LEUKOSITE INC, S-1/A, 1997-08-14

LEUKOSITE INC
S-1/A, 1997-08-14
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997

REGISTRATION NO. 333-30213
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE

AMENDMENT NO. 4

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEUKOSITE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C> <C>
DELAWARE 2834 04-3173859
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

215 FIRST STREET
CAMBRIDGE, MA 02142
(617) 621-9350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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CHRISTOPHER K. MIRABELLI, PH.D.

CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEUKOSITE, INC.
215 FIRST STREET
CAMBRIDGE, MA 02142
(617) 621-9350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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WITH COPIES TO:

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<S> <C>
JUSTIN P. MORREALE, ESQ. STEVEN D. SINGER, ESQ.
JULIO E. VEGA, ESQ. VIRGINIA KINGSLEY KAPNER, ESQ.
BINGHAM, DANA & GOULD LLP HALE AND DORR LLP
150 FEDERAL STREET 60 STATE STREET
BOSTON, MA 02110 BOSTON, MA 02109
(617) 951-8000 (617) 526-6000
</TABLE>

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

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

SUBJECT TO COMPLETION, DATED AUGUST 14, 1997

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

2,500,000 SHARES
LOGO
COMMON STOCK

All of the 2,500,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $6.00 and $7.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Company expects to incur significant additional operating
losses over the next several years. See "Risk Factors -- Limited Operating
History; History of Losses and Expectation of Future Losses; Uncertainty of
Future Profitability." The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol LKST.

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

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.

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

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===================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
===================================================================================================
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $600,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them, and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the offices of the agent of
Hambrecht & Quist LLC in New York, New York.

HAMBRECHT & QUIST UBS SECURITIES
, 1997
<PAGE> 3

LOGO

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

LEUKOSITE and the Company's logo are trademarks of the Company. This
Prospectus also includes trademarks of companies other than LeukoSite.
<PAGE> 4

[Appearing in a two-page foldout is the following.]

[Next to a graphic which illustrates LDP-03 activity appears the following
caption:]

LDP-O3
LDP-03 is being developed to use the immune system to destroy
cancerous leukocytes while leaving intact stem cells.

[Next to a graphic which illustrates LDP-01 activity appear the following
captions:]

LDP-O1 (Stroke)
LDP-01 is being developed to prevent activated leukocytes from
causing continuing damage following ischemic stroke.

LDP-O1 (Kidney)
LDP-01 is being developed to prevent continuing ischemic damage by
activated leukocytes following kidney transplantation using cadaver
organs.

[Next to a graphic which illustrates LDP-02 activity appears the following
caption:]

LDP-O2
LDP-02 is being developed to arrest the overactivity of a subset of
leukocytes responsible for inflammatory bowel diseases.

[Next to a graphic which illustrates the blocking of eosinophil recruitment
appears the following caption:]

Asthma
LeukoSite is working with Roche Bioscience to prevent the harmful
accumulation of eosinophils in the lung.

[Next to a graphic which illustrates the human body and various organs appears
the following caption:]

CCR3 Antagonist
Asthma
Allergic hypersensitivity

MCP-1 Antagonist
Atherosclerosis
Rheumatoid arthritis

IL-8 Antagonist
Myocardial infarction

CCR1 Antagonist
Rheumatoid Arthritis
Multiple Sclerosis
Psoriasis

CXCR3 Antagonist
Rheumatoid Arthritis
Multiple Sclerosis
Psoriasis

CCR5 Antagonist
HIV-1 infection and inflammatory diseases

[Beta]7 Integrin Receptor Antagonist
Inflammatory Bowel Disease

[Next to a graphic which illustrates the bone marrow and the production of
leukocytes and radiates mature leukocytes to the other graphics appear the
following captions:]

LeukoSite is pioneering novel treatments to block or destroy
leukocytes while sparing normal functions of the immune system.

LeukoSite is working with pharmaceutical partners to selectively
interrupt the disease causing actions of certain leukocytes.

The Company's products are currently in research and preclinical and clinical
development. None of the Company's products has been submitted for regulatory
approval. There can be no assurance that any products will be successfully
developed, receive necessary regulatory approvals or, if such approvals are
received, that any product candidate will be marketed successfully.

[Appearing on the facing page of the fold out with the stabilization
legend is the Company's logo.]

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

LEUKOSITE and the Company's logo are trademarks of the Company. This
Prospectus also includes trademarks of companies other than LeukoSite.
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby involves
a high degree of risk. See "Risk Factors."

THE COMPANY

LeukoSite, Inc. ("LeukoSite" or the "Company") is a leader in the discovery
and development of therapeutics based upon the biology of leukocytes (white
blood cells), with potential applications in cancer and inflammatory, autoimmune
and viral diseases. The Company's technologies and expertise in leukocyte
biology facilitate the discovery and development of novel and proprietary drugs
that destroy or block the disease-causing actions of leukocytes. The Company has
one product candidate that has completed Phase II clinical trials, two product
candidates that are expected to begin human clinical trials by early 1998, and
seven small molecule drug discovery programs.

In a properly functioning immune system, leukocytes rid the body of
infectious organisms and repair damage to tissues and organs. However,
leukocytes can also cause or exacerbate disease processes when their growth is
uncontrolled, resulting in malignant diseases such as lymphomas and leukemias,
or when they are abnormally recruited into tissues, resulting in autoimmune or
inflammatory diseases. In addition, disease can also result when viruses such as
HIV attach to, invade and destroy leukocytes.

LeukoSite focuses on distinct cell surface molecules found on leukocytes
and their roles in disease. The Company is developing monoclonal antibodies and
small molecule drugs that selectively deplete leukocytes or block specific
leukocyte recruitment pathways controlled by chemokines and their receptors as
well as by integrins and adhesion molecules. LeukoSite believes that these drugs
will have a high degree of specificity and reduced side effects compared to
existing anti-cancer, anti-inflammatory, immunosuppressive and anti-viral
therapies.

The Company expects to initiate late stage clinical trials of its lead
product candidate, LDP-03, in 1998. LDP-03 is a humanized monoclonal antibody to
the leukocyte antigen CAMPATH, which was licensed by the Company after reviewing
data from Phase I and II clinical trials showing activity in the treatment of
chronic lymphocytic leukemia. The Company has entered into a joint venture with
Ilex Oncology, Inc. ("Ilex") for the clinical development and commercialization
of LDP-03. Under the terms of the agreement with Ilex, LeukoSite and Ilex will
generally share equally in any profits from the sales of LDP-03 and in all
future research, development, clinical and commercialization costs. The
Company's second product candidate, LDP-01, is a humanized anti-integrin
monoclonal antibody that inhibits early leukocyte recruitment and inflammation
resulting from reperfusion injury. The Company intends to initiate two Phase
I/IIa clinical studies of LDP-01 in the United Kingdom in early 1998, one for
kidney transplantation and a second for thrombotic stroke. The Company's third
product candidate, LDP-02, is a humanized monoclonal antibody to the a4b7
integrin and is being developed for the treatment of inflammatory bowel disease,
such as Crohn's disease and ulcerative colitis. The Company intends to initiate
a Phase I/IIa study of LDP-02 in the United Kingdom in early 1998.

To date, the Company has also generated six chemokine-receptor drug
discovery targets that are the subject of collaborations with pharmaceutical
companies for small molecule drug discovery and development. The Company has
collaboration agreements with Warner-Lambert Company ("Warner-Lambert"), Roche
Bioscience and Kyowa Hakko Kogyo Co. Ltd. As of June 30, 1997, the Company had
received $8.4 million under these collaborations for research funding and
license fees and will be entitled to receive $13.0 million of additional funding
that is not subject to the achievement of milestones. In addition, in the event
that a product is successfully developed and commercialized under each of the
collaborations, LeukoSite will be entitled to receive up to $44.3 million in
development and commercialization milestone payments, as well as royalties
associated with product sales. As of June 30, 1997, Warner-Lambert had invested
$9.0 million and Roche Finance Ltd had invested $3.0 million in equity of the
Company.

The Company's executive offices are located at 215 First Street, Cambridge,
Massachusetts 02142, and its telephone number is (617) 621-9350.

3
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THE OFFERING

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Common Stock offered by the Company................... 2,500,000 shares
Common Stock to be outstanding after the offering..... 9,049,882 shares(1)
Use of proceeds....................................... To fund research and development
programs and for working capital and
general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol......................... LKST
</TABLE>

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

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities...................... $ 11,649 $ 11,649 $ 26,162
Working capital....................................................... 6,771 6,771 21,808
Total assets.......................................................... 14,784 14,784 28,773
Long-term obligations, net of current portion......................... 1,123 1,123 1,123
Redeemable convertible preferred stock................................ 25,221 -- --
Deficit accumulated during development stage.......................... (25,512) (25,512) (25,512)
Stockholders' equity (deficit)........................................ (16,759) 8,462 22,975
</TABLE>

- ------------------------------
(1) Based on the number of shares outstanding as of July 31, 1997. Excludes (i)
an aggregate of 947,272 shares of Common Stock issuable upon exercise of
stock options outstanding as of July 31, 1997 at a weighted average exercise
price of $3.89 per share and (ii) an aggregate of 84,145 shares of Common
Stock issuable upon exercise of warrants outstanding as of July 31, 1997, at
a weighted average exercise price per share of $4.10. See "Capitalization,"
"Management -- Amended and Restated 1993 Stock Option Plan" and Note 10 of
Notes to Consolidated Financial Statements.
(2) Computed as described in Note 2(b) of Notes to Consolidated Financial
Statements.

(3) Presented on a pro forma basis to give effect to the automatic conversion
upon the closing of this offering of all outstanding shares of the Company's
Preferred Stock into an aggregate of 5,435,026 shares of Common Stock
(assuming an initial public offering price of $6.50 per share).

