ENZON INC, 424B4, 2000-03-21

ENZON INC
424B4, 2000-03-21
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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Filed Pursuant to Rule 424(b)(4)
File No. 333-30818
P R O S P E C T U S

2,000,000 SHARES
[LOGO]

COMMON STOCK

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ENZON, INC. IS OFFERING 2,000,000 SHARES OF ITS COMMON STOCK.

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OUR COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
'ENZN.' ON MARCH 20, 2000, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK WAS
$44 1/2 PER SHARE.

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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE 'RISK FACTORS' BEGINNING ON
PAGE 9.

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PRICE $44 1/2 A SHARE

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
------ ----------- -------
<S> <C> <C> <C>
Per Share.................................................. $44.50 $2.67 $41.83
Total...................................................... $89,000,000 $5,340,000 $83,660,000
</TABLE>

We have granted the underwriters the right to purchase up to an additional
300,000 shares to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
March 24, 2000.

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MORGAN STANLEY DEAN WITTER
CIBC WORLD MARKETS
SG COWEN

March 20, 2000

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TABLE OF CONTENTS

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<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 9
Use of Proceeds....................... 21
Price Range of Common Stock........... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 31
Management............................ 50
Principal Stockholders................ 53
Description of Capital Stock.......... 55
Material U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 59
Underwriters.......................... 61
Legal Matters......................... 62
Experts............................... 62
Where You Can Find More Information... 63
Index to Financial Statements......... F-1
</TABLE>

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In this prospectus, the 'Company,' 'we,' 'us' and 'our' refer to Enzon, Inc.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of our common stock
and seeking offers to buy shares of our common stock only in states where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock.

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FORWARD-LOOKING STATEMENTS

The statements incorporated by reference or contained in this prospectus
discuss our future expectations, contain projections of our results of
operations or financial condition, and include other 'forward-looking'
information within the meaning of Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements that express our beliefs, plans, objectives,
assumptions or future events or performance may involve estimates, assumptions,
risks and uncertainties. Therefore, our actual results and performance may
differ materially from those expressed in the forward-looking statements.
Forward-looking statements often, although not always, include words or phrases
such as the following:

'will likely result'

'are expected to'

'will continue'

'is anticipated'

'estimate'

'intends'

'plans'

'projection'

'outlook'

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You should not unduly rely on forward-looking statements contained or
incorporated by reference in this prospectus. Actual results or outcomes may
differ materially from those predicted in our forward-looking statements due to
the risks and uncertainties inherent in our business, including risks and
uncertainties in:

clinical trial results

obtaining and maintaining regulatory approval

market acceptance of and continuing demand of our products

the impact of competitive products and pricing

our ability to obtain additional financing to support our operations

factors discussed in the documents listed below

You should read and interpret any forward-looking statement together with
the following documents:

our most recent Annual Report on Form 10-K

our Quarterly Reports on Form 10-Q

the risk factors contained in this prospectus under the caption 'Risk
Factors'

our other filings with the Securities and Exchange Commission

Any forward-looking statement speaks only as of the date on which that
statement is made. We will not update any forward-looking statement to reflect
events or circumstances that occur after the date on which such statement is
made.

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[THIS PAGE INTENTIONALLY LEFT BLANK]

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PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled 'Risk Factors' and our financial statements and
the notes thereto before making an investment decision. Except as otherwise
noted, all information in this prospectus assumes no exercise of the
underwriters' over-allotment option. See 'Underwriters.'

OUR COMPANY

We are a biopharmaceutical company that develops and commercializes enhanced
therapeutics for life-threatening diseases through the application of our two
proprietary platform technologies: PEG and single-chain antibodies. We apply our
PEG, or polyethylene glycol, technology to improve the delivery, safety and
efficacy of proteins and small molecules with known therapeutic efficacy. We
apply our single-chain antibody, or SCA, technology to discover and produce
antibody-like molecules that offer many of the therapeutic benefits of
monoclonal antibodies while addressing some of their limitations.

PEG PRODUCTS

PEG-Intron is a PEG-enhanced version of Schering-Plough's alpha interferon
product, INTRON A. We have designed PEG-Intron to allow for less frequent
dosing, to have an improved side effect profile and to yield greater efficacy as
compared to INTRON A. Our worldwide partner for PEG-Intron, Schering-Plough, has
filed applications in both Europe and the United States for approval of
PEG-Intron in the treatment of hepatitis C. In February 2000, Schering-Plough
announced that the European regulatory committee reviewing the PEG-Intron
application issued a positive opinion recommending approval of PEG-Intron for
the treatment of adult patients with chronic hepatitis C. Product approval by
the European regulatory authority is typically issued three months from the time
that such committee renders its opinion. In February 2000, the FDA accepted
Schering-Plough's December 1999 application for PEG-Intron for standard review,
which typically takes 12 months from the date of filing. Schering-Plough is
conducting a Phase III clinical trial of PEG-Intron as combination therapy with
REBETOL for hepatitis C and Phase III clinical trials of PEG-Intron for the
treatment of chronic myelogenous leukemia and malignant melanoma. Earlier stage
clinical trials of PEG-Intron are being conducted for other indications,
including HIV. Schering-Plough's worldwide sales of INTRON A and REBETRON
Combination Therapy for all indications in 1999 totaled $1.1 billion.

We have commercialized two products based on our PEG technology: ADAGEN for
the treatment of a congenital enzyme deficiency disease called SCID, and
ONCASPAR for the treatment of acute lymphoblastic leukemia. Each of these
products is a PEG-enhanced version of a naturally occurring enzyme. Both
products have been on the market for several years and have demonstrated the
safe and effective application of our PEG technology.

SINGLE-CHAIN ANTIBODIES

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most clinically advanced SCAs based on our technology are being developed by our
licensee, Alexion Pharmaceuticals, for complications arising during
cardiopulmonary bypass and myocardial infarction.

STRATEGY

To further realize the potential value of our PEG and SCA technologies, we
intend to pursue the following strategic initiatives:

continue to identify proteins and small molecules of known therapeutic
value that we believe can be improved by our PEG technology and develop
PEG-enhanced versions of such compounds

enter into license agreements with third parties to apply our PEG
technology to their existing compounds

in-license and discover therapeutic SCAs for our own proprietary
development, focusing initially on cancer and cardiovascular therapeutics

enter into license agreements with third parties who are developing SCAs in
order to ensure proper compensation for use of our intellectual property

CORPORATE INFORMATION

Enzon, Inc. was incorporated in Delaware in 1981. Our principal executive
offices are located at 20 Kingsbridge Road, Piscataway, New Jersey, 08854. Our
telephone number at this location is (732) 980-4500. Our web site is located at
http://www.enzon.com. The information contained on our web site is not a part of
this prospectus.

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ADAGEN'r', ONCASPAR'r' and PROTHECAN'r' are our registered trademarks. Other
trademarks and trade names used in this prospectus are the property of their
respective owners.

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THE OFFERING

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<S> <C>
Common stock offered................................. 2,000,000 shares

Common stock to be outstanding after the offering.... 40,049,632 shares

Over-allotment option................................ 300,000 shares

Use of proceeds...................................... We intend to use the proceeds from this
offering for:

research and development activities, including
the development of additional PEG and SCA
compounds

facility upgrades

clinical trials for our current product
candidates

general corporate purposes, including working
capital

Nasdaq National Market symbol........................ ENZN
</TABLE>

The number of shares of our common stock to be outstanding after this
offering, utilizing the actual number of outstanding shares, as of February 15,
2000, does not take into account the following as of that date:

3,205,136 shares of common stock issuable upon the exercise of outstanding
options at a weighted average exercise price of $6.23 per share

457,731 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.75 per share

61,364 shares of common stock issuable upon the conversion of outstanding
shares of our Series A preferred stock

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SUMMARY FINANCIAL DATA

The financial data set forth below should be read in conjunction with the
sections entitled 'Selected Financial Data,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations,' and the financial
statements and notes included or incorporated by reference in this prospectus.
The as adjusted Balance Sheet Data column gives effect to our sale of 2,000,000
shares of common stock in this offering, at a public offering price of $44.50
per share.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
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1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales.......................................... $11,596 $12,313 $12,856 $ 6,718 $ 6,617
Contract revenues.............................. 1,131 2,331 302 67 62
------- ------- ------- ------- -------
Total revenues................................. 12,727 14,644 13,158 6,785 6,679

Expenses:
Cost of sales.................................. 3,840 3,645 4,310 2,339 1,972
Research and development....................... 8,520 8,654 6,836 3,423 3,590
Selling, general and administrative............ 5,528 6,426 8,133 3,643 5,136
------- ------- ------- ------- -------
Total expenses................................. 17,888 18,725 19,279 9,405 10,698
------- ------- ------- ------- -------
Operating loss................................... (5,161) (4,081) (6,121) (2,620) (4,019)
Other income, net................................ 604 464 1,202 635 559
------- ------- ------- ------- -------
Net loss......................................... $(4,557) $(3,617) $(4,919) $(1,985) $(3,460)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net loss per share:
Basic and diluted.............................. $ (0.16) $ (0.12) $ (0.14) $ (0.06) $ (0.09)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number of common shares
outstanding:
Basic and diluted.............................. 29,046 31,092 35,699 35,182 36,835
</TABLE>

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $23,262 $106,379
Working capital............................................. 21,108 104,225
Total assets................................................ 34,433 117,550
Long-term debt.............................................. -- --
Total stockholders' equity.................................. 22,980 106,097
</TABLE>

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RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to purchase shares of our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or that we currently believe to be immaterial may also
adversely affect our business. If any of the following risks actually occur, our
business and operating results could be harmed. This could cause the trading
price of our common stock to decline, and you may lose all or part of your
investment.

RISKS RELATED TO ENZON

WE HAVE A HISTORY OF LOSSES AND WE MAY NEVER BE PROFITABLE.

We have incurred substantial losses since our inception. As of December 31,
1999, we had an accumulated deficit of approximately $126.8 million. We expect
to incur operating losses for the foreseeable future. The size of these losses
will depend primarily on the receipt and timing of regulatory approval of
PEG-Intron and Schering-Plough's effective marketing of PEG-Intron, as well as
on the rate of growth in our other product sales or royalty revenue and on the
level of our expenses. Our two FDA-approved products are not generating
significant revenues because neither product has become widely used due to a
small patient population base and limitations on their indicated uses. Our
ability to achieve long-term profitability will depend upon our or our
licensees' ability to obtain regulatory approvals for additional product
candidates. Even if our product candidates receive regulatory approval, we
cannot assure you that our products will achieve market acceptance or will be
commericalized successfully or that our operations will be profitable.

OUR NEAR TERM SUCCESS IS HEAVILY DEPENDENT ON FDA APPROVAL OF PEG-INTRON AND
SCHERING-PLOUGH'S EFFECTIVE MARKETING OF PEG-INTRON.

Under our agreement with Schering-Plough, pursuant to which we applied our
PEG technology to develop a modified form of Schering-Plough's INTRON A, we will
receive royalties on worldwide sales of PEG-Intron, if any. Schering-Plough is
responsible for conducting and funding the clinical studies, obtaining
regulatory approval and marketing the product worldwide on an exclusive basis.
In November 1999, Schering-Plough announced that it had submitted a Marketing
Authorization Application to the European Agency for the Evaluation of Medicinal
Products, or EMEA, seeking marketing approval of PEG-Intron in Europe for the
treatment of hepatitis C. In February 2000, Schering-Plough announced that the
Committee for Proprietary Medicinal Products of the EMEA issued an opinion
recommending approval of the application. Product approval by the EMEA is
typically issued three months from the time the Committee renders its opinion.
In December 1999, Schering-Plough completed submission of a Biologics License
Application, or BLA, to the FDA seeking marketing approval of PEG-Intron for the
treatment of hepatitis C. Schering-Plough had requested priority review status
from the FDA of this BLA. In February 2000, the FDA accepted Schering-Plough's
BLA for PEG-Intron for standard review, rather than priority review. Standard
review typically takes 12 months from the date of filing. We have not had access
to and do not know the results of the Phase III clinical trial that were
included in Schering-Plough's BLA, nor have we been able to review the BLA. If
Schering-Plough does not receive marketing approval from the FDA or the EMEA in
a timely manner, or at all, it will have a material adverse effect on our
business, financial condition and results of operation.

Schering-Plough currently markets INTRON A together with REBETOL as
combination therapy for the treatment of hepatitis C and INTRON A as a
stand-alone treatment for hepatitis C. If the current BLA is approved by the
FDA, Schering-Plough will be able to market PEG-Intron only as a stand-alone or
monotherapy treatment for hepatitis C. Schering-Plough is conducting a Phase III
clinical trial of PEG-Intron as combination therapy with REBETOL for hepatitis C
and Phase III clinical trials of PEG-Intron for the treatment of chronic
myelogenous leukemia and malignant melanoma. If those trials are successful,
PEG-Intron may be the subject of future BLAs for those indications. We cannot
assure you that Schering-Plough will seek or obtain marketing approval to sell
PEG-Intron for these additional indications or for combination therapy. Although
Schering-Plough is

<PAGE>

obligated under our agreement to use commercial efforts to market PEG-Intron, we
cannot assure you that Schering-Plough will be successful in marketing
PEG-Intron or that Schering-Plough will not continue to market INTRON A, either
as a stand-alone product or in combination therapy with REBETOL, even if
PEG-Intron receives FDA approval. The amount and timing of resources dedicated
by Schering-Plough to the development and marketing of PEG-Intron is not within
our control. If Schering-Plough breaches or terminates its agreement with us, or
fails to work diligently toward FDA approval of the product for additional
indications, the commercialization of PEG-Intron could be slowed or blocked
completely. Our revenues will be negatively affected if Schering-Plough
continues to market INTRON A in competition with PEG-Intron or if it cannot meet
the manufacturing demands of the market. If Schering-Plough does not use
commercial efforts to market PEG-Intron, or it otherwise breaches the agreement,
a dispute may arise between us. A dispute would be both expensive and time-
consuming and may result in delays in the development and commercialization of
PEG-Intron, which would likely have a material adverse affect on our business,
financial condition and results of operations.

THERE IS CURRENTLY PATENT LITIGATION, WHICH COULD HAVE A SIGNIFICANT ADVERSE
IMPACT ON OUR BUSINESS.

Hoffmann-La Roche has sued Schering-Plough and claimed that the PEG
technology used in PEG-Intron infringes a patent held by Hoffmann-La Roche. The
litigation is at a very early stage, and we cannot predict its outcome. Prior to
the commencement of this litigation we obtained an opinion of patent counsel
that the patent held by Hoffmann-La Roche is invalid. However, this opinion is
not binding on any court or the U.S. Patent and Trademark Office. We cannot
assure you that the patent opinion will prove to be correct and that a court
would find any of the claims of such patents to be invalid or that the product
developed by us or our collaborator does not infringe such patents. If this
litigation is not resolved favorably for Schering-Plough and Schering-Plough is
prevented from marketing PEG-Intron, we would not receive any royalties on sales
of PEG-Intron. This would have a material adverse effect on our business,
financial condition and results of operations.

In December 1998, we filed a patent infringement suit against Shearwater
Polymers, a company that has reportedly developed a Branched PEG, or U-PEG, used
in Hoffmann-La Roche's Pegasys product, a PEG-modified version of its
alpha-interferon product called Roferon-A. We believe that Pegasys utilizes a
type of Branched PEG, for which we have been granted a patent in the United
States and have similar patents pending in Europe, Japan and Canada. Shearwater
has filed a counterclaim in this litigation alleging that our Branched PEG
patent is invalid and unenforceable. While an adverse outcome in the litigation
will not prevent Schering-Plough from commercializing PEG-Intron, if we are not
successful in our infringement suit or if our patent is held to be invalid, we
may not be able to preclude Shearwater from selling its Branched PEG or preclude
Hoffmann-La Roche from commercializing Pegasys if it obtains regulatory
approval. If we are unable to enforce our patent rights in this area against
others, it may have a material adverse effect on our business, financial
condition and results of operations.

During the course of our litigation proceedings with Shearwater Polymers and
Schering-Plough's litigation with Hoffmann-La Roche, interim information about
the status of each of these litigations may be released. Although these interim
releases may differ from the final determinations in these litigations, such
information may have a material adverse effect on the market price of our common
stock.

WE ARE SUBJECT TO EXTENSIVE REGULATION. COMPLIANCE WITH THESE REGULATIONS
CAN BE COSTLY, TIME CONSUMING AND SUBJECT US TO UNANTICIPATED DELAYS IN
DEVELOPING OUR PRODUCTS.

The manufacturing and marketing of pharmaceutical products in the United
States and abroad are subject to stringent governmental regulation. The sale of
any of our products for use in humans in the United States will require the
prior approval of the FDA. Similar approvals by comparable agencies are required
in most foreign countries. The FDA has established mandatory procedures and
safety standards that apply to the clinical testing, manufacture and marketing
of pharmaceutical products. Obtaining FDA approval for a new therapeutic product
may take several years and involve substantial expenditures. ADAGEN was approved
by the FDA in 1990. ONCASPAR was approved in the United

<PAGE>

States and in Germany in 1994, and in Canada in 1997, in each case for patients
with acute lymphoblastic leukemia who are hypersensitive to native forms of
L-asparaginase. ONCASPAR was approved in Russia in April 1993 for therapeutic
use in a broad range of cancers. Except for these approvals, none of our other
products has been approved for sale and use in humans in the United States or
elsewhere.

We cannot assure you that we or our licensees will be able to obtain FDA or
other relevant marketing approval for any of our other products. In addition,
any approved products are subject to continuing regulation. If we or our
licensees fail to comply with applicable requirements it could result in:

criminal penalties,

civil penalties,

fines,

recall or seizure,

injunctions requiring suspension of production,

orders requiring ongoing supervision by the FDA, or

refusal by the government to approve marketing or export applications or to
allow us to enter into supply contracts.

If we or our licensees fail to obtain or maintain requisite governmental
approvals or fail to obtain or maintain approvals of the scope requested, it
will delay or preclude us or our licensees or marketing partners from marketing
our products. It could also limit the commercial use of our products. Any such
failure or limitation may have a material adverse affect on our business,
financial condition and results of operations.

WE HAVE EXPERIENCED PROBLEMS COMPLYING WITH THE FDA'S REGULATIONS FOR
MANUFACTURING OUR PRODUCTS, AND WE MAY NOT BE ABLE TO RESOLVE THESE PROBLEMS.

Manufacturers of drugs also must comply with the applicable FDA good
manufacturing practice regulations, which include quality control and quality
assurance requirements as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to ongoing periodic
inspection by the FDA and corresponding state agencies, including unannounced
inspections, and must be licensed as part of the product approval process before
they can be used in commercial manufacturing. We or our present or future
suppliers may be unable to comply with the applicable good manufacturing
practice regulations and other FDA regulatory requirements.

During 1998, we began to experience manufacturing problems with one of our
FDA-approved products, ONCASPAR. The problems were due to increased levels of
white particulates in batches of ONCASPAR, which resulted in an increased
rejection rate for this product. During fiscal 1999, we agreed with the FDA to
temporary labeling and distribution restrictions for ONCASPAR and instituted
additional inspection and labeling procedures prior to distribution. During May
1999, the FDA required us to limit distribution of ONCASPAR to only those
patients who are hypersensitive to native L-asparaginase. In November 1999, the
FDA withdrew this distribution restriction.

Recently, we have noticed an unacceptable level of black particulates in a
batch of ADAGEN filled by our third-party contract filler. We believe these
particulates are caused by the filling process, and our third-party filler has
taken steps to resolve this issue. Because we use the same outside filler for
ADAGEN and ONCASPAR, this problem could affect ONCASPAR as well.

In July 1999, the FDA conducted an inspection of our manufacturing facility
in connection with our product license for ADAGEN. Following that inspection,
the FDA documented several deviations from Current Good Manufacturing Practices,
known as cGMP, in a Form 483 report. We provided the FDA with a corrective
action plan. In November 1999, the FDA issued a warning letter citing the same
cGMP deviations listed in the July 1999 Form 483, but it also stated that the
FDA was satisfied with our proposed corrective actions. As a result of the
deviations, the FDA decided not to approve product

<PAGE>

export requests from us for both ADAGEN and ONCASPAR until it determines that
all noted ADAGEN cGMP deviations have been corrected.

In January 2000, the FDA conducted another inspection of our manufacturing
facility relating to the ONCASPAR product license and as a follow-up to the July
1999 inspection relating to ADAGEN. Following this most recent inspection, the
FDA issued a Form 483 report, citing deviations from cGMP in the manufacture of
ONCASPAR and two cGMP deviations for ADAGEN. We have responded to the FDA with a
corrective action plan to the January 2000 Form 483. However, we cannot assure
you that the FDA will not issue a warning letter with respect to the manufacture
of ONCASPAR or that the FDA will approve product export requests that we may
make in the future.

While we expect to resolve these manufacturing problems by the second
quarter of the calendar year, we cannot be certain that the solution will be
acceptable to the FDA. If we cannot satisfactorily resolve these problems, the
FDA may not permit us to continue to distribute ONCASPAR or ADAGEN. If we cannot
market and distribute ONCASPAR or ADAGEN for an extended period, future sales of
the products may suffer, which could adversely affect our financial results.

Rhone-Poulenc Rorer, or RPR, which has the exclusive right to sell ONCASPAR
in North America, has asserted that we should be responsible for its lost
profits while ONCASPAR is under the temporary labeling and distribution
restrictions resulting from the white particulate problem. RPR contends that its
lost profits through December 31, 1999 were $5.2 million. We are also currently
in discussions with RPR related to a disagreement over the purchase price we
charged RPR for ONCASPAR under our supply agreement with it. RPR has asserted
that we have overcharged it in the amount of $2.3 million. We believe our
costing of ONCASPAR complies with the supply agreement. Although we do not agree
with RPR's claims, the ultimate resolution of either matter could have a
material adverse effect on our financial position.

Schering-Plough will be responsible for the manufacture of PEG-Intron.

OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
EXPECT.

We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could harm our business, financial
condition and results of operations.

Schering-Plough is conducting clinical trials of our lead product candidate,
PEG-Intron, which is in Phase III trials as combination therapy with REBETOL for
treatment of hepatitis C and as stand-alone therapy for two cancer indications.
We are currently conducting early stage clinical trials of our next PEG product,
PROTHECAN. Clinical trials can be very costly and time-consuming. The rate of
completion of clinical trials depends upon many factors, including the rate of
enrollment of patients. If we or Schering-Plough are unable to accrue sufficient
clinical patients in our respective trials during the appropriate period, such
trials may be delayed and will likely incur significant additional costs. In
addition, FDA or institutional review boards may require us to delay, restrict,
or discontinue our clinical trials on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.

The cost of human clinical trials varies dramatically based on a number of
factors, including:

the order and timing of clinical indications pursued,

the extent of development and financial support from corporate
collaborators,

the number of patients required for enrollment,

the difficulty of obtaining clinical supplies of the product candidate, and

the difficulty in obtaining sufficient patient populations and clinicians.

All statutes and regulations governing the conduct of clinical trials are
subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm our
business, financial condition and results of operations.

In some cases, we rely on corporate collaborators or academic institutions
to conduct some or all aspects of clinical trials involving our product
candidates. We will have less control over the timing and

<PAGE>

other aspects of these clinical trials than if we conducted them entirely on our
own. We cannot assure you that these trials will commence or be completed as we
expect or that they will be conducted successfully.

IF PRE-CLINICAL AND CLINICAL TRIALS DO NOT YIELD POSITIVE RESULTS, OUR
PRODUCTS WILL FAIL.

If pre-clinical and clinical testing of one or more of our product
candidates do not demonstrate the safety and efficacy of the desired
indications, those potential products will fail. Numerous unforeseen events may
arise during, or as a result of, the testing process, including the following:

the results of pre-clinical studies may be inconclusive, or they may not be
indicative of results that will be obtained in human clinical trials,

potential products may not have the desired effect or may have undesirable
side effects or other characteristics that preclude regulatory approval or
limit their commercial use if approved,

results attained in early human clinical trials may not be indicative of
results that are obtained in later clinical trials, and

after reviewing test results, we or our corporate collaborators may abandon
projects which we might previously have believed to be promising.

Clinical testing is very costly and can take many years. The failure to
adequately demonstrate the safety and efficacy of a therapeutic product under
development would delay or prevent regulatory approval, which could adversely
affect our business and financial performance.

EVEN IF WE OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS, THEY MAY NOT BE
ACCEPTED IN THE MARKETPLACE.

The commercial success of our products will depend upon their acceptance by
the medical community and third-party payors as clinically useful,
cost-effective and safe. Even if our products obtain regulatory approval, we
cannot assure you that they will achieve market acceptance of any kind. The
degree of market acceptance will depend on many factors, including:

the receipt, timing and scope of regulatory approvals,

the timing of market entry in comparison with potentially competitive
products,

the availability of third-party reimbursement, and

the establishment and demonstration in the medical community of the
clinical safety, efficacy and cost-effectiveness of drug candidates, as
well as their advantages over existing technologies and therapeutics.

If any of our products do not achieve market acceptance, we will likely lose
our entire investment in that product.

WE DEPEND ON OUR COLLABORATIVE PARTNERS. IF WE LOSE OUR COLLABORATIVE
PARTNERS OR THEY DO NOT APPLY ADEQUATE RESOURCES TO OUR COLLABORATIONS, OUR
PRODUCT DEVELOPMENT AND FINANCIAL PERFORMANCE MAY SUFFER.

We rely heavily and will depend heavily in the future on collaborations with
corporate partners, primarily pharmaceutical companies, for one or more of the
research, development, manufacturing, marketing and other commercialization
activities relating to many of our product candidates. If we lose our
collaborative partners, or if they do not apply adequate resources to our
collaborations, our product development and financial performance may suffer.

The amount and timing of resources dedicated by our collaborators to their
collaborations with us is not within our control. If any collaborator breaches
or terminates its agreements with us, or fails to conduct its collaborative
activities in a timely manner, the commercialization of our product candidates
could be slowed or blocked completely. We cannot assure you that our
collaborative partners will not change their strategic focus or pursue
alternative technologies or develop alternative products as a means for
developing treatments for the diseases targeted by these collaborative programs.
Our

<PAGE>

collaborators could develop competing products. In addition, our revenues will
be affected by the effectiveness of our corporate partners in marketing any
successfully developed products.

We cannot assure you that our collaborations will be successful. Disputes
may arise between us and our collaborators as to a variety of matters, including
financing obligations under our agreements and ownership of intellectual
property rights. These disputes may be both expensive and time-consuming and may
result in delays in the development and commercialization of products.

WE ARE DEPENDENT UPON A SINGLE OUTSIDE SUPPLIER FOR EACH OF THE CRUCIAL RAW
MATERIALS NECESSARY TO THE MANUFACTURE OF EACH OF OUR PRODUCTS AND PRODUCT
CANDIDATES.

