof.

67
<PAGE>

Prior to this offering, there has been no public market for our common
stock. The public offering price for our common stock has been determined by
negotiation between us and the underwriters. Among the factors considered in
determining the public offering price were prevailing market and economic
conditions, our financial conditions and results of operations, market
valuations of other companies engaged in activities similar to ours, estimates
of our business potential and prospects, the present state of our business
operations, our management and other factors deemed relevant. We cannot assure
you that a regular trading market for our common stock can be sustained. The
price at which our common stock will sell in the public markets after this
offering may be lower than the price at which our common stock is sold by the
underwriters in this offering.

At our request, the underwriters have reserved up to 230,000 shares of
common stock for certain of our directors, employees and friends. The number of
shares available for sale to the general public in the offering will be reduced
to the extent these persons purchase any reserved shares. Any reserved shares
not purchased by these persons will be offered to the general public and to
institutional investors on the same basis as the other shares offered pursuant
to this prospectus.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include
stabilizing transactions, short sales and purchases to cover positions created
by short sales. Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market price of the
common stock while the offering is in progress. Short sales involve the sale by
the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' overallotment option to purchase additional
shares from us in the offering. The underwriters may close out any covered
short position by either exercising their overallotment option or purchasing
additional shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
overallotment option. "Naked" short sales are sales in excess of the
overallotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.

The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of our common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, the
Alternative Investment Market, in the over-the-counter market or otherwise.

68
<PAGE>

LEGAL MATTERS

The validity of common stock offered by this prospectus will be passed upon
for us by Morgan, Lewis & Bockius LLP, New York, New York and for the
underwriters by Baer Marks & Upham LLP, New York, New York.

EXPERTS

Our balance sheets as of December 31, 1997, 1998 and 1999, and the
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, have been included in
this registration statement in reliance on the report of Somekh Chaikin, a
member firm of KPMG International, independent accountants, given on the
authority of that firm as experts in accounting and auditing. An independent
expert's report has been prepared by PA Strategy Partners Ltd., independent
technology experts.

WHERE YOU CAN FIND MORE INFORMATION

Securities and Exchange Commission Requirements

We have filed with the SEC a registration statement, of which this
prospectus forms a part, on Form S-1 with respect to the common stock being
offered by this prospectus. This prospectus does not contain all of the
information included in the registration statement and its exhibits and
schedules. For further information with respect to our company and the shares
of common stock we are offering, reference is made to the registration
statement, including its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document we refer to are
not necessarily complete and, where such contract is an exhibit to the
registration statement, each such statement is qualified in all respects by the
provisions of such exhibit, to which such reference is made. As a result of
this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act of 1934, and we will file periodic
reports, proxy statements and other information with the SEC. You may read and
copy any document we file with the SEC at the SEC's Public Reference Room
located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
Information on the operation of the Public Reference Room is available by
calling 1-800-SEC-0330. You may also read and copy any document we file with
the SEC at the SEC's Regional Offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York,
New York 10048. Upon approval of the common stock for quotation on the Nasdaq
National Market, such reports, proxy and information statements and other
information may also be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC's website is
http://www.sec.gov.

Alternative Investment Market Requirements

Copies of this document will be available for collection at the offices of
Morgan, Lewis & Bockius, 2 Gresham Street, London EC2V 7PE.

69
<PAGE>

ADDITIONAL INFORMATION FOR THE ALTERNATIVE INVESTMENT MARKET

Copies of the following documents will be available for inspection at the
offices of Morgan, Lewis & Bockius, 2 Gresham Street, London EC2V 7PE for 14
days from the day the SEC declares this registration statement effective during
usual business hours on any weekday (Saturdays and public holidays excepted):

(i) our certificate of incorporation and bylaws;

(ii) the report by PA Strategy Partners Ltd. set out on pages A-1 to A-14
of this prospectus;

(iii) the report by Somekh Chaikin, a member firm of KPMG International,
set out on pages F-1 to F-24 of this prospectus;

(iv) the contracts referred to in "Management--Employment Agreements";

(v) the rules of our 1999 Share Option Plan and our 2000 Share Option
Plan;

(vi) our consolidated audited accounts for each of the years ended
December 31, 1997, 1998 and 1999;

(vii) letters of consent from PA Strategy Partners Ltd. and Somekh Chaikin
referred to below; and

(viii) copies of each of the sources referred to in this prospectus.

1. We expect that conditional dealings in the offered shares on Nasdaq will
commence at 2:30 p.m. (London time) on July 28, 2000 and that unconditional
dealings on the Alternative Investment Market and Nasdaq will commence at 2:30
p.m. (London time) on August 2, 2000.

2. Each of Morgan, Lewis & Bockius LLP and Baer Marks & Upham LLP has given
and has not withdrawn its written consent to the inclusion of its name in the
form and context in which they appear.

3. PA Strategy Partners Ltd. has given and has not withdrawn its written
consent to the issue of this prospectus with its name included in it and the
references thereto in the form and context in which they appear and has
authorized the inclusion of their report set out on pages A-1 to A-14 of this
prospectus for the purposes of Regulation 13(1)(g) of the Public Offers of
Securities Regulations 1995.

4. Somekh Chaikin, a member firm of KPMG International, Certified Public
Accountants, has given and has not withdrawn its written consent to the
inclusion in this prospectus of their report set out on pages F-1 to F-24 of
this prospectus for the purposes of Regulation 13(1)(g) of the Public Offers of
Securities Regulations 1995 and has not become aware since the date of such
report of any matter affecting the validity of the report and accepts
responsibility for such report.

5. Somekh Chaikin, a member firm of KPMG International, audited our
consolidated balance sheets and the balance sheets of Partec Ltd., our
predecessor company, and its subsidiaries and our subsidiary as of December 31,
1997, 1998 and 1999 and the related consolidated statements of operations,
statements of changes in stockholders' equity and consolidated statements of
cash flows for each of the three financial years ended December 31, 1999.

6. Shares of our common stock will be issued in registered form. Subject to
our certificate of incorporation, our directors and executive officers may
determine that any class of shares may be held in uncertificated form and title
to such shares may be transferred by means of a relevant system, as defined in
the Uncertified Securities Regulations 1995, or that shares of any class should
cease to be held and transferred as aforesaid. No temporary documents of title
will be issued.

70
<PAGE>

7. In our opinion, taking into consideration the net proceeds of the
offering receivable by us, the working capital available to us is sufficient
for our present requirements, that is, for at least 12 months from the date of
our expected admission to listing on the Nasdaq National Market and the
Alternative Investment Market.

8. In the opinion of the directors, the minimum amount which must be raised
pursuant to the offering for the purposes set out in paragraph 21(a) of
Schedule 1 to the Public Offers of Securities Regulations 1995 is:

<TABLE>
<C> <S> <C>
(i) the purchase price of properties $Nil
(ii) commissions and expenses $5,000,000
(iii) repayment of borrowings $Nil
(iv) working capital $29,300,000
</TABLE>

9. The following persons (excluding professional advisors otherwise
disclosed in this document and trade suppliers) have received, directly or
indirectly, from us in the past twelve months, or are entitled to receive
pursuant to contractual agreements not otherwise disclosed in this document,
fees totaling (Pounds)10,000 or more, or securities or any other benefit with a
value of (Pounds)10,000 or more:

<TABLE>
<CAPTION>
Amount
Name of person Nature of relationship received
--------------------------------- ------------------------------ -----------
<S> <C> <C>
Yigal Arnon & Co. ............... Legal advisor $ 40,170.78
Dr. Mark Friedman Ltd. .......... Patent attorney $ 23,773.82
Hadasit Medical Research Services
& Development Company, Ltd. .... KinAce research $ 25,087.17
Hoyle Consulting................. KRX-101 consulting $104,735.27
Kleinberg Kaplan Wolff & Cohen,
P.C. ........................... Legal advisor $ 54,320,96
Leumi & Co. Underwriters Ltd..... Private placement underwriters $ 88,275.00
Pennie & Edmonds LLP............. Patent attorney $ 83,414.04
Waymack, Inc..................... KRX-101 consulting $ 26,400.00
</TABLE>

10. The directors will apply for the common stock to be admitted to CREST to
take effect upon admission to the Alternative Investment Market. Accordingly,
it is expected that the common stock will be enabled for settlement in CREST by
means of the cross border link which exists between CREST for UK settlement and
the Depository Trust Company for US settlement, following admission to AIM.
Under the placing, placees who are system members (as defined in the POS
Regulations) may elect to have their common stock allocated to them in
uncertificated form through CREST.

11. Share certificates representing the shares of common stock to be issued
pursuant to the offering are expected to be despatched to applicants by mail at
their risk on admission to listing of the common stock on the Nasdaq National
Market and the Alternative Investment Market. Temporary documents of title will
not be issued in connection with the offering.

12. Except as stated in this prospectus, we do not have any significant
investments in progress, nor are there any exceptional facts that have
influenced the our development.

13. Monies received from applicants pursuant to the offering will be held by
the Joint Global Coordinators until the offering becomes unconditional in all
respects. If the offering does not become unconditional in all respects by
August 4, 2000, monies will be returned to applicants promptly at their risk
without interest.

14. Payment for our common stock must be made to the Joint Global
Coordinators by close of business (London time) on August 3, 2000.

71
<PAGE>

15. The directors do not believe that following this offering there will be
any persons who, directly or indirectly, jointly or severally, exercise or
could exercise control over us.

16. The directors are the persons responsible for the consolidated financial
statements set out on pages F-1 to F-24 of this document which they confirm
have been properly prepared in accordance with applicable law and they accept
responsibility for them.

17. The financial statements set out on pages F-19 to F-24 of this
prospectus were prepared for the purposes of complying with Securities and
Exchange Commission requirements for the admission of our common stock to the
Nasdaq National Market.

Directors

At the date of this document no director has had any convictions relating to
criminal proceedings, has been bankrupt or has made or been the subject of any
individual voluntary arrangements.

None of our directors has been a director of any company at the time of, or
within twelve months preceding the date of, its receivership, compulsory
liquidation, creditors' voluntary liquidation administration, company voluntary
arrangements or any composition or arrangements with its creditors generally or
any class of its creditors. None of our directors has been a partner of any
assets of such partnership nor have any of their assets been the subject of
receivership.

Our directors are currently, or have been in the past five years, directors
or partners of the following companies or partnerships, as appropriate:

<TABLE>
<CAPTION>
Company or
Name Partnership Whether Position Still Held
---- ----------- ---------------------------
<C> <S> <C>
Morris Laster, M.D. Progenitor Inc. No

Peter Morgan Kash Paramount Capital, Inc. Yes
Paramount Capital Asset
Management, Inc. Yes

S. Leslie Misrock Pennie & Edmonds LLP Yes
Cytogen Corporation Yes
DirectGene Inc. Yes
Molecular Staging, Inc. Yes
OANDA Corporation Yes
Timbrel Systems Inc. Yes
SerOptix Inc. Yes
Quintessential Technologies LLC Yes
Misrock Holdings LP Yes
NetStage Corporation No

Mark H. Rachesky, M.D. Samsonite Corporation Yes
Neose Technologies, Inc. Yes
Culligan Water Technologies, Inc. No
Cadus Pharmaceuticals No

Lindsay A. Rosenwald, M.D. Paramount Capital, Inc. Yes
Paramount Capital Investments LLC Yes
Paramount Capital Asset
Management, Inc. Yes
Neose Technologies, Inc. Yes
Nephros, Inc. Yes
Discovery Laboratories, Inc. No
</TABLE>

72
<PAGE>

<TABLE>
<CAPTION>
Name Company or Partnership Whether Position Still Held
---- ---------------------- ---------------------------
<C> <S> <C>
Atlantic Pharmaceuticals, Inc. No
Avigen, Inc. No
Biocryst Pharmaceuticals, Inc. No
Titan Pharmaceuticals, Inc. No
VIMRx Pharmaceuticals, Inc. No
Zenometrix, Inc. No
Interneuron Pharmaceuticals, Inc. No
Sparta Pharmaceuticals, Inc. No

Wayne Rothbaum The Carson Group Yes
Enzon, Inc. Yes
Maxim Pharmaceuticals Yes
</TABLE>

Substantial Stockholders

Our directors are aware of the following interests of persons other than
directors, direct or indirect, as of April 30, 2000, which will, following the
offering, represent three percent or more of the issued share capital of our
company.

<TABLE>
<CAPTION>
Number of Shares of Percentage of
Common Stock Issued Common Stock
Stockholder Following the Offering Following the Offering(1)
----------- ---------------------- -------------------------
<S> <C> <C>
Children's Medical Center
Corporation................. 805,538 4.29%
</TABLE>
--------
(1) This percentage assume no exercise of the over-allotment option.