(4) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $6.50
per share and the receipt of the estimated proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

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

Except in the Consolidated Financial Statements of the Company or as
otherwise noted, all information in this Prospectus: (i) assumes no exercise of
the Underwriters' over-allotment option; (ii) reflects a one-for-4.1 reverse
stock split of the Common Stock effected on August 8, 1997; (iii) reflects the
conversion upon the closing of this offering of all outstanding shares of the
Company's Preferred Stock into 5,435,061 shares of Common Stock (assuming an
initial public offering price of $6.50 per share); (iv) reflects the conversion
upon the closing of this offering of all outstanding warrants to purchase shares
of Preferred Stock into warrants to purchase 84,145 shares of Common Stock; and
(v) reflects the amendment of the Company's Restated Certificate of
Incorporation on August 8, 1997. See "Capitalization," "Description of Capital
Stock," "Underwriting" and Notes to Consolidated Financial Statements.

4
<PAGE> 7

RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.

Early Stage of Product Development; Absence of Developed Products. The
Company's research and development programs are at an early stage of
development, and the Company does not expect that any drugs resulting from its
or its collaborative partners' research and development efforts will be
commercially available for several years, if at all. The Company has not
optimized any small molecule lead compound or selected any small molecule drug
candidates. Any drug candidates developed by the Company will require
significant additional research and development efforts, including extensive
preclinical (animal and in vitro) and clinical testing as well as regulatory
approval to begin testing in humans. The Company has limited experience in
conducting preclinical trials and no experience in conducting clinical trials.
Furthermore, the results obtained in preclinical trials are not necessarily
indicative of results that will be obtained in later stages of preclinical
development or in human clinical testing. In addition, the Company's potential
drug candidates will be subject to the risks of failure inherent in the
development of pharmaceutical products. These risks include the possibilities
that no drug candidate will be found safe or effective, or will otherwise meet
applicable regulatory standards or receive the necessary regulatory clearances.
There can be no assurance that these drug candidates, if safe and effective,
will be developed into commercially viable drugs, will be economical to
manufacture or produce on a large scale, will be successfully marketed or will
achieve customer acceptance. Furthermore, the Company's potential drug
candidates are subject to the risks that the proprietary rights of third parties
will preclude the Company from marketing such drugs or that third parties will
market superior or equivalent drugs. The failure to develop safe, commercially
viable drugs would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's potential drug
candidates are also subject to the risk of delays in development resulting from
various factors, many of which are beyond the control of the Company. The
Company expects to incur significant additional operating losses over the next
several years and expects cumulative losses to increase substantially due to
expanded research and development efforts and other product development
activities. Furthermore, the Company is relying on its collaborative partners to
fund a substantial portion of its research operations over the next several
years. Failure by the Company to continue to fund product development activities
at anticipated levels would result in delays in product development. See
"-- Dependence on Collaborative Partners," and "-- Limited Operating History;
History of Losses and Expectation of Future Losses; Uncertainty of Future
Profitability." The Company's product candidates are subject to extensive and
rigorous government regulation. Delays in receipt of regulatory approvals or
failure to receive such approvals at all would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"-- Impact of Extensive Government Regulation." The Company is dependent on
third parties for the manufacture of its product candidates. Delays in
production of such product candidates would delay the Company's preclinical and
clinical trials which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Reliance on
Contract Manufacturers; Lack of Manufacturing Experience."

Dependence on Collaborative Partners. A key element of the Company's
strategy is to accelerate certain of its drug discovery and development programs
and to fund its capital requirements, in part, by entering into collaboration
agreements with major pharmaceutical companies. The Company has entered into
collaboration agreements with Warner-Lambert, Roche Bioscience and Kyowa. Under
their collaboration agreements with the Company, the Company's collaborative
partners have the right, but are not obligated, to conduct preclinical and
clinical trials of compounds developed during the collaboration with the Company
and to develop and commercialize any drug candidates resulting from the
collaborations. The collaboration agreements allow the Company's collaborative
partners

5
<PAGE> 8

significant discretion in electing whether to pursue the development of any
potential drug candidates. As a result, the Company cannot control the amount
and timing of resources dedicated by the Company's collaborative partners to
their respective collaborations with the Company. The Company's receipt of
revenues from drug development milestones or royalties on sales under the
collaboration agreements is dependent upon the activities and the development,
manufacturing and marketing resources of its collaborative partners. There can
be no assurance that such partners will pursue the development and
commercialization of compounds resulting from the collaboration, that any such
development or commercialization would be successful or that the Company would
derive any revenue from such arrangements. Moreover, certain drug candidates
discovered by the Company may be competitive with its partners' drugs or drug
candidates. Accordingly, there can be no assurance that the Company's
collaborative partners will proceed with the development of LeukoSite's drug
candidates or that they will not pursue their existing or alternative
technologies in preference to LeukoSite's drug candidates. There can be no
assurance that the interests of the Company will continue to coincide with those
of its collaborative partners, that some of the Company's collaborative partners
will not develop independently or with third parties drugs that compete with
drugs of the types contemplated by the Company's collaboration agreements, or
that disagreements over rights or technology or other proprietary interests will
not occur. Disagreements between the Company and its collaborative partners
could lead to delays in research or in the development and commercialization of
certain product candidates, or could require or result in litigation or
arbitration, which could be time-consuming and expensive. Any of these factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company is relying on its collaborative partners to fund a substantial
portion of its research operations over the next several years. Although each of
the collaboration agreements may be extended past its initial term, there can be
no assurance that these contracts will be extended or renewed, or that any
renewal, if made, will be on terms favorable to the Company. Each of the
collaboration agreements is terminable by either party upon breach by the other
party. Moreover, each of the collaboration agreements with Warner-Lambert may be
terminated at any time and for any reason upon six months written notice. The
collaboration with Kyowa may be terminated after April 1998 with 60 days notice.
Consequently, there can be no assurance that any of the collaboration agreements
will remain in effect for their expected term. If any of the collaborative
partners terminates or breaches its agreement with the Company, or otherwise
fails to conduct its collaborative activities in a timely manner, the
development or commercialization of any drug candidate or research program under
the collaboration agreement with such partner could be delayed, terminated, or
the Company may be required to undertake unforeseen additional responsibilities
or to devote unbudgeted additional resources to such development or
commercialization. In addition, there have been a significant number of recent
consolidations among pharmaceutical companies. Such consolidations involving the
companies with which the Company is collaborating could result in the diminution
or termination of, or delays in, the development or commercialization of drug
candidates or research programs under the collaboration agreements. The
termination or expiration of research provisions of any of the Company's
collaboration agreements, the failure by any of the Company's collaborative
partners to provide research and development funding, or the merger or
consolidation of any of the Company's collaborative partners could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Collaboration Agreements."

Limited Operating History; History of Losses and Expectation of Future
Losses; Uncertainty of Future Profitability. The Company has a limited history
of operations. The Company has incurred a net operating loss every year since
its inception in May 1992, and has an accumulated deficit of approximately $25.5
million through June 30, 1997. The Company expects to incur significant
additional operating losses over the next several years and expects cumulative
losses to increase substantially due to expanded research and development
efforts, preclinical and clinical trials and the funding of development
activities under the joint venture with Ilex. In the next few years, the
Company's revenues are expected to be limited to any research support payments
it may receive under the collaboration agreements and any amounts received under
other research or drug development

6
<PAGE> 9

collaborations that the Company may establish. There can be no assurance,
however, that the Company will be able to establish any additional collaborative
relationships on terms acceptable to the Company or maintain in effect the
current collaboration agreements or achieve the milestones thereunder that are
required for the Company to receive funds from its current collaborative
partners. The Company's ability to generate revenue or achieve profitability is
dependent in part on its or its collaborative partners' ability to complete the
development of drug candidates successfully, to obtain regulatory approvals for
the drug candidates and to manufacture and commercialize any resulting drugs.
The Company will not receive revenues or royalties from commercial sales for a
number of years, if ever, and any royalties may be subject to reduction under
certain circumstances. Failure to receive significant revenues or achieve
profitable operations would impair the Company's ability to sustain operations.
There can be no assurance that the Company will ever successfully identify,
develop, commercialize, manufacture and market any products, obtain required
regulatory approvals or achieve profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Substantial Additional Financing Requirements; Uncertainty of Available
Funding. The Company will require substantial additional funds in order to
finance its drug discovery and development programs, fund operating expenses,
pursue regulatory clearances, develop manufacturing, marketing and sales
capabilities and prosecute and defend its intellectual property rights. The
Company depends upon its collaborative partners for research funding. As of June
30, 1997, the Company had received approximately $8.4 million for research and
development under its collaboration agreements. There can be no assurance that
the Company will continue to receive funding under its existing collaboration
agreements, or that existing and potential collaboration agreements will be
sufficient to fund the Company's operating expenses. See "Dependence on
Collaborative Partners."

The Company believes that the net proceeds of this offering, together with
its existing capital resources, interest income and revenue from the
collaboration agreements, will be sufficient to fund its currently planned
operating expenses and capital requirements through early 2000. However, there
can be no assurance that such funds will be sufficient to meet the Company's
operating expenses and capital requirements during such period. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors, including the results of the Company's research
and development and collaboration programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the progress of the milestone and royalty producing activities of the
Company's collaborative partners, the level of resources that the Company
commits to the development of manufacturing, marketing and sales capabilities,
the cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.

The Company will need to raise substantial additional capital to fund its
operations. The Company intends to seek such additional funding through public
or private financing or collaboration or other arrangements with collaborative
partners. If additional funds are raised by issuing equity securities, further
dilution to existing stockholders may result and future investors may be granted
rights superior to those of existing stockholders. There can be no assurance,
however, that additional financing will be available from any sources or, if
available, will be available on acceptable terms. If adequate funds are not
available, the Company may be required to delay, reduce the scope of or
eliminate one, more or all of its development programs or to obtain funds by
entering into arrangements with collaborative partners or others that require
the Company to issue additional equity securities or to relinquish rights to
certain technologies or drug candidates that the Company would not otherwise
issue or relinquish in order to continue independent operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources."