We cannot assure you that sufficient quantities of our raw material
requirements will be available to support the continued research, development or
manufacture of our products. We purchase the unmodified compounds utilized in
our approved products and products under development from outside suppliers. We
may be required to enter into supply contracts with outside suppliers for
certain unmodified compounds. We do not produce the unmodified adenosine
deaminase used in the manufacture of ADAGEN or the unmodified forms of
L-asparaginase used in the manufacture of ONCASPAR. We have a supply contract
with an outside supplier for the supply of each of these unmodified compounds.
If we experience a delay in obtaining or are unable to obtain any unmodified
compound, including unmodified adenosine deaminase or unmodified L-asparaginase,
on reasonable terms, or at all, it could have a material adverse effect on our
business, financial condition and results of operations.

If we are required to obtain an alternate source for an unmodified compound
utilized in a product, the FDA and relevant foreign regulatory agencies will
likely require that we perform additional testing to demonstrate that the
alternate material is biologically and chemically equivalent to the unmodified
compound previously used in our clinical trials. This testing could delay or
stop development of a product, limit commercial sales of an approved product and
cause us to incur significant additional expenses. If we are unable to
demonstrate that the alternate material is chemically and biologically
equivalent to the previously used unmodified compound, we will likely be
required to repeat some or all of the pre-clinical and clinical trials conducted
for the compound. The marketing of an FDA approved drug could be disrupted while
such tests are conducted. Even if the alternate material is shown to be
chemically and biologically equivalent to the previously used compound, the FDA
or relevant foreign regulatory agency may require that we conduct additional
clinical trials with the alternate material.

THE UNITED STATES AND FOREIGN PATENTS UPON WHICH OUR ORIGINAL PEG TECHNOLOGY
WAS BASED HAVE EXPIRED. WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS, WHICH MAY
OFFER ONLY LIMITED PROTECTION AGAINST POTENTIAL INFRINGEMENT AND THE DEVELOPMENT
BY OUR COMPETITORS OF COMPETITIVE PRODUCTS.

Research Corporation Technologies, Inc. held the patent upon which our
original PEG technology was based and had granted us a license under such
patent. Research Corporation's patent contained broad claims covering the
attachment of PEG to polypeptides. However, this United States patent and its
corresponding foreign patents have expired. Based upon the expiration of the
Research Corporation patent, other parties will be permitted to make, use or
sell products covered by the claims of the Research Corporation patent, subject
to other patents, including those which we hold. We have obtained several
patents with claims covering improved methods of attaching or linking PEG to
therapeutic compounds. We cannot assure you that any of these patents will
enable us to prevent infringement or that competitors will not develop
alternative methods of attaching PEG to compounds potentially resulting in
competitive products outside the protection that may be afforded by our patents.
We are aware that others have also filed patent applications and have been
granted patents in the United States and other countries with respect to the
application of PEG to proteins and other compounds. We cannot assure that the
expiration of the Research Corporation patent or other patents related to PEG
that have been granted to third parties will not have a material adverse effect
on our business, financial condition and results of operations.

The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success depends, in part, on our ability to

<PAGE>

develop and maintain a strong patent position for our products and technologies
both in the United States and in other countries. We have been licensed, and
been issued, a number of patents in the United States and other countries, and
we have other patent applications pending to protect our proprietary technology.
Although we believe that our patents provide certain protection from
competition, we cannot assure you that such patents will be of substantial
protection or commercial benefit to us, will afford us adequate protection from
competing products, or will not be challenged or declared invalid. In addition
we cannot assure you that additional United States patents or foreign patent
equivalents will be issued to us. The scope of patent claims for
biotechnological inventions is uncertain and our patents and patent applications
are subject to this uncertainty.

To facilitate development of our proprietary technology base, we may need to
obtain licenses to patents or other proprietary rights from other parties. If we
are unable to obtain such licenses, our product development efforts may be
delayed or blocked.

We are aware that certain organizations are engaging in activities that
infringe certain of our PEG and SCA technology patents. We cannot assure you
that we will be able to enforce our patent and other rights against such
organizations.

We expect that there will continue to be significant litigation in the
biotechnology and pharmaceutical industries regarding patents and other
proprietary rights. We have become involved in patent litigation, and we may
likely become involved in additional patent litigation in the future. We may
incur substantial costs in asserting any patent rights and in defending suits
against us related to intellectual property rights. Such disputes could
substantially delay our product development or commercialization activities, and
could have a material adverse effect on our business, financial condition and
results of operations. As discussed in 'Business -- Legal Proceedings,' there
are two pending litigation matters either involving or affecting our products
and patents. The adverse disposition of either of these litigations will
adversely affect our business, financial condition and results of operations.

We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements and we may
not be able to successfully protect our rights to unpatented trade secrets and
know-how. Others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and
know-how.

WE HAVE LIMITED SALES AND MARKETING EXPERIENCE, WHICH MAKES US DEPENDENT ON
OUR MARKETING PARTNERS.

Other than ADAGEN, which we market on a worldwide basis to a small patient
population, we have not engaged in the direct commercial marketing of any of our
products and therefore we do not have significant experience in sales, marketing
or distribution. For some of our products, we have provided exclusive marketing
rights to our corporate partners in return for milestone payments and royalties
to be received on sales. To the extent that we enter into licensing arrangements
for the marketing and sale of our products, any revenues we receive will depend
primarily on the efforts of these third parties. We will not control the amount
and timing of marketing resources that such third parties devote to our
products. In addition, if we market products directly, significant additional
expenditures and management resources would be required to increase the size of
our internal sales force. In any sales or marketing effort, we would compete
with many other companies that currently have extensive and well-funded sales
operations. Our marketing and sales efforts may be unable to compete
successfully against other such companies.

WE MAY NEED TO OBTAIN ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL NEEDS
AND THIS FINANCING MAY NOT BE AVAILABLE WHEN WE NEED IT.

Our current development projects require substantial capital. We may require
substantial additional funds to conduct research activities, pre-clinical
studies, clinical trials and other activities relating to the successful
commercialization of potential products. In addition, we may seek to acquire

<PAGE>

additional technologies. We do not expect to achieve significant sales or
royalty revenue from our current FDA-approved products, ADAGEN and ONCASPAR. In
addition, we cannot be sure that we will obtain significant revenue from
PEG-Intron in the near future, or ever. Additional funds from other sources may
not be available on acceptable terms, if at all. If adequate funds are
unavailable from operations or additional sources of financing, we may have to
delay, reduce the scope of or eliminate one or more of our research or
development programs which would materially and adversely affect our business,
financial condition and operations.

While we believe that the net proceeds of this offering, together with our
cash, cash equivalents and investments, will be adequate to satisfy our capital
needs for the foreseeable future, our actual capital requirements will depend on
many factors, including:

the level of revenues we receive from our FDA-approved products and product
candidates,

continued progress of our research and development programs,

our ability to establish additional collaborative arrangements,

changes in our existing collaborative relationships,

progress with pre-clinical studies and clinical trials,

the time and costs involved in obtaining regulatory clearance for our
products,

the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims,

competing technological and market developments, and

our ability to market and distribute our products and establish new
collaborative and licensing arrangements.

We may seek to raise any necessary additional funds through equity or debt
financings, collaborative arrangements with corporate partners or other sources
which may be dilutive to existing stockholders. We cannot assure you that we
will be able to obtain additional funds on acceptable terms, if at all. If
adequate funds are not available, we may be required to:

delay, reduce the scope or eliminate one or more of our development
projects,

obtain funds through arrangements with collaborative partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves, or

license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.

WE DEPEND ON KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN THESE EMPLOYEES OR
RECRUIT ADDITIONAL QUALIFIED PERSONNEL, WHICH WOULD HARM OUR BUSINESS.

Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. There
is intense competition for qualified personnel in the pharmaceutical field.
Therefore, we may not be able to attract and retain the qualified personnel
necessary for the development of our business. The loss of the services of
existing personnel, as well as the failure to recruit additional key scientific,
technical and managerial personnel in a timely manner would harm our research
and development programs and our business.

THE FAILURE OF COMPUTER SYSTEMS TO BE YEAR 2000 COMPLIANT COULD NEGATIVELY
IMPACT OUR BUSINESS.

In 1999, we completed a review of our business systems, including computer
systems and manufacturing equipment, and queried our customers and vendors as to
their progress in identifying and addressing problems that their systems may
face in correctly interrelating and processing date information in the
year 2000. To date, we have not experienced any significant problems related to
the year 2000 problem, either in our systems or the systems of our vendors or
customers. The failure of our computer systems to be year 2000 compliant could
negatively impact our business.

<PAGE>

RISKS RELATED TO OUR INDUSTRY

WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION, WHICH COULD HARM
OUR BUSINESS AND RESULTS OF OPERATIONS.

The biopharmaceutical industry is characterized by rapid technological
change. Our future success will depend on our ability to maintain a competitive
position with respect to technological advances. Rapid technological development
by others may result in our products and technologies becoming obsolete.

We face intense competition from established biotechnology and
pharmaceutical companies, as well as academic and research institutions that are
pursuing competing technologies and products. We know that competitors are
developing or manufacturing various products that are used for the prevention,
diagnosis or treatment of diseases that we have targeted for product
development. Many of our competitors have substantially greater research and
development capabilities and experiences and greater manufacturing, marketing
and financial resources than we do. Accordingly, our competitors may develop
technologies and products that are superior to those we or our collaborators are
developing and render our technologies and products or those of our
collaborators obsolete and noncompetitive. In addition, many of our competitors
have much more experience than we do in pre-clinical testing and human clinical
trials of new drugs, as well as obtaining FDA and other regulatory approval. If
we cannot compete effectively, our business and financial performance would
suffer.

WE MAY BE SUED FOR PRODUCT LIABILITY.

Because our products and product candidates are new treatments, with
limited, if any, past use on humans, their use during testing or after approval
could expose us to product liability claims. We maintain product liability
insurance coverage in the total amount of $10.0 million for claims arising from
the use of our products in clinical trials prior to FDA approval and for claims
arising from the use of our products after FDA approval. We cannot assure you
that we will be able to maintain our existing insurance coverage or obtain
coverage for the use of our other products in the future. Also, this insurance
coverage and our resources may not be sufficient to satisfy any liability
resulting from product liability claims and a product liability claim may have a
material adverse effect on our business, financial condition or results of
operations.

SALES OF OUR PRODUCTS COULD BE ADVERSELY AFFECTED IF THE COSTS FOR THESE
PRODUCTS ARE NOT REIMBURSED BY THIRD-PARTY PAYORS.

In recent years, there have been numerous proposals to change the health
care system in the United States. Some of these proposals have included measures
that would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. In addition,
government and private third-party payors are increasingly attempting to contain
health care costs by limiting both the coverage and the level of reimbursement
of drug products. Consequently, significant uncertainty exists as to the
reimbursement status of newly-approved health care products.

Our ability to commercialize our products will depend, in part, on the
extent to which reimbursement for the cost of the products and related
treatments will be available from third-party payors. If we or any of our
collaborators succeeds in bringing one or more products to market, we cannot
assure you that third-party payors will establish and maintain price levels
sufficient for realization of an appropriate return on our investment in product
development. In addition, lifetime limits on benefits included in most private
health plans may force patients to self-pay for treatment. For example, patients
who receive ADAGEN are expected to require injections for their entire lives.
The cost of this treatment may exceed certain plan limits and cause patients to
self-fund further treatment. Furthermore, inadequate third-party coverage may
lead to reduced market acceptance of our products. Significant changes in the
health care system in the United States or elsewhere could have a material
adverse effect on our business and financial performance.

<PAGE>

RISKS RELATED TO THIS OFFERING

THE PRICE OF OUR COMMON STOCK HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE.

Historically, the market price of our common stock has fluctuated over a
wide range and it is likely that the price of our common stock will fluctuate in
the future. The market price of our common stock could be impacted due to a
variety of factors, including:

the results of pre-clinical testing and clinical trials by us, our
corporate partners or our competitors,

announcements of technical innovations or new products by us, our corporate
partners or our competitors,

the status of corporate collaborations and supply arrangements entered into
by us, our corporate partners or our competitors,

regulatory approvals of our products or those of our competitors,

changes in government regulation,

developments in the patents or other proprietary rights owned or licensed
by us or our competitors,

public concern as to the safety and efficacy of products developed by us or
others,

litigation, and

general market conditions in our industry.

In addition, due to one or more of the foregoing factors in one or more
future quarters, our results of operations may fall below the expectations of
securities analysts and investors. In that event, the market price of our common
stock could be materially and adversely affected.

The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have especially affected the market price of
the stock of many high technology and healthcare-related companies. Such
fluctuations have often been unrelated to the operating performance of these
companies. Nonetheless, these broad market fluctuations may negatively affect
the market price of our common stock.

EVENTS WITH RESPECT TO OUR SHARE CAPITAL COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.

Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. Based upon the number of shares of common stock outstanding as of
February 15, 2000, we expect to have 40,049,632 shares of common stock
outstanding, excluding shares reserved for issuance upon the exercise of
outstanding stock options and warrants, and the conversion of outstanding
preferred stock (or 40,349,632 shares of common stock outstanding if the
underwriters' over-allotment option is exercised in full) upon the completion of
this offering. The following securities that may be exercised for, or are
convertible into, shares of our common stock were issued and outstanding as of
February 15, 2000:

Options. Stock options to purchase 3,205,136 shares of our common stock at
a weighted average exercise price of approximately $6.23 per share; of this
total, 2,647,536 were exercisable at a weighted average exercise price of
$3.88 per share as of such date.

Warrants. Various warrants to purchase 457,731 shares of our common stock,
all of which were exercisable, at a weighted average exercise price of
$5.75 per share as of such date.

Series A preferred stock. 27,000 shares of our Series A preferred stock are
outstanding, all of which were convertible into 61,364 shares of our common
stock as of such date.

The shares of our common stock that may be issued under the warrants and
options are either currently registered with the SEC, or will be registered with
the SEC before the shares are purchased by the holders of the warrants and
options. The shares of common stock that may be issued upon

<PAGE>

conversion of the Series A preferred stock are eligible for sale without any
volume limitation pursuant to Rule 144(k) under the Securities Act of 1933, as
amended.

We and each of our directors and officers have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, none of us will, during the period ending 90 days after the date
of this prospectus, sell or otherwise dispose of any shares of our common stock,
subject to certain exceptions. We cannot predict whether future sales of our
common stock or the availability of our common stock for sale will adversely
affect the market price for our common stock or our ability to raise capital by
offering equity securities.

THE EXERCISE OF OUTSTANDING REGISTRATION RIGHTS HELD BY HOLDERS OF OUR
COMMON AND PREFERRED STOCK MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE FOR
OUR COMMON STOCK AND MAY IMPAIR OUR ABILITY TO RAISE ADDITIONAL FUNDS.

There are demand and/or piggyback registration rights on 457,731 shares of
our common stock underlying warrants outstanding as of February 15, 2000. We
have granted Schering-Plough piggyback registration rights with respect to
847,489 shares of our common stock. In addition, two persons affiliated with
Evolution Capital have piggyback and demand registration rights with respect to
the shares underlying their warrants to purchase 200,000 shares of our common
stock. The demand rights give these warrant holders a one-time right to require
us to register, upon their request, that number of shares underlying such
warrants. We granted the Carson Group, Inc. and two of its principals, piggyback
registration rights with respect to the shares underlying their warrants to
purchase an aggregate of 51,504 shares of our common stock as consideration for
finder's services that were provided to us. Transferees of Clearwater Fund IV
were also granted piggyback registration rights under a registration rights
agreement with us with respect to the 206,227 shares of common stock issuable
under warrants they hold, 200,000 of which shares are currently covered by an
effective registration statement. Absent any contractual limitations, the
holders of these rights could cause a significant number of shares of our common
stock to be registered and sold in the public market. Such sales, or the
perception that these sales could occur, may have an adverse effect on the
market price for our common stock and could impair our ability to raise capital
through an offering of equity securities. We have obtained waivers of all such
piggyback registration rights applicable to this offering.

We originally registered the resale of approximately 3,983,000 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of our common stock that closed in July 1998. We are required to
maintain the effectiveness of this registration statement until the earlier of
the date that all of the shares are sold or July 2000.

We originally registered the resale of approximately 4,122,317 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of our common stock that closed in January and March 1996. We are
required to maintain the effectiveness of this registration statement until the
earlier of the date that all of the shares are sold or March 15, 2004.

INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

We expect that the public offering price of our common stock in this
offering will be substantially higher than the net tangible book value per share
of our outstanding common stock. As of December 31, 1999, our net tangible book
value was $20.8 million and on a pro forma basis our net tangible book value
after this offering will be $103.9 million, based on the public offering price
of $44.50. The amount of the increase in net tangible book value attributable to
the investors in this offering will be $2.09 per share of common stock.
Investors of our common stock in this offering will experience immediate and
substantial dilution of $41.85 per share of common stock.

OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DISCOURAGE A TAKEOVER OF OUR
COMPANY.

Provisions of our certificate of incorporation, bylaws and Delaware law
could make it more difficult for a third party to acquire or merge with us, even
if doing so would be beneficial to our stockholders.

<PAGE>

Our board of directors has the authority to issue up to 3,000,000 shares of
our preferred stock, par value $0.01 per share, and to determine the price and
terms, including preferences and voting rights, of those shares without
stockholder approval. Although we have no current plans to issue additional
shares of our preferred stock, any such issuance could:

have the effect of delaying, deferring or preventing a change in control of
our company,

discourage bids for our common stock at a premium over the market price, or

adversely affect the market price of and the voting and other rights of the
holders of our common stock.

In addition, certain provisions of our certificate of incorporation
establishing a classified board of directors, and our agreements with our
executive officers that provide significant payments to them following a change
in control of our company, could each have the effect of discouraging potential
takeover attempts.

<PAGE>

USE OF PROCEEDS

Our net proceeds from the sale of our common stock in this offering, based
on the public offering price of $44.50 per share and after deducting the
underwriting discount and estimated offering expenses payable by us, will be
approximately $83.1 million, or $95.7 million if the underwriters'
over-allotment option is exercised in full.

We intend to use the net proceeds from this offering to fund:

development of additional PEG and SCA compounds,

facility upgrades,

clinical trials for our current product candidates, and

general corporate purposes, including working capital.

In addition, a portion of the net proceeds may be used for acquisitions of
businesses, products and technologies that are complementary to ours. We
currently have no agreements with respect to any material acquisitions as of the
date of this prospectus. The amounts and timing of our actual expenditures for
each purpose may vary significantly depending on numerous factors, including:

the status of our product development efforts,

regulatory approvals,

competition,

marketing, and

sales activities and the market acceptance of any products we introduce.

Pending the use of the net proceeds for the above purposes, we will invest
the funds in short-term, interest-bearing, investment-grade securities.

<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is quoted on the Nasdaq National Market under the symbol
'ENZN.' The following table sets forth the high and low sale prices for the
periods indicated, as reported on the Nasdaq National Market. The prices shown
represent inter-dealer prices, without retail mark-up, markdown or commission,
and may not represent actual transactions.

<TABLE>
<CAPTION>
COMMON
STOCK PRICE
---------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
First Quarter........................................... $ 5.19 $ 2.00
Second Quarter.......................................... 7.25 4.75
Third Quarter........................................... 7.19 5.13
Fourth Quarter.......................................... 6.88 4.56

YEAR ENDED JUNE 30, 1999
First Quarter........................................... 7.44 3.63
Second Quarter.......................................... 14.63 4.88
Third Quarter........................................... 17.88 12.63
Fourth Quarter.......................................... 21.00 11.25

YEAR ENDING JUNE 30, 2000
First Quarter........................................... 34.81 19.63
Second Quarter.......................................... 47.25 25.50
Third Quarter (through March 20, 2000).................. 72.75 38.00
</TABLE>

There were approximately 2,110 record holders of our common stock as of
February 15, 2000. On March 20, 2000, the reported last sale price on the Nasdaq
National Market for our common stock was $44.50 per share.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings to fund the development and growth of our
business. Holders of the Series A preferred stock are entitled to an annual
dividend of $2.00 per share, payable semiannually, but only when and if declared
by our board of directors, out of funds legally available. As of February 15,
2000 there were 27,000 shares of Series A preferred stock issued and
outstanding. Dividends on the Series A preferred stock are cumulative and accrue
and accumulate but will not be paid, except in liquidation or upon conversion,
until such time as the board of directors deems it appropriate in light of our
then current financial condition. No dividends are to be paid or set apart for
payment on our common stock, nor are any shares of common stock to be redeemed,
retired or otherwise acquired for valuable consideration unless we have paid in
full or made appropriate provision for the payment in full of all dividends
which have then accumulated on the Series A preferred stock.

<PAGE>

CAPITALIZATION

The following table sets forth our unaudited actual and as adjusted
capitalization as of December 31, 1999, as described below. The as adjusted
column gives effect to the sale of 2,000,000 shares of our common stock in this
offering, at the public offering price of $44.50 per share and after deducting
the underwriting discount and estimated offering expenses. This table should be
read in conjunction with 'Selected Consolidated Financial Data' and our
financial statements and related notes, which are included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 23,262 $ 106,379
--------- ---------
--------- ---------
Long-term debt.............................................. $ -- $ --
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 3,000,000 shares
authorized; 27,000 shares issued and outstanding actual
and as adjusted (liquidation preference $1,189,000)..... -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 37,209,146 shares issued and outstanding
actual and 39,209,146 shares issued and outstanding as
adjusted................................................ 372 392
Additional paid-in capital................................ 149,372 232,469
Accumulated deficit....................................... (126,764) (126,764)
--------- ---------
Total stockholders' equity.............................. 22,980 106,097
--------- ---------
Total capitalization.................................. $ 22,980 $ 106,097
--------- ---------
--------- ---------
</TABLE>

During the period from January 1, 2000 through February 15, 2000, we issued
840,486 additional shares of common stock in connection with the exercise of
stock options and warrants. The number of shares of our common stock to be
outstanding after this offering, utilizing the actual outstanding shares as of
February 15, 2000, does not take into account the following as of that date:

3,205,136 shares of common stock issuable upon the exercise of outstanding
options at a weighted average exercise price of $6.23 per share,

457,731 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.75 per share, and

61,364 shares of common stock issuable upon the conversion of outstanding
shares of our Series A preferred stock.

<PAGE>

DILUTION

Our net tangible book value as of December 31, 1999 was $20.8 million, or
$0.56 per common share. Net tangible book value per common share represents the
amount of our stockholders' equity, less intangible assets and our preferred
stock liquidation value, divided by the total number of shares of common stock
outstanding as of December 31, 1999. After giving effect to the sale of the
2,000,000 shares of common stock offered in this prospectus at the public
offering price of $44.50 per share and after deducting the estimated
underwriting discounts and offering expenses, our pro forma net tangible book
value as of December 31, 1999 would have been $103.9 million, or $2.65 per share
of common stock. This represents an immediate increase in net tangible book
value of $2.09 per share to existing shareholders and an immediate dilution of
$41.85 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Public offering price per common share. $44.50
Net tangible book value per share before the offering..... $0.56
Increase per share attributable to new investors.......... 2.09
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.65
------
Dilution per share to new investors......................... $41.85
------
------
</TABLE>

Dilution is determined by subtracting pro forma net tangible book value per
common share from the public offering price per share.

<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data should be read together with the
financial statements and related notes and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations' appearing elsewhere in this
prospectus. The selected consolidated statement of operations data shown below
for the years ended June 30, 1997, 1998 and 1999 and the balance sheet data as
of June 30, 1998 and 1999 are derived from our audited consolidated financial
statements included elsewhere in this prospectus and have been audited by KPMG
LLP, independent certified public accountants. The selected consolidated
statement of operations data shown below for the years ended June 30, 1995 and
1996 and the balance sheet data as of June 30, 1995, 1996 and 1997 are derived
from our audited consolidated financial statements which were also audited by
KPMG LLP, but are not included elsewhere in this prospectus or incorporated by
reference. The selected consolidated financial data as of and for the six months
ended December 31, 1998 and 1999 are unaudited and, in our opinion, contain all
adjustments, consisting only of normal, recurring accruals, which are necessary
for a fair statement of the results of those periods. Results for the six months
ended December 31, 1999 are not necessarily indicative of results that may be
expected for the entire year.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales......................... $11,024 $10,502 $11,596 $12,313 $12,856 $ 6,718 $ 6,617
Contract revenues............. 4,802 2,179 1,131 2,331 302 67 62
------- ------- ------- ------- ------- ------- -------
Total revenues................ 15,826 12,681 12,727 14,644 13,158 6,785 6,679
Expenses:
Cost of sales................. 2,919 3,545 3,840 3,645 4,310 2,339 1,972
Research and development...... 12,084 10,123 8,520 8,654 6,836 3,423 3,590
Selling, general and
administrative.............. 6,916 6,011 5,528 6,426 8,133 3,643 5,136
Restructuring................. 1,193 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total expenses................ 23,112 19,679 17,888 18,725 19,279 9,405 10,698
------- ------- ------- ------- ------- ------- -------
Operating loss.................. (7,286) (6,998) (5,161) (4,081) (6,121) (2,620) (4,019)
Other income (expense):
Interest and dividend
income...................... 237 450 584 461 1,145 603 599
Interest expense.............. (3) (13) (15) (14) (8) (8) (4)
Other......................... 761 1,386 35 17 65 40 (36)
------- ------- ------- ------- ------- ------- -------
995 1,823 604 464 1,202 635 559
------- ------- ------- ------- ------- ------- -------
Net loss........................ $(6,291) $(5,175) $(4,557) $(3,617) $(4,919) $(1,985) $(3,460)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net loss per common share:
Basic and diluted............. $(0.26) $(0.20) $(0.16) $(0.12) $(0.14) $(0.06) $(0.09)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average number of
common shares outstanding:
Basic and diluted............. 25,185 26,823 29,046 31,092 35,699 35,182 36,835
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 8,103 $12,666 $ 8,316 $ 6,478 $24,674 $23,262
Working capital................. 4,523 9,743 6,281 4,161 23,662 21,108
Total assets.................... 19,184 21,964 16,005 13,741 34,916 34,433
Long-term debt.................. -- -- -- -- -- --
Total stockholders' equity...... 8,298 12,914 8,542 6,927 25,575 22,980
</TABLE>

<PAGE>

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

RESULTS OF OPERATIONS

OVERVIEW

We are a biopharmaceutical company that develops and commercializes enhanced
therapeutics for life-threatening diseases through the application of our two
proprietary platform technologies: PEG and single-chain antibodies. We apply our
PEG, or polyethylene glycol, technology to improve the delivery, safety and
efficacy of proteins and small molecules with known therapeutic efficacy. We
apply our single-chain antibody technology to discover and produce antibody-like
molecules that offer many of the therapeutic benefits of monoclonal antibodies
while addressing some of their limitations. To date, we have devoted
substantially all of our resources to research and develop products both
internally and in cooperation with our strategic partners.