As of the date of this prospectus and immediately following the offering,
the interests of each director and their related persons in the share capital
and options and warrants of Keryx are:

<TABLE>
<CAPTION>
Percentage of
Issued Number of
Number of Percentage of Common Stock Options
Shares of Issued Following or Exercise Exercise
Name Common Stock Common Stock(1) this Offering Warrants Price Period
---- ------------ --------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Morris Laster, M.D. ......... -- -- -- 1,522,100 $0.10 25 years
450,000 $0.10 10 years
Peter Morgan Kash............ 867,750 6.10% 4.76% 37,500 $0.10 10 years
75,000 $0.33 10 years
S. Leslie Misrock............ -- -- -- 37,500 $0.10 10 years
22,500 $0.33 10 years
Mark Rachesky, M.D. ......... 128,850(2) 0.90% 0.71% 60,000 $0.33 10 years
Lindsay A. Rosenwald, M.D. .. 5,817,536(3) 40.90% 32.92% 64,174(4) $0.0067 10 years
116,090(5) $1.94 3 years
Wayne Rothbaum............... -- -- -- 60,000 $0.33 10 years
</TABLE>
--------
(1) These percentages assume no exercise of the over-allotment option.

(2) Represents common stock issued upon the conversion of 2,500 shares of
Series A preferred stock.

(3) Includes 320,786 shares of common stock issuable upon the conversion of
6,224 shares of Series A preferred stock.

(4) Includes 14,064 shares of common stock issuable upon the exercise of
warrants held directly and 50,110 shares of common stock issuable upon
the exercise of warrants held by Paramount Capital Investments LLC.

(5) Represents common stock issuable upon the exercise of warrants held by
Paramount Capital, Inc.

73
<PAGE>

INDEX TO FINANCIAL STATEMENTS

KERYX BIOPHARMACEUTICALS, INC.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2

Consolidated Balance Sheets as of December 31, 1997, 1998 and 1999....... F-3

Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-4

Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999.................................. F-5

Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-6

Notes to the Consolidated Financial Statements........................... F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Keryx Biopharmaceuticals, Inc.

Somekh Chaikin
Certified Public Accountants (Isr.)
A member firm of KPMG International

We have audited the accompanying consolidated balance sheets of Keryx
Biopharmaceuticals, Inc. (the "Company") and its subsidiary, a development
stage company, as of December 31, 1997, 1998 and 1999, and the related
consolidated statements of operations, statements of changes in stockholders'
equity and consolidated statements of cash flows for each of the years in the
three-year period ended December 31, 1999, and for the development stage
period. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and its subsidiary, a development stage company, at December 31, 1997, 1998 and
1999, and the results of their operations, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999, and for the development stage period, in conformity with generally
accepted accounting principles in the United States.

Jerusalem, Israel
May 19, 2000, except for Note 11

as to which the date is July 27, 2000

F-2
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
Assets

<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 647,232 $ 127,872 $ 4,126,735
Other receivables...................... 51,038 46,579 85,685
Prepaid expenses....................... 21,876 2,103 166,137
--------- ----------- ------------
Total current assets................. 720,146 176,554 4,378,557
Long-term investments in respect of
fundings for severance benefits......... 22,000 44,673 64,047
Fixed assets............................. 83,370 193,643 160,141
Other assets............................. 6,372 205,040 345,471
--------- ----------- ------------
Total assets......................... $ 831,888 $ 619,910 $ 4,948,216
========= =========== ============
<CAPTION>
Liabilities And Stockholders' Equity

<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities........................... $ 185,238 $ 333,137 $ 252,934
Related party.......................... 500,000 515 141,483
--------- ----------- ------------
Total current liabilities............ 685,238 333,652 394,417
Liability in respect of employee
severance benefits...................... 22,000 81,344 117,736
Long-term loans from related party....... 1,006,362 445,500 --
--------- ----------- ------------
Total liabilities.................... 1,713,600 860,496 512,153
--------- ----------- ------------
Stockholders' equity (deficit):
Series A convertible preferred stock,
$0.001 par value each (liquidation
preference--$100 per share plus all
declared but unpaid dividends, 0, 0
and 170,000 shares authorized and 0, 0
and 79,465 shares issued and fully
paid at December 31, 1997, 1998 and
1999, respectively)................... -- -- 79
Common stock, $0.001 par value each
(20,000,000 shares authorized, 0, 0
and 1,208,306 shares issued and fully
paid at December 31, 1997, 1998 and
1999, respectively)................... -- -- 1,208
Additional paid-in capital............. 6 3,180,547 19,712,951
Unearned compensation.................. -- -- (2,854,280)
Accumulated deficit.................... (881,718) (3,421,133) (12,423,895)
--------- ----------- ------------
Total stockholders' equity
(deficit)........................... (881,712) (240,586) 4,436,063
--------- ----------- ------------
Total liabilities and stockholders'
equity.............................. $ 831,888 $ 619,910 $ 4,948,216
========= =========== ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
Amounts
Accumulated
During the
Development
1997 1998 1999 Stage
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Management fees from
related company........... $ 233,335 $ 66,662 $ -- $ 299,997
---------- ----------- ----------- ------------
Expenses:
Research and development
expenses (including
stock compensation
expense of $0, $0 and
$5,425,974 in 1997, 1998
and 1999,
respectively)........... 568,859 1,406,993 6,922,797 8,898,649
General and
administrative expenses
(including stock
compensation expense of
$0, $0 and $587,734 in
1997, 1998 and 1999,
respectively)........... 525,544 1,011,286 1,812,508 3,349,338
---------- ----------- ----------- ------------
Total operating
expenses................ 1,094,403 2,418,279 8,735,305 12,247,987
---------- ----------- ----------- ------------
Operating loss............. (861,068) (2,351,617) (8,735,305) (11,947,990)
Financing expenses......... 10,872 157,351 257,487 425,710
---------- ----------- ----------- ------------
Net loss before taxes on
income.................... (871,940) (2,508,968) (8,992,792) (12,373,700)
Taxes on income............ 9,778 30,447 9,970 50,195
---------- ----------- ----------- ------------
Net loss................... $ (881,718) $(2,539,415) $(9,002,762) $(12,423,895)
========== =========== =========== ============
Basic and diluted net loss
per common share.......... $ (0.11) $ (0.31) $ (1.11) $ (1.53)
Weighted average shares
used in computing basic
and diluted net loss per
common share.............. 8,108,306 8,108,306 8,108,306 8,108,306
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock Additional
--------------------- ---------------- Paid-In Unearned Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
---------- ---------- --------- ------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Changes during the year:
Contributed capital..... -- -- -- -- 6 -- -- 6
Net loss for the year... -- -- -- -- -- -- (881,718) (881,718)
---------- --------- --------- ------ ----------- ----------- ------------ -----------
Balance at December 31,
1997.................... -- -- -- -- 6 -- (881,718) (881,712)
Changes during the year:
Contributed capital..... -- -- -- -- 3,180,541 -- -- 3,180,541
Net loss for the year... -- -- -- -- -- -- (2,539,415) (2,539,415)
---------- --------- --------- ------ ----------- ----------- ------------ -----------
Balance at December 31,
1998.................... 0 0 0 0 3,180,547 0 (3,421,133) (240,586)
Changes during the year:
Conversion of
convertible notes of
Partec into stock in
Keryx................... -- -- -- -- 2,973,376 -- -- 2,973,376
Issuance of Series A
convertible preferred
stock to investors at
$100 per share for cash
(net of issuance
expenses)............... 50,000 50 -- -- 4,691,040 -- -- 4,691,090
Issuance of Series A
convertible preferred
stock at $0.001 par
value to noteholders in
exchange for note of
predecessor............. 29,465 29 -- -- -- -- -- 29
Issuance of common stock
to technology licensors
for technology
licenses................ -- -- 1,208,306 1,208 -- -- -- 1,208
Compensation in respect
of options granted to
employees, directors and
consultants............. -- -- -- -- 7,554,854 (2,128,880) -- 5,425,974
Warrants for common
stock issued to
technology licensor for
technology license...... -- -- -- -- 725,400 (725,400) -- --
Warrants for common
stock issued to
noteholders in exchange
for note of
predecessor............. -- -- -- -- 587,734 -- -- 587,734
Net loss for the year... -- -- -- -- -- -- (9,002,762) (9,002,762)
---------- --------- --------- ------ ----------- ----------- ------------ -----------
79,465 $ 79 1,208,306 $1,208 $19,712,951 $(2,854,280) $(12,423,895) $4,436,063
========== ========= ========= ====== =========== =========== ============ ===========
Amounts accumulated
during the development
stage
Contributed capital..... -- -- -- -- 3,180,547 -- -- 3,180,547
Conversion of
convertible notes of
Partec into stock in
Keryx................... -- -- -- -- 2,973,376 -- -- 2,973,376
Issuance of Series A
convertible preferred
stock to investors at
$100 per share for cash
(net of issuance
expenses)............... 50,000 50 -- -- 4,691,040 -- -- 4,691,090
Issuance of Series A
convertible preferred
stock at $0.001 par
value to noteholders in
exchange for note of
predecessor............. 29,465 29 -- -- -- -- -- 29
Issuance of common stock
to technology licensors
for technology
licenses................ -- -- 1,208,306 1,208 -- -- -- 1,208
Compensation in respect
of options granted to
employees, directors and
consultants............. -- -- -- -- 7,554,854 (2,128,880) -- 5,425,974
Warrants for common
stock issued to
technology licensor for
technology license...... -- -- -- -- 725,400 (725,400) -- --
Warrants for common
stock issued to
noteholders in exchange
for note of
predecessor............. -- -- -- -- 587,734 -- -- 587,734
Net loss................ -- -- -- -- -- -- (12,423,895) (12,423,895)
---------- --------- --------- ------ ----------- ----------- ------------ -----------
79,465 $ 79 1,208,306 $1,208 $19,712,951 $(2,854,280) $(12,423,895) $4,436,063
========== ========= ========= ====== =========== =========== ============ ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
Amounts
Accumulated
During the
Development
1997 1998 1999 Stage
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................. $ (881,718) $(2,539,415) $(9,002,762) $(12,423,895)
Adjustments to reconcile
cash flows from
operating activities:
Revenues and expenses
not involving cash
flows:
Employees' stock
compensation expense.. -- -- 4,964,797 4,964,797
Consultants' stock
compensation expense.. -- -- 1,048,911 1,048,911
Interest on convertible
notes................. -- -- 252,966 252,966
Provision for employee
severance benefits.... 22,000 81,344 36,392 139,736
Depreciation........... 12,035 27,938 36,195 76,168
Changes in assets and
liabilities:
Decrease (increase) in
other receivables..... (47,938) 27,248 (38,641) (59,331)
Increase in prepaid
expenses.............. (21,876) (2,103) (164,034) (188,013)
Increase in amounts due
to related party...... -- 515 140,968 141,483
Increase (decrease) in
accounts payable and
accrued liabilities... 179,983 142,876 (80,833) 242,026
---------- ----------- ----------- ------------
Net cash used for
operating
activities.......... (737,514) (2,261,597) (2,806,041) (5,805,152)
---------- ----------- ----------- ------------
Cash flows from investing
activities:
Investment in fixed
assets, net of
disposals............... (95,370) (138,141) (2,058) (235,569)
Investment in other
assets.................. (6,372) (199,637) (140,431) (346,440)
Fundings in respect of
employee severance
benefits................ (22,000) (44,673) (19,374) (86,047)
---------- ----------- ----------- ------------
Net cash used for
investing
activities.......... (123,742) (382,451) (161,863) (668,056)
---------- ----------- ----------- ------------
Cash flows from financing
activities:
Receipt of short-term
loans................... 500,000 -- -- 500,000
Receipt of long-term
loans................... 1,006,362 2,119,679 124,861 3,250,902
Issuance of convertible
notes, net.............. -- -- 2,150,000 2,150,000
Issuance of shares, net
and contributed
capital................. 6 -- 4,692,327 4,692,333
---------- ----------- ----------- ------------
Net cash provided by
financing
activities.......... 1,506,368 2,119,679 6,967,188 10,593,235
---------- ----------- ----------- ------------
Effect of exchange rate on
cash..................... 2,120 5,009 (421) 6,708
---------- ----------- ----------- ------------
Net increase (decrease) in
cash and cash
equivalents.............. 647,232 (519,360) 3,998,863 4,126,735
Cash and cash equivalents
at beginning of year..... -- 647,232 127,872 --
---------- ----------- ----------- ------------
Cash and cash equivalents
at end of year........... $ 647,232 $ 127,872 $ 4,126,735 $ 4,126,735
========== =========== =========== ============
Non-cash transactions
Conversion of short-term
loans into contributed
capital................. $ -- $ 500,000 $ -- $ 500,000
Conversion of long-term
loans into contributed
capital................. -- 2,680,541 -- 2,680,541
Conversion of long-term
loans into convertible
notes of Partec......... -- -- 570,361 570,361
Conversion of
convertible notes of
Partec and accrued
interest into stock in
Keryx................... -- -- 2,973,376 2,973,376
Declaration of stock
dividend................ -- -- 402 402
Supplementary disclosures
of cash flow information
Cash paid during the
year for interest....... -- 120,336 13,719 134,055
Cash paid during the
year for income taxes... -- -- -- --
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

Note 1--Organization and Summary of Significant Accounting Policies:

Keryx Biopharmaceuticals, Inc. (the "Company") was incorporated in Delaware
in October 1998 (under the name Paramount Pharmaceuticals, Inc.) and commenced
activities in November 1999 as the successor company to Partec Limited (see
Consolidated Financial Statements below). At the same time, the Company's name
was changed to Lakaro Biopharmaceuticals, Inc. and was subsequently changed to
Keryx Biopharmaceuticals, Inc. in January 2000. The Company owns a 100%
interest in Keryx Israel Limited (the "subsidiary"), incorporated in Israel,
and together with its subsidiary is engaged in biopharmaceutical research and
development.