Impact of Extensive Government Regulation. The Company's products under
development are subject to extensive and rigorous regulation by the federal
government, principally the Food and Drug Administration ("FDA"), and by state
and local governments. If these products are marketed abroad, they also are
subject to export requirements and to regulation by foreign governments. The
applicable

7
<PAGE> 10

regulatory clearance process, which must be completed prior to the
commercialization of a product, is lengthy and expensive. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
on a timely basis, if at all, for any of its products under development, and
delays in receipt or failure to receive such approvals, the loss of previously
received approvals, or failure to comply with existing or future regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Federal Food, Drug, and Cosmetic Act (the "FDC Act") and the Public
Health Service Act (the "PHS Act") govern or influence the development, testing,
manufacture, labeling, storage, approval, advertising, promotion, sale and
distribution of most FDA-regulated products in the United States. Failure to
comply with the applicable FDA regulatory requirements can result in sanctions
being imposed on the Company (or its collaborative partners and contract
manufacturers), including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, FDA refusal to grant premarket approval of products and/or to
allow the Company to enter into government supply contracts, withdrawals of
previously approved marketing applications and criminal prosecutions.

Product development and approval to meet FDA regulatory requirements takes
a number of years, involves the expenditure of substantial resources and is
uncertain. Many products that initially appear promising ultimately do not reach
the market because they are not found to be safe or effective or cannot meet the
FDA's other regulatory requirements. In addition, there can be no assurance that
the current regulatory framework will not change or that additional regulations
will not arise at any stage of the Company's product development that may affect
approval, delay the submission or review of an application or require additional
expenditures by the Company.

It is uncertain if and when the Company, independently or with its
collaborative partners, will submit any marketing applications for any of its
monoclonal antibodies or small molecular antagonists under development for any
indications. There can be no assurance that any studies will be completed or, if
completed, will demonstrate that the products are safe and effective for their
intended uses, or that required approval will be granted by FDA on a timely
basis, or at all, for any of these products for any studied indications. Failure
of the Company to obtain marketing approval of any of its products on a timely
basis, or at all, would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Government Regulation."

All of the Company's product candidates will require FDA and foreign
government approvals for commercialization, none of which have been obtained.
The Company and Ilex are required to file an IND with the FDA before beginning
clinical trials of LDP-03 in the United States. See "Business -- LeukoSite's
Drug Development Programs -- LDP-03 (CAMPATH-1H)." The Company intends to
commence trials of its LDP-01 and LDP-02 product candidates in the United
Kingdom and to continue to perform preclinical and clinical trials abroad,
subject to receipt of required United Kingdom regulatory approvals. There can be
no assurance that as a result of a request from the FDA or otherwise, the
Company would not be required to repeat certain or all of such trials in the
United States, which would increase the time and expense required to obtain
approval. See "Business--Government Regulation--Foreign Requirements."

The effect of government regulation may be to delay marketing of the
Company's products under development for a considerable or indefinite time,
impose costly procedural requirements upon the Company's activities and furnish
a competitive advantage to larger companies or companies more experienced in
regulatory affairs. Delays in obtaining governmental regulatory approval could
adversely affect the Company's marketing strategy as well as the Company's
ability to generate revenue from commercial sales.

If regulatory approval is obtained, the Company will be required to comply
with a number of post-approval requirements, including reporting certain adverse
reactions, if any, to the FDA, post-marketing testing and surveillance to
monitor the safety and efficacy of the Company's product candidates and
complying with advertising and promotional labeling requirements. In addition,

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facilities and procedures used in the manufacture of the Company's product
candidates must comply with Good Manufacturing Practices ("GMP") prescribed by
the FDA. Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the
suspension or termination of clinical trials, delays in approving or refusal to
approve a product, the withdrawal of an approved product from the market,
seizures of product, and/or the imposition of injunctions, criminal penalties
and/or civil penalties against the manufacturer and/or license holder.

In addition to the applicable FDA requirements, if the Company attempts to
sell its products overseas, the Company will be subject to foreign regulatory
requirements governing clinical trials, approvals and product sales. Whether or
not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must be obtained prior to the
commencement of marketing of the product in those countries. The approval
process varies from country to country and the time required may be longer or
shorter than that required for FDA approval. There can be no assurance that any
foreign country will approve any of the Company's product candidates on a timely
basis, if at all, or that if the Company receives such approval, that it will be
able to market products for the indications that the Company desires or that it
will be able to comply with post-approval restrictions.

The Company is subject to numerous federal, state and local laws and
regulations relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control, the experimental use
of animals and the disposal of hazardous or potentially hazardous substances.
There can be no assurance that the Company will not be required to incur
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a material adverse effect upon the
Company's business, financial condition and results of operations. See
"Business--Government Regulation."

Uncertainties Relating to Patents and Proprietary Rights. The Company's
success will depend in part on its ability to obtain United States and foreign
patent protection for its drug candidates and processes, preserve its trade
secrets and operate without infringing the proprietary rights of third parties.
Considerable importance is placed on obtaining patent and trade secret
protection for significant new technologies, products and processes. There can
be no assurance that any patents will issue from any of the patent applications
owned by, or licensed to, the Company. Further, there can be no assurance that
any rights the Company may have under issued patents will provide the Company
with sufficient protection against competitive products or otherwise cover
commercially valuable products or processes. Legal standards relating to the
validity of patents covering pharmaceutical and biotechnological inventions and
the scope of claims made under such patents are still developing. There is no
consistent policy regarding the breadth of claims allowed in biotechnology
patents. The patent position of the Company is highly uncertain and involves
complex legal and factual questions. There can be no assurance that any existing
or future patents issued to, or licensed by, the Company will not subsequently
be challenged, infringed upon, invalidated, found to be unenforceable or
circumvented by others. In addition, patents may have been granted, or may be
granted, covering products or processes that are necessary or useful to the
development of the Company's drug candidates. If the Company's drug candidates
or processes are found to infringe upon the patents, or otherwise impermissibly
utilize the intellectual property of others, the Company may be required to
obtain licenses from third parties to utilize the patents or proprietary rights
of others. There can be no assurance that the Company will be able to obtain
such licenses on acceptable terms, or at all. In such event, the Company's
development, manufacture and sale of such drug candidates could be severely
restricted or prohibited. There has been significant litigation in the
pharmaceutical and biotechnology industry regarding patents and other
proprietary rights. If the Company becomes involved in litigation regarding its
intellectual property rights or the intellectual property rights of others, the
potential cost of such litigation and the potential damages that the Company
could be required to pay could be substantial.

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<PAGE> 12

The Company's product candidates LDP-01, LDP-02 and LDP-03 are recombinant
humanized, complementarity determining region ("CDR")-grafted, monoclonal
antibodies. The Company is aware that patents have been issued in the United
States to third parties which relate to processes for producing recombinant
antibodies, compositions useful in the production of recombinant antibodies,
CDR-grafted humanized antibodies, processes for producing CDR-grafted humanized
antibodies and compositions useful in the production of CDR-grafted humanized
antibodies. Patents have also been granted to these parties in Europe, but the
European patents have been opposed by third parties. The Company may be required
to seek licenses under these patents for its humanized antibody products.

The Company is also aware of patents which have been issued to a third
party in the United States and Europe variously relating to "chimeric"
immunoglobulins and immunoglobulin chains, processes for production of such
chimeric molecules and compositions useful in the production of chimeric
molecules. The European patent has been opposed by third parties. Assuming that
the European patent survives in current form, the Company, based on the analysis
of Hamilton, Brook, Smith & Reynolds, P.C., the Company's patent counsel,
believes that, properly construed, the United States and European patent claims
do not cover the Company's LDP-01, LDP-02 or LDP-03 product candidates.

The Company is also aware of patents which have been issued to third
parties in the United States and/or Europe variously relating to certain
modified humanized immunoglobulins, methods of producing modified humanized
immunoglobulins, compositions useful in the production of modified humanized
immunoglobulins and methods of use of modified humanized immunoglobulins. The
European patents in these areas have also been opposed by third parties. The
Company, based on the analysis of Hamilton, Brook, Smith & Reynolds, P.C., the
Company's patent counsel, believes that, properly construed, the U.S. patent
claims do not cover the Company's LDP-01 and LDP-03 product candidates, and that
no valid claim of the European patents covers the Company's LDP-01 and LDP-03
product candidates. The Company is uncertain about the scope of the claims which
have issued in the United States and is uncertain whether these claims, when
properly construed, cover LDP-02. If it is determined that they do encompass
LDP-02, the Company will likely be required to seek a product license.

The Company is also aware of other third party published applications
relating to altered antibodies, methods of use of altered antibodies and methods
of production of altered antibodies. To the Company's knowledge, neither these
applications nor possible unpublished counterpart applications have proceeded to
grant in Europe or have issued as U.S. patents. There can be no assurance that
the Company may not be required to seek a license to some or all of the patents
which might issue from these patent applications.

The Company may be required to seek or choose to seek licenses to some or
all of these or other patents in order to develop and commercialize certain
product candidates or potential products incorporating the Company's technology
in the United States, Europe and other markets. There can be no assurance that
such licenses, if required, will be available to the Company, or that if they
are available, they can be obtained on commercially acceptable terms, and the
failure to do so could have a material adverse effect on the Company. In the
absence of required licenses, the patent owners may obtain an injunction, which
could prevent the manufacture, sale and use of the Company's products, with
material adverse effects on the Company. In addition, assuming such patents are
valid and enforceable, the Company can provide no assurances that if enforcement
actions were brought by the patent owners against the Company that such actions
would be resolved in the Company's favor. The Company may also choose to
challenge the validity of one or more patents or patent claims. Any such action
or challenge could result in substantial costs to the Company and diversion of
Company resources and could have a material adverse effect on the Company.
Moreover, there can be no assurance that the Company would be successful
defending against an infringement action or in challenging any such patents or
patent claims, and the failure to do so could have a material adverse effect on
the Company. If the Company does not obtain required licenses, it could
encounter delays in product development while it attempts to design around the
patents, or it could find that the development, manufacture or sale of products
requiring such licenses could be foreclosed.