Substantially all of our revenues were generated from sales of our products
and royalties on the sale of our products by others, and contract revenues. Our
revenues, as well as our results of operations, have fluctuated and we expect
continued fluctuation from period to period due to the level of revenues from
our FDA-approved products and contract revenues, the status of development of
our products and expenses related to manufacturing. We have incurred significant
operating losses since our inception in 1981 and, as of December 31, 1999, had
an accumulated deficit of approximately $126,764,000.

SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

Revenues. Revenues for the six months ended December 31, 1999 decreased by
$107,000 to $6,679,000 as compared to $6,786,000 for the same period last year.
The components of revenues are sales, which consist of sales of our products and
royalties on the sale of these products by others, and contract revenues. Sales
decreased by 1% to $6,617,000 for the six months ended December 31, 1999, as
compared to $6,718,000 for the prior year. This decrease was due to a decline in
ONCASPAR revenues. This decrease in ONCASPAR revenues was offset in part by an
increase in ADAGEN sales of approximately 11%, resulting from an increase in
patients receiving ADAGEN treatment. Net sales of ADAGEN, which we market, were
$6,042,000 for the six months ended December 31, 1999 and $5,428,000 for the six
months ended December 31, 1998. The decline in ONCASPAR revenues was due to
declines in manufacturing and royalty revenues resulting from difficulties
encountered in our manufacturing process and the resulting changes in labeling
and distribution discussed below. We had export sales of $2,007,000 for the six
months ended December 31, 1999 and $1,723,000 for the six months ended December
31, 1998. Of these amounts, sales in Europe were $1,748,000 for the six months
ended December 31, 1999 and $1,487,000 for the six months ended December 31,
1998.

Cost of Sales. Cost of sales, as a percentage of sales, improved to 30% for
the six months ended December 31, 1999 as compared to 35% for the six months
ended December 31, 1998. This improvement was primarily due to a charge taken
last year related to the write-off of ONCASPAR finished goods on hand and in the
distribution pipeline. The prior year's write-off of ONCASPAR finished goods was
attributable to the manufacturing problems discussed below.

Research and Development. Research and development expenses increased by 5%
to $3,590,000 for the six months ended December 31, 1999 from $3,423,000 in the
same period last year. The increase was due to increased payroll and related
expenses as well as the acquisition of certain patent rights. Our research and
development expenses are focused on the clinical development of PEG-camptothecin
which is in Phase I clinical trials, as well as pre-clinical development of
other PEG compounds.

Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended December 31, 1999 increased by 41% to
$5,136,000, as compared to $3,644,000 in the prior year. The increase was
primarily due to increased legal fees related to litigation and ongoing
arbitration proceedings, increased patent filing and defense costs, and
increased ONCASPAR marketing and distribution costs.

<PAGE>

Net Loss. Our net loss for the six months ended December 31, 1999 increased
to $3,460,000 from the net loss of $1,985,000 for the six months ended
December 31, 1998 primarily due to the decrease in revenues and the increase in
expenses discussed above.

FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997

Revenues. The components of our revenues are sales, which consist of sales
of our products and royalties on the sale of these products by others, and
contract revenues. Our revenues for the year ended June 30, 1999 decreased to
$13,158,000 as compared to $14,644,000 for the year ended June 30, 1998 due to a
decrease in contract revenue. Our sales increased by 4% to $12,856,000 for the
year ended June 30, 1999 as compared to $12,313,000 for the year ended June 30,
1998. The increase was due to an increase in ADAGEN sales of approximately 11%,
resulting from an increase in patients receiving ADAGEN treatment. Net sales of
ADAGEN, which we market, were $11,246,000 for the year ended June 30, 1999 and
$10,107,000 for the year ended June 30, 1998. We market our other approved
product, ONCASPAR, through marketing agreements in the U.S. and Canada with RPR
and in Europe with MEDAC. ONCASPAR revenues are comprised of manufacturing
revenues, as well as royalties on sales of ONCASPAR by RPR. ONCASPAR revenues
for fiscal 1999 decreased due to a decline in manufacturing and royalty revenues
resulting from difficulties encountered in our manufacturing process and the
resulting changes in labeling and distribution described below.

During 1998, we began to experience manufacturing problems with ONCASPAR.
The problems were due to an increase in the levels of particulates in batches of
ONCASPAR which resulted in an increased rejection rate for this product. During
fiscal 1999, as a result of these manufacturing problems, we agreed with the FDA
to temporary labeling and distribution restrictions for ONCASPAR. RPR stopped
distributing ONCASPAR and we took over distribution of ONCASPAR directly to
patients on an as-needed basis. We also instituted additional inspection and
labeling procedures prior to distribution of the product. In addition, during
May 1999, the FDA required us to limit distribution of the product to only those
patients who are hypersensitive to native L-asparaginase. In November 1999, the
FDA lifted this distribution restriction.

We have been able to manufacture several batches of ONCASPAR, which contain
acceptable levels of particulates, and anticipate a final resolution of the
problem during the fourth quarter of fiscal 2000. It is expected that RPR will
resume distribution of ONCASPAR at that time. We cannot assure you that this
solution will be acceptable to the FDA or RPR. If we are unable to resolve this
problem or the other manufacturing problems discussed in the risk factor
entitled 'We have experienced problems complying with the FDA's regulations for
manufacturing our products, and we may not be able to resolve these problems,'
the FDA may not permit us to continue to distribute ONCASPAR or ADAGEN. An
extended disruption in the marketing and distribution of ONCASPAR or ADAGEN may
have a material adverse effect on future sales of the products.

We expect sales of ADAGEN to increase at rates comparable to those achieved
during the last two years as additional patients are treated. We also anticipate
ONCASPAR sales will remain at reduced levels until the manufacturing problem is
resolved and RPR resumes normal distribution of the product. We cannot assure
you that any particular sales levels of ADAGEN or ONCASPAR will be achieved or
maintained.

Contract revenue for the year ended June 30, 1999 decreased to $302,000, as
compared to $2,331,000 for the year ended June 30, 1998. The decrease was
principally due to the fact that we received milestone payments in 1998 under
our licensing agreement for PEG-Intron with Schering-Plough and we did not
receive any such payments in 1999. During the year ended June 30, 1998, we
recognized $2,200,000 in milestone payments we received when Schering-Plough
advanced PEG-Intron into a Phase III clinical trial. On November 9, 1999,
Schering-Plough announced that it had submitted a Marketing Authorization
Application to the European Agency for the Evaluation of Medicinal Products
seeking marketing approval for PEG-Intron Powder for Injection for the treatment
of hepatitis C in Europe. Schering-Plough announced that on December 23, 1999,
it submitted a Biologics License Application to the FDA seeking similar
marketing approval in the U.S. for PEG-Intron. The FDA accepted this application
in February 2000, which entitled us to a $1,000,000 milestone payment.

<PAGE>

During the years ended June 30, 1999 and 1998, we had export sales of
$3,075,000 and $2,641,000, respectively. Of these amounts, sales in Europe were
$2,559,000 for the year ended June 30, 1999 and $2,117,000 for the year ended
June 30, 1998.

Our revenues for the year ended June 30, 1998 increased to $14,644,000 as
compared to $12,727,000 for fiscal 1997. Our sales increased by 6% to
$12,313,000 for the year ended June 30, 1998 as compared to $11,596,000 for the
prior year. The increase was due to an increase in ADAGEN sales of approximately
13%, resulting from an increase in patients receiving ADAGEN treatment. Net
sales of ADAGEN, which we market, were $10,107,000 for the year ended June 30,
1998 and $8,935,000 for the year ended June 30, 1997. ONCASPAR revenues in 1998
decreased due to a decline in manufacturing revenue resulting from difficulties
encountered in our manufacturing process, previously discussed. The decrease in
manufacturing revenue was partially offset by increased royalties due to an
increase in sales of ONCASPAR by RPR.

Contract revenue for the year ended June 30, 1998 increased to $2,331,000,
as compared to $1,131,000 for the year ended June 30, 1997. The increase was
principally due to an increase in milestone payments we received under our
licensing agreement for PEG-Intron with Schering-Plough. During the year ended
June 30, 1998, we recognized $2,200,000 in milestone payments received as a
result of Schering-Plough advancing PEG-Intron into a Phase III clinical trial.
During the prior year, we received a $1,000,000 milestone payment under the same
licensing agreement with Schering-Plough.

During the years ended June 30, 1998 and 1997, we had export sales of
$2,641,000 and $2,377,000, respectively. Our sales in Europe were $2,117,000 for
the year ended June 30, 1998 and $1,937,000 for the year ended June 30, 1997.

Cost of Sales. Cost of sales, as a percentage of sales, increased to 34% for
the year ended June 30, 1999 as compared to 30% for the year ended June 30,
1998. The increase was primarily due to a charge taken in the first quarter 1999
related to a write-off of ONCASPAR finished goods on hand and in the
distribution pipeline, as well as increased ONCASPAR production costs. The
increased write-off of ONCASPAR finished goods was attributable to the
manufacturing problems previously discussed.

Cost of sales, as a percentage of sales, decreased to 30% for the year ended
June 30, 1998 as compared to 33% for the year ended June 30, 1997. The decrease
was primarily due to the prior year's expense of excess ONCASPAR raw material
and purchase commitments related to our supply agreement for this material.
During the fiscal year ended June 1998, we amended our supply agreement for this
material which extended the period available for us to accept delivery of our
remaining purchase commitment through 1999, in exchange for a $1,300,000 advance
payment of the remaining purchase commitment. See Note 10 to the Consolidated
Financial Statements included elsewhere in this prospectus.

Research and Development. Research and development expenses for the year
ended June 30, 1999 decreased by 21% to $6,836,000 from $8,654,000 for the year
ended June 30, 1998. The decrease in research and development expenses resulted
from (1) a decrease in facility costs resulting from the elimination of a leased
facility and the consolidation of research and development operations and (2) a
decline in clinical trial costs. The decrease in clinical trial costs was a
result of the completion of a Phase Ib clinical trial for PEG-hemoglobin in
1998. Research and development expenses are expected to increase to previous
levels as a result of the commencement of Phase I clinical trials for PROTHECAN
(PEG-camptothecin).

Research and development expenses for the year ended June 30, 1998 remained
relatively unchanged at $8,654,000 as compared to $8,520,000 for the year ended
June 30, 1997. Our research and development efforts were focused on the
continued development of our third generation Pro Drug/Transport Technology,
which included pre-clinical activities for PROTHECAN, as well as clinical trial
costs for PEG-hemoglobin.

Selling, General and Administrative. Selling, general and administrative
expenses for the year ended June 30, 1999 increased by 27% to $8,133,000, as
compared to $6,426,000 for the year ended June 30, 1998. The increase was
primarily due to an increase in marketing and distribution costs for ONCASPAR.
Due to the changes in distribution previously discussed, we were responsible for
all

<PAGE>

marketing and distribution for this product in 1999. During the prior year,
these costs were the responsibility of RPR.

Selling, general and administrative expenses for the year ended June 30,
1998 increased by 16% to $6,426,000 as compared to $5,528,000 for the year ended
June 30, 1997. The increase was due to increased investor and public relations
activities, as well as consulting fees related to the development of a strategic
business plan for our SCA technology.

Other Income/Expense. Other income/expense increased by $737,000 to
$1,201,000 for the year ended June 30, 1999, as compared to $464,000 for the
year ended June 30, 1998. The increase was attributable to an increase in
interest income due to an increase in interest bearing investments.

Other income/expense decreased by $141,000 to $464,000 for the year ended
June 30, 1998 as compared to $605,000 for the year ended June 30, 1997. The
decrease was due principally to a decline in interest income due to a decrease
in interest bearing investments.

Net Loss. Our net loss for the year ended June 30, 1999 increased to
$4,919,000 from our net loss of $3,617,000 for the year ended June 30, 1998 due
to the decrease in revenues and the increase in the cost of sales and selling,
general and administrative expenses for the year ended June 30, 1999 discussed
above. Our net loss for the year ended June 30, 1998 decreased to $3,617,000
from our net loss of $4,557,000 for the year ended June 30, 1997 due to the
increase in revenues and the decrease in cost of sales for the year ended
June 30, 1998 discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our total cash reserves, including cash and cash equivalents as of
December 31, 1999 were $23,262,000 as compared to $24,674,000, as of June 30,
1999. The decrease in total cash reserves was due to the payment of
approximately $1,542,000 in cumulative accrued dividends on 80,000 shares of
Series A preferred stock during the quarter ended December 31, 1999. The 80,000
shares of Series A preferred stock were converted into 181,818 shares of our
common stock during the six months ended December 31, 1999. We invest our excess
cash in a portfolio of high-grade marketable securities and United States
government-backed securities.

To date, our sources of cash have been the proceeds from the sale of our
stock through public offerings and private placements, sales of ADAGEN, sales of
ONCASPAR, sales of our products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances. Our
current sources of liquidity are our cash, cash equivalents and interest earned
on such cash reserves, sales of ADAGEN, sales of ONCASPAR, sales of our products
for research purposes and license fees.

Under our amended license agreement with RPR, we received a payment of
$3,500,000 in advance royalties in January 1995. Royalties due under the amended
license agreement will be offset against an original credit of $5,970,000, which
represents the royalty advance plus reimbursement of certain amounts due RPR
under the original agreement and interest expense, before cash payments will be
made under the agreement. The royalty advance is shown as a long-term liability.
The corresponding current portion is included in accrued expenses on the
consolidated balance sheets. We will reduce the advance as royalties are
recognized under the agreement. Through December 31, 1999, an aggregate of
$4,369,000 in royalties payable by RPR has been offset against the original
credit.

As of December 31, 1999, we had 27,000 shares of Series A preferred stock
outstanding. These preferred shares are convertible into approximately 61,364
shares of common stock. Dividends accrue on the remaining outstanding shares of
Series A preferred stock at a rate of $54,000 per year. As of December 31, 1999,
there were accrued and unpaid dividends totaling $514,000 on the shares of
Series A preferred stock outstanding. We have the option to pay these dividends
in either cash or common stock.

We are currently in discussions with RPR related to our supply agreement
with them. RPR has asserted that we have overcharged them under the supply
agreement in the amount of $2,329,000. We believe our costing and pricing of
ONCASPAR complies with the supply agreement. RPR has also asserted that we
should be responsible for its lost profits while ONCASPAR is under the temporary

<PAGE>

labeling and distribution modifications. RPR contends that its lost profits
through December 31, 1999 were $5,194,000. We do not agree with RPR's claims. We
do not believe the ultimate resolution of either matter will have a material
adverse effect on our financial results or operations, though it could have a
material adverse effect on our financial position.

We are being sued, in the United States District Court for the District of
New Jersey, by LBC Capital Resources, Inc., a former financial advisor. LBC is
asserting that under the May 2, 1995 letter agreement between us and LBC Capital
Resources Inc., LBC was entitled to a commission in connection with our January
and March 1996 private placements, comprised of $500,000 and warrants to
purchase approximately 1,000,000 shares of our common stock at an exercise price
of $2.50 per share. LBC has claimed $3,000,000 in compensatory damages, plus
punitive damages, counsel fees and costs for the alleged breach of the letter
agreement. We have entered into an agreement with LBC, known as the Stipulation
of Damages, which provides that if we are found liable to LBC in this suit, the
damages for these claims would be limited to $2,750,000 in cash. LBC has also
asserted that it is entitled to an additional fee of $175,000 and warrants to
purchase 250,000 shares of our common stock to the extent the warrants issued to
investors in the private placements are exercised. We believe that no
compensation is due to LBC under this letter agreement and deny any liability
under the letter agreement. We intend to defend this lawsuit vigorously and
believe the ultimate resolution of this matter will not have a material adverse
effect on our financial position. However, if we were required to issue warrants
to LBC we would be required to incur a non-cash expense for each warrant issued
equal to the difference between the exercise price of the warrants ($2.50) and
the current market price of our common stock.

We believe that the net proceeds from this offering, together with our
existing resources, should be sufficient to fund our capital and operational
requirements for the forseeable future. However, there could be changes that
could change this estimate. We will require substantial funds to conduct
research and development activities, pre-clinical studies, clinical trials and
other activities relating to the development and commercialization of our
potential products. In addition, our cash requirements may vary materially from
those now planned because of results of:

continued progress of our research and development programs,

our ability to establish additional collaborative arrangements,

changes in our existing collaborative relationships,

progress with pre-clinical studies and clinical trials,

the time and costs involved in obtaining regulatory clearance for our
products,

the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims,

competing technological and market developments, and

our ability to market and distribute our products and establish new
collaborative and licensing arrangements.

We may seek additional financing, such as through future offerings of equity
or debt securities or agreements with collaborators with respect to the
development and commercialization of products, to fund future operations. We
cannot assure you, however, that we will be able to obtain additional funds on
acceptable terms, if at all.

In management's opinion, the effect of inflation on our past operations has
not been significant.

YEAR 2000

<PAGE>

BUSINESS

OVERVIEW

PEG-Intron is a PEG-enhanced version of Schering-Plough's alpha interferon
product, INTRON A. We have designed PEG-Intron to have an improved side effect
profile, to yield greater efficacy as compared to INTRON A and to allow once per
week dosing as compared to three times per week for INTRON A. Our worldwide
partner for PEG-Intron, Schering-Plough, has filed applications in both Europe
and the United States for approval of PEG-Intron in the treatment of
hepatitis C. In February 2000, Schering-Plough announced that the European
regulatory committee reviewing the PEG-Intron application issued a positive
opinion recommending approval of PEG-Intron for the treatment of adult patients
with chronic hepatitis C. Product approval by the European regulatory authority
is typically issued three months from the time that such committee renders its
opinion. In February 2000, the FDA accepted Schering-Plough's December 1999
application for PEG-Intron for standard review, which typically takes 12 months
from the date of its filing. Schering-Plough is also conducting a Phase III
clinical trial of PEG-Intron as combination therapy with REBETOL for
hepatitis C and Phase III clinical trials of PEG-Intron for the treatment of
chronic myelogenous leukemia and malignant melanoma. Earlier stage clinical
trials of PEG-Intron are being conducted for other indications, including the
treatment of HIV infection. Schering-Plough's worldwide sales of INTRON A and
REBETRON Combination Therapy for all indications in 1999 totaled $1.1 billion.

PROTHECAN is a PEG-enhanced version of camptothecin, a compound in the class
of molecules called topoisomerase inhibitors. Camptothecin has been shown in
clinical testing to be potent against certain tumor types, but it possesses
limited clinical utility due to significant side effects and poor solubility. We
have shown in pre-clinical studies that PROTHECAN has reduced side effects
compared to other topoisomerase inhibitors and preferentially accumulates in
tumors. We have initiated a Phase I clinical trial of PROTHECAN in treating
various types of cancers. Two topoisomerase inhibitors, topotecan and
irinotecan, are currently approved and marketed for the treatment of ovarian and
colorectal cancers, respectively. Total 1998 worldwide sales of these two
products were approximately $360 million. In addition to PEG-Intron and
PROTHECAN, we have other PEG-enhanced product candidates in pre-clinical
development.

We have commercialized two products based on our PEG technology: ADAGEN for
the treatment of a congenital enzyme deficiency disease called SCID and ONCASPAR
for the treatment of acute lymphoblastic leukemia. Each of these products is a
PEG-enhanced version of a naturally occurring enzyme. Both products have been on
the market for several years and have demonstrated the safe and effective
application of our PEG technology.

SCAs are genetically engineered proteins which possess the binding
specificity and affinity of monoclonal antibodies and are designed to expand on
the therapeutic and diagnostic applications possible with monoclonal antibodies.
Preclinical studies have shown that SCAs allow for greater tissue penetration
and faster clearance from the body. We intend to use our strong intellectual
property position for our SCAs to issue additional licenses to third parties
developing SCAs. We also intend to develop PEG-enhanced therapeutic SCAs
internally, focusing initially on cancer and cardiovascular therapeutics. To
date, 11 SCAs have been or are being tested in early stage clinical trials. The
most clinically advanced SCAs based on our technology are being developed by our
licensee, Alexion Pharmaceuticals, for complications arising during
cardiopulmonary bypass and myocardial infarction.

We intend to continue to commercialize our proprietary products and
technologies both internally and in cooperation with our strategic partners. We
have more than 15 strategic alliances and license relationships for the
development of products using our proprietary technologies.

<PAGE>

PEG TECHNOLOGY

Our proprietary PEG technology involves chemically attaching PEG to
therapeutic proteins or small molecules for the purpose of enhancing therapeutic
value. PEG is a relatively non-reactive and non-toxic polymer that is frequently
used in food and pharmaceutical products. We have demonstrated, both in our
marketed products and our products under development, that for some proteins and
small molecules, we can impart significant pharmacologic advantages over the
unmodified forms of the compound by modifying a compound using our PEG
technology.

These advantages include:

extended circulating life,

lower toxicity,

increased drug stability, and

enhanced drug solubility.

[Graphic Insert]

A DEPICTION OF A PEG-ENHANCED MOLECULE.

For many years, we have applied our PEG technology to enhance the
pharmacologic characteristics of potential or existing protein therapeutics.
When we modify proteins with our PEG technology, it often causes these proteins
to have properties, such as improved circulating life and reduced toxicities,
that significantly improve their therapeutic performance. In some cases, PEG can
render a protein therapeutically effective, where the unmodified form had not
been effective. For example, proteins are often limited in their use as
therapeutics because they frequently induce an immunologic response. When PEG is
attached, it disguises the compound and reduces recognition by the patient's
immune system. As a result, many of the favorable characteristics listed above
are achieved. Given such improvement, frequency of dosing can be reduced without
diminishing potency, or higher doses can be given to achieve a more powerful
therapeutic impact.

We recently developed a next generation PEG technology that allows us to
apply PEG to small molecules. Like proteins, many small molecules of potentially
significant therapeutic value possess undesired pharmacologic characteristics
such as poor solubility, limited half life and propensity to induce an
immunologic response. The attachment of PEG to small molecules not only
disguises the molecule, thereby lowering potential immunogenicity and extending
its circulatory life, but also greatly increases the solubility of these
compounds. We attach PEG to small molecules by means of a covalent bond that is
designed to temporarily inactivate the compound, and then deteriorate over time,
releasing the compound in the proximity of targeted tissue. By inactivating and
then reactivating the compound in the body we create a Pro Drug version of such
compounds. These attributes may significantly enhance the therapeutic value of
new chemicals, drugs already marketed by others and off-patent drugs with
otherwise limited utility. We believe that this technology has broad usefulness
and that it can be applied to a wide range of small molecules, such as:

cancer chemotherapy agents,

antibiotics,

anti-fungals, and

immunosuppressants.

<PAGE>

We also believe that we will be able to use this PEG technology to impart Pro
Drug attributes to proteins and peptides, including enzymes and growth factors.

We have significant expertise and intellectual property in the methods by
which PEG can be attached to a compound, the selection of appropriate sites on
the compound to which PEG is attached, and the amount and type of PEG used. If
PEG is attached to the wrong site on the protein, it can result in a loss of the
protein's activity or therapeutic effect. Similarly, inappropriate linkers or
the incorrect type or amount of PEG applied to a compound will typically fail to
produce the desired outcome. Given our expertise, we are able to tailor the PEG
technology to produce the desired results for the particular substance being
modified.

PEG PRODUCTS

PEG-INTRON

PEG-Intron is a PEG-enhanced version of Schering-Plough's recombinant
alpha-interferon product called INTRON A. We have modified the INTRON A compound
by attaching PEG to it, with the goal of imparting upon the drug enhanced
characteristics, such as reduced toxicity, extended circulating life and the
ability to administer higher doses without causing additional side effects. We
have developed PEG-Intron in conjunction with Schering-Plough. Schering-Plough
currently markets INTRON A for 16 major antiviral and oncology indications
worldwide. The largest indications for INTRON A are hepatitis C and certain
types of cancer. Schering-Plough has been conducting clinical trials of
PEG-Intron in hepatitis C and cancer, as well as some other potential
indications. Schering-Plough has submitted applications for marketing approval
in both Europe and the U.S. for use of PEG-Intron as stand-alone therapy in
treating hepatitis C.

Commencing in late 1998, Schering-Plough began selling INTRON A in
combination therapy with REBETOL for the treatment of hepatitis C.
Schering-Plough has reported that the 1999 worldwide sales of INTRON A, as a
stand-alone therapy for all indications and as combination therapy with REBETOL,
were approximately $1.1 billion. Sales of INTRON A as a stand-alone therapy for
the treatment of hepatitis C represent a portion of these combined sales. To
date, the only application filed by Schering-Plough for marketing approval of
PEG-Intron is as stand-alone therapy for the treatment of hepatitis C.

Hepatitis C

According to an article published in the New England Journal of Medicine,
approximately 3.9 million people in the U.S. are infected with the hepatitis C
virus. Approximately 2.7 million of these people are characterized as having
chronic hepatitis C infection. We believe that the number of people infected
with the hepatitis C virus in Europe is comparable to that in the U.S. According
to the World Health Organization, there were approximately 170 million chronic
cases of hepatitis C worldwide. A substantial number of people in the U.S. who
were infected with hepatitis C more than 10 years ago are thought to have
contracted the virus through blood transfusions. Prior to 1992, the blood supply
was not screened for the hepatitis C virus. In addition, the majority of people
infected with the virus are thought to be unaware of the infection because the
hepatitis C virus can incubate for up to 10 years before patients become
symptomatic. We estimate that fewer than 100,000 patients are currently being
treated in the U.S. for hepatitis C.

The current standard of care for hepatitis C infection is alpha-interferon
administered three times per week for one year in combination with ribavirin,
another antiviral drug. The alpha-interferon plus ribavirin therapy was approved
in the U.S. for the treatment of hepatitis C in December 1998. Prior to such
approval, hepatitis C infection was typically treated with alpha-interferon
alone. In clinical studies, alpha-interferon stand-alone therapy for 48 weeks
has reduced viral loads below the detectable levels in 10% to 15% of patients
treated. In clinical studies, alpha-interferon plus ribavirin in combination
therapy has reduced viral loads below detectable levels in 31% to 38% of
patients treated. The clinical efficacy of alpha-interferon, both as a
stand-alone or combination therapy, has been limited by serious side effects,
which include flu-like symptoms, gastro-intestinal disorders and depression, in
addition to

<PAGE>

the undesirable dosing requirements. The requirement of three times per week
dosing for the treatment of hepatitis C has also limited patient compliance.

We expect that PEG-Intron will have an improved side effect profile, greater
efficacy and allow for less frequent dosing as compared to unmodified INTRON A.
We expect that PEG-Intron will be administered once per week, as opposed to up
to three times per week for current hepatitis C regimens utilizing unmodified
INTRON A.