At present, substantially all of the Company's activities are in Israel and,
therefore, the Company has one geographical segment. The Company operates in
one segment of operations, namely the development and commercialization of
clinical compounds and core technologies for the life sciences. The Company
intends to expand its activities in the US beginning in the year 2000.

The Company is in the development stage and has not had revenues from its
planned principal operations. Revenues in 1998 and 1997 arise from provision of
management services to a related company. The Company is dependent upon
significant financing to fund the working capital necessary to execute its
business development plan. There can be no assurance that the Company will be
able to obtain additional financing.

These consolidated financial statements include the Company's activities for
the three years ended December 31, 1999 and amounts accumulated during the
development stage.

Consolidated Financial Statements

The accompanying consolidated financial statements for the three years ended
December 31, 1999 have been prepared in order to present the financial
position, results of operations and cash flows relating to the Company's
activities for all periods covered by the statements. Until November 1999, most
of the Company's activities were carried out by Partec Limited, an Israeli
corporation formed in December 1996, and its subsidiaries (hereinafter
collectively referred to as "Partec"). The subsidiaries of Partec during the
period prior to November 1999 were SignalSite Inc. (85% owned) and its wholly
owned subsidiary, SignalSite Israel Ltd., and Vectagen Inc. (87.25% owned) and
its wholly owned subsidiary, Vectagen Israel Ltd. In November 1999, the Company
and its subsidiary acquired substantially all of the assets and liabilities of
Partec and, as of that date, the activities formerly carried out by Partec are
now performed by the Company and its subsidiary. Consequently, these financial
statements include the activities performed in previous periods by Partec by
aggregating the relevant historical financial information with the financial
statements of the Company as if they had formed a discrete operation under
common management for the entire development stage. This has been effected by
means of an "as if" pooling and Partec is being presented as a predecessor
company. Keryx and Partec are entities under common control. At the date of the
aforementioned acquisition, the controlling interest owned approximately 79.7%
and approximately 76% of Keryx and Partec, respectively.

Principles of Consolidation

The consolidated financial statements include the financial statements of
the Company, its subsidiary and the operations detailed above. Intercompany
transactions and balances have been eliminated.

F-7
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rate of Exchange

The financial statements of the Israeli subsidiaries have been translated
using the US dollar as the functional currency.

Transactions in foreign currency (primarily in New Israeli Shekels--"NIS")
are recorded in the accounting records according to the representative exchange
rate as of the transaction date. Assets and liabilities in foreign currency are
stated on the basis of the representative rate of exchange of the NIS as of the
balance sheet date. The representative rate of exchange of the NIS at December
31, 1999 was $1 = NIS 4.153 (1998 $1 = NIS 4.160, 1997 $1 = NIS 3.536).
Differences arising from changes in rates of exchange have been included in the
statements of income.

Cash and Cash Equivalents

For the purposes of these financial statements, all highly liquid
investments with original maturities of three months or less are considered to
be cash equivalents.

Long-Term Investment

Long-term investment in respect of employee severance benefits is recorded
at its current redemption value.

Fixed Assets

Fixed assets are stated at historical cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets at the
following annual rates:
<TABLE>
<CAPTION>
%
-----
<S> <C>
Office furniture and equipment....................................... 6-15
Computers, software and related equipment............................ 20-33
</TABLE>

Leasehold improvements are depreciated over the lesser of 10 years or the
total lease period inclusive of options.

Patents

In accordance with SFAS No. 2, "Accounting for Research and Development
Costs," acquired patents are recorded at cost and are amortized over their
estimated useful lives commencing when income results therefrom. Estimated
useful life is re-evaluated on an annual basis. The Company has not yet begun
amortization of the patents as no significant benefit has yet been derived
therefrom. The Company estimates that amortization will not commence before the
year 2002.

Revenue Recognition

Revenues from management fees are recognized ratably over the period for
which the services are provided.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using

F-8
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. If the likelihood of
realizing the deferred tax assets or liability is less than "more likely than
not," a valuation allowance is then created.

Stock Option Plan

SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based compensation plans. As allowed by SFAS
123, the Company applies the intrinsic value-based method of accounting
prescribed by the Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its fixed and milestone-based plan stock options to employees
and directors. As such, compensation expense would be recorded on the
measurement date only if the current market price of the underlying stock
exceeded the exercise price. SFAS 123 is applied to stock options granted to
consultants. The Company has adopted the disclosure requirements of SFAS 123.

Impairment of Long-Lived Assets

The Company follows the provisions of SFAS No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.

Net Loss Per Share

Basic and diluted net loss per share of common stock are presented in
conformity with the SFAS No. 128, "Earnings Per Share" for all periods
presented. The common stock equivalent of anti-dilutive securities not included
in the computation of net loss per share amounts to 4,095,625 for all years
presented. Diluted net loss per share is the same as basic net loss per share
as the inclusion of common stock equivalents would be anti-dilutive. The number
of shares of common stock outstanding reflects a declared but unpaid stock
dividend, as described in Note 11.

Comprehensive Income

The Company follows SFAS No. 130 "Reporting Comprehensive Income," which
states that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It requires that an enterprise (a) classify items of other
comprehensive income by their nature in financial statements and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. Comprehensive loss is the same as net loss for all years
presented.

F-9
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Concentrations of Credit Risk

SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," requires disclosure of any significant off-balance-sheet risk and credit
risk concentrations. The Company does not have significant off-balance-sheet
risk or credit risk concentrations. The Company maintains its cash and cash
equivalents with multiple financial institutions and invests in short-term,
investment-grade securities.

Use of Estimates

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

New Accounting Standards

In July 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
requires that all derivative financial instruments be recognized as either
assets or liabilities on the balance sheet. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of SFAS No. 133," which deferred the
implementation of SFAS No. 133. SFAS No. 133 will be effective for the
Company's first quarter in 2001. The Company holds no derivative financial
instruments and is not engaged in hedging activities. The Company therefore
believes that implementation of SFAS No. 133 is not expected to have any
significant impact on its financial position, results of operations or
liquidity.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" (FIN No. 44). This
interpretation clarifies the application of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," with respect to certain
issues in accounting for employees stock compensation and is generally
effective as of July 1, 2000. The Company does not expect FIN No. 44 to have a
material effect on its financial statements.

In April 1998, the Accounting Standards Executive Committee ("AcSEC") issued
SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 provides
guidance on the financial reporting of start-up costs and organization costs,
and it requires costs of start-up activities and organization costs to be
expensed as incurred.

Start-up activities include activities related to organizing a new entity
(organizational costs). The Company adopted SOP 98-5. The Company assessed the
effects of adopting SOP 98-5 and has determined that the impact on its
financial position and results of operations will not be material.

Fair Value of Financial Instruments

The Company's financial instruments include cash equivalents, accounts
receivable, long-term finance receivable/payable, accounts payable and long-
term debt.

The fair value of other financial instruments were not materially different
from their carrying or contract values at December 31, 1999.

F-10
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 2--Cash and Cash Equivalents:

<TABLE>
<CAPTION>
As of December 31,
-----------------------------
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
In or linked to US dollars.................... $672,100 $109,270 $4,041,513
In Israeli currency........................... (24,868) 18,602 85,222
-------- -------- ----------
$647,232 $127,872 $4,126,735
======== ======== ==========
</TABLE>

Note 3--Fixed Assets:
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cost:
Office furniture and equipment.................. $48,615 $165,777 $153,119
Computers, software and related equipment....... 46,755 67,734 61,943
Leasehold improvements.......................... -- -- 2,275
------- -------- --------
95,370 233,511 217,337
------- -------- --------
Accumulated depreciation.......................... 12,000 39,868 57,196
------- -------- --------
Total fixed assets................................ $83,370 $193,643 $160,141
======= ======== ========
</TABLE>

Note 4--Other Assets:

<TABLE>
<CAPTION>
As of December 31,
-------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Patents............................................ $ 3,025 $200,981 $341,405
Other.............................................. 3,347 4,059 4,066
------- -------- --------
$ 6,372 $205,040 $345,471
======= ======== ========
</TABLE>

Note 5--Related Party:

The amount of $141,483 at December 31, 1999 is due to a preferred
shareholder in connection with its activities relating to the Company's
November 1999 private placement as explained below. This amount bore no
interest and was paid upon the final closing of the private placement in
January 2000.

The amount of $500,000 at December 31, 1997 represents a short-term loan
from a controlling shareholder to Partec subsequently converted into a capital
note in 1998.

During 1997 and 1998, the Company provided management services (including
general management and research and development consulting) to a wholly-owned
subsidiary of an investee company. The Company holds a 4% interest in the
investee company and records the investment at cost; therefore there is no
elimination of revenues on consolidation in respect of the management fees.

Note 6--Liability in Respect of Employee Severance Benefits:

Under Israeli law, employers are required to make severance payments to
dismissed employees and employees leaving employment in certain other
circumstances, on the basis of the latest monthly salary for each year of
service.

F-11
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

This liability is provided for by payments of premiums to insurance
companies under approved plans and by a provision in these financial
statements.

For the year ended December 31, 1999, $36,392 (1998--$59,344; 1997--$22,000)
was recorded as salary expense in respect of future severance benefits and
$19,374 (December 31, 1998--$22,673; 1997--$22,000) was funded under the
severance payment plans and is included in these financial statements as long-
term investments.

Note 7--Stockholders' Equity:

Composition

<TABLE>
<CAPTION>
As of December 31, 1998 As of December 31, 1999
------------------------------------ ------------------------------------
Issued and Issued and
Authorized Issued fully paid Authorized Issued fully paid
---------- --------- ---------- ---------- --------- ----------
Number Number Number Number Number Number
<S> <C> <C> <C> <C> <C> <C>
Common stock, $0.001 par
value ................. 20,000,000 6,900,000(/3/) -- 20,000,000 8,108,306(/3/) 1,208,306(/3/)
"Blank check" preferred
stock, $0.001 par
value(/1/)............. 5,000,000 -- -- 4,830,000 -- --
Series A convertible
preferred stock, $0.001
par value(/2/)......... -- -- -- 170,000 79,465 79,465
</TABLE>
--------
(1) In November 1999, the board of directors designated 170,000 shares of
"blank check" preferred stock as Series A convertible preferred stock.
Subsequent to the designation, 4,830,000 shares of "blank check" preferred
stock remained authorized but undesignated. Of the 170,000 shares of
Series A Convertible preferred stock, 29,465 were issued (together with
303,832 warrants for common stock--see below) in consideration for the
contribution of $2.7 million worth of 12% notes and 50,000 shares were
issued to investors in a private placement.

(2) The shares of Series "A" convertible preferred stock have a stated value of
$100 each and are convertible into shares of common stock at a ratio of
51.54 to 1. The voting and dividend rights associated with the stock are
similar to those of the common stock, based on the number of shares which
would have been received if the preferred shares had been converted at the
record date. In January 2000, an additional 39,180 shares of Series A
convertible preferred stock were issued as part of the continuation of the
private placement. In total, the 50,000 shares, as referred to in (1)
above, together with the 39,180 shares in January 2000, were issued in
consideration for $8.9 million.