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<PAGE> 13

Litigation, which could result in substantial costs to the Company, may be
necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third party proprietary rights. Some of the
Company's competitors have, or are affiliated with companies having,
substantially greater resources than the Company, and such competitors may be
able to sustain the costs of complex patent litigation to a greater degree and
for longer periods of time than the Company. Uncertainties resulting from the
initiation and continuation of any patent or related litigation could have a
material adverse effect on the Company's business, financial condition and
results of operations. An adverse outcome in connection with an infringement
proceeding brought by a third party could subject the Company to significant
liabilities, require disputed rights to be licensed from third parties or
require the Company to cease using the disputed technology, any of which could
have a material adverse effect on the Company's business, financial condition or
results of operations. If another party or parties file or have filed patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the Patent and Trademark Office to determine priority of invention.
Participation in such proceedings could result in substantial costs to the
Company. The Company could incur substantial costs as a result of such
proceedings, whether or not the eventual outcome is favorable to the Company, or
results in a determination that an opposing party is entitled to the patent, or
results in another unfavorable result.

In addition to patent protection, the Company relies on trade secrets,
proprietary know-how and technological advances which it seeks to protect, in
part, by confidentiality agreements with its collaborative partners, employees
and consultants. There can be no assurance that these confidentiality agreements
will not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how and
technological advances will not otherwise become known or be independently
discovered by others. See "Business--Patents and Proprietary Rights."

Intense Competition. The biotechnology and pharmaceutical industries are
intensely competitive. Competitors of the Company in the United States and
elsewhere are numerous and include, among others, major, multinational
pharmaceutical and chemical companies, specialized biotechnology firms and
universities and other research institutions. Many of these competitors have
greater financial and other resources, including larger research and development
staffs and more effective marketing and manufacturing organizations, than the
Company. Acquisitions of competitors by large pharmaceutical companies or others
could enhance financial, marketing and other resources available to such
competitors. In addition, academic and government institutions have become
increasingly aware of the commercial value of their research findings, and such
institutions are now more likely to enter into exclusive licensing agreements
with commercial enterprises, including competitors of the Company, to market
commercial products. There can be no assurance that the Company's competitors
will not succeed in developing or licensing on an exclusive basis technologies
and drugs that are more effective or less costly than any which are being
developed by the Company or which would render the Company's technology and
future drugs obsolete and noncompetitive. The Company's competitors may succeed
in obtaining FDA or other regulatory approvals for drug candidates before the
Company. Companies that commence commercial sale of their drugs before their
competitors may achieve a significant competitive advantage, including certain
patent and FDA marketing exclusivity rights that would delay the Company's
ability to market certain products. There can be no assurance that drugs
resulting from the Company's research and development efforts, or from the joint
efforts of the Company and its collaborative partners, if approved for sale,
will be able to compete successfully with competitors' existing products or
products under development. See "Business -- Competition."

Rapid Technological Change. Biotechnology and related pharmaceutical
technology have undergone and are subject to rapid and significant change. The
Company expects that the technologies associated with the Company's research and
development will continue to develop rapidly, and the Company's future success
will depend in large part on its ability to maintain a competitive position with
respect to these technologies. Rapid technological development by the Company or
others may result in compounds, products or processes becoming obsolete before
the Company recovers any

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<PAGE> 14

expenses it incurs in connection with developing such products. There can be no
assurance that the Company's approach to drug discovery will be viable or that
it will achieve market acceptance or that it will not be superseded by other
drug discovery techniques.

Reliance on Contract Manufacturers; Lack of Manufacturing Experience. The
Company is dependent on third parties for the manufacture of its product
candidates and is aware of only a limited number of manufacturers which it
believes have the ability and capability to manufacture the Company's drug
candidates for preclinical and clinical trials. The Company is currently in the
final stages of discussions with a contract manufacturer for the production of
LDP-03 for some or all of the Company's clinical trial production. The Company
has also been relying on the Therapeutic Antibody Centre ("TAC") for the
manufacture of LDP-01 and LDP-02 for preclinical testing and intends to employ
the manufacturing capability of the TAC through early clinical trials. If the
Company were required to transfer manufacturing processes to other third-party
manufacturers, it could experience significant delays in supply. Delays in
production would delay the Company's preclinical and clinical trials which could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will be
able to enter into satisfactory arrangements with contract manufacturers or that
such parties will be able to meet the Company's needs with respect to timing,
quantity or quality. If, at any time, the Company is unable to maintain, develop
or contract for manufacturing capabilities on acceptable terms, the Company's
ability to conduct preclinical and clinical trials with the Company's drug
candidates will be adversely affected, resulting in delays in the submission of
drug candidates for regulatory approvals. See "Business--Manufacturing and
Supply."

The Company's collaborative partners generally have the exclusive right to
manufacture products resulting from the collaborations. The Company has no
experience in, and currently lacks the facilities and personnel to, manufacture
products in accordance with GMP as prescribed by the FDA or to produce an
adequate supply of compounds to meet future requirements for preclinical and
clinical trials. See "Business--Collaboration Agreements."

Reliance upon the Therapeutic Antibody Centre. The Company has an
exclusive research and license agreement with the TAC. As a part of the
agreement, the Company employs the TAC's manufacturing capabilities and
established network of clinical investigators to perform early stage clinical
trials on certain monoclonal antibodies being developed by the Company for
therapeutic use. By leveraging the TAC's established antibody manufacturing
infrastructure and network of clinical investigators, the Company is able to
obtain a source of supply for its monoclonal antibody requirements and to
commence early clinical trials in the United Kingdom with respect to its
monoclonal antibodies without having to make costly investments in manufacturing
infrastructure and personnel. If the Company's collaborative relationship with
the TAC were to terminate or if the TAC were otherwise unable to supply the
Company with monoclonal antibodies, the Company would have to incur significant
costs and suffer delays in commencing and completing early clinical trials.
There can be no assurance that the Company will have the resources required to
do so.

In addition, the Company believes that its access to the resources of the
TAC will enable the Company to commence and complete early phase clinical trials
in the United Kingdom more rapidly and that this in turn may accelerate the
commencement of clinical trials in the United States if the FDA accepts the
results of any such United Kingdom clinical trials in support of an application
to commence such clinical trials in the United States. However, there can be no
assurance that any results obtained by the Company in any clinical trials in the
United Kingdom will be satisfactory to the FDA or be accepted by the FDA as the
basis for the Company to commence clinical trials in the United States. If such
results are not satisfactory to the FDA, the Company may be required to repeat
certain or all of such trials in the United States, which would increase the
time and expense to obtain approvals relating to such drug candidates in the
United States.

Risks Associated with Ilex Joint Venture. The Company has entered into a
joint venture with Ilex for the development and commercialization of LDP-03 for
chronic lymphocytic leukemia. As part of

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<PAGE> 15

the joint venture, the Company is obligated to provide up to $5 million in
funding during the next two years. There can be no assurance that the Company
will have the cash available or will desire to maintain its commitment to the
joint venture. In the event that LeukoSite fails for any reason to make a
required capital contribution to the joint venture, Ilex may gain control of the
management of the joint venture and become entitled to a greater share of the
profits derived from product sales of LDP-03. There can also be no assurance
that Ilex will have the cash available or will desire to maintain its commitment
to the joint venture. In the event that Ilex fails for any reason to make a
required capital contribution to the joint venture, the Company may be required
to make additional capital contributions to the joint venture to maintain the
desired level of development activities by the joint venture. There can be no
assurance that the Company will be able to compensate for any failure by Ilex to
make any capital contribution or that the joint venture would be able to
continue operations with lesser funding. In addition, after the earlier of a
change in control (as defined therein) of Ilex or the Company or October 2,
2000, either company has the right to purchase the other company's ownership of
the joint venture in the event of an unresolved deadlock. As a result, there can
be no assurance that the Company will ever be able to recoup its investment in
the joint venture. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Collaboration
Agreements--Ilex."

No Assurance of Market Acceptance. There can be no assurance that any
drugs successfully developed by the Company, independently or with its
collaborative partners, if approved for marketing, will achieve market
acceptance. The degree of market acceptance of any drugs developed by the
Company will depend on a number of factors, including the establishment and
demonstration of clinical efficacy and safety, their potential advantage over
existing therapies and reimbursement policies of government and third-party
payors. There can be no assurance that physicians, patients or the medical
community in general will accept and utilize any drugs that may be developed by
the Company independently or with its collaborative partners.

Dependence on Key Personnel and Consultants. The Company is highly
dependent upon the efforts of its senior management, scientific team and
consultants, including the members of its Scientific Advisory Board. The loss of
the services of one or more of these individuals might impede the achievement of
the Company's objectives. Because of the specialized scientific nature of the
Company's business, the Company is highly dependent upon its ability to attract
and retain qualified scientific and technical personnel and consultants. There
is intense competition among major pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research institutions
for qualified personnel and consultants in the areas of the Company's
activities. There can be no assurance that the Company will be able to continue
to attract or retain the qualified personnel and consultants necessary for the
development of its business. The failure to recruit or retain key scientific and
technical personnel and consultants could adversely affect the Company's
business, financial condition and results of operations. See
"Business--Employees," "--Scientific Advisory Board" and "Management--Executive
Officers and Directors."

Lack of Marketing and Sales Capability and Experience. The Company has not
yet invested in the development of marketing or sales capabilities. The Company
has no experience in marketing pharmaceutical products. The Company has granted
marketing rights to its collaborative partners with respect to drugs developed
through the collaboration agreements. In addition, the Company may seek to
collaborate with third parties to market those drugs developed by the Company
independent of any drug development collaboration or may seek to market and sell
such drugs directly. If the Company seeks to collaborate with a third party,
there can be no assurance that an agreement can be reached on acceptable terms.
If the Company seeks to market and sell such drugs directly, the Company will
need to hire additional personnel skilled in marketing and sales as it develops
drugs with commercial potential. There can be no assurance that the Company will
be able to acquire, or establish third-party relationships to provide, any or
all of these capabilities. See "Business--Collaboration Agreements."