In November 1999, Schering-Plough announced that it had submitted a
Marketing Authorization Application to the European Agency for the Evaluation of
Medicinal Products, or EMEA, seeking marketing approval in Europe for PEG-Intron
(PEG-interferon alfa-2b) Powder for Injection. In February 2000, Schering-Plough
announced that the Committee for Proprietary Medicinal Products of the EMEA
issued an opinion recommending approval of that application. Product approval by
the EMEA is typically issued three months from the time that the Committee
renders its opinion. Approval of this application for PEG-Intron will allow
Schering-Plough to market PEG-Intron throughout the European Union. In December
1999, Schering-Plough submitted a Biologics License Application, or BLA, to the
FDA seeking marketing approval for PEG-Intron Powder for Injection for the
treatment of chronic hepatitis C in patients 18 years of age or older with
compensated liver disease. In February 2000, the FDA accepted Schering-Plough's
BLA for PEG-Intron for standard review. Under the Prescription Drug Users Fee
Act, the FDA is required to act on the application within 12 months from the
date of its filing on December 23, 1999. According to Schering-Plough, the BLA
proposes administration of PEG-Intron Powder by injection once weekly for one
year.

Under our licensing agreement with Schering-Plough, we are entitled to
milestone payments and royalties on worldwide sales of PEG-Intron. The FDA's
acceptance in February 2000 of the BLA filing submitted by Schering-Plough
entitled us to a $1.0 million milestone payment. Schering-Plough has been
responsible for the clinical development of PEG-Intron. We have not had access
to the results of the Phase III clinical trial that were included in
Schering-Plough's BLA and its European Marketing Authorization Application, nor
have we been able to review the BLA or the European Marketing Authorization
Application.

Schering-Plough is also continuing its development of PEG-Intron as
combination therapy with REBETOL (ribavirin, USP) for hepatitis C. In January
1999, Schering-Plough announced the initiation of a multi-national Phase III
clinical trial for this combination therapy.

Cancer

INTRON A is also used extensively in the treatment of cancer. Of the 16
indications for which INTRON A is approved throughout the world, 12 are cancer
indications. Currently, INTRON A is approved in the U.S. for three cancer
indications and used in some cases for other indications on an off-label basis.

Schering-Plough is currently conducting two Phase III clinical trials of
PEG-Intron for two cancer indications, malignant melanoma and chronic
myelogenous leukemia. In addition, Schering-Plough is conducting early stage
trials of PEG-Intron for various solid tumors and other forms of leukemia. The
following is a list of approved and potential cancer indications for which
INTRON A may be prescribed in the U.S.

<TABLE>
<CAPTION>
CANCER TYPE STATUS ANNUAL U.S. INCIDENCE
- --------------------------------------------- -------- ---------------------
<S> <C> <C>
Malignant melanoma (Stage II, III, IV) Approved 44,200
Follicular NHL (low grade) Approved 11,000
Chronic myelogenous leukemia Approved 4,300
AIDS-related Kaposi's sarcoma Approved 3,200
Bladder cancer Potential 54,200
Renal cell carcinoma Potential 31,000
</TABLE>

<PAGE>

If the ongoing Phase III clinical trials of PEG-Intron in malignant melanoma
and chronic myelogenous leukemia demonstrate not only that the product is
effective, but also that it has an improved side effect profile compared to
unmodified INTRON A, we anticipate that higher doses of PEG-Intron may be used,
as compared to unmodified INTRON A. The ability to administer higher doses of
alpha-interferon could lead to increased efficacy, as well as permit the use of
PEG-Intron for additional indications or usage. Published data from a Phase I
clinical trial of PEG-Intron in various cancer types showed that some patients
who previously did not respond to unmodified INTRON A treatment did respond to
PEG-Intron. In that trial, PEG-Intron was administered once per week as opposed
to up to five times per week, which is a typical therapy regimen using
unmodified INTRON A, and we expect that the once per week dosing regimen may be
used in treating various cancer types.

Potential Other Indications

We believe that PEG-Intron may be applied in treating other diseases,
including HIV. A Phase I clinical trial of PEG-Intron has been conducted for
HIV. In this study, 58% of the 30 patients had substantial reductions in their
levels of HIV after adding a weekly injection of PEG-Intron to their combination
treatments.

PROTHECAN

PROTHECAN is a PEG-enhanced version of a small molecule called camptothecin,
which is an anticancer compound in the class of drugs called topoisomerase
inhibitors. Camptothecin, which was originally developed at the National
Institutes of Health and is now off patent, is believed be a potent
topoisomerase inhibitor.

For many years camptothecin has been known to be a very effective oncolytic
agent but its drug delivery problems have limited its use. Recently, two
camptothecin derivatives, topotecan and irinotecan, have been approved by the
FDA for the treatment of ovarian and colorectal cancers, respectively. While
these two new products are more soluble than camptothecin, their efficacy rate
is relatively low. Despite their limitations, these two products together
achieved 1998 worldwide sales of approximately $360 million.

We believe that by adjusting the way PEG is covalently attached to
camptothecin, the PEG attachment can be used to inactivate the compound's toxic
mechanism, which allows it to circulate in the bloodstream for long periods of
time. This allows the compound to accumulate in the proximity of tumor sites.
Preliminary animal tests have shown that camptothecin modified with our PEG
technology preferentially accumulates in tumors. The covalent bond used in the
camptothecin to attach PEG to the drug is designed to deteriorate over time,
resulting in the PEG falling off and allowing the compound once again to become
active.

We are currently conducting a Phase I clinical trial of PROTHECAN in
treating various types of cancers.

ADAGEN

ADAGEN, our first FDA-approved PEG product, is used to treat patients
afflicted with a type of Severe Combined Immunodeficiency Disease, or SCID, also
known as the 'Bubble Boy Disease,' which is caused by the chronic deficiency of
the adenosine deaminase enzyme, or ADA. ADAGEN represents the first successful
application of enzyme replacement therapy for an inherited disease. SCID results
in children being born without fully functioning immune systems, leaving them
susceptible to a wide range of infectious diseases. Currently, the only
alternative to ADAGEN treatment is a well-matched bone marrow transplant.
Injections of unmodified ADA are not effective because of its short circulating
life (less than 30 minutes) and the potential for immunogenic reactions to a
bovine-sourced enzyme. The attachment of PEG to ADA allows ADA to achieve its
full therapeutic effect by increasing its circulating life and masking the ADA
to avoid immunogenic reactions.

We are marketing ADAGEN on a worldwide basis and selling it in the United
States. A European firm is distributing ADAGEN in Europe and Japan. Currently,
65 patients in nine countries are

<PAGE>

receiving ADAGEN therapy. We believe many newborns with ADA-deficient SCID go
undiagnosed and we are therefore focusing our marketing efforts for ADAGEN on
new patient identification. Our sales of ADAGEN for the fiscal years ended June
30, 1999, 1998 and 1997 were $11.2 million, $10.1 million and $8.9 million,
respectively.

ONCASPAR

ONCASPAR, our second FDA-approved product, is a PEG-enhanced version of a
naturally occurring enzyme called L-asparaginase. It is currently approved in
the U.S., Canada and Germany, and is used in conjunction with other
chemotherapeutics to treat patients with acute lymphoblastic leukemia who are
hypersensitive, or allergic, to native, or unmodified, forms of L-asparaginase.
RPR has the exclusive license to market ONCASPAR in the U.S. and Canada, and
MEDAC GmbH has the exclusive right to market ONCASPAR in Europe.

L-asparaginase is an enzyme which depletes the amino acid asparagine upon
which certain leukemic cells are dependent for survival. Other companies market
unmodified L-asparaginase in the U.S. for pediatric acute lymphoblastic leukemia
and in Europe to treat adult acute lymphoblastic leukemia and non-Hodgkins
lymphoma, as well as pediatric acute lymphoblastic leukemia.

The therapeutic value of unmodified L-asparaginase is limited by its short
half-life, which requires every-other-day injections, and its propensity to
cause a high incidence of allergic reactions. We believe that ONCASPAR offers
significant therapeutic advantages over unmodified L-asparaginase. ONCASPAR has
a significantly increased half-life in blood, allowing every-other-week
administration, and it causes fewer allergic reactions. Based upon the current
use of unmodified L-asparaginase, we believe that ONCASPAR may be used in other
cancer indications, including potentially lymphoma.

OTHER PEG PRODUCTS

Our PEG technology may be applicable to other potential products. We are
currently conducting pre-clinical studies for additional PEG-enhanced compounds.
We will continue to seek opportunities to develop other PEG-enhanced products.
In 1998, we concluded a second Phase I clinical trial for a hemoglobin-based
oxygen carrier, PEG-hemoglobin, for use as a radiosensitizer, in conjunction
with radiation treatment of solid hypoxic tumors. We intend to continue to
develop this product only in conjunction with a partner that will fund the
development costs. To date, we have been unable to conclude an agreement with
such a partner. We do not intend to conduct any clinical trials on our own.

SCA PROTEINS

GENERAL

Antibodies are proteins produced by the immune system in response to the
presence in the body of bacteria, viruses or other disease causing agents.
Antibodies of identical molecular structure that bind to a specific target are
called monoclonal antibodies. Over the past few years, several monoclonal
antibodies have been approved for therapeutic use and have achieved significant
clinical and commercial success. Much of the clinical utility of monoclonal
antibodies results from the affinity and specificity with which they bind to
their targets, as well as a long circulating life due to their relatively large
size. Monoclonal antibodies, however, are not well suited for use in indications
where a short half-life is advantageous or where their large size inhibits them
physically from reaching the area of potential therapeutic activity.

SCAs are genetically engineered proteins designed to expand on the
therapeutic and diagnostic applications possible with monoclonal antibodies.
SCAs have the binding specificity and affinity of monoclonal antibodies and, in
their native form, are about one-fifth to one-sixth of the size of a monoclonal
antibody, typically giving them very short half lives. We believe that human
SCAs offer the following benefits compared to most monoclonal antibodies:

faster clearance from the body,

greater tissue penetration for both diagnostic imaging and therapy,

<PAGE>

more specific localization to target sites in the body,

a significant decrease in immunogenic problems when compared with
mouse-based antibodies,

easier and more cost effective scale-up for manufacturing when compared
with monoclonal antibodies,

enhanced screening capabilities which allow for the more rapid assessment
of SCA proteins of desired specificity using high throughput screening
methods, and

a better opportunity to be used orally, intranasally, transdermally or by
inhalation.

[GRAPH] [GRAPH]
Monoclonal Antibody Single-Chaim Antibody

COMPARISON OF A STANDARD MONOCLONAL ANTIBODY AND A SINGLE-CHAIN ANTIBODY.

In addition to these benefits, fully human SCAs can be isolated directly
from human SCA libraries without the need for costly and time consuming
'humanization' procedures. SCAs are also readily produced through intracellular
expression (inside cells) allowing for their use in gene therapy applications
where SCA molecules act as specific inhibitors of cell function.

We, along with numerous other academic and industrial laboratories, have
demonstrated through in vitro testing the binding specificity of dozens of SCAs.
We, in collaboration with the National Cancer Institute, have shown in published
preclinical studies that SCAs localize to specific tumors and rapidly penetrate
the tumors.

SCAS UNDER DEVELOPMENT

We believe that we have a strong patent position in the area of SCAs. We
also believe that all products made by or incorporating SCA-based proteins or
genes will require a license under our patents. We have granted licenses to a
number of corporations and intend to issue additional licenses. We also intend
to develop our own SCAs, focusing primarily on PEG-enhanced SCAs. To date, we
have granted SCA product licenses to more than fifteen companies, including
Bristol-Myers Squibb, Baxter Healthcare and the Gencell Division of RPR. These
product licenses generally provide for upfront

<PAGE>

payments, milestone payments and royalties on sales of any SCA products
developed. The following table sets forth a number of our licensees and
summarizes their research and development efforts to date:

<TABLE>
<CAPTION>
RESEARCH COLLABORATOR STATUS INDICATION/USE
- ------------------------------------------------ ---------- ----------------------------------
<S> <C> <C>
Alexion Pharmaceuticals Phase IIb Cardiopulmonary bypass and
myocardial infarction
Cell Genesys Phase I/II Colon cancer
Seattle Genetics Phase I Cancer
MorphoSys Research Phage display
Cambridge Antibody Technology Research Phage display
Baxter Healthcare Corporation Research Cancer
Bristol-Myers Squibb Research All therapeutics
Gencell Division of RPR Research Gene therapy
</TABLE>

Currently, there are 11 SCA proteins that have either completed Phase I or
II clinical trials or are in early research stages by various organizations,
including our licensees and academic institutions. Some of the areas being
explored are cancer therapy, cardiovascular indications and AIDS. We believe
that those organizations that have not yet licensed this technology from us will
need a license from us to commercialize these products. However, we cannot
assure you that this will prove to be the case. Set forth below are some
examples of research being conducted in the SCA area.

Alexion Pharmaceuticals. Our licensee, Alexion Pharmaceuticals, Inc., is
developing an SCA directed against complement protein C5, which is a component
of the body's normal defense against foreign pathogens. Inappropriate complement
activation during cardiopulmonary bypass and myocardial infarction can lead to
clinical problems. In Phase I trials during cardiopulmonary bypass, this SCA
improved cardiac and neurological function and reduced blood loss. Alexion and
its partner, Procter & Gamble, are currently conducting a 1,000 patient
Phase IIb study to evaluate this SCA in patients undergoing cardiopulmonary
bypass surgery and are initiating two additional 1,000 patient Phase II trials
to evaluate this SCA in heart attack patients.

Cell Genesys. Another application of our SCA technology is in the area of
T-Bodies. T-Body technology involves the expression of an SCA protein in a
T-Cell that has been removed from the body and genetically modified. T-Cells, a
type of lymphocyte cell, represent an important component of the immune system
responsible for cell-mediated immunity and represent one of the body's natural
defenses against foreign materials such as cancer cells and infectious
organisms. Using SCA technology, T-Cells can be modified through molecular
biology methods to express an SCA on the cell surface that can then recognize
and bind to a specific antigen, thereby targeting the T-Cell to a specific
location. Cell Genesys, our licensee, has had success in applying T-Bodies in
preclinical studies with a T-Body SCA directed to various forms of cancer. In
its recently completed Phase I/II trial, Cell Genesys reported that the
treatment could be safely administered in an outpatient setting although no
antitumor activity was observed.

Cambridge Antibody Technology and MorphoSys. Cambridge Antibody Technology
Ltd., or CAT, and MorphoSys are using antibody engineering, with phage display
library technology, for the isolation of high specificity antibody binding
regions. Using phage display technology, it is possible to conveniently isolate
a fully human high-affinity SCA specific to virtually any target antigen. CAT
and MorphoSys are leaders in the development of combinatorial antibody
libraries, also referred to as phage display. CAT and MorphoSys currently have
several licensing agreements with global pharmaceutical and biotechnology
companies to apply their library to the identification and isolation of high
specificity antibody proteins. Any companies working with CAT or MorphoSys will
be required to negotiate a license with us for any SCAs that they might wish to
commercialize.

Seattle Genetics. Seattle Genetics is developing a single-chain immunotoxin
targeted to cancers. It recently started Phase I clinical trials in patients
with carcinoma of its lead product candidate SGN-10, a single-chain version of
Bristol-Myers' monoclonal antibody called BR 96. Preclinical data indicates that
this SCA may have potent activity against a wide variety of solid tumor cancers.
Single-chain immunotoxins combine an SCA that has specificity for a particular
antigen on certain types of cancer

<PAGE>

cells with a toxin protein that would not otherwise bind to those tumor cells.
SGN-10 has an SCA component that binds with high specificity to a particular
carbohydrate that is expressed on the cell surface of many forms of solid
tumors, including breast, lung, ovarian, prostate, colorectal and pancreatic
cancers.

Dana-Farber Cancer Institute and University of Alabama. Scientists at the
Dana-Farber Cancer Institute and the University of Alabama are conducting
research utilizing SCA proteins called intrabodies. Intrabodies are SCAs
produced inside the cell via gene therapy. The Dana-Farber Cancer Institute is
studying the use of a very specific intrabody for the treatment of HIV
infection. The University of Alabama is studying a separate intrabody for
ovarian cancer targeted to the erbB-2 receptor. Pre-clinical data generated from
these studies have revealed that SCAs produced through intracellular expression
can provide an important therapeutic response. The University of Alabama has
completed a Phase I trial and the Dana-Farber Cancer Institute expects to
initiate its trial shortly. Because the Dana-Farber Cancer Institute and the
University of Alabama are academic research institutions, we have not required
them to license our technologies.

INTERNAL DEVELOPMENT

We are evaluating the feasibility of in-licensing SCA proteins that are
already in clinical development. We are also developing several new technology
platforms combining our proprietary SCA and PEG technologies. We have shown that
it is possible to increase the half life of an SCA, by a factor of two- to
twenty-fold, by attaching PEG to it. We can modify these properties of a PEG-SCA
by varying the size of the PEG, the amount and shape of PEG and the attachment
site. We intend to pursue the expansion of PEG-SCA technologies and develop SCA
therapeutics that may be important in the treatment of cardiovascular disease,
cancer, transplantation and acute phases of certain chronic diseases such as
arthritis.

STRATEGIC ALLIANCES AND LICENSES

In addition to internal product development, we seek to enter into joint
development and licensing arrangements with other pharmaceutical and
biopharmaceutical companies to expand the pipeline of products utilizing our
proprietary PEG and SCA protein technologies. We believe that our technologies
can be used to improve products that are already on the market or that are under
development to produce therapeutic products that provide a safer, more effective
and more convenient therapy. Currently, our partners have two products in late
stages of the approval process, PEG-Intron and Human Serum Albumin, as well as
several SCA compounds in Phase I and Phase II clinical trials.

SCHERING-PLOUGH AGREEMENT

In November 1990, we entered into an agreement with Schering-Plough. Under
this agreement, Schering-Plough agreed to apply our PEG technology to develop a
modified form of Schering-Plough's INTRON A. Schering-Plough is responsible for
conducting and funding the clinical studies, obtaining regulatory approval and
marketing the product worldwide on an exclusive basis and we will receive
royalties on worldwide sales of PEG-Intron, if any. The royalty percentage to
which we are entitled will be lower in any country where a polyethylene
glycol/interferon-a product is being marketed by a third party in competition
with PEG-Intron, where such third party is not Hoffmann-La Roche.

In June 1999, we amended our agreement with Schering-Plough, which resulted
in an increase in the effective royalty rate that we receive for PEG-Intron
sales. In exchange, we relinquished our option to retain exclusive U.S.
manufacturing rights for this product. In addition, we granted Schering-Plough a
non-exclusive license under some of our PEG patents relating to Branched, or
U-PEG, technology. This license gives Schering-Plough the ability to sublicense
rights under these patents to any party developing a competing interferon
product.

In February 2000, we earned a $1.0 million milestone payment when the FDA
accepted the BLA for PEG-Intron filed by Schering-Plough. We are entitled to an
additional $2.0 million milestone

<PAGE>

payment upon the approval of the BLA, if and when such approval occurs. Our
agreement with Schering-Plough terminates, on a country-by-country basis, upon
the later of:

the termination of Schering-Plough's obligation to pay us royalties in such
country under the agreement, which obligation runs until the later of the
date the last patent to contain a claim covering PEG-Intron expires in the
country or 15 years after the first commercial sale of PEG-Intron in such
country, or

the expiration of the last to expire of our U-PEG patents or the patents
owned or assigned to us under the agreement, including any patent extension
or other extension of market exclusivity obtained relating to the patents.

Schering has the right to terminate this agreement at any time if we fail to
maintain the requisite liability insurance.

RHONE-POULENC RORER LICENSE AGREEMENTS

We have entered into an amended license agreement with RPR under which we
have granted RPR an exclusive license to sell in the United States ONCASPAR and
any other asparaginase or PEG-asparaginase product developed by us or RPR during
the term of the amended license agreement. Under the amended license agreement,
we have received an advanced royalty payment of $3.5 million and are entitled to
a base royalty of 23.5% on net sales of ONCASPAR up to agreed-upon amounts,
until 2008. Additionally, the amended license agreement provides for a super
royalty of 43.5% on net sales of ONCASPAR which exceed certain agreed-upon
amounts until 2008, with the limitation that the total royalties earned for any
year shall not exceed 33% of RPR's net sales of ONCASPAR.

The payment of base royalties to us under the amended license agreement will
be offset by an original credit of $5.9 million, which represents the royalty
advance plus reimbursement of certain amounts due to RPR under the original
license agreement and interest expense. Super royalties will be paid to us when
earned. The royalty advance is shown as a long term liability, with the
corresponding current portion included in accrued expenses on our consolidated
balance sheets as of December 31, 1999 and 1998. The royalty advance will be
reduced as base royalties are recognized under the agreement.

The amended license agreement prohibits RPR from making, using or selling an
asparaginase product in the U.S. or a competing PEG-asparaginase product
anywhere in the world until the later of the expiration of the agreement or, if
the agreement is terminated earlier, five years after termination. The agreement
terminates in December 2008 but automatically renews for additional one-year
periods unless either party notifies the other in writing that it intends not to
renew the agreement at least three months prior to the end of the current term.
It can be terminated earlier by either party due to a default by the other. In
addition, RPR may terminate the agreement at any time upon one year's prior
notice to us or if we are unable to supply product for more than 60 days under
our supply agreement with RPR. When the amended license agreement terminates,
all rights we granted to RPR under the agreement will revert to us. Under its
supply agreement with us, RPR is required to purchase from us all of its product
requirements for sales of ONCASPAR in North America. If we are unable to supply
product to RPR under the supply agreement for more than 60 days for any reason
other than a force majeure event, RPR may terminate the supply agreement and we
will be required to exclusively license RPR the know-how required to manufacture
ONCASPAR for the period of time during which the agreement would have continued
had the license agreement not been terminated.

We are currently in discussions with RPR related to a disagreement over the
purchase price of ONCASPAR under the supply agreement. RPR has asserted that we
have overcharged RPR under the supply agreement in the amount of $2.3 million.
We believe our costing and pricing of ONCASPAR to RPR complies with the supply
agreement. RPR has also asserted that we should be responsible for its lost
profits while ONCASPAR is under the temporary labeling and distribution
modifications described above. RPR contends that its lost profits through
December 31, 1999 were $5.2 million.

Under separate license agreements, RPR has exclusive rights to sell ONCASPAR
in Canada and Mexico. These agreements provide for RPR to seek to obtain
marketing approval of ONCASPAR in Canada and Mexico and for us to receive
royalties on net sales of ONCASPAR in these countries, if

<PAGE>

any. These agreements expire 10 years after the first commercial sale of
ONCASPAR in each country, but automatically renew for consecutive five-year
periods unless either party elects to terminate at least three months prior to
the end of the current term. RPR may terminate these agreements on one year's
prior notice to us.

We also have a license agreement with RPR for the Pacific Rim region,
specifically, Australia, New Zealand, Japan, Hong Kong, Korea, China, Taiwan,
the Philippines, Indonesia, Malaysia, Singapore, Thailand, Laos, Cambodia and
Vietnam. Under the license agreement, RPR is responsible for obtaining approvals
for indications in the licensed territories. Our supply agreement for the
Pacific Rim region provides for RPR to purchase ONCASPAR for the region from us
at established prices, which increase over the term of the agreement. The
license agreement also provides for minimum purchase requirements for the first
four years of the agreement. These agreements expire on a country-by-country
basis 10 years after the first commercial sale of ONCASPAR in each country, but
automatically renew for consecutive five-year periods unless either party elects
to terminate at least three months prior to the end of the current term. RPR may
terminate these agreements on one year's prior notice to us.

MEDAC LICENSE AGREEMENT

We have also granted an exclusive license to MEDAC to sell ONCASPAR and any
PEG-asparaginase product developed by us or MEDAC during the term of the
agreement in Western Europe, Turkey and Russia. Our supply agreement with MEDAC
provides for MEDAC to purchase ONCASPAR from us at certain established prices,
which increase over the initial five-year term of the agreement. Under the
license agreement, MEDAC is responsible for obtaining additional approvals and
indications in the licensed territories, beyond the currently approved
hypersensitive indication in Germany. Under the agreement, MEDAC is required to
meet certain minimum purchase requirements. The MEDAC license terminates in
October 2001, but automatically renews for sucessive two-year periods unless
either party elects to terminate at least nine months prior to the end of the
current term. MEDAC may terminate the agreement after providing us with one
year's prior notice.

GREEN CROSS AGREEMENTS

We have two license agreements with the Green Cross Corporation for the
development of a recombinant human serum albumin, or rHSA, as a blood volume
expander. Green Cross was acquired by Yoshitomi Pharmaceutical Industries, Ltd.
in April 1998. Green Cross has reported that it filed for approval of this
product in Japan in November 1997. The agreements, which were assigned to us in
connection with our acquisition of Genex Corporation in 1991, entitle us to a
royalty on sales of an rHSA product sold by Green Cross in much of Asia and
North and South America. Currently, Green Cross is only developing this product
for the Japanese market. A binding arbitration was recently concluded regarding
the royalty rate required under the agreements. Green Cross had filed documents
in the arbitration taking the position that no royalty was due to us. We
disputed that position, and in February 2000, the arbitrators awarded us a 1%
royalty on Yoshitomi sales of rHSA in Japan, South East Asia, India, China,
Australia, New Zealand and North and South America for a period of 15 years
after the first commercial sale of Yoshitomi's rHSA following market approval of
that product in Japan or the United States.

MARKETING

Other than ADAGEN, which we market on a worldwide basis to a small patient
population, we do not engage in the direct commercial marketing of any of our
products and therefore do not have an established sales force. For some of our
products, we have provided exclusive marketing rights to our corporate partners
in return for royalties on sales.

We expect to evaluate whether to create a sales force to market certain
products in the United States or to continue to enter into licensing and
marketing agreements with others for United States and foreign markets. These
agreements generally provide that our licensees or marketing partners will
conduct all or a significant portion of the marketing of these products. In
addition, under these

<PAGE>

agreements, our licensee or marketing partners may have all or a significant
portion of the development and regulatory approval responsibilities.

RAW MATERIALS AND MANUFACTURING

In the manufacture of our products, we couple activated forms of PEG with
unmodified proteins. We do not have a long-term supply agreement for the raw
polyethylene glycol that we use to manufacture the PEG we require. Instead, we
maintain a level of inventory which we believe should provide us sufficient time
to find an alternate supplier of PEG, in the event it becomes necessary, without
materially disrupting our business.

During 1998, we began to experience manufacturing problems with one of our
FDA-approved products, ONCASPAR. The problems were due to increased levels of
white particulates in batches of ONCASPAR, which resulted in an increased
rejection rate for this product. During fiscal 1999, we agreed with the FDA to
temporary labeling and distribution modifications for ONCASPAR and instituted
additional inspection and labeling procedures prior to distribution. During May
1999, the FDA required us to limit distribution of ONCASPAR to only those
patients who are hypersensitive to native L-asparaginase. In November 1999, the
FDA withdrew this distribution restriction.