(3) Reflects a declared but unpaid stock dividend as described in Note 11.

(4) In June 2000, the stockholders approved an increase in authorized capital
stock by 20,000,000 to 40,000,000 shares of common stock, par value $0.001,
which increase will take effect on the completion of an initial public
offering.

Stock Option Plan

In November 1999, the Company adopted a stock option plan (the "plan")
pursuant to which the Company's board of directors may grant stock options to
directors, consultants and employees. The plan authorizes option grants to
purchase up to 4,230,000 shares of authorized but unissued common stock at a
1:1 ratio. At December 31, 1999, a total of 4,102,032 stock options have been
granted as part of the plan with an exercise price of $0.10 per share and a
fair value of $1.94 per share. No options have yet been exercised. The vesting
and exercise terms are as follows:

F-12
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

To directors and employees:

<TABLE>
<CAPTION>
Number of
Expiration Date Vesting Terms Shares
--------------------------- -------------------------------- ---------
<C> <S> <C>
25 years from date of grant Immediately 2,096,587
10 years from date of grant At different dates from December 1,568,501
1999 through November 2001
10 years from date of grant Upon start of specific clinical 19,999
trial (a)
---------
3,685,087
=========
</TABLE>
--------
(a) Subsequent to the balance sheet date, the vesting terms were amended so
that the options vest on the effective date of the Company's initial public
offering on NASDAQ.

The Company applies APB Opinion No. 25 in accounting for its options granted
to directors and employees. The Company has recorded $4,964,797 of compensation
expense and $1,815,758 of compensation expense in regard to these options has
been deferred. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
Amounts
Accumulated
For the Year Ended December 31, During the
----------------------------------- Development
1997 1998 1999 Stage
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net loss................ As reported $(881,718) $(2,539,415) $(9,002,762) $(12,423,895)
========= =========== =========== ============
Pro forma $(881,718) $(2,539,415) $(9,048,812) $(12,469,945)
========= =========== =========== ============
Basic and diluted losses
per common share....... As reported $ (0.11) $ (0.31) $ (1.11) $ (1.53)
========= =========== =========== ============
Pro forma $ (0.11) $ (0.31) $ (1.12) $ (1.54)
========= =========== =========== ============
</TABLE>

The value of these options has been estimated using the Black-Scholes model.
The assumptions used in the calculation of the fair value were a weighted
average expected life of each option of three years, an expected volatility
rate of 70% and a risk-free interest rate of 5%.

To consultants:

<TABLE>
<CAPTION>
Number of
Expiration Date Vesting Terms Shares
--------------------------- -------------------------------- ---------
<C> <S> <C>
25 years from date of grant Immediately 116,945
10 years from date of grant December 6, 1999 (already vested) 120,000
10 years from date of grant Upon commencement of various 180,000
clinical trials
-------
416,945
=======
</TABLE>

F-13
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During 1999, the Company recorded $461,177 in compensation expense and
$313,122 of deferred compensation expense in regard to these options based on
the fair value at the grant date as determined using the Black-Scholes model
under the assumptions stated above. In accordance with EITF 96-18, these
options are revalued at every reporting period over the vesting period in order
to determine the actual amount of deferred compensation expense. At December
31, 1999, there were a total of 2,805,534 options exercisable and none of the
options had been exercised as of the balance sheet date.

Additional Stock Options

In February 2000, the board of directors granted 240,000 non-plan stock
options to directors of the Company. These options have an exercise price of
$0.33 per share, vest at varying dates in the year 2000 and expire ten years
from the date of issuance. Additionally, on March 16, 2000, the board of
directors granted 45,000 options to employees of the Company under the original
stock option plan at an exercise price of $0.50 per share vesting at varying
dates through the year 2003. From year-end through March 31, 2000, the Company
recorded $67,500 of compensation expense in respect of these options.

Warrants

In November 1999, the board of directors granted warrants to purchase
678,832 shares of common stock to investors and others (not directors or
employees). The Company recorded $587,734 in compensation expense and $725,400
of compensation expense in regard to these warrants has been deferred.
The warrants are exercisable at $0.0067 per share with a fair value of $1.94,
and have ten-year terms. There are 375,000 milestone-based warrants (vesting
upon receipt of various FDA approvals) and at December 31, 1999, the remaining
303,832 were exercisable. No warrants had been exercised as of balance sheet
date.

In January 2000, the board of directors granted warrants to a related party
to purchase 116,090 shares of common stock. The warrants have three-year terms,
have an exercise price of $1.94 per share, and vested immediately upon grant.
Compensation expense was recorded when the warrants were granted totaling
$113,621.

Note 8--Taxes on Income:

At December 31, 1999, for U.S. income tax purposes, the Company had
approximately $292,000 of net operating loss carryforwards from November 1999
through December 31, 1999. Such net operating losses expire in 2019.

Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance for
deferred tax assets was $2,207,000 as of December 31, 1999.

The Israeli subsidiary and Partec Ltd., the predecessor company, are subject
to the Israeli Income Tax Law (Inflationary Adjustments), 1985. Under this law,
operating results for tax purposes are measured in real terms, in accordance
with the changes in the Israeli Consumer Price Index ("Israeli CPI"), and
companies are entitled to deduct from their taxable income an "equity
preservation deduction" (which partially compensates for the decrease in the
value of stockholders' equity resulting from the annual rise in the Israeli
CPI).

F-14
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The taxes reported in the consolidated financial statements relate to Partec
as well as to the subsidiary in Israel. Income tax expense attributable to
income from continuing operations was $9,778, $30,447 and $9,970 for the years
ended December 31, 1997, 1998, and 1999, respectively, and differed from
amounts computed by applying the US federal income tax rate of 35% to pretax
loss from continuing operations as a result of the following:

<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
1997 1998 1999 (1)
--------- ----------- -----------
<S> <C> <C> <C>
Losses before taxes on income, as
reported in the consolidated statements
of operations........................... $(871,940) $(2,508,968) $(8,992,792)
--------- ----------- -----------
Computed "expected" tax benefit.......... (305,179) (878,139) (3,147,477)
Increase in income taxes resulting from:
Change in the balance of the valuation
allowance for deferred tax assets
allocated to income tax expense (1)... 302,647 871,733 2,206,888
Losses of Partec not entitling Keryx to
deferred tax assets................... -- -- 976,070
Permanent differences (mainly
disallowed expenses).................. 1,473 1,049 --
Difference in tax rate of foreign
subsidiary income..................... 10,837 35,804 (25,511)
--------- ----------- -----------
$ 9,778 $ 30,447 $ 9,970
========= =========== ===========
</TABLE>
--------
(1) Deferred tax assets of Partec were lost upon acquisition of operations by
Keryx (see Note 1).

The significant components of deferred income tax expense (income)
attributable to income from continuing operations are as follows:

<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax expense (income).............. $(302,647) $(871,733) $(2,206,888)
Increase in the valuation allowance for
deferred tax assets....................... 302,647 871,733 2,206,888
--------- --------- -----------
$ -- $ -- $ --
========= ========= ===========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1999, are presented below.

<TABLE>
<CAPTION>
December 31
------------------------
1998 1999(1)
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss................................. $ 1,072,570 $ 102,090
Timing differences in respect of vacation pay
accruals and employee severance benefits.......... 21,214 --
Timing differences in respect of stock
compensation...................................... -- 2,104,798
Timing differences in respect of research and
development costs................................. 80,596 --
----------- -----------
Total gross deferred assets.......................... 1,174,380 2,206,888
Less valuation allowance............................. (1,174,380) (2,206,888)
----------- -----------
Net deferred tax assets.............................. $ -- $ --
=========== ===========
</TABLE>
--------
(1) Deferred tax assets of Partec were lost upon acquisition of operations by
Keryx (see Note 1).

F-15
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--Earnings Per Share (EPS):

<TABLE>
<CAPTION>
Weighted average number of
shares outstanding--basic and
diluted(1)
-----------------------------
December 31
-----------------------------
1997(2) 1998(2) 1999
--------- --------- ---------
<S> <C> <C> <C>
Common stock...................................... 8,108,306 8,108,306 8,108,306
</TABLE>
--------
(1) Options and warrants have not been included as their inclusion is anti-
dilutive and reflects a declared but unpaid stock dividend as described
in Note 11.

(2) Basic net loss per share has been computed using the number of shares
issued by the Company immediately following the commencement of
activities in November 1999 as if outstanding for the period of the
predecessor company.

Note 10--Commitments and Contingencies:

Agreements

The Company entered into a license agreement with Alfa Wassermann SpA which
grants it the exclusive rights to KRX-101 for diabetic nephropathy, diabetic
retinopathy and diabetic neuropathy in the United States, Canada, Japan,
Australia, New Zealand, South Africa and Israel, and entitles Alfa Wassermann
to ongoing royalties and fixed milestone payments. The license requires Alfa
Wassermann to pay the Company a royalty to the extent that it or its sub-
licensees receive revenues from products that incorporate information or know-
how developed by it and commits Alfa Wassermann to participate in the costs of
data or intellectual property developed by the Company that it decides to
utilize. Unless terminated for reason of breach or other customary termination
provisions, the license terminates upon the later of the expiration of all
underlying patent rights or ten years from the first commercial sale of KRX-
101 by the Company.

The Company has undertaken to make milestone payments to its licensors,
contingent upon attaining certain goals, of up to approximately $3.75 million.
In certain cases, such payments will reduce any royalties to be paid on sales
of related products. In the event that the milestones are not achieved, the
Company remains obligated to pay one licensor $100,000 annually for two years,
commencing in 1999, and $50,000 annually thereafter until the licenses expire.
As of December 31, 1999, the Company has paid $200,000 in such annual royalty
payments.

Pursuant to a license with Children's Medical Center Corporation, referred
to as CMCC, the Company has the exclusive right to commercialize the KinAce
platform and practice the claims contained in four patent applications owned
by them. Unless terminated for breach or other customary termination
provisions, the license terminates upon the later of November 2014 or the
expiration of the last patent covered by the license.

The license obligates the Company to meet certain development and financing
milestones. To date, the Company has met all of its milestones under this
agreement. If the Company fails to meet any of the development milestones that
remain to be fulfilled, the license could be terminated.

Manufacturing Agreements. Opocrin S.p.A., a manufacturer of bulk biological
products, has agreed to manufacture and supply the Company's raw requirements
for sulodexide until 2009. The agreement with Opocrin may be terminated by the
Company or them on 180 days' notice for any reason. Pharmaceutics
International, Inc., a manufacturer of medicinal gelcaps, has agreed to
produce the KRX-101 gelcaps necessary for the proposed clinical trial. Until
the agreed-upon manufacturing is completed, this agreement may be terminated
only by the Company.

F-16
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Research and Development Agreements. The Company has entered into four
research and development agreements for the advancement of five of its lead
KinAce compounds. In general, these agreements provide that the researcher
will conduct pre-clinical testing at its own expense for up to three to six
months. Upon completion of the testing, the Company will give the for-profit
researchers an exclusive two- to three-month right of first negotiation to
license from the Company the compounds covered by the agreement for further
development and commercialization.

The Company has entered into sponsored research agreements for the
development of specific products under which the Company is committed to
finance up to $1.2 million of research costs through December 2001.

Professor Shmuel Ben-Sasson directs the KinAce research program pursuant to
a research agreement with Yissum Research Development Company of the Hebrew
University of Jerusalem, referred to as Yissum, and a consulting agreement
with Professor Ben-Sasson. The consulting agreement obligates Professor Ben-
Sasson to provide consulting services to the Company to develop the KinAce
platform and may be terminated by the Company or him on 180 days' notice for
any reason. The Company issued to Professor Ben-Sasson 402,768 shares of its
common stock in connection with his consulting agreement. The research
agreement obligates the Company to make quarterly payments to Yissum and
expires in November 2001, although it may be extended by mutual agreement for
additional periods of 180 days. It may terminate the research agreement and
cease making payments to Yissum should Professor Ben-Sasson fail to meet any
milestones contained in that agreement. In general, the milestones are
project-specific and require Professor Ben-Sasson to meet enumerated product
development timetables.

Leases

The subsidiary leases its premises under an operating lease which expires
in December 2000. Annual lease payments under the lease amount to $40,900.

Additionally, the Company has signed (after December 31, 1999) a lease for
new premises through April 2004 with an option for a four-year renewal and has
informed its present lessor of its intention to vacate in June 2000. Future
minimum annual lease payments under the new lease, assuming all options are
exercised, are as follows:

The Company has bank guarantees of approximately $40,000 in connection with
the new lease.