Dependence on Management of Growth. The Company's success will depend on
the expansion of its operations, such as conducting clinical trials and gaining
regulatory approvals, and the management of these expanded operations. The
Company also must successfully manage multiple additional

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<PAGE> 16

collaboration relationships. There can be no assurance that the Company will be
successful in managing its expansion and meeting the staffing and administrative
requirements that additional collaboration relationships will bring. Failure to
achieve these goals could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--LeukoSite's Drug Development Programs" and "--Employees."

Uncertainties Related to Pharmaceuticals Pricing and Third Party
Reimbursement. The successful commercialization of, and the interest of
potential collaborative partners to invest in, the development of the Company's
drug candidates will depend substantially on reimbursement of the costs of the
resulting drugs and related treatments at acceptable levels from government
authorities, private health care insurers and other organizations, such as
health maintenance organizations ("HMOs") and pharmacy benefits management
companies. There can be no assurance that reimbursement in the United States or
elsewhere will be available for any drugs the Company may develop or, if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's drugs, thereby
adversely affecting the Company's business. If reimbursement is not available or
is available only to limited levels, there can be no assurance that the Company
will be able to obtain collaborative partners to manufacture and commercialize
its drugs, or would be able to obtain a sufficient financial return on its own
manufacture and commercialization of any future drugs.

Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in the
United States and the concurrent growth of organizations such as HMOs, which can
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reform health care or reduce
government insurance programs, may result in lower prices for pharmaceutical
products. The cost containment measures that health care providers are
instituting, including practice protocols and guidelines and clinical pathways,
and the effect of any health care reform, could materially adversely affect the
Company's ability to sell any of its drugs, even if successfully developed and
approved. Furthermore, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control.
The Company is unable to predict what additional legislation or regulation, if
any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such legislation or
regulation would have on the Company's business.

Exposure to Product Liability Claims and Limited Availability of
Insurance. The Company's business exposes it to potential liability risks that
are inherent in the testing, manufacturing and marketing of pharmaceutical
products. The use of the Company's drug candidates in clinical trials may expose
the Company to product liability claims and possible adverse publicity. These
risks will expand with respect to the Company's drug candidates, if any, that
receive regulatory approval for commercial sale. Product liability insurance for
the biotechnology industry is generally expensive, if available at all. The
Company does not have product liability insurance but intends to obtain such
coverage if and when its drug candidates are tested in clinical trials conducted
by the Company. However, such coverage is becoming increasingly expensive and
there can be no assurance that the Company will be able to obtain insurance
coverage at acceptable costs or in a sufficient amount, if at all. A successful
product liability claim or series of claims brought against the Company could
have a material adverse effect on the Company's business, financial condition
and results of operations.

Control by Management and Existing Stockholders. Upon completion of this
offering, the Company's officers, directors and principal stockholders and their
affiliates will own or control approximately 60% of the Company's outstanding
Common Stock. As a result, these stockholders, acting together, will have the
ability to control most matters requiring approval by the stockholders of the
Company, including the election of the Company's Board of Directors, the
adoption of charter amendments, and the approval of mergers and acquisitions and
other extraordinary corporate transactions. Such a concentration of ownership
may have the effect of delaying or preventing a

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<PAGE> 17

change of control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over their
current market prices. See "Principal Stockholders."

No Prior Public Market, Stock Price Volatility. Prior to this offering
there has been no public market for any of the Company's securities.
Accordingly, there can be no assurance that an active trading market will
develop after this offering or that the Common Stock offered hereby will not
decline below the initial public offering price. The initial public offering
price will be determined by negotiations between the Company and the
Underwriters. See "Underwriting." The market price of the Company's securities
is likely to be highly volatile and there has been a history of significant
volatility in the market price for shares of other companies in the
biotechnology field. Announcements of technological innovations, new commercial
products, preclinical and clinical trials by the Company or its competitors,
other evidence of the safety or efficacy of products of the Company or its
competitors, governmental regulations and developments, health care legislation,
developments relating to patents or proprietary rights of the Company or its
competitors, including litigation, fluctuations in the Company's operating
results, market conditions for biotechnology stocks in general and other factors
may have a significant effect on the market price of the Company's Common Stock.
In particular, the realization of any of the risks described in these "Risk
Factors" could have a material adverse effect on the market price of the
Company's Common Stock. See "Underwriting."

Possible Adverse Impact of Shares Available for Future Sale. Future sales
of substantial amounts of Common Stock (including shares issued upon the
exercise of outstanding options and warrants) in the public market after this
offering or the prospect of such sales could adversely affect the market price
of the Common Stock and may have a material adverse effect on the Company's
ability to raise any necessary capital to fund future operations. Upon
completion of this offering, the Company will have 9,049,882 shares of Common
Stock outstanding. The 2,500,000 shares offered hereby will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except for any shares held by "affiliates" of
the Company within the meaning of the Securities Act which will be subject to
the resale limitations of Rule 144 promulgated under the Securities Act ("Rule
144"). The remaining 6,549,882 shares are "restricted" securities that may be
sold only if registered under the Securities Act, or sold in accordance with an
applicable exemption from registration, such as Rule 144. The officers and
directors of the Company, each person known by the Company to beneficially own
more than 5% of the Common Stock and certain other stockholders, who together
hold 6,549,882 shares of Common Stock, and options to purchase an additional
947,272 shares of Common Stock, have agreed not to sell directly or indirectly,
any Common Stock without the prior written consent of Hambrecht & Quist LLC for
a period of 180 days from the date of this Prospectus (the "Lock-up
Agreements"). Commencing on the expiration of the Lock-up Agreements, 659,289
shares of Common Stock will be eligible for sale in the public market, subject
to compliance with Rule 144. In addition, holders of 6,328,807 shares of Common
Stock will be entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
could have a material adverse effect on the market price of the Common Stock. In
addition, any demand of such holders to include such shares in Company-initiated
registration statements could have an adverse effect on the Company's ability to
raise needed capital. See "Description of Capital Stock--Registration Rights"
and "Shares Eligible for Future Sale."

Potential Anti-Takeover Effect of Certain Charter and By-Law
Provisions. Pursuant to the Company's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation"), special meetings of stockholders
may be called only by the Chairman of the Board of Directors, the President, a
majority of the Board of Directors of the Company or holders of 20% or more of
the then outstanding shares of capital stock of the Company. The Company has
agreed to give each of the entities affiliated with HealthCare Investment
Corporation, who will collectively own approximately 23% of the Company's shares
of Common Stock after the closing of this offering, the right to call a special
meeting of stockholders so long as they collectively hold 15% of the then
outstanding shares of capital stock of the Company. In addition, the Restated
Certificate of Incorporation authorizes the Board of Directors

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<PAGE> 18

to issue preferred stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
Company has no present plans to issue any shares of preferred stock. The
Restated Certificate of Incorporation also provides for specific procedures for
director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. These provisions may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over then-current market prices.
Certain provisions of Delaware law applicable to the Company could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company, including Section 203 of the Delaware General Corporation Law (the
"DGCL"), which prohibits a Delaware corporation from engaging in any business
combination with any stockholder owning 15% or more of Company's outstanding
voting stock ("interested stockholder") for a period of three years from the
date a stockholder becomes an interested stockholder unless certain conditions
are met. These provisions could also limit the price that investors might be
willing to pay in the future for shares of Common Stock. See "Description of
Capital Stock--Delaware Law and Certain Charter and By-Law Provisions."

Broad Management Discretion in Use of Proceeds. The Company's management
will have broad discretion to allocate the proceeds of this offering to uses
that it believes are appropriate. There can be no assurance that the proceeds of
this offering can or will be invested to yield a positive return. See "Use of
Proceeds."

Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per share of the currently
outstanding Common Stock. Purchases of shares of Common Stock offered hereby
will therefore suffer immediate and substantial dilution in net tangible book
value of $3.95 per share. The dilution will be increased to the extent that the
holders of outstanding options or warrants to purchase Common Stock at prices
below the initial public offering price exercise such options or warrants. See
"Dilution."

Absence of Dividends. The Company has never declared or paid cash
dividends and does not intend to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."

16
<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $6.50 per share are estimated to be approximately $14,512,500
($16,779,375 if the Underwriters' over-allotment option is exercised in full).

The Company intends to use the net proceeds for research and development,
working capital and general corporate purposes. The Company expects to expand
its proprietary research, drug discovery and drug development activities,
including the further development of its leukocyte-based platform technologies
and its proprietary product development programs in cancer and inflammatory,
autoimmune and viral diseases. The Company also expects to spend funds to
recruit and employ additional scientific and technical staff and to increase
capabilities in the area of preclinical and clinical testing. Further, the
Company plans to expand its facilities to accommodate these additional staff, as
well as to support additional activities with collaborative partners. The
Company also may spend funds on clinical development activities for its
proprietary product candidates. The Company may use a portion of its available
cash to acquire technologies or products under its strategy to continue to
broaden its platform technologies. The Company may use a portion of its
available cash to acquire or invest in companies complementary to its business.
The Company is not currently in any negotiations with respect to any such
acquisitions or investments. The amounts actually expended for each purpose may
vary significantly depending upon numerous factors including the progress of the
Company's research and development programs, the results of preclinical studies
and clinical trials, the timing of regulatory approvals, technological advances
and determinations as to commercial potential of the Company's product
candidates. Pending application as described above, the Company intends to
invest the net proceeds of this offering in investment-grade, interest bearing
securities.