Recently, we have noticed an unacceptable level of black particulates in
batch of ADAGEN filled by our third-party contract filler. We believe these
particulates are caused by the filling process, and our outside filler has taken
steps to resolve this issue. Because we use the same filler for ADAGEN and
ONCASPAR, this problem could affect our manufacture of ONCASPAR.

RESEARCH AND DEVELOPMENT

Our primary source of new products is our internal research and development
activities. Research and development expenses for the fiscal years ended
June 30, 1999, 1998 and 1997 were approximately $6.8 million, $8.7 million and
$8.5 million, respectively.

Our research and development activities during fiscal 1999 concentrated
primarily on pre-clinical work on PROTHECAN, our first product to use our Pro
Drug/Transport Technology, and continued research and development of our
proprietary technologies. As a result of our clinical trials for PROTHECAN we
expect our research and expenses for fiscal 2000 to be at the levels for fiscal
1998 and 1997.

PATENTS

We have licensed, and been issued, a number of patents in the United States
and other countries and have other patent applications pending to protect our
proprietary technology. Although we believe that our patents provide adequate
protection for the conduct of our business, we cannot assure you that such
patents:

will be of substantial protection or commercial benefit to us,

<PAGE>

will afford us adequate protection from competing products, or

will not be challenged or declared invalid.

We also cannot assure you that additional United States patents or foreign
patent equivalents will be issued to us.

The patent covering our original PEG technology, which we had licensed from
Research Corporation Technologies, Inc., contained broad claims covering the
attachment of PEG to polypeptides. However, this United States patent and its
corresponding foreign patents have expired. Based upon the expiration of the
Research Corporation patent, other parties will be permitted to make, use, or
sell products covered by the claims of the Research Corporation patent, subject
to other patents, including those which we hold. We have obtained and intend to
continue to pursue patents with claims covering improved methods of attaching or
linking PEG to therapeutic compounds. We also have obtained patents relating to
the specific composition of the PEG-modified compounds that we have identified
or created. We will continue to seek such patents as we develop additional
PEG-enhanced products. We cannot assure you that any of these patents will
enable us to prevent infringement or that competitors will not develop
competitive products outside the protection that may be afforded by our patents.

We are aware that others have also filed patent applications and have been
granted patents in the United States and other countries with respect to the
application of PEG to proteins and other compounds. Owners of any such patents
may seek to prevent us or our collaborators from selling our products. In
January 2000, Hoffmann-La Roche filed lawsuits in both the U.S. and France
against Schering-Plough alleging that PEG-Intron infringes certain patents held
by Hoffmann-La Roche. The validity and scope of Hoffmann-La Roche's patents in
this segment of the industry could be judicially determined during these
proceedings. If Schering-Plough does not prevail in this litigation, Hoffmann-
La Roche may completely block Schering-Plough from commercializing PEG-Intron.
Among other things, the outcome will likely depend not only upon whether the
Hoffmann-La Roche patents are determined valid and infringed, but upon the
reasoning behind such determinations. Prior to the commencement of this
litigation we obtained an opinion of patent counsel that the patent held by
Hoffmann-La Roche is invalid. We are also aware of certain patents held by
Biopure Corporation that are relevant to PEG-hemoglobin. We have obtained an
opinion of counsel that no valid claims of such Biopure patents would be
infringed by the sale of PEG-hemoglobin. These opinions have been relied upon by
us and our collaborators in continuing to pursue development of these products;
however, these opinions are not binding on any court or the U.S. Patent and
Trademark Office. We cannot assure you that the patent opinions will prove to be
correct and that a court would find any of the claims of such patents to be
invalid or that the product developed by us or our collaborator does not
infringe such patents.

We also believe that there are PEG-modified products being developed by
third parties that infringe on one or more of our current PEG technology
patents. On December 7, 1998, we filed a patent infringement suit against
Shearwater Polymers Inc., a company that reportedly has developed a Branched
PEG, or U-PEG, used in Hoffmann-La Roche's Pegasys product, a PEG-modified
version of its alpha-interferon product called Roferon-A. According to published
reports, Pegasys utilizes a type of Branched PEG for which we have been granted
a patent in the U.S. and have a similar patent pending in Europe. Shearwater has
filed a counterclaim in this litigation alleging that our Branched PEG patent is
invalid and unenforceable.

In the field of SCA proteins, we have several United States and foreign
patents and pending patent applications, including a patent granted in August
1990 covering the genes needed to encode SCA proteins. Creative BioMolecules,
Inc., or Creative, provoked an interference with this patent and on June 28,
1991, the United States Patent and Trademark Office entered summary judgment
terminating the interference proceeding and upholding our patent. Creative
subsequently lost its appeal of this decision in the United States Court of
Appeals and did not file a petition for review of this decision by the United
States Supreme Court within the required time period.

In November 1993, Creative signed collaborative agreements with us in the
field of our SCA protein technology and Creative's Biosynthetic Antibody Binding
Site protein technology. Under the

<PAGE>

agreements, each company is free, under a non-exclusive, worldwide license, to
develop and sell products utilizing the technology claimed by both companies'
antibody engineering patents, without paying royalties to the other. Each
company is also free to market products in collaboration with third parties, but
the third parties will be required to pay royalties on products covered by the
patents which will be shared by the companies, except in certain instances. We
have the exclusive right to market licenses under both companies' patents other
than to Creative's collaborators. In addition, the agreements provide for the
release and discharge by each company of the other from any and all claims based
on past infringement of the technology which is the subject of the agreements.
The agreement also provides for any future disputes between the companies
regarding new patents in the area of engineered monoclonal antibodies to be
resolved pursuant to agreed-upon procedures.

The degree of patent protection to be afforded to biotechnological
inventions is uncertain and our products are subject to this uncertainty. We are
aware of certain issued patents and patent applications, and there may be other
patents and applications, containing subject matter which we or our licensees or
collaborators may require in order to research, develop or commercialize at
least some of our products. We cannot assure you that we will be able to obtain
a license to such subject matter on acceptable terms, or at all.

In addition to the litigation described above, we expect that there may be
significant litigation in the industry regarding patents and other proprietary
rights and, to the extent we become involved in such litigation, it could
consume a substantial amount of our resources. An adverse decision in any such
litigation could subject us to significant liabilities. In addition, we rely
heavily on our proprietary technologies for which pending patent applications
have been filed and on unpatented know-how developed by us. Insofar as we rely
on trade secrets and unpatented know-how to maintain our competitive
technological position, we cannot assure you that others may not independently
develop the same or similar technologies. Although we have taken steps to
protect our trade secrets and unpatented know-how, third parties nonetheless may
gain access to such information.

GOVERNMENT REGULATION

The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements on the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval and promotion of our
products. All of our products will require regulatory approval before
commercialization. In particular, therapeutic products for human use are subject
to rigorous pre-clinical and clinical testing and other requirements of the
Federal Food, Drug, and Cosmetic Act and the Public Health Service Act,
implemented by the FDA, as well as similar statutory and regulatory requirements
of foreign countries. Obtaining these marketing approvals and subsequently
complying with ongoing statutory and regulatory requirements is costly and time
consuming. Any failure by us or our collaborators, licensors or licensees to
obtain, or any delay in obtaining, regulatory approval or in complying with
other requirements, could adversely affect the commercialization of products
that we are then developing and our ability to receive product or royalty
revenues.

The steps required before a new drug or biological product may be
distributed commercially in the United States generally include:

conducting appropriate pre-clinical laboratory evaluations of the product's
chemistry, formulation and stability, and animal studies to assess the
potential safety and efficacy of the product,

submitting the results of these evaluations and tests to the FDA, along
with manufacturing information and analytical data, in an Investigational
New Drug Application, or IND,

making the IND effective after the resolution of any safety or regulatory
concerns of FDA,

obtaining approval of Institutional Review Boards, or IRBs, to introduce
the drug or biological product into humans in clinical studies,

<PAGE>
conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the drug or biological product
candidate for the intended use, typically in the following three
sequential, or slightly overlapping stages:

Phase I. The drug or biologic is initially introduced into healthy human
subjects or patients and tested for safety, dose tolerance, absorption,
metabolism, distribution and excretion,

Phase II. The drug or biologic is studied in patients to identify
possible adverse effects and safety risks, to determine dose tolerance
and the optimal dosage, and to collect initial efficacy data,

Phase III. The drug or biologic is studied in an expanded patient
population at multiple clinical study sites, to confirm efficacy and
safety at the optimized dose, by measuring a primary endpoint established
at the outset of the study,

submitting the results of preliminary research, pre-clinical studies, and
clinical studies as well as chemistry, manufacturing and control
information on the drug or biological product to the FDA in a New Drug
Application, or NDA, for a drug product, or BLA for a biological product,
and

obtaining FDA approval of the NDA or BLA prior to any commercial sale or
shipment of the drug or biological product.

An NDA or BLA must contain, among other things, data derived from
nonclinical laboratory and clinical studies which demonstrate that the product
meets prescribed standards of safety, purity and potency, and a full description
of manufacturing methods. The biological product may not be marketed in the U.S.
until a biological license is issued.

The approval process can take a number of years and often requires
substantial financial resources. The results of pre-clinical studies and initial
clinical trials are not necessarily predictive of the results from large-scale
clinical trials, and clinical trials may be subject to additional costs, delays
or modifications due to a number of factors, including the difficulty in
obtaining enough patients, clinical investigators, drug supply, or financial
support. The FDA has issued regulations intended to accelerate the approval
process for the development, evaluation and marketing of new therapeutic
products intended to treat life-threatening or severely debilitating diseases,
especially where no alternative therapies exist. If applicable, this procedure
may shorten the traditional product development process in the United States.
Similarly, products that represent a substantial improvement over existing
therapies may be eligible for priority review with a target lapsed approval time
of six months. Nonetheless, approval may be denied or delayed by the FDA or
additional trials may be required. The FDA also may require testing and
surveillance programs to monitor the effect of approved products that have been
commercialized, and the agency has the power to prevent or limit further
marketing of a product based on the results of these post-marketing programs.
Upon approval, a drug product may be marketed only in those dosage forms and for
those indications approved in the NDA or BLA, although information about
off-label indications may be distributed in certain circumstances.

In addition to obtaining FDA approval for each indication to be treated with
each product, each domestic drug product manufacturing establishment must
register with the FDA, list its drug products with the FDA, comply with Current
Good Manufacturing Practices and permit and pass inspections by the FDA.
Moreover, the submission of applications for approval may require additional
time to complete manufacturing stability studies. Foreign establishments
manufacturing drug products for distribution in the United States also must list
their products with the FDA and comply with Current Good Manufacturing
Practices. They also are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.

Any products manufactured or distributed by us pursuant to FDA approvals are
subject to extensive continuing regulation by the FDA, including record-keeping
requirements and a requirement to report adverse experiences with the drug. In
addition to continued compliance with standard regulatory requirements, the FDA
also may require post-marketing testing and surveillance to monitor the safety
and efficacy of the marketed product. Adverse experiences with the product must
be reported to the FDA. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems concerning safety or
efficacy of the product are discovered following approval.

<PAGE>

The Federal Food, Drug, and Cosmetic Act also mandates that drug products be
manufactured consistent with Current Good Manufacturing Practices. In complying
with the FDA's regulations on Current Good Manufacturing Practices,
manufacturers must continue to spend time, money and effort in production,
record-keeping, quality control, and auditing to ensure that the marketed
product meets applicable specifications and other requirements. The FDA
periodically inspects drug product manufacturing facilities to ensure compliance
with Current Good Manufacturing Practices. Failure to comply subjects the
manufacturer to possible FDA action, such as:

warning letters,

suspension of manufacturing,

seizure of the product,

voluntary recall of a product,

injunctive action, or

possible civil or criminal penalties.

To the extent we rely on third parties to manufacture our compounds and
products, those third parties will be required to comply with Current Good
Manufacturing Practices.

Even after FDA approval has been obtained, and often as a condition to
expedited approval, further studies, including post-marketing studies, may be
required. Results of post-marketing studies may limit or expand the further
marketing of the products. If we propose any modifications to the product,
including changes in indication, manufacturing process, manufacturing facility
or labeling, an NDA or BLA supplement may be required to be submitted to the
FDA.

Products manufactured in the United States for distribution abroad will be
subject to FDA regulations regarding export, as well as to the requirements of
the country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing applications,
and all aspects of product manufacture and marketing. Such requirements can vary
significantly from country to country. As part of our strategic relationships
our collaborators may be responsible for the foreign regulatory approval process
of our products, although we may be legally liable for noncompliance.

We are also subject to various federal, state and local laws, rules,
regulations and policies relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with our research
work. Although we believe that our safety procedures for handling and disposing
of such materials comply with current federal, state and local laws, rules,
regulations and policies, the risk of accidental injury or contamination from
these materials cannot be entirely eliminated.

We cannot predict the extent of government regulation which might result
from future legislation or administrative action cannot be accurately predicted.
In this regard, although the Food and Drug Administration Modernization Act of
1997 modified and created requirements and standards under the Federal Food,
Drug, and Cosmetic Act with the intent of facilitating product development and
marketing, the FDA is still in the process of developing regulations
implementing the Food and Drug Administration Modernization Act of 1997.
Consequently, the actual effect of these developments on our business is
uncertain and unpredictable.

Moreover, we anticipate that Congress, state legislatures and the private
sector will continue to review and assess controls on health care spending. Any
such proposed or actual changes could cause us or our collaborators to limit or
eliminate spending on development projects and may otherwise impact us. We
cannot predict the likelihood, nature or extent of adverse governmental
regulation that might result from future legislative or administrative action,
either in the United States or abroad. Additionally, in both domestic and
foreign markets, sales of our proposed products will depend, in part, upon the
availability of reimbursement from third-party payors, such as government health
administration authorities, managed care providers, private health insurers and
other organizations. Significant uncertainty often exists as to the
reimbursement status of newly approved health care products. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of

<PAGE>

medical products and services. There can be no assurance that our proposed
products will be considered cost-effective or that adequate third-party
reimbursement will be available to enable us to maintain price levels sufficient
to realize an appropriate return on our investment in product research and
development.

ADAGEN was approved by the FDA in March 1990. ONCASPAR was approved for
marketing in the U.S. and Germany in 1994 and in Canada in December 1997 for
patients with acute lymphoblastic leukemia who are hypersensitive to native
forms of L-asparaginase, and in Russia in April 1993 for therapeutic use in a
broad range of cancers. Except for these approvals, none of our other products
has been approved for sale and use in humans in the U.S. or elsewhere.

With respect to patented products, delays imposed by the government approval
process may materially reduce the period during which we will have the exclusive
right to exploit them.

COMPETITION

Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors. These factors include the
availability of patent and other protection of technology and products, the
ability to commercialize technological developments and the ability to obtain
governmental approval for testing, manufacturing and marketing. We compete with
specialized biopharmaceutical firms in the United States, Europe and elsewhere,
as well as a growing number of large pharmaceutical companies that are applying
biotechnology to their operations. These companies, as well as academic
institutions, governmental agencies and private research organizations, also
compete with us in recruiting and retaining highly qualified scientific
personnel and consultants.

We are aware that other companies are conducting research on chemically
modified therapeutic proteins and that certain companies are modifying
pharmaceutical products, including proteins, by attaching PEG. Other than our
ONCASPAR and ADAGEN products, we are not aware of any PEG-modified therapeutic
proteins that are currently available commercially for therapeutic use.
Nevertheless, other drugs or treatments that are currently available or that may
be developed in the future, and which treat the same diseases as those that our
products are designed to treat, may compete with our products.

Prior to the development of ADAGEN, the only treatment available to patients
afflicted with ADA-deficient SCID was a bone marrow transplant. Completing a
successful transplant depends upon finding a matched donor, the probability of
which is low. More recently, researchers at the National Institutes of Health,
or NIH, have been attempting to treat SCID patients with gene therapy, which if
successfully developed, would compete with, and could eventually replace ADAGEN
as a treatment. The patients in these trials are also receiving ADAGEN treatment
in addition to the gene therapy. The theory behind gene therapy is that cultured
T-lymphocytes that are genetically engineered and injected back into the patient
will express adenosine deaminase, the deficient enzyme in people afflicted with
ADA-deficient SCID, permanently and at normal levels. To date, patients in gene
therapy clinical trials have not been able to stop ADAGEN treatment and,
therefore, the trials have been inconclusive.

Current standard treatment of patients with acute lymphoblastic leukemia
includes administering unmodified L-asparaginase along with the drugs
vincristine, prednisone and daunomycin. Studies have shown that long-term
treatment with L-asparaginase increases the disease-free survival in high risk
patients. ONCASPAR, our PEG-modified L-asparaginase product, is used to treat
patients with acute lymphoblastic leukemia who are hypersensitive to unmodified
forms of L-asparaginase. Currently, there is one unmodified form of
L-asparaginase (Elspar) available in the United States and several available in
Europe. We believe that ONCASPAR has two advantages over these unmodified forms
of L-asparaginase: increased circulating blood life and generally reduced
immunogenicity.

The current market for INTRON A, Schering-Plough's interferon alpha-2b
product, is highly competitive, with Hoffmann-La Roche, Amgen, Inc. and several
other companies selling similar products. We believe that PEG-Intron may have
several potential advantages over the interferon products currently on the
market, including:

once per week dosing versus the current three times per week dosing,

an improved side effect profile, and

increased efficacy.

<PAGE>

It has also been reported that Hoffmann-La Roche's Pegasys product also has
a potentially longer lasting version of its interferon product, Roferon-A, in
Phase III clinical trials. We believe that this product infringes a patent which
covers one of our second generation PEG technologies, called Branched PEG. We
have initiated patent infringement litigation against the supplier of the PEG
technology used in Hoffmann-La Roche's Pegasys, Shearwater Polymers Inc., and
are seeking to block this product from entering the market.

There are several technologies which compete with our SCA protein
technology, including chimeric antibodies, humanized antibodies, human
monoclonal antibodies, recombinant antibody Fab fragments, low molecular weight
peptides and mimetics. These competing technologies can be categorized into two
areas:

those modifying monoclonal antibodies to minimize immunological reaction to
a foreign protein, which is the strategy employed with chimerics, humanized
antibodies and human monoclonal antibodies, and

those creating smaller portions of monoclonal antibodies, which are more
specific to the target and have fewer side effects, as is the case with Fab
fragments and low molecular weight peptides.

We believe that the smaller size of our SCA proteins should permit better
penetration into the tumor, result in rapid clearance from the blood and cause a
significant decrease in the immunogenic problems associated with conventional
monoclonal antibodies. A number of organizations have active programs in SCA
proteins. We believe that our patent position on SCA proteins will likely
require companies that have not licensed our SCA protein patents to obtain
licenses from us in order to commercialize their products, but there can be no
assurance that this will prove to be the case.

EMPLOYEES

As of December 31, 1999, we employed 82 persons, including 15 persons with
Ph.D. degrees. At that date, 37 employees were engaged in research and
development activities, 25 were engaged in manufacturing, and 20 were engaged in
administration and management. None of our employees is covered by a collective
bargaining agreement. All of our employees are covered by confidentiality
agreements. We consider our relations with our employees to be good.

FACILITIES

We lease approximately 56,000 square feet of research and development and
office space in Piscataway, New Jersey. This lease will terminate in June 2007.
Our manufacturing facilities are located in South Plainfield, New Jersey and
occupy approximately 24,000 square feet. This lease will terminate in March
2007. We believe that our facilities are well maintained and adequate for our
present and future anticipated needs.

LEGAL PROCEEDINGS

We are being sued, in the United States District Court for the District of
New Jersey, by LBC Capital Resources, Inc., a former financial advisor. LBC is
asserting that under the May 2, 1995 letter agreement between us and LBC, LBC
was entitled to a commission in connection with our January and March 1996
private placements, comprised of $500,000 and warrants to purchase approximately
1,000,000 shares of our common stock at an exercise price of $2.50 per share.
LBC has claimed $3.0 million in compensatory damages, plus punitive damages,
counsel fees and costs for the alleged breach of the letter agreement. We have
entered into an agreement with LBC, known as the Stipulation of Damages, which
provides that if we are found liable to LBC in this suit, the damages for these
claims would be limited to $2.75 million in cash. LBC has also asserted that it
is entitled to an additional fee of $175,000 and warrants to purchase 250,000
shares of our common stock to the extent any of the warrants issued to investors
in the private placements are exercised. We believe that no such compensation is
due to LBC under this letter agreement and deny any liability under the letter
agreement. We intend to defend this lawsuit vigorously and believe the ultimate
resolution of this matter will not have a material adverse effect on our
financial position. However, if we were required to issue warrants to LBC we
would be required to incur a non-cash expense for each warrant issued equal to
the difference between the exercise price of the warrants ($2.50) and the then
current market price of our common stock.

<PAGE>

In December 1998, we filed a patent infringement suit against Shearwater
Polymers Inc., a company that has reportedly developed a Branched PEG, or U-PEG,
used in Hoffmann-La Roche's Pegasys product, a PEG-modified version of its
alpha-interferon product called Roferon-A. We believe that Pegasys utilizes a
type of Branched PEG for which we have been granted a patent in the U.S. and
have similar patents pending in Europe, Japan and Canada. Shearwater has filed a
counter-claim in this litigation alleging that our Branched PEG patent is
invalid and unenforceable.

In January 2000, Hoffmann-La Roche filed lawsuits in both the U.S. and
France against Schering-Plough alleging that PEG-Intron infringes certain
patents held by Hoffmann-La Roche. The validity and scope of
Hoffmann-La Roche's patents in this segment of the industry could be judicially
determined during these proceedings. If Schering-Plough does not prevail in this
litigation, Hoffmann-La Roche may completely block Schering-Plough from
commercializing PEG-Intron. Among other things, the outcome will likely depend
not only upon whether the patents are determined valid and infringed, but also
upon the reasoning behind such determinations. We are presently unable to
predict either the effect or degree of effect this litigation will have on our
business and financial condition.

We have two research and license agreements with the Green Cross Corporation
regarding rHSA. We were recently involved in an arbitration to resolve the
amount of royalties to which we are entitled under these agreements. In April
1998, Yoshitomi Pharmaceutical Industries, Ltd., the successor to Green Cross'
business, filed documents in such arbitration seeking a declaratory judgment
that under its agreement with us no royalties are payable. In February 2000, the
arbitrators awarded us a 1% royalty on Yoshitomi sales of rHSA in Japan, South
East Asia, India, China, Australia, New Zealand and North and South America for
a period of 15 years after the first commercial sale of Yoshitomi's rHSA
following market approval of that product in Japan or the United States.

<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES

Our directors, executive officers and other key employees, including their
ages, are as follows as of February 15, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter G. Tombros(1)............. 57 President, Chief Executive Officer and Director
Kenneth J. Zuerblis............. 40 Vice President, Finance and Chief Financial Officer
John A. Caruso.................. 55 Vice President, Administration, General Counsel and
Secretary
Randy H. Thurman(1)(2).......... 50 Chairman of the Board
David S. Barlow(2)(4)........... 43 Director
Rolf A. Classon(2)(3)........... 54 Director
Dr. Rosina B. Dixon(2)(4)(5).... 57 Director
Dr. David W. Golde(4)(5)........ 59 Director
Robert LeBuhn(1)(3)(5).......... 67 Director
A. M. 'Don' MacKinnon(3)........ 75 Director
Dr. Josef Bossart............... 48 Vice President, Business Development and President,
SCA Ventures
Joseph Fischer.................. 51 Vice President, Manufacturing
Dr. Jeffrey McGuire............. 49 Vice President, Research and Development and Chief
Scientific Officer
</TABLE>

- ---------

(1) Member of the Executive Committee of our Board of Directors.

(2) Member of the Compensation Committee of our Board of Directors.

(3) Member of the Finance and Audit Committee of our Board of Directors.

(4) Member of the Scientific Advisory Committee of our Board of Directors.

(5) Member of the Corporate Governance Committee of our Board of Directors.

Peter G. Tombros, 57, has served as our President and Chief Executive
Officer and one of our Directors since April 1994. Prior to joining Enzon, Mr.
Tombros spent 25 years with Pfizer, Inc., a research-based, global healthcare
company headquartered in New York City. From 1986 to March 1994, he served as a
Vice President of Pfizer, Inc. in the following areas: Executive Vice President
of Pfizer Pharmaceuticals, a division of Pfizer, Inc., corporate strategic
planning and investor relations. From 1980 to 1986, Mr. Tombros served as Senior
Vice President of Pfizer Pharmaceuticals and general manager for the Roerig
division of Pfizer, Inc. Mr. Tombros currently serves on the Board of Trustees
of Cancer Care and the National Cancer Care Foundation and Dominican College. He
has been a Director of the American Foundation of Pharmaceutical Education since
1980 and served as Chairman for three of those years. Mr. Tombros serves on the
Board of Directors of NPS Pharmaceuticals, Inc. and Alpharma, Inc.

Kenneth J. Zuerblis, 40, has served as Chief Financial Officer since January
1996 and as Vice President, Finance since April 1994. From July 1991 to April
1994, Mr. Zuerblis served as our Controller. From January 1982 to July 1991, Mr.
Zuerblis was employed by KPMG LLP in various positions, the last being senior
manager. He became a certified public accountant in 1985.

John A. Caruso, 55, has served as Vice President, Administration since May
1998, our General Counsel since July 1994 and as our Secretary since July 1989.
From January 1991 to May 1998, Mr. Caruso served as Vice President of Business
Development. From January 1991 to July 1994, Mr. Caruso served as Vice
President, Legal Affairs of Enzon. From the time he joined us in September 1987
through December 1990, Mr. Caruso served as our Corporate Counsel. From 1979
through 1987, Mr. Caruso was employed at Baxter Travenol Laboratories in
Deerfield, Illinois as corporate counsel.

Randy H. Thurman, 50, has served as Chairman of the Board since April 1996
and as one of our Directors since April 1993. Mr. Thurman is Chairman and Chief
Executive Officer of Strategic Reserves, LLC, a company he founded in 1996. Mr.
Thurman is the founder of Health Care Strategies

<PAGE>

2000, a global consulting firm, and has been Chairman of the Board since 1995.
During 1996, Mr. Thurman also served as a principal of Spencer Stuart Inc. From
1993 to 1995, Mr. Thurman served as Chairman and Chief Executive Officer of
Corning Life Sciences. From 1985 to 1993, Mr. Thurman served as Corporate
Executive Vice President and a Director of Rhone-Poulenc Rorer, Inc. and
President of Rhone-Poulenc Rorer Pharmaceuticals, Inc. He is also Chairman of
the Board of UTC International, a wholly owned subsidiary of Donaldson Lufkin
Jenrette, and also serves on the Board of Directors of Closure Medical, Inc. and
Curagen Corporation.