Note 11--Subsequent Events:

Initial Public Offering

In May 2000, the Company's board of directors approved management's plans
to file a registration statement with the Securities and Exchange Commission
for its initial public offering in the US on the Nasdaq National Market and on
the Alternative Investment Market of the London Stock Exchange. There is no
assurance that the planned initial public offering will be completed.

F-17
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Options

Authorized Capital

In June 2000, the stockholders approved an increase in authorized capital
stock by 20,000,000 to 40,000,000 shares of common stock, par value $0.001,
which increase will take effect on the completion of an initial public
offering.

Stock Dividend

In June 2000, the board of directors declared a 3:2 common stock dividend to
be effective in conjunction with the Company's initial public offering whereby
the stockholders will receive one share of common stock for each two shares of
common stock held at July 15, 2000. These financial statements have been
prepared to retroactively reflect the stock dividend.

Stock Option Plan

In June 2000, the Company adopted an additional stock option plan (the "new
plan") pursuant to which the compensation committee of the Company's board of
directors may grant stock options to directors, consultants and employees. The
new plan authorizes option grants to purchase up to 4,455,000 shares of
authorized but unissued common stock at a 1:1 ratio. As of June 2000, the
compensation committee has issued incentive stock options to purchase 10,000
shares of common stock to employees and non-qualified options to purchase
84,500 shares of common stock to employees and consultants at an exercise price
equal to the share price at the Company's initial public offering. 4,360,500
shares of common stock remain available for grant.

F-18
<PAGE>

INDEX TO FINANCIAL STATEMENTS

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 2000, and
December 31, 1999..................................................... F-20
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 2000......................................... F-21
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 2000......................................... F-22
Note to the Condensed Consolidated Financial Statements................ F-23
</TABLE>

F-19
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000, AND DECEMBER 31, 1999

<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(As
restated
see Note 5)
(Audited) (Unaudited)
Assets

<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 4,126,735 $ 6,551,344
Other receivables................................. 85,685 209,557
Prepaid expenses.................................. 166,137 112,324
------------ -----------
Current assets.................................. 4,378,557 6,873,225

Long-term investments in respect of
fundings for severance benefits.................. 64,047 84,629
Fixed assets...................................... 160,141 169,390
Other assets...................................... 345,471 479,613
------------ -----------
Total assets.................................... $ 4,948,216 7,606,857
============ ===========

<CAPTION>
Liabilities And Stockholders' Equity:
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities.......... $ 252,934 $ 404,690
Related party..................................... 141,483 --
------------ -----------
Total current liabilities....................... 394,417 404,690

Liability in respect of employee severance
benefits........................................... 117,736 129,160
------------ -----------
Total liabilities............................... 512,153 533,850
------------ -----------

Stockholders' equity:
Series A convertible preferred stock, $0.001 par
value each
(liquidation preference--$100 per share plus all
declared but
unpaid dividends, 170,000 shares authorized,
79,465 and 118,645 issued and fully paid at De-
cember 31, 1999 and March 31, 2000, respective-
ly).............................................. 79 118
Common stock, $0.001 par value each (20,000,000
shares authorized, 1,208,306 shares issued and
fully paid)...................................... 1,208 1,208
Additional paid-in capital........................ 19,712,951 30,198,108
Unearned compensation............................. (2,854,280) (8,235,691)
Accumulated deficit............................... (12,423,895) (14,890,736)
------------ -----------
Total stockholders' equity...................... 4,436,063 7,073,007
------------ -----------
Total liabilities and stockholders' equity...... $ 4,948,216 $ 7,606,857
============ ===========
</TABLE>

The accompanying note is an integral part of the condensed consolidated
financial statements.

F-20
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

<TABLE>
<CAPTION>
Amounts
Three Months Ended March Accumulated
31, During the
------------------------- Development
1999 2000 Stage
----------- ------------ ------------
(As restated (As restated
see Note 5) see Note 5)
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Management fees from related company.. $ -- $ -- $ 299,997
----------- ------------ ------------
Expenses:
Research and development expenses
(including stock compensation ex-
pense of $0 and $528,971 in 1999
and 2000, respectively)............ $ 414,421 $ 1,400,879 $ 10,299,528
General and administrative expenses
(including stock compensation ex-
pense of $0 and $814,069 in 1999
and 2000, respectively)............ 263,305 1,093,513 4,442,851
----------- ------------ ------------
Total operating expenses.......... 677,726 2,494,392 14,742,379
----------- ------------ ------------
Operating loss........................ (677,726) (2,494,392) (14,442,382)

Financing income/(expenses)........... (9,599) 54,672 (371,038)
----------- ------------ ------------
Net loss before taxes on income....... (687,325) (2,439,720) (14,813,420)

Taxes on income....................... -- 27,121 77,316
----------- ------------ ------------
Net loss for period................... (687,325) (2,466,841) (14,890,736)
Accumulated deficit at beginning of
period............................... (3,421,133) (12,423,895) --
----------- ------------ ------------
Accumulated deficit at end of period.. $(4,108,458) $(14,890,736) $(14,890,736)
=========== ============ ============

Basic and diluted net loss per common
share................................ $ (0.08) $ (0.30) $ (1.84)
Weighted average shares used in
computing basic and diluted net loss
per common share..................... 8,108,306 8,108,306 8,108,306

Pro forma net loss per common share... $ (0.05) $ (0.17) $ (1.05)
Weighted average shares used in
computing pro forma net loss per
common share......................... 14,223,268 14,223,268 14,223,268
</TABLE>

The accompanying note is an integral part of the condensed consolidated
financial statements.

F-21
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

<TABLE>
<CAPTION>
Amounts
Accumulated
Three Months Ended During the
March 31, Development
----------------------- Stage
1999 2000
----------- ----------- ------------
(As
restated (As restated
see Note 5) see Note 5)
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(687,325) $(2,466,841) $(14,890,736)
Adjustments to reconcile cash flows
from operating activities:
Revenues and expenses not involving
cash flows:
Employee stock compensation
expense.......................... -- 528,971 5,493,768
Consultants' stock compensation
expense.......................... -- 814,069 1,862,980
Interest on convertible notes..... -- -- 252,966
Provision for employee severance
benefits......................... 4,691 11,424 151,160
Depreciation...................... 10,395 7,309 83,477
Changes in assets and liabilities:
Increase in other receivables..... (24,823) (128,080) (187,411)
Decrease in prepaid expenses...... 2,103 53,813 (134,200)
Decrease in related party......... -- (141,483) --
Increase (decrease) in accounts
payable and
accrued liabilities.............. (149,608) 141,892 383,918
--------- ----------- ------------
Net cash used for operating
activities..................... (844,567) (1,178,926) (6,984,078)
--------- ----------- ------------
Cash flows from investing activities:
Investment in fixed assets, net....... (7,350) (16,558) (252,127)
Investment in other assets............ -- (134,142) (480,582)
Fundings in respect of employee
severance benefits................... -- (11,945) (97,992)
--------- ----------- ------------
Net cash used for investing
activities..................... (7,350) (162,645) (830,701)
--------- ----------- ------------
Cash flows from financing activities:
Receipt of short-term loans........... -- -- 500,000
Receipt of long-term loans............ 999,863 -- 3,250,902
Issuance of convertible notes, net.... -- -- 2,150,000
Issuance of shares, net and
contributed capital.................. -- 3,760,745 8,453,078
--------- ----------- ------------
Net cash provided by financing
activities..................... 999,863 3,760,745 14,353,980
--------- ----------- ------------
Effect of exchange rate on cash......... 6,005 5,435 12,143
--------- ----------- ------------
Net increase in cash and cash
equivalents............................ 153,951 2,424,609 6,551,344
Cash and cash equivalents at beginning
of period.............................. 127,872 4,126,735 --
--------- ----------- ------------
Cash and cash equivalents at end of
period................................. $ 281,823 $ 6,551,344 $ 6,551,344
========= =========== ============
Non-cash transactions
Conversion of short-term loans into
contributed capital $ -- $ -- $ 500,000
Conversion of long-term loans into
contributed capital.................. -- -- 2,680,541
Conversion of long-term loans into
convertible notes of Partec.......... -- -- 570,361
Conversion of convertible notes of
Partec and accrued interest into
stock in Keryx....................... -- -- 2,973,376
Declaration of stock dividend......... -- -- 402
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest............................. $ 433 $ 100 $ 134,155
Cash paid during the period for income
taxes................................ -- -- --
</TABLE>

The accompanying note is an integral part of the condensed consolidated
financial statements.

F-22
<PAGE>

KERYX BIOPHARMACEUTICALS, INC.
(DEVELOPMENT STAGE COMPANY)

NOTE TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1--General:

The Company, in its opinion, has included all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods. The interim financial information is not necessarily
indicative of the results that will occur for the full year. The financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the year ended December 31, 1999.

The accompanying consolidated financial statements for the period ended
March 31, 2000, have been prepared in order to present the financial position,
results of operations and cash flows relating to the Company's activities for
all periods covered by the statements. Until November 1999, most of the
Company's activities were carried out by Partec Limited, an Israeli
corporation, and its subsidiaries (hereinafter collectively referred to as
"Partec"). The subsidiaries of Partec during the period prior to November 1999
were SignalSite Inc. (85% owned) and its wholly owned subsidiary, SignalSite
Israel Ltd., and Vectagen Inc. (87.25% owned) and its wholly owned subsidiary,
Vectagen Israel Ltd. In November 1999, the Company and its subsidiary acquired
substantially all of the assets and liabilities of Partec and, as of that date,
the activities formerly carried out by Partec are now performed by the Company
and its subsidiary. Consequently, these financial statements include the
activities performed in previous periods by Partec by aggregating the relevant
historical financial information with the financial statements of the Company
as if they had formed a discrete operation under common management for the
entire development stage. This has been effected by means of an "as if" pooling
and Partec is being presented as a predecessor company.

Note 2--Unaudited Pro Forma Net Loss Per Share:

The Company's board of directors approved plans for an initial public
offering as described in Note 3 below. If the initial public offering is
consummated, as presently anticipated, all shares of Series A convertible
preferred stock will automatically convert into shares of common stock at a
51.54:1 ratio. The common stock equivalent of the preferred stock is 6,114,962.
The unaudited pro forma net loss per share included in these financial
statements reflects the conversion of the preferred stock as though it occurred
at January 1, 1999.

Note 3--Stockholders' Equity:

1. In January 2000, 39,180 shares of Series A convertible preferred stock
were issued as part of the continuation of the private placement commenced in
1999 in consideration for $3.9 million.

2. In June 2000, the stockholders approved an increase in authorized capital
stock by 20,000,000 to 40,000,000 of common stock, par value $0.001, which
increase will take effect on the completion of an initial public offering. The
authorized share capital of the Company was increased by 20,000,000 shares of
common stock, $0.001 par value.

3. In March 2000, the board of directors amended the vesting terms of 19,999
options granted in November 1999 as part of the Company's stock option plan.
These options vest on the effective date of the Company's initial public
offering on Nasdaq instead of upon start of a specific clinical trial. There is
no difference in the fair value used to calculate the compensation involved as
the expected life of the options used in the Black-Scholes model for option
pricing is the same as the estimated period for reaching the milestone under
the previous terms.

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<PAGE>

Note 4--Subsequent Events:

Initial Public Offering

In May 2000, the Company's board of directors approved management's plans to
file a registration statement with the Securities and Exchange Commission for
its initial public offering in the US on the Nasdaq National Market and on the
Alternative Investment Market of the London Stock Exchange. There is no
assurance that the planned initial public offering will be completed.

Stock Dividend

In June 2000, the board of directors declared a 3:2 common stock dividend to
be effective in conjunction with the Company's initial public offering, whereby
the stockholders will receive one share of common stock for each two shares of
common stock held at July 15, 2000. These financial statements have been
prepared to retroactively reflect the stock dividend.

Stock Options

In June 2000, the Company adopted a stock option plan (the "new plan")
pursuant to which the compensation committee of the Company's board of
directors may grant stock options to directors, consultants, and employees. The
new plan authorizes option grants to purchase up to 4,455,000 shares of
authorized but unissued common stock at a 1:1 ratio. As of June 2000, the
compensation committee has issued incentive stock options to purchase 10,000
shares of common stock to employees and non-qualified options to purchase
84,500 shares of common stock to employees and consultants at an exercise price
equal to the share price of the Company's initial public offering. 4,360,500
shares of common stock remain available for grant.