The Company believes that the net proceeds of this offering, together with
its existing capital resources, interest income and revenue from the
collaboration agreements, will be sufficient to fund its currently planned
operating expenses and capital requirements through early 2000. However, there
can be no assurance that such funds will be sufficient to meet the Company's
operating expenses and capital requirements during such period. The Company's
actual cash requirements and may vary materially from those now planned and will
depend upon numerous factors, including the results of the Company's research
and development and collaboration programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the progress of the milestone and royalty producing activities of the
Company's collaborative partners, the level of resources that the Company
commits to the development of manufacturing, marketing and sales capabilities,
the cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.

The Company's management will have broad discretion to allocate proceeds of
this offering to uses that it believes are appropriate. There can be no
assurance that the proceeds of this offering can or will be invested to yield a
positive return.

DIVIDEND POLICY

To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock. The Company currently intends to retain its earnings
for future growth and, therefore, does not anticipate paying any cash dividends
in the foreseeable future.

17
<PAGE> 20

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997, (i) on an actual basis; (ii) on a pro forma basis as described in Note
1 below; and (iii) on a pro forma basis as adjusted to give effect to the sale
by the Company of the 2,500,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $6.50 per share and the application of
the estimated proceeds therefrom. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of capital lease obligations........... $ 468 $ 468 $ 468
======== ======== =======
Capital lease obligations, net of current portion...... $ 778 $ 778 $ 778
-------- -------- -------
Redeemable convertible preferred stock, $.01 par value;
21,667,199 shares authorized and 16,746,346 shares
issued and outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma as
adjusted............................................. 25,221 -- --
-------- -------- -------

Stockholders' equity:
Preferred Stock, $.01 par value; no shares
authorized, issued or outstanding, actual;
5,000,000 shares authorized and no shares issued
and outstanding, pro forma and pro forma as
adjusted........................................ -- -- --
Convertible Preferred Stock, $.01 par value;
2,250,000 shares authorized, issued and
outstanding, actual; no shares authorized,
issued or outstanding, pro forma and pro forma
as adjusted..................................... 23 -- --
Common Stock, $.01 par value; 25,000,000 shares
authorized; 1,095,241 shares issued and
outstanding, actual; 6,530,267 shares issued and
outstanding, pro forma; and 9,030,267 shares
issued and outstanding, pro forma as
adjusted(3)..................................... 11 65 90
Additional paid-in capital........................ 8,720 33,909 48,397
Deficit accumulated during the development
stage........................................... (25,512) (25,512) (25,512)
-------- -------- -------
Total stockholders' equity (deficit)......... (16,759) 8,462 22,975
-------- -------- -------
Total capitalization.................... $ 9,240 $ 9,240 $23,753
======== ======== =======
</TABLE>

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

(1) Presented on a pro forma basis to give effect to (i) the automatic
conversion upon the closing of this offering of all outstanding shares of
the Company's Preferred Stock into an aggregate of 5,435,026 shares of
Common Stock (assuming an initial public offering price of $6.50 per share),
and (ii) the amendment of the Company's Restated Certificate of
Incorporation on August 8, 1997.

(2) As adjusted to give effect to the sale of the 2,500,000 shares of Common
Stock offered pursuant to this offering at an assumed initial public
offering price of $6.50 per share, after deducting the estimated
underwriting discount and offering expenses payable by the Company. See "Use
of Proceeds" and "Capitalization."

(3) Excludes (i) the sale subsequent to June 30, 1997 of 19,615 shares of Common
Stock upon the exercise of stock options and the receipt of approximately
$17,178 in net proceeds therefrom, (ii) an aggregate of 947,272 shares of
Common Stock issuable pursuant to stock options outstanding as of July 31,
1997 at a weighted average exercise price per share of $3.89, (iii) 84,145
shares of Common Stock issuable pursuant to warrants outstanding as of July
31, 1997, at a weighted average exercise price per share of $4.10 and (iv)
shares of Common Stock issuable pursuant to warrants outstanding as of July
31, 1997 that will expire unexercised upon the consummation of this
offering. See "Management--Amended and Restated 1993 Stock Option Plan" and
Note 10 of Notes to Consolidated Financial Statements.

18
<PAGE> 21

DILUTION

As of June 30, 1997, the Company had a pro forma net tangible book value of
approximately $7,938,000 or $1.22 per share of Common Stock. Pro forma net
tangible book value represents the amount of total tangible assets, less total
liabilities divided by 6,530,267, the number of shares of Common Stock, after
giving effect to the conversion of all outstanding shares of the Company's
Preferred Stock into an aggregate of 5,435,026 shares of Common Stock upon the
closing of this offering (assuming an initial public offering price of $6.50 per
share). Without taking into account any other changes in pro forma net tangible
book value after June 30, 1997, other than to give effect to the receipt by the
Company of the net proceeds from the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $6.50 per share, the pro forma net tangible book value of the Company as of
June 30, 1997, would have been approximately $22,975,000 or $2.55 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.33 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $3.95 per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $ 6.50
Pro forma net tangible book value per share before the
offering............................................. $ 1.22
Increase per share attributable to new investors........ 1.33
Pro forma net tangible book value per share after the
offering............................................. 2.55
------
Dilution per share to new investors..................... $ 3.95
======
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 6,530,267 72% $33,826,925 68% $5.18
New investors................. 2,500,000 28% 16,250,000 32% 6.50
--------- --- ----------- ---
Total..... 9,030,267 100% $50,076,925 100%
========= === =========== ===
</TABLE>

The foregoing tables exclude the sale subsequent to June 30, 1997 of 19,615
shares of Common Stock upon the exercise of stock options and the receipt of
approximately $17,178 in net proceeds therefrom. In addition, other than as
noted above, the foregoing tables assume the exercise of no outstanding stock
options or warrants after July 31, 1997. At July 31, 1997, options to purchase
262,759 shares of Common Stock were exerciseable at a weighted average price of
$1.50 per share, and warrants to purchase 84,145 shares of Common Stock were
exercisable at a weighted average price of $4.10 per share. To the extent these
options or warrants are exercised, there will be further dilution to new
investors. See "Management--Amended and Restated 1993 Stock Option Plan,"
"Certain Transactions," "Description of Capital Stock--Warrants" and Note 11 of
Notes to Consolidated Financial Statements.

19
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated balance sheet data set forth below, as of
December 31, 1995 and 1996, and the consolidated statements of operations data
for each of the three years in the period ended December 31, 1996, are derived
from the Company's Consolidated Financial Statements which have been audited by
Arthur Andersen LLP, independent public accountants, and which are included
elsewhere in this Prospectus. The selected consolidated financial data as of
December 31, 1992, 1993 and 1994 and for the period from inception (May 1, 1992)
to December 31, 1992 and for the year ended December 31, 1993, are derived from
the Company's consolidated financial statements not included in this Prospectus,
all of which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 and for the period from inception (May 1,
1992) to June 30, 1997 are derived from the Company's unaudited consolidated
financial statements which are included elsewhere in this Prospectus and which
include, in the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of its
financial position and the results of its operations for those periods.
Operating results for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1997. The selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto.

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
(MAY 1, 1992) SIX MONTHS (MAY 1,1992)
THROUGH YEARS ENDED DECEMBER 31, ENDED JUNE 30, THROUGH
DECEMBER 31, ------------------------------------- ------------------------ JUNE 30,
1992 1993 1994 1995 1996 1996 1997 1997
-------------- ------- ------- ------- ------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Corporate collaborations... $ -- $ -- $ -- $ 250 $ 3,591 $ 524 $ 2,070 $ 5,911
Government grants.......... -- -- -- 200 83 -- 205 488
----- ------- ------- ------- ------- ------- ------- --------
-- -- -- 450 3,674 524 2,275 6,399
----- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and development... 41 1,540 5,056 7,051 8,502 3,925 5,451 27,641
General and
administrative........... 88 504 726 866 1,371 495 735 4,290
----- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............... 129 2,044 5,782 7,917 9,873 4,420 6,186 31,931
----- ------- ------- ------- ------- ------- ------- --------
Interest income (expense),
net........................ -- (19) 148 (10) 177 63 212 508
----- ------- ------- ------- ------- ------- ------- --------
Net loss..................... $ (129) $(2,063) $(5,634) $(7,477) $(6,022) $(3,833) $(3,699) $(25,024)
===== ======= ======= ======= ======= ======= ======= ========
Pro forma net loss per common
share(1)................... $ (1.03) $ (.57)
======= =======
Shares used in computing pro
forma net loss per common
share(1)................... 5,857 6,540
======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, --------------------------------------------------
----------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
----- ------- ------- -------- -------- ----------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash, cash equivalents
and marketable
securities............ $ -- $ 3,002 $ 7,504 $ 1,734 $ 9,384 $ 11,649 $ 11,649 $ 26,162
Working capital......... (128) 2,398 5,061 439 7,226 6,771 6,771 21,808
Total assets............ 1 3,687 10,932 4,538 11,874 14,784 14,784 28,773
Long-term obligations,
net of current
portion............... -- 320 1,319 1,583 1,230 1,123 1,123 1,123
Redeemable convertible
preferred stock....... -- 4,874 11,782 13,733 20,913 25,221 -- --
Deficit accumulated
during the development
stage................. (129) (2,192) (7,826) (15,303) (21,324) (25,512) (25,512) (25,512)
Stockholders' equity
(deficit)............. (128) (2,151) (4,776) (12,161) (12,581) (16,759) 8,462 22,973
</TABLE>

- ------------------------------
(1) Computed as described in Note 2(b) of Notes to Consolidated Financial
Statements.

(2) Presented on a pro forma basis to give effect to the automatic conversion
upon the closing of this offering of all outstanding shares of the Company's
Preferred Stock into an aggregate of 5,435,026 shares of Common Stock
(assuming an initial public offering price of $6.50 per share). Excludes the
sale subsequent to June 30, 1997 of 19,615 shares of Common Stock upon the
exercise of stock options and the receipt of approximately $17,178 in net
proceeds therefrom.