David S. Barlow, 43, has served as one of our Directors since June 1999.
From 1995 to September 1999, Mr. Barlow was President of Pharmaceuticals at
Sepracor, Inc. From 1993 to 1995, Mr. Barlow served as the General Manager of
Pharmaceuticals at Sepracor, Inc. Prior to 1993, Mr. Barlow held several senior
level positions at Rhone-Poulenc Rorer, Inc., including Vice President, World
Wide Marketing and Business Development at Armor Pharmaceutical Company, a
subsidiary of Rhone-Poulenc Rorer, Inc.

Rolf A. Classon, 54, has served as one of our Directors since January 1997.
Mr. Classon is currently an Executive Vice President of Bayer Corporation and
President of Bayer Diagnostics. From 1991 to 1995, Mr. Classon was an Executive
Vice President in charge of Bayer Diagnostics' Worldwide Marketing, Sales and
Service operations. From 1990 to 1991, Mr. Classon was President and Chief
Operating Officer of Pharmacia Biosystems A.B. Prior to 1991, Mr. Classon served
as President of Pharmacia Development Company Inc. and Pharmacia A.B.'s Hospital
Products Division.

Dr. Rosina B. Dixon, 57, has served as one of our Directors since August
1994. Dr. Dixon has been a consultant to the pharmaceutical industry since 1987.
Prior to such time she held senior positions at Ciba-Geigy Pharmaceuticals, a
division of Ciba-Geigy Corporation, and Schering-Plough Corporation. She
received her M.D. from Columbia University, College of Physicians and Surgeons
and is certified by the National Board of Medical Examiners and the American
Board of Internal Medicine. She is a member of the American College of Clinical
Pharmacology, American Society for Clinical Pharmacology and Therapeutics and
the National Association of Corporate Directors and currently serves as a
Director of Church & Dwight Co., Inc. and Cambrex Corporation.

Dr. David W. Golde, 59, has served as one of our Directors since March 1998.
Dr. Golde has been the Physician-In-Chief at Memorial Sloan-Kettering Cancer
Center since 1996. From 1991 to 1996, Dr. Golde served as Head of the Division
of Hematologic Oncology at Memorial Sloan-Kettering Cancer Center. Prior to
1991, Dr. Golde was a professor of medicine and Chief of the Division of
Hematology and Oncology at UCLA, Director of the UCLA AIDS Center and Director
of the UCLA Clinical Research Center. Dr. Golde serves as a director of Cypress
Biosciences.

Robert LeBuhn, 67, has served as one of our Directors since August 1994. Mr.
LeBuhn was chairman of Investor International (U.S.), Inc., a subsidiary of
Investor A.B., part of Sweden's Wallenberg Group from June 1992 until his
retirement in September 1994, and was our President from August 1984 through
June 1992. Mr. LeBuhn is a Director of US Airways Group, Inc., Acceptance
Insurance Companies, Inc. and Cambrex Corporation. He is President and a trustee
of the Geraldine R. Dodge Foundation.

A.M. 'Don' MacKinnon, 75, has served as one of our Directors since 1990. Mr.
MacKinnon was President and Chief Operating Officer of Ciba-Geigy Corporation
from 1980 until his retirement in 1986. He was a member of the Board of
Directors of Ciba-Geigy Corporation from 1970 until he reached the mandatory
retirement age in December 1994. Over the last nine years, Mr. MacKinnon has
served on the Board of Directors of several biopharmaceutical companies.

Our Board is divided into three classes for purposes of election. One class
is elected at each annual meeting of stockholders to serve for a three-year
term.

KEY EMPLOYEES

Dr. Josef Bossart, 48, has served as our Vice President of Business
Development and the President of SCA Ventures, a subsidiary of Enzon that
focuses on commercializing our extensive SCA Protein technology, since March
1999. From March 1997 to March 1999, Dr. Bossart was Vice President and Chief
Business Officer of GeneMedicine, Inc. Prior to March 1997, Dr. Bossart also
spent more than 14

<PAGE>

years with Rhone-Poulenc Rorer, Inc. in various business and marketing
positions. Dr. Bossart holds a Ph.D. in medicinal chemistry from the Ohio State
University, College of Pharmacy and a B.Sc. from Carleton University.

Joseph Fischer, 51, has served as our Vice President Manufacturing, since
April 1996. From June 1993 to April 1996, Mr. Fischer served as the Vice
President of Operation at Osteotech, Inc. a medical devise company. Mr. Fischer
has 28 years of experience in operations with companies such as A.H. Robins and
American Home Products. Mr. Fischer is a member of the Parental Drug
Association, the International Society for Pharmaceutical Engineering and the
Institute of Packaging Professionals. He holds a B.S. in management from Rutgers
University.

Dr. Jeffrey McGuire, 49, has served as our Vice President, Research and
Development and Chief Scientific Officer since 1997. From 1995 until 1997, Dr.
McGuire served as our Director, Business Development. From 1991 to 1997, Dr.
McGuire was responsible for our SCA-Binding protein licensing program and
intellectual property portfolio. From 1980 until 1991, Dr. McGuire was employed
by the Genex Corporation, where he held various research, business development
and management positions. Dr. McGuire holds a B.S. in Life Sciences from the
Massachusetts Institute of Technology and a Ph.D. in Life Sciences, with a
concentration in molecular biology, from the University of Delaware. He also
conducted post-doctoral research at Harvard Medical School.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of February 15, 2000, and as adjusted to
reflect the sale of common stock in this offering by (1) each stockholder who is
known by us to beneficially own more than 5% of our common stock, (2) each
director and executive officer, and (3) all directors and executive officers as
a group. All shares listed are common stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as specified
in Rule 13d-13(d)(1) under the Securities Exchange Act of 1934, as amended, and
the beneficial owner has sole voting and investment power, subject to community
property laws where applicable.

<TABLE>
<CAPTION>
PERCENT OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ----------------------
NAME AND ADDRESS OF OWNED PRIOR BEFORE AFTER
BENEFICIAL OWNER(1) TO OFFERING OFFERING(2) OFFERING
- ------------------- ----------- ----------- --------
<S> <C> <C> <C>
Janus Capital Corporation(3) .......................... 4,394,985 11.5% 11.0%
100 Fillmore Street
Denver, Colorado 80206
Peter G. Tombros(4).................................... 1,138,300 2.9% 2.8%
Kenneth J. Zuerblis(5)................................. 213,200 * *
John A. Caruso(6)...................................... 222,692 * *
Randy H. Thurman(7).................................... 195,977 * *
Dr. Rosina B. Dixon(8)................................. 148,556 * *
Dr. David W. Golde(9).................................. 94,368 * *
David S. Barlow(10).................................... 10,190 * *
Rolf A. Classon(11).................................... 76,398 * *
Robert LeBuhn(12)...................................... 138,049 * *
A.M. 'Don' MacKinnon(13)............................... 118,700 * *
All directors and executive officers as a group (10 2,356,430 5.9% 5.6%
persons).............................................
</TABLE>

- ---------

* Less than 1% of the outstanding stock

(1) The address of all current executive officers and directors listed above
is in the care of Enzon.

(2) Gives effect to 38,049,632 shares of common stock and 27,000 shares of
Series A preferred stock which were issued and outstanding as of
February 15, 2000. Generally, the Series A preferred stock and common
stock will vote as one class of stock. Each share of common stock and each
share of Series A preferred stock is entitled to one vote. The percentage
of voting stock outstanding for each stockholder is calculated by dividing
(i) the number of shares deemed to be beneficially held by such
stockholder as of February 15, 2000 by (ii) the sum of (A) the number of
shares of common stock outstanding as of February 15, 2000 plus (B) the
number of shares of Series A preferred stock outstanding as of
February 15, 2000 plus (C) the number of shares issuable upon exercise of
options or warrants held by such stockholder which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.

(3) The information concerning the stock ownership of the Janus Capital
Corporation is based solely on a Schedule 13G/A filed by the Janus Capital
Corporation with the SEC for the period ended December 31, 1999.

(4) Includes 1,108,000 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.

(5) Includes 210,000 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000 and 600 shares owned by Mr. Zuerblis' IRA.

(6) Consists of 220,392 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.

(7) Consists of 180,000 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.
(footnotes continued on next page)

<PAGE>

(footnotes continued from previous page)

(8) Includes 121,664 shares subject to options which were exercisable as of
December 31, 1999 or which will become exercisable within 60 days after
February 15, 2000, 500 shares held by Dr. Dixon's husband and 100 shares
held by Dr. Dixon's son. Dr. Dixon disclaims beneficial ownership as to
shares held by her husband and son.

(9) Includes 53,320 shares subject to options which were exercisable as of
February 15, 2000, or which will become exercisable within 60 days after
February 15, 2000, 32,500 shares held by a revocable trust for Dr. Golde,
2,600 shares held by a separate trust for Dr. Golde's daughter and 1,000
shares beneficially owned by Dr. Golde's wife.

(10) Includes 9,996 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.

(11) Includes 70,000 shares subject to option which were exercisable as of
February 15, 2000 which will become exercisable within 60 days after
February 15, 2000.

(12) Includes 116,664 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within 60 days after
February 15, 2000.

(13) Includes 20,000 shares subject to options which were exercisable as of
February 15, 2000 or which will become exercisable within sixty days after
February 15, 2000, 54,350 shares held by trusts of which he is a trustee,
24,750 shares held by trusts of which his wife is a trustee, and 19,600
shares held by National Financial Services Corporation pending transfer to
a charitable trust. Mr. MacKinnon disclaims beneficial ownership as to
41,550 of the above-referenced shares.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 60,000,000 shares of common stock,
par value $.01 per share, and 3,000,000 shares of preferred stock, par value
$.01 per share. Unless otherwise designated by our board of directors, all
issued shares shall be deemed common stock with equal rights and preferences.

COMMON STOCK

As of February 15, 2000, there were 38,049,632 shares of our common stock
outstanding. Based upon the number of shares outstanding as of that date and
giving effect to the issuance of the 2,000,000 shares of common stock offered by
us in this offering, there will be 40,049,632 shares of common stock outstanding
upon the closing of this offering. In addition, as of February 15, 2000, we had
outstanding stock options and warrants to purchase an aggregate of 3,662,867
shares of common stock.

Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Directors are elected by a plurality of the votes of the shares
present in person or represented by proxy at the annual meeting and entitled to
vote in such election. Holders of our common stock are entitled to receive
ratably the dividends, if any, as may be declared by the board of directors out
of legally available funds. These rights are subject to the prior rights of any
preferred stock then outstanding.

Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive ratably our net assets available after the payment of
all debts and other liabilities, and after the satisfaction of the rights of any
outstanding preferred stock. Holders of the common stock have no preemptive,
subscription, redemption or conversion rights, nor are they entitled to the
benefit of any sinking fund. The outstanding shares of common stock are, and the
shares offered by us in this offering will be, when issued and paid for, validly
issued, fully paid and non-assessable. The rights, powers, preferences and
privileges of holders of common stock are subordinate to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock whether outstanding or issued in the future.

PREFERRED STOCK

Our board of directors has the authority to issue up to 3,000,000 shares of
preferred stock in one or more series and to fix the powers, designations,
preferences and relative rights thereof without any further vote of
shareholders. The voting powers of holders of common stock could be diluted by
the issuance of this preferred stock. The issuance of this preferred stock could
also have the effect of delaying, deferring or preventing a change in our
control. The issuance of this preferred stock could decrease the amount of
earnings and assets available for distribution to holders of our common stock or
adversely affect the rights and powers, including voting rights, of the holders
of our common stock.

SERIES A PREFERRED STOCK

As of February 15, 2000, there were 27,000 shares of our Series A preferred
stock outstanding. Shares of our Series A preferred stock are convertible into
common stock at a conversion price of $11.00 per share. The value of the shares
of Series A preferred stock for conversion purposes is $25.00 per share. Holders
of the Series A preferred stock are entitled to an annual dividend of $2.00 per
share, payable semiannually, but only when and if declared by our board of
directors, out of funds legally available. Dividends on the Series A preferred
stock are cumulative and accrue and accumulate but will not be paid, except in
liquidation or upon conversion, until such time as the board of directors deems
it appropriate in light of our then current financial condition. No dividends
are to be paid or set apart for payment on our common stock, nor are any shares
of common stock to be redeemed, retired or otherwise acquired for valuable
consideration unless we have paid in full or made appropriate provision for the
payment in full of all dividends which have then accumulated on the Series A
preferred stock. Holders of the Series A preferred stock are entitled to one
vote per share on matters to be voted upon by our stockholders and except as
required by Delaware law, our Series A preferred stock votes together with our
common stock as a single class on all matters which come to a vote of our
stockholders. As of February 15, 2000, undeclared accrued dividends in arrears
were $521,000 or $19.30

<PAGE>

per share of Series A preferred stock. All shares of common stock are junior in
rank to the Series A preferred stock with respect to the preferences as to
dividends, distributions and payments upon our liquidation, dissolution or
winding up.

COMMON STOCK WARRANTS

In July 1998, we issued warrants to purchase 200,000 shares of our common
stock at an exercise price of $6.50 per share, the closing price of the common
stock on the date of grant. The warrants were issued as consideration for
consulting services to be rendered through February 2002 by certain persons
affiliated with Evolution Capital, Inc. The warrants expire on August 18, 2004.
In connection with the March 1996 private placement of our common stock, we
issued five-year warrants to purchase 206,227 shares of our common stock at an
exercise price of $5.63 per share. In January 1996, we paid a finders fee in
cash and issued five-year warrants to purchase 51,504 shares of our common stock
at an exercise price of $4.11 per share in connection with the 1996 private
placements. These warrants were outstanding as of February 15, 2000 and have
been adjusted for standard anti-dilution provisions which are still in place,
including adjustments for stock splits, reverse stock splits and stock
dividends, adjustments for capital reorganizations, and, with certain
exceptions, adjustments for the issuance of common stock or the issuance of
options, warrants, or convertible securities, with an exercise or conversion
price below the market price of the common stock as determined in accordance
with the warrants.

REGISTRATION RIGHTS

There are demand and/or piggyback registration rights on 457,731 shares of
our common stock underlying warrants outstanding as of February 15, 2000. We
have granted Schering-Plough piggyback registration rights with respect to
847,489 shares of our common stock. In addition, two persons affiliated with
Evolution Capital have piggyback and demand registration rights with respect to
the shares underlying their warrants to purchase 200,000 shares of our common
stock. The demand rights give these warrant holders a one-time right to require
us to register, upon their request, that number of shares underlying such
warrants. We granted the Carson Group, Inc. and two of its principals piggyback
registration rights with respect to the shares underlying their warrants to
purchase an aggregate of 51,504 shares of our common stock as consideration for
finder's services that were provided to us. Transferees of Clearwater Fund IV
were also granted piggyback registration rights under a registration rights
agreement with us with respect to the 206,227 shares of common stock issuable
under warrants they hold, 200,000 of which shares are currently covered by an
effective registration statement. Absent any contractual limitations, the
holders of these rights could cause a significant number of shares of our common
stock to be registered and sold in the public market. Such sales, or the
perception that these sales could occur, may have an adverse effect on the
market price for our common stock and could impair our ability to raise capital
through an offering of equity securities. We have obtained waivers of all such
piggyback registration rights applicable to this offering.

We originally registered the resale of approximately 3,983,000 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of shares of our common stock that closed in July 1998. We are
required to maintain the effectiveness of this registration statement until the
earlier of the date that all of the shares are sold or July 2000.

We originally registered the resale of approximately 4,122,317 shares of our
common stock owned by stockholders who purchased such shares in a private
placement of shares of our common stock that closed in January and March 1996.
We are required to maintain the effectiveness of this registration statement
until the earlier of the date that all of the shares are sold or March 15, 2004.

INDEMNIFICATION AND LIMITATION OF LIABILITY

Our charter documents provide that our directors and officers shall be
indemnified by us to the fullest extent permitted by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with their service for or on behalf of us. In
addition, our certificate of incorporation provides that our directors will not
be personally liable for monetary damages to us for breaches of their fiduciary
duty as directors, unless they violated their duty

<PAGE>

of loyalty to either us or our stockholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions or
derived an improper personal benefit from their action as directors. We have
insurance which insures our directors and officers against certain losses and
which insures us against our obligations to indemnify our directors and
officers. Our officers and directors have executed indemnity agreements with us
which supplement the protections provided by our certificate of incorporation
and by-laws.

These agreements require us to pay for any damages, judgments, settlements,
costs and expenses for the defense of legal actions, claims, proceedings and
appeals due to any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done, suffered or
wrongfully attempted by the officer or director. If we do not pay such costs and
expenses within 90 days after we receive a written claim, such officers or
directors may bring a suit against us to recover the unpaid amount of the claim.
If such officer or director is successful, we will be required to pay for the
expenses incurred relating to the claim.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BY-LAWS AND STATE LAW PROVISIONS
WITH POTENTIAL ANTITAKEOVER EFFECTS

Certain provisions of our certificate of incorporation and by-laws, as well
as Delaware law, may operate in a manner that could discourage or render more
difficult a takeover of our company or the removal of our management or may
limit the price certain investors may be willing to pay for shares of our common
stock.

Our by-laws provide for the division of the board of directors into three
classes as nearly equal in size as possible with staggered three-year terms. In
addition, it provides that directors may be removed only for cause by the
affirmative vote of the holders of a majority of our outstanding shares of
capital stock entitled to vote. Any vacancy on the board of directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The likely
effect of the classification of the board of directors and the limitations on
the removal of directors and filling of vacancies is an increase in the time
required for the stockholders to change the composition of the board of
directors. For example, because only three directors may be replaced by
stockholder vote at each annual meeting of stockholders, stockholders seeking to
replace a majority of the members of the board of directors will need at least
two annual meetings of stockholders to effect this change. In addition, our
board of directors has the authority to issue up to 3,000,000 shares of
preferred stock in one or more series and to fix the powers, designations,
preferences and relative rights thereof without any further vote of our
stockholders. The voting powers of holders of our common stock could be diluted
by the issuance of this preferred stock. The issuance of this preferred stock
could also have the effect of delaying, deferring or preventing a change in
control. In addition, the issuance of this preferred stock could decrease the
amount of earnings and assets available for distribution to holders of our
common stock or adversely affect the rights and powers, including voting rights,
of the holders of our common stock.

The provisions of Section 203 of the General Corporation Law of Delaware
will prohibit us from engaging in a 'business combination' with an 'interested
stockholder' for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:

before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination,

upon the closing of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares held by directors who are also officers of the
corporation and shares held by employee stock plans, or

following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors
of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.

<PAGE>

A 'business combination' includes mergers, asset sales, consolidations and
other transactions resulting in a financial benefit to the interested
stockholder. An 'interested stockholder' is defined as a person who, at the time
of determination whether a person is an interested stockholder:

beneficially owns 15% or more of our common stock, or

is an affiliate or associate of ours and beneficially owned 15% or more of
our common stock at any time within three years of the date of
determination.

A Delaware corporation may 'opt out' of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate nor our by-laws contain any such exclusion.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company. Its address is Two Broadway, 19th Floor, New York, New
York 10004.

<PAGE>

MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of common stock by
a beneficial owner that is a Non-U.S. Holder, or a person or entity that, for
U.S. federal income tax purposes, is a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust.

This discussion is based on the Internal Revenue Code of 1986, as amended,
or the Code, and administrative interpretations as of the date of this
prospectus, all of which are subject to change, including changes with
retroactive effect. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction. Prospective holders
should consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of common stock, including the
consequences under the laws of any state, local or foreign jurisdiction.

DIVIDENDS

Enzon does not currently intend to pay cash dividends on shares of common
stock. In the event dividends are paid to a Non-U.S. Holder of common stock,
they will generally be subject to withholding tax at a 30% rate or a reduced
rate specified by an applicable income tax treaty. For purposes of determining
whether tax is to be withheld at a reduced rate under an income tax treaty,
Enzon will presume that dividends paid on or before December 31, 2000 to an
address in a foreign country are paid to a resident of that country unless it
has knowledge that the presumption is not warranted.

In order to obtain a reduced rate of withholding for dividends paid after
December 31, 2000, a Non-U.S. Holder will be required to provide an Internal
Revenue Service, or IRS, Form W-8BEN certifying its entitlement to benefits
under a treaty. In addition, in certain cases where dividends are paid to a
Non-U.S. Holder that is a partnership or other pass-through entity, persons
holding an interest in the entity may need to provide the required
certification.

The withholding tax does not apply to dividends paid to a Non-U.S. Holder
that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI, certifying
that the dividends are effectively connected with the Non-U.S. Holder's conduct
of a trade or business within the United States. Instead, the effectively
connected dividends will be subject to regular U.S. income tax as if the
Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends may also be subject to an additional 'branch
profits tax' imposed at a rate of 30% (or a lower treaty rate) on an earnings
amount that is net of the regular tax.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on gain realized on a sale or other disposition of common stock unless:

the gain is effectively connected with a trade or business of the Non-U.S.
Holder in the United States,

in the case of certain Non-U.S. Holders who are non-resident alien
individuals and hold the common stock as a capital asset, the individuals
are present in the United States for 183 or more days in the taxable year
of the disposition,

the Non-U.S. Holder is subject to tax under the provisions of the Code
regarding the taxation of U.S. expatriates, or

Enzon is or has been a U.S. real property holding corporation at any time
within the five-year period preceding the disposition or the Non-U.S.
Holder's holding period, whichever period is shorter.

The tax relating to stock in a U.S. real property holding corporation does not
apply to a Non-U.S. Holder whose holdings, actual and constructive, at all times
during the applicable period, amount to 5% or less of the common stock of a U.S.
real property holding corporation, provided that the common stock is regularly
traded on an established securities market. Generally, a corporation is a U.S.
real

<PAGE>

property holding corporation if the fair market value of its U.S. real property
interests, as defined in the Code and applicable regulations, equals or exceeds
50% of the aggregate fair market value of its worldwide real property interests
and its other assets used or held for use in a trade or business. Enzon may,
prior to a Non-U.S. Holder's disposition of common stock, become a U.S. real
property holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

Enzon must report to the IRS the amount of dividends paid, the name and
address of the recipient, and the amount of any tax withheld. A similar report
is sent to the Non-U.S. Holder. Under tax treaties or other agreements, the IRS
may make its reports available to tax authorities in the recipient's country of
residence. Dividends paid on or before December 31, 2000 at an address outside
the United States are not subject to backup withholding, unless the payor has
knowledge that the payee is a U.S. person. However, a Non-U.S. Holder may need
to certify its non-U.S. status in order to avoid backup withholding at a 31%
rate on dividends paid after December 31, 2000 or dividends paid on or before
that date at an address inside the United States.

U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the transaction
is effected outside the United States through a non-U.S. office of a non-U.S.
broker. However, a Non-U.S. Holder may need to certify its non-U.S. status in
order to avoid information reporting and backup withholding at a 31% rate on
disposition proceeds where the transaction is effected by or through a U.S.
office of a broker. In addition, U.S. information reporting requirements may
apply to the proceeds of a disposition effected by or through a non-U.S. office
of a U.S broker, or by a non-U.S. broker with specified connections to the
United States.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value of the stock in his gross estate for U.S. federal estate
tax purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, CIBC World Markets Corp. and SG Cowen
Securities Corporation are acting as representatives, have severally agreed to
purchase, and Enzon, Inc. has agreed to sell to them, severally, the number of
shares listed below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated........................... 546,700
CIBC World Markets Corp. ................................... 546,650
SG Cowen Securities Corporation............................. 546,650
Arnhold and S. Bleichroeder, Inc. .......................... 40,000
First Union Securities, Inc. ............................... 40,000
Gerard Klauer Mattison & Co., Inc. ......................... 40,000
ING Barings LLC............................................. 40,000
Edward D. Jones & Co., L.P. ................................ 40,000
Leerink Swann & Company..................................... 40,000
Legg Mason Wood Walker, Incorporated........................ 40,000
Thomas Weisel Partners LLC.................................. 40,000
U.S. Bancorp Piper Jaffray Inc. ............................ 40,000
---------
Total............................................... 2,000,000
---------
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to take
and pay for all of the shares of common stock offered by this prospectus (other
than those covered by the underwriters' over-allotment option described below)
if any of those shares are taken.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $1.74 a share under the public offering price. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 300,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of common
stock offered in this prospectus. To the extent that the option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as the number set forth next to that underwriter's name in the table above
bears to the total number of shares of common stock set forth next to the names
of all underwriters in the table above. If the underwriters' option is exercised
in full, the total price to the public would be $102,350,000, the total
underwriters' discounts and commission would be $6,141,000 and total proceeds to
the company would be $96,209,000.

Enzon and each of its directors and officers has agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, they will not during the period ending 90 days after the date of
this prospectus:

offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, or

<PAGE>

enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

The restrictions described above do not apply to:

the sale of shares to the underwriters,

the issuance by the company of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing,

transactions by any person other than the company relating to shares of
common stock or other securities acquired in open market transactions after
the completion of the offering of the shares,

the issuance of options under our existing stock option plans, provided
that such options are not exercisable during the 90-day period after the
date of this prospectus,

the issuance of shares to our directors under our existing independent
directors' stock plan, or

certain shares beneficially owned by A.M. 'Don' MacKinnon.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time.

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

We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the issuance of shares of common stock offered by us in this
offering will be passed upon for us by Dorsey & Whitney LLP, New York, New York.
Certain legal matters related to the offering will be passed upon for the
underwriters by Ropes & Gray, Boston, Massachusetts.

EXPERTS

Our consolidated financial statements as of June 30, 1998 and 1999 and for
each of the years in the three-year period ended June 30, 1999, have been
included herein and in the registration statement in reliance on the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.

<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-3 with respect
to the common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information
about us and our common stock, you should review the registration statement and
exhibits and schedules thereto. You may read and copy any document we file with
the SEC at the SEC's public reference room at 450 Fifth Street, NW, Washington,
DC 20549, as well as at the SEC's regional offices located at 7 World Trade
Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Please call the SEC at 1-800-SEC-0330 for
further information about its public reference facilities and copy charges. Our
filings are also available to the public from the SEC's web site at
http://www.sec.gov.

We file periodic reports, proxy statements and other information with the
SEC. These periodic reports, proxy statements and other information are
available for inspection and copying at the SEC's public reference room and the
regional offices listed above and can be obtained through the SEC's web site.

The SEC allows us to 'incorporate by reference' information into this
prospectus. This allows us to disclose important information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in this prospectus.

The documents that we are incorporating by reference are:

our annual report on Form 10-K, as amended, for the fiscal year ended June
30, 1999,

our quarterly reports on Form 10-Q for the fiscal quarter ended
September 30, 1999 and December 31, 1999, as amended on February 25, 2000,

our proxy statement dated October 28, 1999, filed in connection with our
annual meeting of stockholders held on December 7, 1999,

our current reports on Form 8-K filed on January 11, 2000, February 22,
2000, February 23, 2000, and March 20, 2000, and

our Form 8-A, filed on October 29, 1984, as amended by Form 8 filed on
October 15, 1990, with respect to our common stock.

We also are incorporating by reference any future filings made by us with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
until the completion of this offering. The most recent information that we file
with the SEC automatically updates and supercedes more dated information.