Note 5--Restatement:

The Company's previously issued unaudited interim financial statements as of
and for the three-month period ended March 31, 2000 have been restated. The
Company increased its original estimate of the market value of certain issued
options and warrants after evaluating certain additional information.
Accordingly, the Company recorded an additional non-cash charge for
compensation expenses (classified as an operating expense) of $627,873 for the
three-month period ended March 31, 2000. The change also had the effect of
increasing the Company's net loss by the same amount and its basic and diluted
net loss per common share by $0.07 for the same period.

F-24
<PAGE>

APPENDIX: INDEPENDENT EXPERT'S REPORT

Our initial public offering is a global offering. In accordance with UK best
practice, we have retained an independent expert in the field of life sciences
to prepare a report which discusses our technology, drug candidates and
development strategy. This report appears as an appendix to this prospectus.

<PAGE>

28 July 2000

The Directors
Keryx Biopharmaceuticals Inc
Kiryat Mada 5
Har Hotzvim
Jerusalem
Israel 91326 [LETTERHEAD OF PA CONSULTING GROUP]

Roth Capital Partners, Inc
24 Corporate Plaza
Newport Beach
California 92660
USA

The Directors
WestLB Panmure Limited
35 New Broad Street
London EC2M 1SQ
UK

Dear Sirs

PA Strategy Partners Ltd ("PA") is a wholly-owned subsidiary of PA
Consulting Group (of which PA Holdings Ltd is the parent company), a leading
international business and technology consultancy head-quartered in the UK and
operating in Europe, North America, Scandinavia and Asia Pacific. PA has
conducted many reviews of pharmaceutical, medical device and related companies
which have involved assessing technology and advising companies on research and
development matters. PA has prepared Experts' Reports in connection with the
public offerings of Cantab Pharmaceuticals plc, Chiroscience Group plc, Shire
Pharmaceuticals Group plc, Phytopharm plc, Biocompatibles International plc,
Xenova Group plc, Powderject Pharmaceuticals plc, Gyrus Group plc, NMT Group
plc and Maelor plc. PA Consulting Group employs specialists with knowledge of
science, technology, product development, markets and business issues in these
industries.

PA has been retained by Keryx Biopharmaceuticals, Inc. ("Keryx" or the
"Company"), Roth Capital Partners, Inc., and WestLB Panmure Limited to review
certain aspects of the Company, specifically:

1. To provide commentary upon, and assessment of, the general validity of
Keryx's development strategy

2. To provide commentary upon, and assessment of, the KinAce(TM) technology
platform

3. To provide commentary upon the achievability of Keryx's research and
development programmes. Programmes included in the review are:

KRX-101: licensed from Alfa Wassermann and in clinical development for
diabetic nephropathy;
KRX-123: an application for clinical trials is in preparation for the
indication of hormone refractory prostatic cancer;

<PAGE>

KRX-131: the subject of research and development collaboration and is
indicated in hair loss as a result of chemotherapy;
KRX-168: for post-surgical adhesions and implants;
KRX-167: in early research and development under an agreement with
Osteotech for orthopaedic applications;
KRX-211: under investigation by NIH as a treatment for septic shock;
KRX-291: a product for sunless tanning under a research and development
agreement; and
KRX-613: a candidate therapy for diabetes mellitus.

4. For each of these research and development programmes to comment upon:

(a) the project merits;

(b) specific risk factors in successful project completion;

(d) the project's development plans, including the appropriateness of
said plans.

In preparing this report, PA has conducted interviews with key Keryx staff,
officers and associates, made an extensive review of documentation prepared by
Keryx and assessed its activities by reference to our internal knowledge base.
This has been supplemented by PA's independent review.

This report has been prepared with due diligence based upon information
provided to PA by Keryx at the time of preparation. PA has no reason to doubt
the veracity of such information but PA has only verified it to the extent
indicated above. Changes in circumstances may render such information invalid
at any time hereafter.

1. BACKGROUND TO KERYX

Keryx Biopharmaceuticals, Inc. is a company involved in the discovery,
development and licensing of novel drugs identified through the application of
a proprietary approach to drug discovery.

To date, the Company has also acquired the license to one drug, KRX-101,
which is already marketed by the licensor in Europe for vascular indications
and which Keryx is developing for use in a new indication, diabetic
nephropathy. The remainder of its current portfolio has been developed through
the exploitation of bioinformatics and rational drug design, a process Keryx
has described as its KinAce(TM) technology.

Keryx seeks to exploit these discoveries by forming strategic collaborations
with established pharmaceutical companies, although in specific cases the
Company may choose to carry out the development itself. This is a strategy
followed by many emerging biotechnology companies, which has the merit of
seeking to share both the risk and the reward of the development of its
discoveries.

Keryx does not have, nor does it intend to establish, the extensive
facilities of an established pharmaceutical company, rather it will avail
itself to the broad range of contract research, development, manufacturing and
marketing capabilities of third parties. PA agrees with this strategy in that
it reduces the fixed investment in infrastructure and maintains maximum
financial flexibility.

2. PLATFORM TECHNOLOGY KinAce(TM)

Protein kinases are a class of enzymes which act to phosphorylate specific
amino acid residues. Amino acids are the building blocks and key components of
proteins and therefore play a key role in intracellular processes.

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Protein kinases are important agents in the mediation of signal transduction
(the complex cascade of molecular events that transduces a signal or stimulus)
in multicellular organisms. Protein kinases may be present as membrane
receptors or located inside the cell and act in biochemically important roles
such as signal transduction to the cell nucleus. During signal transduction,
protein kinases regulate intracellular events in response to external stimuli.

Agents which can modulate (increase or decrease) the activity of protein
kinases have the potential to induce a broad range of effects on a large number
of cellular biochemical mechanisms, for example cell hormone secretion, cell
growth and inflammation. In addition, there are disease states which involve
the up-regulation and down-regulation of the kinases themselves.

Protein kinase activity is based around the addition of phosphoryl groups
which serves to modulate the activity of the target protein. In addition to
this enzyme activity, kinases have a specific binding region which is used to
recognise and bind the protein substrate.

On the basis of their amino acid sequences and enzymatic activity, kinases
are classed in families. A large number of kinases have been identified and
sequenced.

Whilst research into kinase modulation has been carried out for many years
by a number of research groups, the focus of their investigation has been the
site of enzymatic phosphorylation. It has become evident that binding in other
regions on the kinase protein influences the enzymatic activity at this site.
The modulation of these additional regions appears to have an effect on kinase
activity.

Keryx's therapeutic approach is to construct short amino acid sequences of
between 5 and 12 residues (i.e., a peptide) to modulate the kinase activity by
serving as a decoy to those accessory regions. These regions are structurally
discrete from the phosphorlyation site but are functionally linked. Through the
use of a proprietary algorithm which analyses the kinase amino acid sequences,
Keryx believes that the correct site for binding can be identified and the
appropriate modulating peptide synthesised.

Through this approach, Keryx may be in a position to enhance or inhibit
biochemical pathways of choice through kinase sequence analysis and peptide
synthesis.

2.1 Merits of KinAce(TM)

The rational design and development of drugs targeting components of signal
transduction pathways is a relatively new development. Many signal transduction
pathways, their components, and effector molecules implicated in cancer
patheogenesis were not even elucidated until 1990. However, in the past ten
years, there have been significant advances in identifying, sequencing and
cloning proteins characterising signal transduction pathways and the associated
proteins.

Keryx's identification of regions of the kinase, which can modulate the
activity of the enzyme, together with the recognition of a number of conserved
amino acids in these regions, means that a relatively small number of molecules
need to be screened for activity. Furthermore, while the majority of kinase
modulators in development by other companies are inhibitors of the enzyme,
Keryx's ability to activate the enzyme of choice provides a broader range of
therapeutic approaches than its competitors.

PA believes that the KinAce(TM) approach to drug discovery is potentially an
immensely powerful tool. The approach bridges the information gap between the
output of bioinfomatics and the development of drugs. Keryx does not need to
conduct its own basic research into the biochemistry of a disease state,
relying instead on publically available information, and to date the approach
has proven prolific in so far as candidate identification is concerned.

A-3
<PAGE>

Conceptually the KinAce(TM) approach may be applied to the modulation of
other functional protein families. PA notes that it is possible that Keryx has
serendipitously selected a protein family (kinases) in which modulation by
small peptides is possible and that this may not be the case in any other
family. However, kinases have been implicated in a great many diseases
including many cancers and immunological diseases, as well as in inflammatory
conditions and in pain. Thus, even if Keryx's approach to drug discovery is
limited to kinase modulation, PA believes that there are significant
opportunities for the Company.

2.2 Risks Associated with KinAce(TM)

PA believes that, although many companies have explored approaches to the
modulation of kinases as a therapeutic approach, only one product based on this
pharmacology has yet reached the market. This is a protein kinase inhibitor
launched in Japan only for use as a therapy in haemorrhagic stroke. The risks
detailed below may appear extensive but merely reflect the relatively new area
of kinase modulation.

There is a number of risks associated with the development of peptides
identified through Keryx's approach. Due to the early nature of Keryx's
pipeline, many of these risks will apply to each compound and each will need to
be addressed on a case-by-case basis. However, in PA's opinion these are no
different to the risks facing any company developing pharmaceuticals. What does
differ in the case of Keryx is the technical solution that Keryx or its
partners may need to develop. This solution may differ from those required in
more traditional pharmaceutical companies. The specific risks are:

Therapeutic targets

Keryx is targeting diseases with high unmet medical needs and for some
indications, no cure or treatment. These diseases are complex and our current
understanding is still evolving. Future research may validate the current
kinase targets as the optimal method of treating a disease or may show the
current targets will not produce the desired clinical effect. This is a risk
inherent in all biotechnology research.

Lack of specificity of the peptide

Peptides of such a short chain length may not be specific to the proposed
region of the kinase and may activate/deactivate several kinase molecules. This
could manifest itself as toxicity or as adverse events in clinical development.
PA believes, however, that the evidence to date supports Keryx's hypothesis
that its current candidates are specific to the kinase of interest.

Up-regulation

Many biochemical systems, when inhibited, respond by up-regulation or by
utilising alternative biochemical pathways to achieve the end effect. It is
possible that inhibition of a specific kinase may result in increased cellular
production of the kinase to compensate. This would result in a loss of efficacy
with increasing treatment time. To date, no chronic studies have been conducted
by Keryx with any of their candidates to investigate this aspect.

Drug delivery

All of the products of Keryx's approach to drug discovery are peptides
(small proteins). Oral delivery of peptides is technically complex: the
gastrointestinal tract contains enzymes which digest protein. Furthermore,
there are circulating peptidases in the blood which similarly digest peptides.
Thus, delivery by any route other than intravenous injection may be a technical
challenge.

A-4
<PAGE>

To date, Keryx has not addressed formulation issues. However, given the
early stage of development of its candidates, this is not unsurprising. PA
believes that there is a number of formulation technologies available, which
may be appropriate to Keryx's products and that can be accessed at the
appropriate time by the Company.

Multiple pathways

PA accepts that Keryx has developed the technology and understanding to
modulate specific kinases, and that the kinases and their activity are
moderately well known. However, it is possible that in any specific indication
there are multiple pathways, which result in the disease state. Therefore, the
inhibition of a kinase-mediated pathway may result in a second pathway to the
disease assuming greater importance.

Targeting of therapeutic action

The kinase targeted for modulation in the disease state may have a normal
and needed function in other areas of the body. Therefore, Keryx may need to
develop delivery technology or technologies that deliver active peptide only to
diseased regions of the body.

3. DEVELOPMENT PIPELINE

None of the Company's development candidates have entered clinical trials.
In each programme, the Company has generally only identified key clinical
development milestones in cases where a collaborator has been secured. This is
a pragmatic approach, which ensures that the timelines are prepared with input
from established pharmaceutical companies and as such (subject to appropriate
allocation of resources) are likely to be achievable.

3.1 KRX-101: Diabetic Nephropathy

KRX-101 (Sulodexide) is a hypolipaemic agent, developed by Alfa Wassermann
and licensed to Keryx for development as a treatment for diabetic nephropathy.
It is a glycosaminoglycan polysulfate, which has antiarteriosclerotic activity
mediated by release of lipoprotein lipase.

Diabetic nephropathy is one of the most common complications of diabetes. It
generally results in a chronic and progressive degradation of kidney function,
to the point where the patient must undergo regular dialysis or obtain a kidney
transplant to survive. About 40% of people with IDDM (Insulin Dependent
Diabetes Mellitus, or Type I diabetes) will eventually develop diabetic
nephropathy. At least 20% of people with NIDDM (Non Insulin Dependent Diabetes
Mellitus, or Type II diabetes) will develop diabetic nephropathy but the time
course of development of the disorder is variable.