(3) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
pursuant to this offering at an assumed initial public offering price of
$6.50 per share, after deducting the estimated underwriting discount and
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."

20
<PAGE> 23

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus. Except for the historical information contained herein, the
discussion in this Prospectus contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should read as being applicable to all related forward-looking
statements wherever they appear in the Prospectus. The Company's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.

OVERVIEW

The Company is a leader in the discovery and development of therapeutics
based upon the biology of leukocytes with potential applications in cancer and
inflammatory, autoimmune and viral diseases. The Company's technologies and
expertise in leukocyte biology facilitate the discovery and development of novel
and proprietary drugs that destroy or block the disease-causing actions of
leukocytes. The Company's funding has consisted of proceeds from private
placements of equity securities and receipts from collaboration agreements and
capital leases. The Company has not received any revenues from the sale of
products to date and does not expect to generate such revenues for at least the
next several years. The Company has experienced operating losses since its
inception and expects that the additional activities required to develop and
commercialize its products will result in further operating losses for at least
the next several years. As of June 30, 1997, the Company had an accumulated
deficit of approximately $25.5 million.

In 1994, 1995 and 1996, the Company entered into collaboration agreements
with Warner-Lambert for the discovery and development of drugs that inhibit the
action of the MCP-1, IL-8 and CCR5 receptors. In July 1996, the Company entered
into a collaboration agreement with Roche Bioscience for the discovery and
development of a drug to block the binding of the CCR3 receptor. In April 1997,
the Company entered into a collaboration agreement with Kyowa for the discovery
and development of a drug to inhibit the action of the CXCR3 and CCR1 receptors.
As of June 30, 1997, the Company had received approximately $8.4 million in
funding and license fee payments under these collaborations and will be entitled
to receive approximately $13.0 million of additional funding that is not subject
to the achievement of milestones (assuming each collaboration remains in effect
for its full term). In addition, in the event that a product is successfully
developed and commercialized under each of the collaborations, LeukoSite will be
entitled to receive up to approximately $44.3 million in development and
commercialization milestone payments, as well as royalties associated with the
sale of products. As of June 30, 1997, Warner-Lambert had invested $9.0 million
and Roche Finance Ltd had invested $3.0 million in equity of the Company. As of
June 30, 1997, the Company had recorded a portion of amounts received in respect
of its collaboration agreements as deferred revenue.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 and 1996

Revenues. Revenues during the six month period ended June 30, 1997 were
$2,275,000 compared to $524,000 during the comparable period in 1996. This
increase was the result of greater research funding from corporate
collaborations with Warner-Lambert, Roche Bioscience and Kyowa and from Small
Business Innovation Research ("SBIR") grants.

Research and development. Research and development expenses were
$5,451,000 during the six months ended June 30, 1997 compared to $3,925,000
during the comparable period in 1996. This increase was primarily due to an
increase in preclinical development expenditures and to a lesser extent to an
increase in staffing and supplies associated with the Company's drug development

21
<PAGE> 24

programs. The Company expects research and development spending to increase over
the next several years as the Company further expands its discovery and
development programs.

General and administrative. General and administrative expenses were
$736,000 for the six months ended June 30, 1997 compared to $495,000 during the
comparable period in 1996. The increase was primarily due to an increase in
staffing and expenses associated with financing and corporate partnering
activities. These expenses will likely increase in future periods to support the
projected growth of the Company.

Interest income (expense), net. Interest income (expense), net was
$211,000 for the six months ended June 30, 1997 and $63,000 for the
corresponding period in 1996. This increase was primarily due to an increase in
interest income resulting from greater cash balances available for investment as
a result of the Company's preferred stock financings completed in 1996 and 1997.

Net loss. The net loss was $3,700,000 during the six months ended June 30,
1997 and $3,833,000 during the comparable period in 1996. The net loss remained
relatively unchanged as revenues increased on pace with expenditures.

Years Ended December 31, 1996 and 1995

Revenues. Revenues were $3,674,000 in 1996 compared to $450,000 in 1995.
Revenues in 1996 resulted from the collaboration agreements with Warner-Lambert
and Roche Bioscience and from SBIR grants. Revenues in 1995 were the result of a
license fee from Warner-Lambert and SBIR funding.

Research and development. Research and development expenses were
$8,502,000 during 1996 and $7,051,000 in 1995. The increase in research and
development expenses was primarily due to an increase in staffing and supplies
and preclinical development expenditures.

General and administrative. General and administrative expenses were
$1,371,000 in 1996 and $866,000 in 1995. The increase was primarily due to an
increase in financing activities as well as an increase in staffing and expenses
associated with corporate partnering activities.

Interest income (expense), net. Interest income (expense), net was
$177,000 in 1996 and an expense of $10,000 in 1995. This change was primarily
due to greater cash balances available for investment generating greater
interest income in 1996 combined with a comparable level of interest expense in
both years.

Net loss. The net loss was $6,022,000 during 1996 and $7,477,000 during
1995. The net loss decreased in 1996 as revenues generated from corporate
partners increased in 1996.

Years Ended December 31, 1995 and 1994

Revenues. Revenues were $450,000 in 1995. The Company had no revenue in
1994. Revenues in 1995 resulted from the collaboration agreements with
Warner-Lambert and SBIR funding.

Research and development. Research and development expenses were
$7,051,000 during 1995 and $5,056,000 in 1994. The increase in research and
development expenses was primarily due to an increase in staffing and expenses
associated with the Company's expansion into new facilities and to a lesser
extent to increases in supplies and preclinical development expenditures.

General and administrative. General and administrative expenses were
$866,000 in 1995 and $726,000 in 1994. The increase was primarily due to an
increase in staffing and expenses associated with the Company's expansion into
new facilities.

Interest income (expense), net. Interest income (expense), net was an
expense of $10,000 in 1995 and income of $148,000 in 1994. This change was
primarily due to greater interest expense incurred in 1995 as a result of
additional capital leases.

Net loss. The net loss was $7,477,000 during 1995 and $5,634,000 during
1994. The increased net loss was a result of increased expenditures to support
the Company's internal research programs, offset in part by revenue from
collaborations in 1995.

22
<PAGE> 25

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company's operations have been funded primarily
through private placements of preferred stock, which have raised approximately
$33.3 million, license fees and sponsored research, which have generated
approximately $8.4 million, and capital lease obligations, which have raised
approximately $2.8 million. The Company has used cash to fund operating losses
of approximately $25.0 million, the investment of approximately $2.2 million in
equipment and leasehold improvements and the repayment of approximately $1.8
million of capital lease obligations. In the years ended December 31, 1995 and
1996 and the six months ended June 30, 1997, the Company's capital expenditures
totaled approximately $40,000, $185,000 and $406,000, respectively. The Company
had no significant commitments as of June 30, 1997 for capital expenditures and
expects to expend approximately $450,000 for capital equipment over the next
twelve months. At June 30, 1997, the Company had on hand cash, cash equivalents
and marketable securities of approximately $11.6 million and working capital of
approximately $6.8 million.

The Company has entered into sponsored research and consulting agreements
with certain hospitals, academic institutions and consultants, requiring
periodic payments by the Company. Aggregate minimum funding obligations under
these agreements, which include certain cancellation provisions, total
approximately $527,000, which includes funding commitments of approximately
$276,000 and $220,000 in 1997 and 1998, respectively. The Company has also
entered into an agreement to contribute $3.0 million towards funding the
construction and equipping a research center for the TAC. The Company has paid
$1.8 million of the commitment as of June 30, 1997. The additional commitment is
funded in semi-annual installments of $250,000.

In April 1997, the Company and Ilex entered into a joint venture whereby
the parties formed a limited partnership to develop and commercialize LDP-03 for
the treatment of chronic lymphocytic leukemia. The partners are required to make
contributions each time the partnership requires working capital. LeukoSite and
Ilex will generally share equally in profits from the sales of LDP-03 and in all
research, development, clinical and commercialization costs. The capital
requirements of the joint venture consist of clinical development and
commercialization costs. LeukoSite and Ilex estimate that research, development
and clinical costs will be approximately $10.0 million over the next two years.
The joint venture expires in 2017, but provides for either partner, after the
earlier of a change in control (as defined therein) of the other partner or
October 2, 2000, to purchase the other partner's ownership of the joint venture
in the event of an unresolved deadlock.

The Company will need to raise substantial additional capital to fund its
operations. The Company intends to seek such additional funding through public
or private financing or collaboration or other arrangements with collaborative
partners. There can be no assurance, however, that additional financing will be
available from any sources or, if available, will be available on acceptable
terms. See "Risk Factors--Substantial Additional Financing Requirements;
Uncertainty of Available Funding."

23
<PAGE> 26

BUSINESS

THE COMPANY

LeukoSite is a leader in the discovery and development of therapeutics
based upon the biology of leukocytes with potential applications in cancer and
inflammatory, autoimmune and viral diseases. The Company's technologies and
expertise in leukocyte biology facilitate the discovery and development of novel
and proprietary drugs that destroy or block the disease-causing actions of
leukocytes. The Company has one product candidate that has completed Phase II
clinical trials, two product candidates that are expected to begin human
clinical trials by early 1998, and seven small molecule drug discovery programs.

The Company expects to initiate late stage clinical trials for its lead
product candidate, LDP-03, in 1998 to support licensure of the product. LDP-03
is a humanized monoclonal antibody to the leukocyte antigen CAMPATH, which was
licensed by the Company after reviewing data from Phase I and II clinical trials
showing activity in the treatment of chronic lymphocytic leukemia ("CLL"). The
Company has entered into a joint venture with Ilex Oncology, Inc. ("Ilex") for
the clinical development and commercialization of LDP-03. Under the terms of the
agreement with Ilex, LeukoSite and Ilex will generally share equally in any
profits from the sales of LDP-03 and in all future research, development,
clinical and commercialization costs. The Company's second product candidate,
LDP-01, is a humanized anti-integrin monoclonal antibody that inhibits early
leukocyte recruitment and inflammation resulting from reperfusion injury. The
Company intends to initiate two Phase I/IIa clinical studies of LDP-01 in the
United Kingdom in early 1998, one for kidney transplantation and a second for
thrombotic stroke. The Company's third product candidate, LDP-02, is a humanized
monoclonal antibody to the (LOGO)4SS7 integrin and is being developed for the
treatment of inflammatory bowel disease, such as Crohn's disease and ulcerative
colitis. The Company intends to initiate a Phase I/IIa study of LDP-02 in the
United Kingdom in early 1998.