You can obtain a copy of any documents which are incorporated by reference
in this prospectus, except for exhibits that are not specifically incorporated
by reference into those documents, at no cost, by writing or telephoning us at
Investor Relations, Enzon, Inc., 20 Kingsbridge Road, Piscataway, NJ 08854,
(732) 980-4517.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

ENZON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report............................ F-2
Consolidated Balance Sheets -- June 30, 1999 and 1998... F-3
Consolidated Statements of Operations -- Years ended
June 30, 1999, 1998 and 1997........................... F-4
Consolidated Statements of Stockholders' Equity -- Years
ended June 30, 1999, 1998 and 1997..................... F-5
Consolidated Statements of Cash Flows -- Years ended
June 30, 1999, 1998 and 1997........................... F-6
Notes to Consolidated Financial Statements -- Years
ended June 30, 1999, 1998 and 1997..................... F-7
Unaudited Consolidated Financial Statements:
Consolidated Condensed Balance Sheet -- December 31,
1999................................................... F-19
Consolidated Condensed Statements of Operations -- Six
months ended December 31, 1999 and 1998................ F-20
Consolidated Condensed Statements of Cash Flows -- Six
months ended December 31, 1999 and 1998................ F-21
Notes to Consolidated Condensed Financial Statements.... F-22
</TABLE>

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
ENZON, INC.:

We have audited the consolidated financial statements of Enzon, Inc. and
subsidiaries as listed in the accompanying index. 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. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Enzon, Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1999, in conformity with generally accepted accounting
principles.

KPMG LLP

Short Hills, New Jersey
September 8, 1999

F-2

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 24,673,636 $ 6,478,459
Accounts receivable..................................... 4,604,847 2,300,046
Inventories............................................. 1,326,601 1,022,530
Prepaid expenses and other current assets............... 1,034,327 447,952
------------- -------------
Total current assets................................ 31,639,411 10,248,987
------------- -------------
Property and equipment...................................... 12,054,505 15,134,075
Less accumulated depreciation and amortization.............. 10,649,661 13,368,330
------------- -------------
1,404,844 1,765,745
------------- -------------
Other assets:
Investments............................................. 68,823 69,002
Deposits and deferred charges........................... 753,683 464,747
Patents, net............................................ 1,049,554 1,192,897
------------- -------------
1,872,060 1,726,646
------------- -------------
Total assets........................................ $ 34,916,315 $ 13,741,378
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,716,089 $ 1,711,856
Accrued expenses........................................ 6,261,640 4,375,822
------------- -------------
Total current liabilities........................... 7,977,729 6,087,678
------------- -------------
Accrued rent............................................ 634,390 727,160
Royalty advance -- RPR.................................. 728,977 --
------------- -------------
1,363,367 727,160
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock -- $.01 par value, authorized 3,000,000
shares; issued and outstanding 107,000 shares in 1999
and 1998 (liquidation preference aggregating
$4,659,000 in 1999 and $4,445,000 in 1998)............ 1,070 1,070
Common stock -- $.01 par value, authorized 60,000,000
shares; issued and outstanding 36,488,684 shares in
1999 and 31,341,353 shares in 1998.................... 364,886 313,414
Additional paid-in capital.............................. 146,970,289 123,453,874
Accumulated deficit..................................... (121,761,026) (116,841,818)
------------- -------------
Total stockholders' equity.......................... 25,575,219 6,926,540
------------- -------------
Total liabilities and stockholders' equity.......... $ 34,916,315 $ 13,741,378
------------- -------------
------------- -------------
</TABLE>

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

F-3

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales............................................. $12,855,995 $12,312,730 $11,595,985
Contract revenue.................................. 302,212 2,331,302 1,131,067
----------- ----------- -----------
Total revenues................................ 13,158,207 14,644,032 12,727,052
----------- ----------- -----------
Costs and expenses:
Cost of sales..................................... 4,309,956 3,645,281 3,840,198
Research and development expenses................. 6,835,521 8,653,567 8,520,366
Selling, general and administrative expenses...... 8,133,366 6,426,241 5,528,174
----------- ----------- -----------
Total costs and expenses...................... 19,278,843 18,725,089 17,888,738
----------- ----------- -----------
Operating loss................................ (6,120,636) (4,081,057) (5,161,686)
----------- ----------- -----------
Other income (expense):
Interest and dividend income...................... 1,145,009 460,922 584,384
Interest expense.................................. (8,348) (13,923) (14,891)
Other............................................. 64,767 16,925 35,168
----------- ----------- -----------
1,201,428 463,924 604,661
----------- ----------- -----------
Net loss...................................... $(4,919,208) $(3,617,133) $(4,557,025)
----------- ----------- -----------
----------- ----------- -----------
Basic and diluted net loss per common share........... $(0.14) $(0.12) $(0.16)
------ ------ ------
------ ------ ------
Weighted average number of common shares
outstanding......................................... 35,699,133 31,092,369 29,045,605
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-4

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------ ---------------------------------
AMOUNT NUMBER OF PAR AMOUNT NUMBER OF PAR
PER SHARE SHARES VALUE PER SHARE SHARES VALUE
--------- ------ ----- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1,
1996............... 169,000 $1,690 27,706,396 $277,064
Common stock issued
for exercise of
non-qualified stock
options............ -- -- -- $ 2.36 11,219 112
Common stock issued
for Independent
Directors' Stock
Plan............... -- -- -- 2.97 25,903 259
Consulting expense
for issuance of
stock options...... -- -- -- -- -- --
Common stock issued
on conversion of
Series B Preferred
Stock.............. $ 1.95 (40,000) (400) 1.95 2,038,989 20,390
Common stock issued
on conversion of
Series D Preferred
Stock.............. 1.97 (20,000) (200) 1.97 1,015,228 10,152
Net Loss............ -- -- -- -- -- --
------- ------ ---------- --------
Balance, June 30,
1997............ 109,000 1,090 30,797,735 307,977

Common stock issued
for exercise of
non-qualified stock
options............ -- -- -- 2.23 505,072 5,051
Common stock issued
on conversion of
Series A Preferred
Stock.............. 25.00 (2,000) (20) 11.00 4,544 45
Dividends issued on
Series A Preferred
Stock.............. -- -- -- 11.00 2,848 29
Common stock issued
for Independent
Directors' Stock
Plan............... -- -- -- 4.11 16,904 169
Common stock issued
for consulting
services........... -- -- -- 4.77 14,250 143
Consulting expense
for issuance of
stock options...... -- -- -- -- -- --
Net Loss............ -- -- -- -- -- --
------- ------ ---------- --------
Balance, June 30,
1998............ 107,000 1,070 31,341,353 313,414
Common stock issued
for exercise of
non-qualified stock
options............ -- -- -- 4.40 1,000,919 10,009
Common stock issued
on exercise of
common stock
warrants........... -- -- -- 2.50 150,000 1,500
Net proceeds from
Private Placement,
July 1998.......... -- -- -- 4.75 3,983,000 39,830
Common stock issued
for Independent
Directors' Stock
Plan............... -- -- -- 8.88 8,514 84
Common stock options
and warrants issued
for consulting
services........... -- -- -- -- -- --
Common stock issued
for consulting
services........... -- -- -- 6.13 4,898 49
Net loss............ -- -- -- -- -- --
------- ------ ---------- --------
Balance, June 30,
1999............ 107,000 $1,070 36,488,684 $364,886
------- ------ ---------- --------
------- ------ ---------- --------

ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------- ------- -----
<S> <C> <C> <C>
Balance, July 1,
1996............... $121,272,024 $(108,636,320) $12,914,458
Common stock issued
for exercise of
non-qualified stock
options............ 26,499 -- 26,611
Common stock issued
for Independent
Directors' Stock
Plan............... 76,598 -- 76,857
Consulting expense
for issuance of
stock options...... 80,984 -- 80,984
Common stock issued
on conversion of
Series B Preferred
Stock.............. (19,993) -- (3)
Common stock issued
on conversion of
Series D Preferred
Stock.............. (9,953) -- (1)
Net Loss............ -- (4,557,025) (4,557,025)
------------ ------------- -----------
Balance, June 30,
1997............ 121,426,159 (113,193,345) 8,541,881
Common stock issued
for exercise of
non-qualified stock
options............ 1,653,557 -- 1,658,608
Common stock issued
on conversion of
Series A Preferred
Stock.............. (42) -- (17)
Dividends issued on
Series A Preferred
Stock.............. 31,300 (31,340) (11)
Common stock issued
for Independent
Directors' Stock
Plan............... 69,231 -- 69,400
Common stock issued
for consulting
services........... 67,854 -- 67,997
Consulting expense
for issuance of
stock options...... 205,815 -- 205,815
Net Loss............ -- (3,617,133) (3,617,133)
------------ ------------- -----------
Balance, June 30,
1998............ 123,453,874 (116,841,818) 6,926,540
Common stock issued
for exercise of
non-qualified stock
options............ 4,396,477 -- 4,406,486
Common stock issued
on exercise of
common stock
warrants........... 373,500 -- 375,000
Net proceeds from
Private Placement,
July 1998.......... 17,510,265 -- 17,550,095
Common stock issued
for Independent
Directors' Stock
Plan............... 75,539 -- 75,623
Common stock options
and warrants issued
for consulting
services........... 1,130,683 -- 1,130,683
Common stock issued
for consulting
services........... 29,951 -- 30,000
Net loss............ -- (4,919,208) (4,919,208)
------------ ------------- -----------
Balance, June 30,
1999............ $146,970,289 $(121,761,026) $25,575,219
------------ ------------- -----------
------------ ------------- -----------
</TABLE>

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

F-5

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(4,919,208) $(3,617,133) $(4,557,025)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 835,503 1,217,423 1,653,331
(Gain) loss on retirement of assets................ (38,521) 97,037 (35,168)
Non-cash expense for issuance of common stock,
warrants, and options............................ 1,236,306 343,212 157,841
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (2,304,801) 133,716 (310,071)
(Increase) decrease in inventories................. (304,071) (162,657) 125,505
(Increase) decrease in prepaid expenses and other
current.......................................... (586,375) (360,220) 346,586
(Increase) decrease in other assets................ (288,936) (430,172) 21,370
Increase (decrease) in accounts payable............ 4,233 (198,881) (168,187)
Increase (decrease) in accrued expenses............ 2,691,353 796,403 (522,761)
Decrease in accrued rent........................... (92,770) (142,852) (110,896)
Decrease in royalty advance -- RPR................. (76,558) (1,101,501) (780,081)
Decrease in other liabilities...................... -- -- (1,728)
----------- ----------- -----------
Net cash used in operating activities.......... (3,843,845) (3,425,625) (4,181,284)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (424,670) (160,940) (873,754)
Proceeds from sale of equipment.................... 131,932 83,129 680,481
Decrease in investments............................ 179 9,291 --
----------- ----------- -----------
Net cash used in investing activities.......... (292,559) (68,520) (193,273)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, preferred
stock and warrants............................... 22,331,581 1,658,580 26,607
Principal payments of obligations under capital
leases........................................... -- (1,728) (2,348)
----------- ----------- -----------
Net cash provided by financing activities...... 22,331,581 1,656,852 24,259
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 18,195,177 (1,837,293) (4,350,298)
Cash and cash equivalents at beginning of period... 6,478,459 8,315,752 12,666,050
----------- ----------- -----------
Cash and cash equivalents at end of period......... $24,673,636 $ 6,478,459 $ 8,315,752
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-6

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997

(1) COMPANY OVERVIEW

Enzon, Inc. ('Enzon' or 'Company') is a biopharmaceutical company that
develops, manufactures and markets enhanced therapeutics for life-threatening
diseases through the application of its proprietary technologies. The Company
was originally incorporated in 1981. To date, the Company's sources of cash have
been the proceeds from the sale of its stock through public offerings and
private placements, sales of ADAGEN'r', sales of ONCASPAR'r', sales of its
products for research purposes, contract research and development fees,
technology transfer and license fees and royalty advances. The manufacturing and
marketing of pharmaceutical products in the United States is subject to
stringent governmental regulation, and the sale of any of the Company's products
for use in humans in the United States will require the prior approval of the
United States Food and Drug Administration ('FDA'). To date, ADAGEN and ONCASPAR
are the only products of the Company which have been approved for marketing by
the FDA.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions and balances
are eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

INVESTMENTS

Cash equivalents include investments which consist primarily of debt
securities and time deposits. The Company invests its excess cash in a portfolio
of marketable securities of institutions with strong credit ratings and U.S.
Government backed securities.

The Company classifies its investment securities as held-to-maturity.
Held-to-maturity securities are those securities which the Company has the
ability and intent to hold to maturity. Held-to-maturity securities are recorded
at cost which approximated the fair value of the investments at June 30, 1999
and 1998.

INVENTORY COSTING AND IDLE CAPACITY

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method and includes the cost of raw materials,
labor and overhead.

Costs associated with idle capacity at the Company's manufacturing facility
are charged to cost of sales as incurred.

PATENTS

The Company has licensed, and been issued, a number of patents in the United
States and other countries and has other patent applications pending to protect
its proprietary technology. Although the Company believes that its patents
provide adequate protection for the conduct of its business, there can be no
assurance that such patents will be of substantial protection or commercial
benefit to the Company, will afford the Company adequate protection from
competing products, or will not be challenged or declared invalid, or that
additional United States patents or foreign patent equivalents

F-7

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

will be issued to the Company. The degree of patent protection to be afforded to
biotechnological inventions is uncertain, and the Company's products are subject
to this uncertainty.

Patents related to the acquisition of SCA Ventures, Inc., formerly Genex
Corporation, were recorded at their fair value at the date of acquisition and
are being amortized over the estimated useful lives of the patents ranging from
8 to 17 years. Accumulated amortization as of June 30, 1999 and 1998 was
$1,099,000 and $956,000, respectively.

Costs related to the filing of patent applications related to the Company's
products and technology are expensed as incurred.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in operations for the period. The cost of
repairs and maintenance is charged to operations as incurred; significant
renewals and betterments are capitalized.

LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying amount
of the assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows and
measures the impairment, if any, using discounted cash flows.

REVENUE RECOGNITION

Reimbursement from third party payors for ADAGEN is handled on an individual
basis due to the high cost of treatment and limited patient population. Because
of the uncertainty of reimbursement and the Company's commitment of supply to
the patient regardless of whether or not the Company will be reimbursed,
revenues for the sale of ADAGEN are recognized when reimbursement from third
party payors becomes likely.

Revenues from the sale of the Company's other products that are sold are
recognized at the time of shipment and provision is made for estimated returns.
Contract revenues are recorded as the earnings process is completed.

Royalties under the Company's license agreements with third parties are
recognized when earned.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

STOCKHOLDERS' EQUITY

The Company maintains a Non-Qualified Stock Option Plan (the 'Stock Option
Plan') for which it applies Accounting Principles Board ('APB') Opinion No. 25,
'Accounting for Stock Issued to Employees,' and related interpretations in
accounting for the Stock Option Plan. Stock options issued to employees are
granted with an exercise price equal to the market price and in accordance with
APB No. 25, compensation expense is not recognized.

CASH FLOW INFORMATION

The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents.

F-8

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended June 30, 1998, 2,000 shares of Series A Cumulative
Convertible Preferred Stock ('Series A Preferred Stock' or 'Series A Preferred
Shares') were converted to 4,544 shares of Common Stock. Accrued dividends of
$31,000 on the Series A Preferred Shares that were converted were settled by
issuing 2,848 shares of Common Stock and cash payments totaling $28 for
fractional shares. There were no conversions of Series A Preferred Stock for the
years ended June 30, 1999 and 1997.

Cash payments for interest were approximately $8,000, $14,000 and $15,000
for the years ended June 30, 1999, 1998 and 1997, respectively. There were no
income tax payments made for the years ended June 30, 1999, 1998 and 1997.

NET LOSS PER COMMON SHARE

Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for cumulative, undeclared Series A Preferred Stock
dividends of $214,000, $216,000 and $218,000 for the years ended June 30, 1999,
1998 and 1997, respectively, divided by the weighted average number of shares
issued and outstanding during the period. For purposes of the diluted loss per
share calculation, the exercise or conversion of all dilutive potential common
shares is not included, due to the net loss recorded for the years ended
June 30, 1999, 1998 and 1997. As of June 30, 1999, the Company had approximately
5,857,000 dilutive potential common shares outstanding that could potentially
dilute future earnings per share calculations.

COMPREHENSIVE INCOME

Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ('SFAS 130'), Reporting Comprehensive Income.
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components. The adoption of SFAS 130 had no impact on the
Company's results of operations for the years ended June 30, 1999, 1998 and
1997. The net loss is equal to the comprehensive loss for those periods.

(3) INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Raw materials........................................ $ 503,000 $ 510,000
Work in process...................................... 548,000 398,000
Finished goods....................................... 276,000 115,000
---------- ----------
$1,327,000 $1,023,000
---------- ----------
---------- ----------
</TABLE>

(4) PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------- ESTIMATED
1999 1998 USEFUL LIVES
---- ---- ------------
<S> <C> <C> <C>
Equipment...................................... $ 8,024,000 $ 8,647,000 3-7 years
Furniture and fixtures......................... 1,438,000 1,501,000 7 years
Vehicles....................................... 24,000 29,000 3 years
Leasehold improvements......................... 2,569,000 4,957,000 3-15 years
----------- -----------
$12,055,000 $15,134,000
----------- -----------
----------- -----------
</TABLE>

F-9

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended June 30, 1999, the Company's fixed asset disposals
were approximately $3,504,000. The disposals were primarily attributable to the
Company's consolidation of research operations and the elimination of its leased
facility at 40 Cragwood Road. Depreciation and amortization charged to
operations, relating to property and equipment, totaled $692,000, $1,063,000 and
$1,499,000 for the years ended June 30, 1999, 1998 and 1997, respectively.

(5) STOCKHOLDERS' EQUITY

During the year ended June 30, 1999, the Company sold 3,983,000 shares of
Common Stock in a private placement to a small group of investors. The private
placement resulted in gross proceeds of approximately $18,919,000 and net
proceeds of approximately $17,550,000.

During the year ended June 30, 1997, all of the outstanding shares of
Series B Preferred Stock were converted into Common Stock. The 40,000 shares of
Series B Preferred Stock which were converted resulted in the issuance of
2,038,989 shares of Common Stock.

During March 1997, all of the outstanding Series C Preferred Stock was
exchanged for newly issued Series D Preferred Stock. The Series D Preferred
Stock contained the same provisions as the Series C Preferred Stock, with the
exception of the elimination of a restriction on the maximum number of shares
which could be held by the holding institution. During March 1997, all of the
outstanding Series D Preferred Stock was converted into Common Stock. The 20,000
shares of Series D Preferred Stock which were converted resulted in the issuance
of 1,015,228 shares of Common Stock.

SERIES A PREFERRED STOCK

The Company's Series A Preferred Shares are convertible into Common Stock at
a conversion rate of $11 per share. The value of the Series A Preferred Shares
for conversion purposes is $25 per share. Holders of the Series A Preferred
Shares are entitled to an annual dividend of $2 per share, payable semiannually,
but only when and if declared by the Board of Directors, out of funds legally
available. Dividends on the Series A Preferred Shares are cumulative and accrue
and accumulate but will not be paid, except in liquidation or upon conversion,
until such time as the Board of Directors deems it appropriate in light of the
Company's then current financial condition. No dividends are to be paid or set
apart for payment on the Company's Common Stock, nor are any shares of Common
Stock to be redeemed, retired or otherwise acquired for valuable consideration
unless the Company has paid in full or made appropriate provision for the
payment in full of all dividends which have then accumulated on the Series A
Preferred Shares. Holders of the Series A Preferred Shares are entitled to one
vote per share on matters to be voted upon by the stockholders of the Company.
As of June 30, 1999 and 1998, undeclared accrued dividends in arrears were
$1,984,000 or $18.54 per share and $1,770,000 or $16.54 per share, respectively.
All Common Shares are junior in rank to the Series A Preferred Shares, with
respect to the preferences as to dividends, distributions and payments upon the
liquidation, dissolution or winding up of the Company.

During the year ended June 30, 1998, 2,000 shares of Series A Preferred
Shares were converted to 4,544 shares of Common Stock. Accrued dividends of
$31,000 were settled by issuing 2,848 shares of Common Stock and cash payments
totaling $16 for fractional shares. There were no conversions of Series A
Preferred Shares during the years ended June 30, 1999 or 1997.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company.

F-10

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of June 30, 1999, the Company has reserved its common shares for special
purposes as detailed below:

<TABLE>
<S> <C>
Shares issuable upon conversion of Series A Preferred
Shares.................................................... 424,000
Shares issuable upon exercise of outstanding warrants....... 1,089,000
Non-Qualified Stock Option Plan............................. 4,344,000
---------
5,857,000
---------
---------
</TABLE>

COMMON STOCK WARRANTS

During the year ended June 30, 1999, 150,000 warrants were exercised to
purchase 150,000 shares of the Company's Common Stock at $2.50 per share. These
warrants were issued during the year ended June 30, 1996, as part of the
commission due to a real estate broker in connection with the termination of the
Company's former lease at 40 Kingsbridge Road.

During the year ended June 30, 1999, the Company issued 200,000 five-year
warrants to purchase Enzon Common Stock at $6.50 per share, the closing price of
the Common Stock on the date of grant. The warrants are consideration for
consulting services to be rendered through February 2002. The estimated fair
value of the warrants of approximately $917,000 is being amortized over the
service period of three years. The unamortized portion is included as a
component of other assets with the corresponding current portion included in
other current assets on the consolidated balance sheet as of June 30, 1999.

SERIES B AND C PREFERRED STOCK WARRANTS

As of June 30, 1999 and 1998, warrants to purchase 688,686 shares of Common
Stock at $4.11 and 200,000 shares of Common Stock at $5.63, issued in connection
with the private placements of Series B and C Preferred Shares, were
outstanding.

(6) INDEPENDENT DIRECTORS' STOCK PLAN

On December 3, 1996, the stockholders voted to approve the Company's
Independent Directors' Stock Plan, which provides for compensation in the form
of quarterly grants of Common Stock to non executive, independent directors
serving on the Company's Board of Directors. Each independent director is
granted shares of Common Stock equivalent to $2,500 per quarter plus $500 per
Board of Director's meeting attended. The number of shares issued is based on
the fair market value of Common Stock on the last trading day of the applicable
quarter. During the years ended June 30, 1999, 1998 and 1997, the Company issued
8,514, 16,904 and 25,903 shares of Common Stock, respectively, to independent
directors, pursuant to the Independent Directors' Stock Plan.

(7) NON-QUALIFIED STOCK OPTION PLAN

In November 1987, the Company's Board of Directors adopted a Non-Qualified
Stock Option Plan (the 'Stock Option Plan'). The number of shares reserved for
issuance upon adoption of the Company's Stock Option Plan was 6,200,000. As of
June 30, 1999, 4,344,000 shares of Common Stock were reserved for issuance
pursuant to options which may be granted to employees, non-employee directors or
consultants to the Company. The exercise price of the options granted must be at
least 100% of the fair market value of the stock at the time the option is
granted. Options may be exercised for a period of up to ten years from the date
they are granted. The other terms and conditions of the options generally are to
be determined by the Board of Directors, or an option committee appointed by the
Board, at their discretion.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ('SFAS No. 123'), 'Accounting for
Stock-Based Compensation'. The Company

F-11

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

continues to use APB No. 25, 'Accounting for Stock Issued to Employees,' to
account for the Stock Option Plan. All options granted under the Stock Option
Plan are granted with exercise prices which equal or exceed the fair market
value of the stock at the date of grant. Accordingly, there is no compensation
expense recognized for options granted to employees. The Company records
compensation expense equal to the value of stock options granted for consulting
services rendered to the Company by non-employees. The value of the options
granted to non-employees is determined by the Black-Scholes option-pricing
model.

The following pro forma financial information shows the effect and the
Company's net loss and loss per share, had compensation expense been recognized
consistent with SFAS No. 123.

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss -- as reported........................ $(4,919,000) $(3,617,000) $(4,557,000)
Net loss -- pro forma.......................... $(7,289,000) $(5,638,000) $(5,927,000)
Loss per share -- as reported.................. $(0.14) $(0.12) $(0.16)
Loss per share -- pro forma.................... $(0.21) $(0.19) $(0.21)
</TABLE>

The pro forma effect on the loss for the three years ended June 30, 1999 is
not necessarily indicative of the pro forma effect on earnings in future years
since it does not take into effect the pro forma compensation expense related to
grants made prior to the year ended June 30, 1996. The fair value of each option
granted during the three years ended June 30, 1999 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: (i) dividend yield of 0%, (ii) expected term of five years,
(iii) expected volatility of 86%, 84%, and 82%, and (iv) a risk-free interest
rate of 5.06%, 5.57%, and 6.45% for the years ended June 30, 1999, 1998, and
1997, respectively. The weighted average fair value at the date of grant for
options granted during the years ended June 30, 1999, 1998 and 1997 was $9.68,
$5.85 and $2.78 per share, respectively.

The following is a summary of the activity in the Company's Stock Option
Plan:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE RANGE OF PRICES
------ ----- ---------------
<S> <C> <C> <C>
Outstanding at July 1, 1996............................. 3,558,000 $4.75 $1.88 to $14.88
Granted at exercise prices which exceeded the fair
market value on the date of grant................. 3,000 2.81 $2.81
Granted at exercise prices which equaled the fair
market value on the date of grant................. 1,469,000 2.78 $2.31 to $3.41
Exercised........................................... (11,000) 2.37 $2.00 to $2.63
Canceled............................................ (822,000) 6.26 $2.00 to $14.25
----------
Outstanding at June 30, 1997............................ 4,197,000 3.77 $1.88 to $14.88
Granted at exercise prices which equaled the fair
market value on the date of grant................. 719,000 5.85 $2.03 to $6.56
Exercised........................................... (305,000) 2.73 $2.06 to $5.13
Canceled............................................ (189,000) 6.69 $2.09 to $14.88
----------
Outstanding at June 30, 1998............................ 4,422,000 4.06 $1.88 to $10.88
Granted at exercise prices which equaled the fair
market value on the date of grant................. 455,000 9.68 $4.88 to $15.75
Exercised........................................... (1,001,000) 4.40 $2.00 to $9.88
Canceled............................................ (172,000) 7.25 $2.81 to $14.50
----------
Outstanding at June 30, 1999............................ 3,704,000 4.51 $1.88 to $15.75
----------
----------
</TABLE>

F-12

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of June 30, 1999, the Plan had options outstanding and exercisable by
price range as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.88 to $ 2.63.................. 535,000 6.22 $2.34 535,000 $2.34
$2.69 to $ 2.81.................. 793,000 6.95 $2.75 793,000 $2.75
$2.88 to $ 3.50.................. 582,000 6.79 $3.19 482,000 $3.24
$3.56 to $ 4.50.................. 576,000 5.40 $4.25 576,000 $4.25
$4.56 to $ 6.00.................. 669,000 7.89 $5.76 427,000 $5.68
$6.13 to $15.75.................. 549,000 8.71 $9.29 78,000 $8.28
--------- ---------
$1.88 to $15.75.................. 3,704,000 7.01 $4.51 2,891,000 $3.64
--------- ---------
--------- ---------
</TABLE>

(8) INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS No. 109), 'Accounting for Income Taxes' as of July 1, 1993. Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, 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. The effects of adopting SFAS No. 109 were not material to the
financial statements at July 1, 1993.