The mechanism that causes diabetic nephropathy is unknown. The disease is
characterised by proteinuria and the key measure of protein in urine is the
assay of albumin. When the kidneys are normal, albumin is not measurable in the
urine.

The disorder is progressive. The risk of disease progression is related to
the control of the blood-glucose levels. The goals of treatment are to slow the
progression of kidney damage and control related complications. Diabetic
nephropathy is believed to be responsible for at least 25% of all renal
dialysis patients, resulting in increased morbidity, mortality and economic
cost. Diabetes is the fourth leading cause of death in the USA.

3.1.1 Project Merits

There are no current FDA approved therapies to prevent or reduce the onset
of Type II diabetic nephropathy. The current standard of care involves the
administration of angiotensin converting

A-5
<PAGE>

enzyme (ACE) inhibitors such as captopril, to patients with chronic nephropathy
as a result of diabetes. However, ACE is not as effective in nephropathy of
Type II diabetes.

KRX-101 has been in clinical use in Europe since the mid-1980s for other
indications, and there is, therefore, significant experience of drug use in
patients. Alfa Wassermann has conducted a clinical trial in Europe for diabetic
nephropathy in over 200 patients and has demonstrated a dose-related reduction
in albumin excretion in the urine (albuminuria), with no adverse events
reported. Albuminuria has been identified as a cause of progressive loss of
kidney function.

The effectiveness of sulodexide has been shown by a significant decrease in
albuminuria in microalbuminuric and macroalbuminuric diabetic patients treated
with the drug. PA believes that experimental data on the effects of sulodoxide,
collected over the last seven years, indicate strongly that it may be an
effective therapeutic used for the treatment of diabetic nephropathy. However,
PA notes that additional studies may have to demonstrate improvements not only
in albuminuria, but also in additional clinical endpoints, for example, renal
function and morphologic abnormalities.

PA recognises that oral administration of KRX-101 compared to related
compounds (such as heparin) may make it more attractive to physicians and
patients alike.

3.1.2 Project Risks

Whilst albuminuria has been implicated in progressive kidney disease, there
is a range of opinion as to the true cause of diabetic nephropathy. For
example, one school of thought believes that glycated albumin is involved in
kidney pathogenesis and that early inhibition of glycosylation may be an
approach to prevention.

PA understands that the mechanism of kidney pathogenesis in diabetic
nephropathy is poorly understood and agrees with Keryx that reduction in
albuminuria, whilst not necessarily preventing disease progression, may improve
prognosis in this patient group. There is a risk, however, that this measure of
kidney disease may not be acceptable to regulatory authorities as a
demonstration of efficacy. Should this be the case, the timescale and cost of
the clinical development programme may be significantly increased.

Numerous studies have examined the effects of treatment on progression of
renal disease in diabetic nephropathy. Few of them, however, offer more than a
suggestion regarding the value of a given therapy, because methodological
issues such as small sample size, short duration of follow-up, poor patient
compliance, inappropriate endpoint or lack of a proper control group hinder
their interpretation.

3.1.3 Commercial Potential

In 1995, over 118 million people world-wide were suffering from some form of
diabetes, and this is forecast to grow to over 220 million by the year 2010.
Many cases of diabetes remain undiagnosed.

Keryx is seeking approval for therapy in Type II diabetes. PA estimates that
there are approximately 11 million such patients in the US, and a further 3
million in the Far East, the territories for which Keryx has a license. Of
these patients, approximately 20% will develop nephropathy in their lifetime.

The major areas of research addressing treatment are focused on two
therapeutic and pharmacological approaches: antihypertensives (ACE inhibitors,
angiotensin antagonists) and glycosylation antagonists (ARI's, AGE inhibitors).

Although AGE inhibitors have been associated with undesirable side effects,
the second-generation AGE inhibitors are expected to have much improved
efficacy and side-effect profiles. Since this class of agent addresses the
underlying cause of diabetic complications they have the

A-6
<PAGE>

potential to become a mainstay in the treatment and prevention of diabetic
nephropathy. However, PA notes that the second-generation AGE inhibitors are
unlikely to reach market before 2004.

Diabetic nephropathy represents a significant unmet medical need. Despite
new technologies in development there are still no products available that
address the fundamental disease state.

3.1.4 Development Plans

Keryx has recently filed an IND (Investigational New Drug application) with
the FDA. Should KRX-101 prove effective in reducing albuminuria significantly,
or another endpoint agreed with the regulators, PA supports the Company's
contention that it may receive fast-track approval from the FDA.

3.2 KRX-123: Hormone Refractory Prostatic Cancer

PA estimates that there are approximately 1.2 million prostatic cancer
patients in the USA, Europe and Japan, with over 175,000 new cases diagnosed
each year in the USA alone. Prostate cancer is the second leading cause of
death in American men.

Radical prostatectomy and radiation therapy are treatments of choice for
cancers that have not spread beyond the prostate gland itself. For patients
whose cancers have spread beyond the prostate at the time of diagnosis, or
whose local cancers have recurred after initial treatment, hormone therapy is
the most common treatment. Hormone therapy does not cure the cancer, but it
slows the spread of the cancer by lowering the levels of male hormones (or
androgens).

Prostate cancers that do not respond to hormone therapy are described as
hormone-refractory or androgen-independent. Chemotherapy is a therapeutic
option for such patients. Like hormone therapy, chemotherapy is not expected to
cure the cancer, but it may be used to slow tumour growth and reduce pain. Some
of the chemotherapy drugs used in treating prostate cancer that has returned,
continued to grow or spread after treatment with hormonal therapy include
doxorubicin (Adriamycin), estramustine, etoposide, mitoxantrone, vinblastine,
carboplatin and paclitaxel. PA notes that all of the current pharmaceutical
treatments for prostate cancer cause side effects.

3.2.1 Project Merits

KRX-123 is being developed to modulate Src kinase activity. Since Src kinase
activity has been reported to play an important role in the proliferation and
oncongenicity of several human cancers including human prostate carcinoma, PA
considers that Keryx's approach may have merit. However, PA notes that the
mechanism by which Src kinases contribute to oncogenesis remains to be fully
elucidated.

Keryx has carried out laboratory studies using xenografts of human hormone
refractory prostatic tumours in a model that PA believes is generally accepted
as an appropriate method for screening candidate molecules. In these tests, the
tumours in treated animals diminished, or totally disappeared. This, PA
believes, supports Keryx's decision to progress KRX-123 to clinical trial.
Moreover, Keryx has generated data, which demonstrates improved survival in
laboratory animals with xenographs.

3.2.2 Project Risks

Given the early stage of development of KRX-123, PA has identified no
project specific technology risks that are not described in Section 2.2-Risks
Associated with KinAce(TM).

Competition for patients in cancer trials is intense, with a significant
number of companies and products seeking limited numbers of patients. PA
believes that compelling evidence of efficacy is one method of attracting
clinicians to trials. Furthermore, a development partner with an established
franchise in the cancer area may further assist in recruiting investigators to
development programmes.

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<PAGE>

3.2.3 Commercial Potential

PA estimates that the world market for prostatic cancer treatments is
approximately US$1.8 billion and is expected to rise to US$3 billion by 2006.
There is a significant number of products in clinical development for hormone
refractory prostatic cancer, adopting a variety of therapeutic approaches.

3.2.4 Development Plans

Keryx is currently preparing an application for the Israeli Ministry of
Health to conduct Phase I/II clinical trials. Additionally, the Company is
seeking to file an IND for submission to the FDA by the end 2000. The Company
believes that on the basis of trials planned to begin in Israel by the end of
this year, it may have sufficient data to enable supply on a named patient-
basis in Europe which will have the effect of reducing time to market. There is
also the possibility of imminent legislation that may give Keryx-123 Orphan
Drug status in Europe. In PA's opinion this may be possible but is predicated
on the Company demonstrating compelling results from a small group of patients.
Israel has a Memorandum of Understanding with the FDA which ensures that
clinical trials conducted in that country are acceptable to the Agency.

3.3 KRX-131: Hairloss as a Result of Chemotherapy

Anagen effluvium is the sudden hair loss from exposure to chemicals or
radiation, such as certain types of chemotherapy or radiation treatment. Not
all chemotherapy drugs cause hair loss but the effect of those that do range
from a thinning of hair to complete loss. This is often the most distressing
side effect of cancer treatments. Hair loss occurs because chemotherapy
treatments attack rapidly dividing cells and the cells responsible for hair
growth are some of the fastest growing cells in the body. Hair loss normally
occurs one to three weeks after exposure to the toxic chemicals or radiation.
This is a temporary condition and hair growth will begin after treatment is
stopped.

3.3.1 Project Merits

KRX-131 is being developed to modulate activity of transforming the growth
factor-beta (TGF-(Beta)) receptor kinase. Since TGF-(Beta) levels have been
linked to hair growth, PA believes that Keryx's selected receptor kinase may
have promise as a therapeutic target.

Hair loss from chemotherapy is often the most devastating side effect of
cancer treatment. Although hard to quantify, retaining hair may lead to an
improvement in the quality of life during a difficult time in a patient's
treatment. Clinical opinion on the need for a treatment for chemically induced
hair loss is divided. It has been argued that any compound that improves the
quality of life has merit and will gain quick market acceptance. It has also
been argued that hair loss is only a temporary side effect of chemotherapy. PA
believes that an improvement in the quality of life may drive a market demand
if this product is effective.

Currently there are no approved therapies to treat the loss of hair from
chemotherapy. PA has identified a limited number of competing developments.

3.3.2 Project Risks

Given the early stage of development of KRX-131, PA has identified no
project specific technology risks that are not described in Section 2.2-Risks
Associated with KinAce(TM).

3.3.3 Commercial Potential

Keryx estimates that 30% of the 1.2 million cancer sufferers in the United
States received chemotherapy in 1999 with a similar number in the rest of the
world. Of these patients Keryx believes that 80% will suffer from hair loss. At
this time, PA has not been able to confirm these estimates.

A-8
<PAGE>

3.3.4 Development Plans

Keryx has recently signed a research and development agreement for the
testing of KRX-131. Following an evaluation of these results, Keryx will decide
to either license this compound or complete internal development.

3.4 KRX-168: Anti-fibrotic for Post-Surgical Adhesions and Implants

Post-operative adhesions involve the formation of connections between two
traumatised mesothelial cell surfaces, or of one surface and the omentum. These
connections are usually made of fibrin. The adhesions arise as a result of
localised trauma which may be due to direct wounding of tissue arising during
surgery itself or even from handling of tissues or organs by the surgical staff
involved. Additionally, PA believes that there may be an emerging market in
implant-related fibrosis.

To date, most clinical research on post-operative adhesions has focused on
abdominal surgery. Adhesions occur more frequently with abdominal surgery,
especially gastrointestinal, rectal and gynaecological procedures, because the
peritoneum is extremely delicate and sensitive to trauma.

3.4.1 Project Merits

Transforming Growth Factor-(Beta) (TGF-(Beta)) is a member of a common family
of cytokines that bind to and stimulate serine/threonine kinase receptors.
TGF-(Beta) stimulates collagen and fibronectin synthesis by fibroblasts and may
play a role in the formation of adhesions. PA, therefore, considers that this
represents an appropriate target in this indication.

Substantial costs to healthcare services arise from post-operative
adhesions. PA believes that there is a significant unmet medical need in
managing post-operative adhesions, both for prophylactic treatment to prevent
de novo adhesion formation and in treating reformed adhesions.

PA notes that there is only a limited number of products available to reduce
the incidence of post-operative adhesions. All these products appear to have
limitations. Absorbable adhesion barriers may well reduce adhesions, but as
films they are surgically difficult to apply and require an intuitive decision
by the surgeon as to the likely location of the adhesion site.

PA believes that to date approved products for managing post-operative
adhesions have all used physical barrier technology. Consequently, there may be
significant market opportunity for efficacious selective pharmaceuticals that
target the biochemical pathways leading to adhesion formation, either to
replace or to augment existing barrier methods.

Additionally, PA believes that there are currently no products approved for
the use of reducing fibrosis associated with surgical implants. This
application may represent a significant unmet medical need and a commercially
attractive market.

3.4.2 Project Risks

PA is aware of at least four companies that are looking to establish broad
anti-adhesion product portfolios. Three of these have already launched
products. Accordingly, Keryx may encounter barriers to market penetration
arising from late entry. Conversely, Keryx may find that this market situation
increases the potential for favourable out-licensing of KRX-168.

Given the early stage of development of KRX-168, PA has identified no
project specific technology risks that are not described in Section 2.2-Risks
Associated with KinAce(TM).

3.4.3 Commercial Potential

PA believes that there is a substantial market for efficacious anti-adhesion
products. For example, PA estimates that there are over 3 million abdominal and
gynaecological surgeries performed annually in the USA, representing a market
in excess of US$100 million, that may form the initial target market for KRX-
168. With expanding indications and increased acceptance, PA estimates this
market may grow to in excess of US$400 million by 2005.

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3.4.4 Development Plans

There are currently no clinical development plans for this candidate. In
line with its current strategy, the Company may develop this candidate under a
joint research and development programme with the eventual collaborator on this
project. Keryx will continue its internal in vivo development studies and
evaluate its options within the next 6 months.

3.5 KRX-167: Bone Growth Compound for Orthopaedic Applications

In 1965, Marshall Urist discovered extracts with the ability to induce bone
growth. Although Urist was unable to isolate substance responsible for bone
morphogenesis, he did give it the name bone morphogenic proteins (BMP). It is
now known that BMPs are members of a supergene family of regulatory proteins
and binds serine/threonine kinase receptors. To date, more than 40 BMPs have
been identified.

3.5.1 Project Merits

Bone formation involves the migration of undifferentiated mesenchymal cells,
differentiation into cartilage, and subsequent bone replacement by osteoblasts
and osteocytes. Studies have shown that BMP-4, when applied to cultured limb
bud mesoderm, stimulated cartilage formation, as measured by incorporation of
radioactive sulfate into sulfated proteoglycans. In mouse models, BMP-4 appears
for a specific period of 12 to 72 hours after a fracture has occurred. PA
agrees with the rational of researching a BMP-4 kinase stimulant. There is a
substantial amount of literature supporting BMP-4's role in regulating and
differentiating bone growth.

Bone fractures are a major source of costs to the healthcare community.
According to a recent study conducted by the National Osteoporosis Foundation,
the total economic cost of bone fractures caused by osteoporosis in the United
States was an estimated $13 billion. These cost calculations were based solely
on hip fractures and therefore under-represent the true cost of osteoporosis
bone fractures.

3.5.2 Project Risks

Given the early stage of development of KRX-167, PA has identified no
project specific technology risks that are not described in Section 2.2--Risks
Associated with KinAce(TM).

Products under development for the treatment of bone repair and fractures
include other bone stimulating substances such as other BMPs and human
osteogenic proteins linked to a bioresorbable barrier for non-union bone
fractures. These compounds induce the formation of cartilage and regenerates
new bone. Synthetic glycosaminoglycans for tissue modeling are also under
development.

3.5.3 Commercial Potential

There are about six million Americans who suffer from bone fractures
annually. Normally, the regenerative power of the bone will completely heal a
fracture within a few months. However, an estimated 5 to 10% of these people
will have delayed or impaired healing and may require surgical intervention to
aid the healing process.

One of the leading causes of bone fractures is osteoporosis. Osteoporosis is
suspected to cause approximately 1.5 million fractures and 250,000 hip
fractures each year in the United States. Hip fractures are the leading cause
of mortality associated with osteoporosis and are associated with the most
morbidity. An estimated 20% of people with hip fractures die within a year.

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3.5.4 Development Plans

Keryx has signed a research and development agreement with Osteotech. Keryx
intends to license KRX-167 to either Osteotech or a leading pharmaceutical
company following the successful completion of the agreement. The Company
anticipates that the licensee will be responsible for financing clinical
trials, manufacturing and marketing the compound. Keryx may earn milestone
payments according to the progress of its drug in clinical trials and royalties
on sales following a successful conclusion of human clinical trials and FDA
marketing approval.

3.6 KRX-211: Septic Shock

Sepsis is the response by the body to infection, generally bacterial. Where
the infection becomes severe, organ dysfunction or failure may follow--this is
generally referred to as septic shock. Sepsis is considered to be the leading
cause of death in non-coronary intensive care units with mortality occurring in
40-50% of patients diagnosed with sepsis.

Many therapeutic approaches to sepsis and septic shock have been followed to
date, however none has proven effective in preventing death. Current therapies
focus on eradicating the bacterial infection and supporting failing organs.

3.6.1 Project Merits

Septic shock has proven difficult to treat; many therapeutics have been
administered, including antibiotics, antihypertensives, dopamine, diuretics and
corticosteroids. To date, no therapeutic regime has been proven wholly
effective. The mortality rate is high; as many as 40% of people diagnosed with
severe sepsis in the USA will die as a result. Therefore, PA believes there is
a significant unmet medical need.

KRX-211 is being developed to modulate JaK3 kinase activity. This family of
kinases has been implicated in the signal transduction pathway involved in
immunological modulation. Published data indirectly link JaK3 kinase activity
to septic shock. Combining the limited published data along with Keryx's
internal studies, PA considers this kinase may be a suitable target for
developing new therapeutics against septic shock.

3.6.2 Project Risks

A variety of compounds are being researched for the treatment of septic
shock, these compounds include: TNF and IL antagonists, anti-ELAM antibodies,
anti-infectives and Nitric oxide inhibitors. In general, these compounds can be
categorized as acting upon inhibiting the cytokine cascade, anti-endotoxins,
anti-coagulation or anti-inflammatory compounds.

A general risk in the development of any compound in septic shock is that
the failure rate of previous discoveries has been high, as evidenced by the
current lack of therapies. PA believes that there are many reasons for these
failure rates, not least the difficulties of the design of the clinical
programmes. The laboratory data generated by Keryx are, however, compelling.

3.6.3 Commercial Potential

PA estimates 800,000 to 1 million patients are diagnosed as suffering from
septic shock annually in Europe and the USA. In the United States, the
expenditure on treatment of resistant bacterial infections is estimated at $4
billion; in Europe, the total sepsis market is expected to reach $2.4 billion
by 2003.

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3.6.4 Development Plans

Keryx does not intend to carry out the development of KRX-211 itself. The
Company has signed an agreement with the National Institutes of Health (NIH)
under which NIH will carry out extensive pre-clinical testing. Thereafter,
Keryx intends to license KRX-211 to a development partner.

3.7 KRX-291: Sunless Tanning

Melanins are the pigments that impart colour to skin and hair. Exposure to
the sun can alter skin pigmentation by inducing melanin production. There is
considerable evidence that melanin helps protect skin from harmful ultraviolet
rays, which may induce skin cancers (basal and squamous cell carcinomas and
melanoma) and skin aging due to sunlight (photoaging).

The skin cells that produce the melanins are called melanocytes and comprise
5 to 10% of the total cellular population in the epidermis. Tanning is mediated
by melanocytes producing melanin, which is subsequently transferred to the
keratinocytes. Keratinocytes are the most abundant cells in the epidermis and
account for 80 to 90% of the total epidermal cellular population.

3.7.1 Project Merits

KRX-291 is being developed to modulate MSH receptor activity. Although the
exact intracellular signals that trigger melanin production are not well
understood, there is an abundant body of evidence implicating a role of MSH and
its receptor in melanin production. PA considers this kinase as a suitable
target for the development of sunless tanning.

People who tan poorly or sunburn easily are at the greatest risk for skin
cancer. According to PA estimates, in the USA, Europe and Japan, there are
approximately 57,000 new cases of skin cancer (melanoma) every year.
Additionally, approximately 1.2 million cases of squamous cell and basal cell
carcinomas, which are also related to sun exposure (though by no means as life-
threatening as melanomas) are diagnosed each year in the US. Increasing melanin
in the skin may provide protection against the effects of ultraviolet light on
the skin. This may become of increasing importance as the ozone layer is
depleted.

3.7.2 Project Risks

Research in sunless tanning is widespread. There are several products
already on the market but they do have some limitations.

There is scientific debate about the role of alpha-MSH and its exact role in
the pigmentation process. This debate stems from the fact there is conflicting
evidence about (1) the lack of effect of alpha-MSH to effect melanogenesis in
human cell cultures and (2) the amount of secreted alpha-MSH is very low in
humans, unlike that of most other animals. However, there is some new evidence
that is supporting the MSH's critical role in melanogenesis.

3.7.3 Commercial Potential

There are many products available for self tanning, working in a variety of
ways, although most act by dyeing the skin through the use of vegetable-based
pigments. PA estimates that global sales of self tanning products were in
excess of US$ 300 million in 1998.

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3.7.4 Development Plans

In line with its current strategy, the Company has signed a research and
development agreement. Consequently, Keryx will evaluate its options following
its examination of the collaboration results.

3.8 KRX-613: Diabetes

Diabetes is among the most prevalent chronic diseases in the world. It is
estimated that in the United States, there are 10 million cases diagnosed
annually and another 5 million cases that remain undiagnosed. There are
estimated to be around 143 million adult diabetics in the world, and this
number is expected to more than double by 2025.

Insulin is used in the treatment of both types of diabetes, but while
essential in Type I (around 10-15% of all diabetics), it is only used in the
later stages of Type II diabetes, when diet and oral therapies are no longer
sufficient. About 40% of Type II diabetics are thought to be on insulin, which
together with Type I, means that more than half of all diabetic patients use
insulin.

KRX-613 would be an alternative to insulin therapy. In order for insulin to
act, it must bind to its specific receptor. The receptor contains a protein
kinase domain (IRK), which transduces the signal intracellularly, leading to
increased glucose uptake.

3.8.1 Project Merits

PA believes that a number of experiments have presented evidence that for
insulin, intracellular signal transduction is a significant factor in the
biological response. It has been shown that insulin binding results in rapid
activation of the IRK (a necessary step for the lowering of blood glucose
concentration) via a cascade of phosphorylation of intracellular signalling
proteins, and the comparably rapid internalisation of the IRK. Thus PA believes
that targeting IRK with KRX-613 is an appropriate therapeutic approach.

3.8.2 Project Risks

Given the early stage of development of KRX-613, PA has identified no
project specific technology risks that are not described in Section 2.2-Risks
Associated with KinAce(TM).

3.8.3 Commercial Potential

The total world wide market for insulin is estimated at US$2.8 billion, the
main companies involved being Lilly, Novo Nordisk and Hoechst Marion Roussel
who, between them, have 98% of the global market. The diabetes market is
growing rapidly and the insulin segment of this market is growing with it, at a
rate of around 13% per year.

3.8.4 Development Plans

Keryx has entered into a research & development agreement with Novo Nordisk
for the evaluation of KRX-613. Following evaluation of the results of these
tests, Keryx intends either to license KRX-613 or to continue its development
internally through pre-clinical and Phase I clinical trials.

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4. CONCLUSION

The discovery of pharmaceutical candidates has historically been, and
remains, serendipitous. Despite the advances in science in recent years, drugs
are still discovered by screening of thousands of substances against receptors
using robotic systems. Despite all the publicity over the sequencing of the
human genome, few companies have thus far capitalised on the research by using
the data to derive drug development candidates.

PA believes that Keryx is one of the few companies that has been able to
utilise publicly available peptide sequence data to derive drug candidates. The
amino acid sequences for kinases are open to all; it is the understanding of
the specific region against which to target a short chain protein that has
enabled Keryx to discover a significant portfolio of candidate drugs in a very
short time. One other advantage of the Company's approach is that it is not
involved in the basic research to sequence these proteins, a costly and time
consuming affair. Further, evidence to date suggests that the KinAce(TM)
approach to discovery has been sufficiently predictive that the Company does
not need to screen thousands of molecules against its target on the kinase.

Protein kinases are a large family of enzymes, which are implicated in a
great many disease conditions. PA has found no evidence to suggest that the
discovery approach adopted by Keryx cannot be applied to the modulation of
other enzymes, although this has yet to be demonstrated.

The Company's portfolio of product candidates is still at an early stage,
however PA believes that each product candidate is based on sound scientific
principles. Few therapeutic peptides have been launched and it remains to be
seen whether some of the technical challenges can be overcome. However, the
Company has demonstrated its ability to generate a significant portfolio of
product candidates in a limited time and PA believes that, should any one
product fail in development, as is inevitable, Keryx has the ability to rapidly
identify a successor.

Yours sincerely

Dr Keith Redpath
For and on behalf of PA Strategy
Partners Ltd

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You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor
does it constitute an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. The information contained in this
prospectus is correct only as of the date of this prospectus, regardless of the
time of the delivery of this prospectus or any sale of these securities.

4,600,000 Shares

[LOGO OF KERYX BIOPHARMACEUTICALS]

Common Stock

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PROSPECTUS

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Dealer Prospectus Delivery Obligation

Until August 22, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
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acting as underwriters and with respect to their unsold allotments or
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July 28, 2000

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