At June 30, 1999 and 1998, the tax effects of temporary differences that
give rise to the deferred tax assets and deferred tax liabilities are as
follows:

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories.......................................... $ 272,000 $ 111,000
Investment valuation reserve......................... 86,000 86,000
Contribution carryover............................... 20,000 19,000
Compensated absences................................. 127,000 115,000
Excess of financial statement over tax
depreciation....................................... 1,031,000 827,000
Royalty advance -- RPR............................... 371,000 402,000
Non-deductible expenses.............................. 1,497,000 543,000
Federal and state net operating loss carryforwards... 44,531,000 2,133,000
Research and development and investment tax credit
carryforwards...................................... 8,176,000 7,447,000
------------ ------------
Total gross deferred tax assets...................... 56,111,000 51,683,000
Less valuation allowance............................. (55,405,000) (50,977,000)
------------ ------------
Net deferred tax assets.......................... 706,000 706,000
------------ ------------
Deferred tax liabilities:
Step up in basis of assets related to acquisition of
Enzon Labs Inc. ................................... (706,000) (706,000)
------------ ------------
Total gross deferred tax liabilities................. (706,000) (706,000)
------------ ------------
Net deferred tax................................. $ 0 $ 0
------------ ------------
------------ ------------
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net change
in the total valuation allowance for the years

F-13

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ended June 30, 1999 and 1998 was an increase of $4,428,000 and $2,221,000,
respectively. The tax benefit assumed using the Federal statutory tax rate of
34% has been reduced to an actual benefit of zero due principally to the
aforementioned valuation allowance. Subsequently recognized tax benefits as of
June 30, 1999 of $1,677,000 relating to the valuation allowance for deferred tax
assets will be allocated to additional paid-in capital.

At June 30, 1999, the Company had federal net operating loss carryforwards
of approximately $114,639,000 for tax reporting purposes, which expire in the
years 2000 to 2019. The Company also has investment tax credit carryforwards of
approximately $1,900 and research and development tax credit carryforwards of
approximately $6,696,000 for tax reporting purposes which expire in the years
2000 to 2019.

As part of the Company's acquisition of Enzon Labs Inc., the Company
acquired the net operating loss carryforwards of Enzon Labs Inc. As of June 30,
1999, the Company had a total of $55,731,000 of acquired Enzon Labs net
operating loss carryforwards, which expire between December 31, 1999 and
October 31, 2006. As a result of the change in ownership, the utilization of
these carryforwards is limited to $613,000 per year.

(9) SIGNIFICANT AGREEMENTS

SCHERING AGREEMENT

The Company and Schering Corporation ('Schering'), a subsidiary of
Schering-Plough, entered into an agreement in November 1990 (the 'Schering
Agreement') to apply the Company's PEG Process to develop a modified form of
Schering-Plough's INTRON'r'A (interferon alfa 2b), a genetically-engineered
anticancer and antiviral drug with longer activity. A PEG-modified version of
INTRON A ('PEG-Intron'TM') is currently in four large scale Phase III clinical
trials in the United States, Europe and Japan for hepatitis C and cancer as well
as earlier stage trials for cancer and certain leukemias. The trials call for
administration of PEG-Intron once per week as compared to the current regimen
for unmodified INTRON A of three times per week. PEG-Intron utilizes the
Company's Second Generation PEG Technology.

Under the license agreement, which was amended in 1995 and 1999, the Company
will receive royalties on worldwide sales of PEG-Intron, if any. Schering is
responsible for conducting and funding the clinical studies, obtaining
regulatory approval and marketing the product worldwide on an exclusive basis.
During 1999, the Company and Schering amended the agreement that resulted in an
increase in the effective royalty rate in return for Enzon's exclusive U.S.
manufacturing rights for the product and a license under one of the Company's
Second Generation PEG patents for Branched or U-PEG. The license for Branched
PEG gives Schering the ability to sublicense the patent for a competing
interferon product.

Enzon is entitled to an additional $3,000,000 in payments from Schering,
subject to the achievement of certain milestones in the product's development.
The Schering Agreement terminates, on a country-by-country basis, upon the
expiration of the last to expire of any future patents covering the product
which may be issued to Enzon, or 15 years after the product is approved for
commercial sale, whichever shall be the later to occur. This agreement is
subject to Schering's right of early termination if the product does not meet
specifications, if Enzon fails to obtain or maintain the requisite product
liability insurance, or if Schering makes certain payments to Enzon. If Schering
terminates the agreement because the product does not meet specifications, Enzon
may be required to refund certain of the milestone payments. Revenue will not be
recognized on these payments until the product is deemed to meet specification.

F-14

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RHONE-POULENC RORER AGREEMENT

Under the Company's Amended RPR U.S. License Agreement, Enzon granted an
exclusive license to RPR to sell ONCASPAR in the U.S. Enzon has received
licensing payments totaling $6,000,000 and is entitled to a base royalty of
23.5% until 2008, on net sales of ONCASPAR up to agreed upon amounts.
Additionally, the Amended RPR U.S. License Agreement provides for a super
royalty of 43.5% until 2008, on net sales of ONCASPAR which exceed certain
agreed upon amounts, with the limitation that the total royalties earned for any
such year shall not exceed 33% of net sales. The Amended RPR U.S. License
Agreement also provides for a payment of $3,500,000 in advance royalties, which
was received in January 1995.

The payment of base royalties to Enzon under the Amended RPR U.S. License
Agreement will be offset by an original credit of $5,970,000, which represents
the royalty advance plus reimbursement of certain amounts due to RPR under the
original RPR U.S. License Agreement and interest expense. Super royalties will
be paid to the Company when earned. The royalty advance is shown as a long term
liability, with the corresponding current portion included in accrued expenses
on the Consolidated Balance Sheets as of June 30, 1999 and 1998. The royalty
advance will be reduced as base royalties are recognized under the agreement.

The Amended RPR U.S. License Agreement prohibits RPR from selling a
competing PEG-asparaginase product anywhere in the world during the term of such
agreement and for five years thereafter. The agreement terminates in December
2008, subject to early termination by either party due to a default by the other
or by RPR at any time upon one year's prior notice to Enzon. Upon any
termination all rights under the Amended RPR U.S. License Agreement revert to
Enzon. A separate supply agreement with RPR requires RPR to purchase from Enzon
all ONCASPAR requirements for sales in North America.

The Company and RPR are currently in discussions related to a disagreement
over the purchase price of ONCASPAR under the supply agreement between the two
companies. RPR has asserted that the Company has overcharged RPR under the
supply agreement in the amount of $2,329,000. The Company believes its costing
and pricing of ONCASPAR to RPR complies with the terms of the supply agreement.
RPR has also asserted that the Company should be responsible for its lost
profits while ONCASPAR is under the temporary labeling and distribution
modifications agreed to by the Company and the FDA. RPR contends that its lost
profits due to this matter, through June 30, 1999 were $2,968,000. The Company
does not agree with RPR's claim.

Under a separate license, RPR has exclusive rights to sell ONCASPAR in
Canada and Mexico. These agreements provide for RPR to obtain marketing approval
of ONCASPAR in Canada and Mexico and for the Company to receive royalties on
sales of ONCASPAR in these countries, if any.

The Company also has a license agreement with RPR for the Pacific Rim
region, specifically, Australia, New Zealand, Japan, Hong Kong, Korea, China,
Taiwan, Philippines, Indonesia, Malaysia, Singapore, Thailand and Viet Nam (the
'Pacific Rim'). The agreement provides for RPR to purchase ONCASPAR for the
Pacific Rim from the Company at certain established prices which increase over
the ten year term of the agreement. Under the agreement, RPR is responsible for
obtaining additional approvals and indications in the licensed territories. The
agreement also provides for minimum purchase requirements for the first four
years of the agreement.

MEDAC AGREEMENT

The Company has also granted an exclusive license to MEDAC to sell ONCASPAR
in Europe and Russia. The agreement provides for MEDAC to purchase ONCASPAR from
the Company at certain established prices which increase over the initial five
year term of the agreement. Under the agreement, MEDAC is responsible for
obtaining additional approvals and indications in the licensed territories,

F-15

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

beyond the currently approved hypersensitive indication in Germany. Under the
agreement, MEDAC is required to meet certain minimum purchase requirements.

(10) COMMITMENTS AND CONTINGENCIES

The Company is being sued by a former financial advisor asserting that under
a May 2, 1995, letter agreement ('Letter Agreement') between Enzon and LBC
Capital Resources Inc. ('LBC'). LBC claims it was entitled to a commission in
connection with the Company's January and March 1996 private placements,
comprised of $500,000 and warrants to purchase approximately 1,000,000 shares of
Enzon common stock at an exercise price of $2.50 per share. LBC has also
asserted that it is entitled to an additional fee of $175,000 and warrants to
purchase 250,000 shares of Enzon common stock when and if any of the warrants
obtained pursuant to the private placements are exercised. LBC has claimed
$3,000,000 in compensatory damages, plus punitive damages, counsel fees and
costs for the alleged breach of the Letter Agreement. The Company believes that
no such commission was due under the Letter Agreement and denies any liability
under the Letter Agreement. The Company intends to defend this lawsuit
vigorously and believes the ultimate resolution of this matter will not have a
material adverse effect on the financial position of the Company.

In the course of normal operations, the Company is subject to the marketing
and manufacturing regulations as established by the Food and Drug Administration
('FDA'). During the year ended June 30, 1999, the Company and the FDA agreed to
temporary labeling and distribution modifications for ONCASPAR due to increased
levels of particulates in certain batches of ONCASPAR, which were manufactured
by the Company. The Company, rather than its marketing partner, Rhone-Poulenc
Rorer ('RPR'), will temporarily distribute ONCASPAR directly to patients, on an
as needed basis, and will conduct the additional inspection and labeling
procedures prior to distribution. During May 1999, the FDA placed additional
restrictions on ONCASPAR, which specified ONCASPAR was to be distributed only to
those patients who are hypersensitive to native L-asparaginase.

The Company has been able to manufacture several batches of ONCASPAR which
contain acceptable levels of particulates and anticipates a final resolution of
the problem during fiscal 2000. It is expected that RPR will resume distribution
of ONCASPAR at that time. There can be no assurance that this solution will be
acceptable to the FDA. If the Company is unable to resolve this problem it is
possible that the FDA may not permit the Company to continue to distribute this
product. An extended disruption in the marketing and distribution of ONCASPAR
could have a material adverse impact on future ONCASPAR sales.

The Company maintains a separate supply agreement with RPR, under which RPR
purchases from Enzon all of RPR's requirements for ONCASPAR at a price defined
in the supply agreement. The Company and RPR are currently in discussions
related to a disagreement over the purchase price of ONCASPAR under the supply
agreement between the two companies. RPR has asserted that the Company has
overcharged RPR under the supply agreement in the amount of $2,329,000. The
Company believes its costing and pricing of ONCASPAR to RPR complies with the
supply agreement.

RPR has also asserted that the Company should be responsible for its lost
profits while ONCASPAR is under the temporary labeling and distribution
modifications. RPR contends that its lost profits through June 30, 1999 were
$2,968,000. The Company does not agree with RPR's claim for these two issues.
The Company does not believe the ultimate resolution of these matters will have
a material adverse effect on the financial results or operations of the Company.

The Company has agreements with certain members of its upper management
which provide for payments following a termination of employment occurring after
a change in control of the Company. The Company also has a 3-year employment
agreement, dated April 5, 1997, with its Chief Executive Officer which provides
for severance payments in addition to the change in control provisions discussed
above.

F-16

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) LEASES

The Company has several leases for office, warehouse, production and
research facilities and equipment.

Future minimum lease payments, net of subleases, for noncancelable operating
leases with initial or remaining lease terms in excess of one year as of June
30, 1999 are:

<TABLE>
<CAPTION>
YEAR ENDING OPERATING
JUNE 30, LEASES
- -------- ------
<S> <C>
2000...................................................... $ 979,000
2001...................................................... 952,000
2002...................................................... 819,000
2003...................................................... 765,000
2004...................................................... 765,000
Later years, through 2007................................. 2,752,000
----------
Total minimum lease payments............................ $7,032,000
----------
----------
</TABLE>

Rent expense amounted to $1,394,000, $1,768,000 and $1,608,000 for the years
ended June 30, 1999, 1998 and 1997, respectively.

For the years ended June 30, 1999, 1998 and 1997, rent expense is net of
subrental income of $110,000, $221,000 and $233,000, respectively. As of
June 30, 1999, the Company no longer subleases a portion of its facilities.

(12) RETIREMENT PLANS

The Company maintains a defined contribution, 401(k) pension plan for
substantially all its employees. The Company currently matches 50% of the
employee's contribution of up to 6% of compensation, as defined. The Company's
match is invested solely in a fund which purchases the Company's Common Stock in
the open market. Total company contributions for the years ended June 30, 1999,
1998 and 1997 were $115,000, $100,000 and $105,000, respectively.

(13) ACCRUED EXPENSES

Accrued expenses consist of:

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Accrued wages and vacation.................................. $1,074,000 $ 695,000
Accrued Medicaid rebates.................................... 1,114,000 1,083,000
Current portion of royalty Advance -- RPR................... 200,000 1,006,000
Contract and legal accrual.................................. 3,328,000 1,000,000
Other....................................................... 546,000 592,000
---------- ----------
$6,262,000 $4,376,000
---------- ----------
---------- ----------
</TABLE>

(14) BUSINESS AND GEOGRAPHICAL SEGMENTS

Effective July 1, 1998, the Company adopted SFAS No. 131, 'Disclosures about
Segments of an Enterprise and Related Information.' The Company manages its
business in one business segment in one location.

During the years ended June 30, 1999, 1998 and 1997, the Company had export
sales of $3,075,000, $2,641,000 and $2,377,000 respectively. Of these amounts,
sales to Europe represented $2,559,000, $2,117,000 and $1,937,000 during the
years ended June 30, 1999, 1998 and 1997, respectively. Included as

F-17

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a component of European sales are sales to France which were $1,108,000,
$994,000 and $663,000; and sales to Italy which were $1,201,000, $879,000 and
$441,000 for the years ended June 30, 1999, 1998 and 1997.

ADAGEN sales represent approximately 90% of the Company's total net sales
for the year ended June 30, 1999. ADAGEN's Orphan Drug designation under the
Orphan Drug Act expired in March 1997. The Company believes the expiration of
ADAGEN's Orphan Drug designation will not have a material impact on the sales of
ADAGEN. Approximately 49%, 48% and 54% of the Company's ADAGEN sales for the
years ended June 30, 1999, 1998 and 1997, respectively, were made to Medicaid
patients.

F-18

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents............................... $ 23,261,685
Accounts receivable..................................... 4,701,186
Inventories............................................. 1,423,507
Other current assets.................................... 1,738,367
-------------
Total current assets................................ 31,124,745
-------------
Property and equipment...................................... 11,951,345
Less accumulated depreciation and amortization.............. 10,497,269
-------------
1,454,076
-------------
Other assets:
Investments............................................. 68,823
Other assets, net....................................... 807,711
Patents, net............................................ 977,883
-------------
1,854,417
-------------
Total assets........................................ $ 34,433,238
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,783,726
Accrued expenses........................................ 8,232,526
-------------
Total current liabilities........................... 10,016,252
-------------
Accrued rent................................................ 621,152
Royalty advance -- RPR...................................... 815,583
-------------
1,436,735
-------------
Commitments and contingencies

Stockholders' equity:
Preferred stock-$.01 par value, authorized 3,000,000
shares: issued and outstanding 27,000 shares at
December 31, 1999 (liquidation preference aggregating
$1,189,000 at December 31, 1999)...................... 270
Common stock-$.01 par value, authorized 60,000,000
shares; issued and outstanding 37,209,146 shares at
December 31, 1999..................................... 372,091
Additional paid-in capital.............................. 149,371,514
Accumulated deficit..................................... (126,763,624)
-------------
Total stockholders' equity.......................... 22,980,251
-------------
Total liabilities and stockholders' equity.......... $ 34,433,238
-------------
-------------
</TABLE>

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

F-19

<PAGE>

ENZON, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues
Sales................................................... $ 6,616,903 $ 6,718,113
Contract revenue........................................ 61,982 67,475
----------- -----------
Total revenues...................................... 6,678,885 6,785,588
----------- -----------
Costs and expenses
Cost of sales........................................... 1,971,482 2,338,796
Research and development expenses....................... 3,590,252 3,422,911
Selling, general and administrative expenses............ 5,136,409 3,643,655
----------- -----------
Total costs and expenses............................ 10,698,143 9,405,362
----------- -----------
Operating loss...................................... (4,019,258) (2,619,774)
----------- -----------
Other income (expense)
Interest and dividend income............................ 599,222 602,881
Interest expense........................................ (3,884) (8,055)
Other................................................... (36,274) 39,834
----------- -----------
559,064 634,660
----------- -----------
Net loss............................................ $(3,460,194) $(1,985,114)
----------- -----------
----------- -----------
Basic and diluted loss per common share..................... $(0.09) $(0.06)
------ ------
------ ------
Weighted average number of common shares issued and
outstanding............................................... 36,835,399 35,181,937
----------- -----------
----------- -----------
</TABLE>

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

F-20

<PAGE>

ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(3,460,194) $(1,985,114)
Adjustment for depreciation and amortization............ 243,212 559,869
Loss (gain) on retirement of equipment.................. 36,274 (39,834)
Non-cash expense for issuance of common stock and stock
options............................................... 207,770 242,497
Decrease in accrued rent................................ (13,238) (79,533)
Increase (decrease) in royalty advance -- RPR........... 5,219 (110,507)
Changes in assets and liabilities....................... 1,168,597 (1,906,039)
----------- -----------
Net cash used in operating activities................... (1,812,360) (3,318,661)
----------- -----------
Cash flows from investing activities:
Capital expenditures.................................... (257,047) (137,875)
Proceeds from sale of equipment......................... -- 129,872
----------- -----------
Net cash used in investing activities................... (257,047) (8,003)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............. 2,199,860 20,583,850
Dividends paid on Series A Preferred Stock.............. (1,542,404) --
----------- -----------
Net cash provided by financing activities............... 657,456 20,583,850
----------- -----------
Net (decrease) increase in cash and cash equivalents.... (1,411,951) 17,257,186
Cash and cash equivalents at beginning of period........ 24,673,636 6,478,459
----------- -----------
Cash and cash equivalents at end of period.............. $23,261,685 $23,735,645
----------- -----------
----------- -----------
</TABLE>

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

F-21

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The unaudited consolidated condensed financial statements have been prepared
from the books and records of Enzon, Inc. and subsidiaries in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal and
recurring adjustments) considered necessary for a fair presentation have been
included. Interim results are not necessarily indicative of the results that may
be expected for the year.

(2) LOSS PER COMMON SHARE

Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for cumulative undeclared preferred stock dividends of
$27,000 and $107,000 for the six months ended December 31, 1999 and 1998,
respectively, divided by the weighted average number of shares issued and
outstanding during the periods. Due to the net loss recorded for the six months
ended December 31, 1999 and 1998, the exercise or conversion of all dilutive
potential common shares is not included for purposes of the diluted loss per
share calculation. As of December 31, 1999, the Company had 6,842,000 common
stock equivalents outstanding that could potentially dilute future diluted
earnings per share calculations.

(3) INVENTORIES

The composition of inventories at December 31, 1999 is as follows:

<TABLE>
<S> <C>
Raw materials............................................... $ 240,000
Work in process............................................. 1,017,000
Finished goods.............................................. 167,000
----------
$1,424,000
----------
----------
</TABLE>

(4) CASH FLOW INFORMATION

Highly liquid securities with original maturities of three months or less
are considered to be cash equivalents. Cash payments for interest were
approximately $4,000 for the six months ended December 31, 1999 and $8,000 for
the six months ended December 31, 1998. There were no income tax payments made
for the six months ended December 31, 1999 and 1998. During the six months ended
December 31, 1999, 80,000 shares of Series A Cumulative Convertible Preferred
Stock ('Series A Preferred Stock') were converted to 181,818 shares of Common
Stock. Accrued dividends on the converted preferred shares of $1,542,000 were
settled by a cash payment. There were no conversions of Series A Preferred Stock
during the six months ended December 31, 1998.

(5) NON-QUALIFIED STOCK OPTION PLAN

On December 7, 1999 the stockholders voted to increase the number of shares
reserved for issuance under our Non-Qualified Stock Option Plan from 6,200,000
to 7,900,000. During the six months ended December 31, 1999, we issued 209,000
stock options at an average exercise price of $29.07 per share under our
Non-Qualified Stock Option Plan, as amended, of which 77,000 were granted to
executive officers as part of a bonus plan for the year ended June 30, 1999.
None of the options granted during the period are exercisable as of
December 31, 1999. All options were granted with exercise prices that equaled or
exceeded the fair market value of the underlying stock on the date of grant.

F-22

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

(6) BUSINESS SEGMENTS

A single management team that reports to the Chief Executive Officer
comprehensively manages our business operations. We do not operate separate
lines of business or separate business entities with respect to any of our
approved products or product candidates. In addition, we do not conduct any
operations outside of the United States. We do not prepare discrete financial
statements with respect to separate product areas. Accordingly, we do not have
separately reportable segments as defined by Statement of Financial Accounting
Standards No. 131, 'Disclosures about Segments of an Enterprise and Related
Information'.

(7) COMPREHENSIVE LOSS

The net loss of $3,460,000 and $1,985,000, recorded for the six months ended
December 31, 1999 and 1998, respectively, is equal to the comprehensive loss for
those periods.

(8) COMMITMENTS AND CONTINGENCIES

We are being sued, in the United States District Court for the District of
New Jersey, by a former financial advisor asserting that under a May 2, 1995
letter agreement between us and LBC Capital Resources Inc., LBC was entitled to
a commission in connection with our January and March 1996 private placements,
comprised of $500,000 and warrants to purchase 1,000,000 shares of our common
stock at an exercise price of $2.50 per share. LBC has claimed $3,000,000 in
compensatory damages, plus punitive damages, counsel fees and costs for the
alleged breach of the letter agreement. We have entered into an agreement with
LBC (Stipulation of Damages) that if we are found liable to LBC in this suit the
damages for these claims would be limited to $2,750,000 in cash. LBC has also
asserted that it is entitled to an additional fee of $175,000 and warrants to
purchase 250,000 shares of our common stock to the extent the warrants issued to
investors in the private placements are exercised. We believe that no
compensation is due to LBC under the letter agreement and deny any liability
under the letter agreement. We intend to defend this lawsuit vigorously and
believe the ultimate resolution of this matter will not have a material adverse
effect on our financial position. However, if we were required to issue warrants
to LBC we would be required to incur a non-cash expense for each warrant issued
equal to the difference between the exercise price of the warrants ($2.50) and
the then current market price of our common stock.

In January 2000, Hoffmann-La Roche filed lawsuits in both the U.S. and
France against Schering-Plough alleging that PEG-Intron infringes certain
patents held by Hoffmann-La Roche. The validity and scope of Hoffmann-La Roche's
patents in this segment of the industry could be judicially determined during
these proceedings. The litigation is at a very early stage and we are not in a
position to predict its outcome. If Schering-Plough does not prevail in this
litigation, Hoffmann-La Roche may completely block Schering-Plough from
commercializing PEG-Intron and we will not receive any royalties on the sales of
PEG-Intron. This would have a material adverse effect on our business, financial
condition and results of operations.

In the course of normal operations, we are subject to the marketing and
manufacturing regulations as established by the Food and Drug Administration
('FDA'). We have agreed with the FDA to temporary labeling and distribution
modifications for ONCASPAR due to increased levels of particulates in certain
batches of ONCASPAR, which we manufactured. We, rather than our marketing
partner, Rhone-Poulenc Rorer ('RPR'), will temporarily distribute ONCASPAR
directly to patients, on an as needed basis. We will conduct additional
inspection and labeling procedures prior to distribution.

We have manufactured several batches of ONCASPAR which contain acceptable
levels of particulates and anticipate a final resolution of the problem during
fiscal 2000. It is expected that RPR

F-23

<PAGE>

ENZON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

will resume distribution of ONCASPAR at that time. There can be no assurance
that this solution will be acceptable to the FDA. If we cannot resolve this
problem it is possible that the FDA may not permit us to continue to distribute
this product. An extended disruption in the marketing and distribution of
ONCASPAR could have a material adverse impact on future ONCASPAR sales.

We maintain a separate supply agreement with RPR, under which RPR purchases
from us all of RPR's requirements for ONCASPAR at a price defined in the supply
agreement. We are currently in discussions with RPR related to a disagreement
over the purchase price of ONCASPAR under the supply agreement we have with RPR.
RPR has asserted that we have overcharged them under the supply agreement in the
amount of $2,329,000. We believe our costing and pricing of ONCASPAR to RPR
complies with the supply agreement.

RPR has also asserted that we should be responsible for its lost profits
while ONCASPAR is under the temporary labeling and distribution modifications.
RPR contends that its lost profits through December 31, 1999 were $5,194,000. We
do not agree with RPR's claim for over charges under the supply agreement and
lost profits. We do not believe the ultimate resolution of these matters will
have a material adverse effect on our financial results or operations, though it
could have a material adverse effect on our financial position.

(9) SCHERING AGREEMENT

During December 1999, our development partner for PEG-Intron,
Schering-Plough submitted a U.S. marketing application to the FDA for the use of
PEG-Intron in the treatment of chronic hepatitis C. We are entitled to a $1
million milestone payment upon the FDA's acceptance of this filing.

Schering-Plough has also reported that it has submitted a centralized
Marketing Authorization Application for PEG-Intron to the European Union's (EU)
European Agency for the Evaluation of Medicinal Products (EMEA).

Under the Company's licensing agreement with Schering-Plough, we are
entitled to royalties on worldwide sales of PEG-Intron. We will receive an
additional $2 million milestone payment upon FDA approval of PEG-Intron.

(10) SUBSEQUENT EVENT

During January 2000, all of the outstanding Series B Preferred Stock
warrants to purchase 657,895 shares of Common Stock were exercised. This
exercise resulted in net proceeds of approximately $2,625,000.

F-24

<PAGE>

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<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
[Logo]

STATEMENT OF DIFFERENCES
------------------------

The trademark symbol shall be expressed as............................. 'TM'
The registered trademark symbol shall be expressed as.................. 'r'