To date, the Company has also generated six chemokine-receptor drug
discovery targets that are the subject of collaborations with pharmaceutical
companies for small molecule drug discovery and development. The Company has
collaboration agreements with Warner-Lambert Company ("Warner-Lambert"), Roche
Bioscience and Kyowa Hakko Kogyo Co. Ltd. ("Kyowa"). As of June 30, 1997, the
Company had received $8.4 million under these collaborations for research
funding and license fees and will be entitled to receive $13.0 million of
additional funding that is not subject to the achievement of milestones
(assuming each collaboration remains in effect for its full term). In addition,
in the event that a product is successfully developed and commercialized under
each of the collaborations, LeukoSite will be entitled to receive up to $44.3
million in development and commercialization milestone payments, as well as
royalties associated with product sales. As of June 30, 1997, Warner-Lambert had
invested $9.0 million and Roche Finance Ltd had invested $3.0 million in equity
of the Company.

The Company was incorporated in Delaware in May 1992. Since inception, the
Company has been engaged in research and development activities in connection
with its drug discovery and development programs.

24
<PAGE> 27

BACKGROUND

Overview of Leukocyte and Immune System Biology

The human immune system protects the body against infection by bacteria,
viruses and parasites. Leukocytes are formed in the bone marrow, mature in
lymphatic tissue and are transported throughout the body by the bloodstream.
Endothelial cells, which comprise the inner lining of blood vessels, act as
gatekeepers allowing circulating leukocytes to enter surrounding tissue when
needed. Leukocytes, in a healthy immune response, eliminate pathogens without
damaging host cells.

Leukocyte Maturation. Hematopoietic (blood-forming) stem cells in the bone
marrow produce precursor cells that mature into circulating leukocytes.
Neutrophils, eosinophils and basophils, which are types of mature leukocytes,
are normally formed only in the bone marrow and are stored there until they are
needed. The other types of leukocytes (lymphocytes and monocytes), mature in
other organs, including the lymph nodes, spleen, thymus, tonsils and gut. During
the process of maturation and storage, leukocytes differentiate into more
defined functional subtypes, after which they are released into the circulatory
system. As they mature, leukocytes undergo complex changes including the
appearance and disappearance of molecules or receptors on their outer membrane.
Proteins and other biomolecules produced in the body bind to these receptors
which in turn signal the leukocytes to respond in specific ways. If the
leukocyte maturation process does not occur normally, uncontrolled and rapid
proliferation of certain types of leukocytes may lead to malignant diseases such
as leukemias and lymphomas.

Leukocyte Recruitment. Circulating leukocytes leave the bloodstream and
migrate into tissues via a complex set of pathways and molecular interactions.
This process is a fundamental part of the human immune system and provides a way
for leukocytes to be recruited to areas of infection or damaged tissue. The
sequential steps that lead to the recruitment of leukocytes from the blood
vessel into tissues begin when selectins, expressed by endothelial cells,
momentarily tether passing leukocytes causing them to roll along the vessel
wall. If the leukocytes encounter chemokines, a type of chemical signal
emanating from an inflammation site, receptors on the surface of the tethered
leukocytes will then bind to the chemokines, initiating a series of changes
within the leukocytes. Among the changes is the enhanced activity of adhesion
receptors called integrins. In the final step, the integrins on the surface of
the leukocytes bind to complementary structures called adhesion molecules
located on the vessel wall. Once attached, the leukocytes change shape, squeeze
through the vessel wall and migrate to the area of increased chemokine
concentration at the site of inflammation.

The process of leukocyte recruitment requires precise regulation. It is
essential that the body has exact signals as to when, where and with which type
of leukocyte to respond. In many inflammatory and autoimmune diseases, these
signals operate at the wrong place or time, leading to improper recruitment and
resulting in tissue damage from the release of inflammatory substances, such as
cytokines, growth factors and oxygen radicals.

Chemokines and Chemokine Receptors. Chemokines are a family of proteins
produced in many different tissues. The expression of chemokines is increased in
response to infection or very early stages of inflammation. Chemokine receptors
are members of the G protein-coupled family of receptors located on the outer
membrane of the cell and translate a variety of signals from the outside to the
inside of the cell. Chemokines bind to these chemokine receptors and activate
leukocytes, causing them to migrate toward the source of the chemokine molecule
(that is, movement out of the bloodstream and into tissues). Each subset of
leukocytes (for example, eosinophils, monocytes, lymphocytes and neutrophils)
has distinct types of chemokine receptors that respond to only certain
chemokines. Through this discriminating mechanism, the body can control and
selectively recruit certain types of leukocytes to mediate an inflammatory
process. In addition, certain viruses, such as HIV-1, may use chemokine
receptors as a homing mechanism to bind to and infect leukocytes.

Integrins and Adhesion Molecules. Integrins and adhesion molecules provide
another degree of control over leukocyte recruitment pathways. Integrins are a
family of proteins comprised of a series of

25
<PAGE> 28

alpha and beta chains that bind to distinct receptors, called adhesion
molecules, found on endothelial and other types of cells. Adhesion molecules
attract only those leukocytes that have matching integrin molecules and allow
for the selective transfer of these leukocytes through the endothelial layer
into tissues. A subset of adhesion molecules called addressins is expressed only
on certain tissues in response to infection or damage.

THE LEUKOSITE APPROACH: LEUKOCYTE SPECIFIC DRUGS

LeukoSite is researching and developing drugs to destroy or block the
disease-causing actions of leukocytes. The Company's technology and expertise
provide the platform for the identification of novel and proprietary
anti-cancer, anti-inflammatory and anti-viral drugs.

LeukoSite's goal is to discover and develop effective and safe therapeutic
drugs that target specific types of leukocyte pathways. Most available drugs
that regulate the immune response lack specificity for disease. For example,
steroids not only block inflammation but also suppress a variety of necessary
immunologic functions. Such non-specific drugs may produce profound universal
immunosuppression and can have other side effects. The targets for the Company's
discovery and development programs include chemokines, leukocyte cell surface
molecules (including chemokine receptors and integrins) and adhesion molecules.
This technology provides the basis for the discovery of drugs that work by
destroying specific types of leukocytes or blocking the recruitment of specific
types of leukocytes into diseased tissues.

Selective Depletion of Leukocytes. Therapeutic drugs that can selectively
eliminate certain leukocytes while sparing hematopoietic stem cells may be
useful for the treatment of certain blood cancers and as therapies to reduce
rejection of transplanted bone marrow and organs. For example, LDP-03, a
humanized lymphocyte-depleting monoclonal antibody, is directed against the CD52
surface antigen expressed on lymphocytes but not on hematopoietic stem cells.
Unlike fludarabine and other traditional cytotoxic chemotherapies used to treat
lymphomas and leukemias, LDP-03 does not deplete leukocyte-generating
hematopoietic stem cells.

Selective Blockade of Leukocyte Receptor and Recruitment Pathways. Many
inflammatory and autoimmune diseases may be caused by dysfunctional
chemokine/receptor and integrin/adhesion molecule pathways. LeukoSite has
identified a number of these pathways that appear to cause specific inflammatory
diseases. The technology platform developed at LeukoSite allows it to discover,
clone and characterize novel chemokines, chemokine receptors, integrins and
adhesion molecules for the discovery of disease-specific therapeutics.

STRATEGY

LeukoSite's objective is to exploit its strength in the field of leukocyte
biology to develop, acquire and commercialize proprietary new drugs.

Exploit Expertise in Leukocyte Biology. Based on its understanding of
leukocyte biology and the role of leukocytes in disease, LeukoSite plans to
continue to identify targets and to generate small molecules and monoclonal
antibodies through internal and external programs. The Company, through its
proprietary expertise in leukocyte biology, has one product candidate that has
completed Phase II clinical trials, two product candidates that are expected to
begin human clinical trials by early 1998, and seven small molecule drug
discovery programs. LeukoSite plans to continue to discover, develop and acquire
related products and technologies to supplement its scientific expertise, drug
development capability and product portfolio.

Leverage Corporate Partnerships. LeukoSite has entered into collaboration
agreements with Warner-Lambert, Roche Bioscience and Kyowa. These collaborations
are designed to build LeukoSite's infrastructure and expertise by funding
research at LeukoSite and by giving the Company access to extensive and
complementary small molecule screening libraries and drug development expertise.
In addition, these collaborations are expected to speed discovery and
development of drug

26
<PAGE> 29

candidates through the efforts of dedicated research staffs at the partners'
facilities. The goal of each collaboration is the commercialization of drugs to
treat large patient populations.

Employ Monoclonal Antibodies as Drug Candidates and as Tools. LeukoSite
uses monoclonal antibodies to chemokines, chemokine receptors, integrins and
adhesion molecules to measure the presence of target ligands and receptors in
models of inflammatory and immune system diseases. Monoclonal antibodies that
block target ligands and receptors demonstrate the relevance of leukocyte
pathways in disease and may also become drug candidates. The Company believes
that monoclonal antibodies are well-suited for acute inflammatory indications,
certain cancers and for accessible targets, such as those on the outside of
cells and in the bloodstream. LeukoSite has generated large collections of
monoclonal antibodies to various receptors as part of its research and
development programs. In addition, the Company is currently developing three
humanized monoclonal antibodies (LDP-01, LDP-02 and LDP-03) as therapeutic
products. Moreover, monoclonal antibodies can be used as tools to speed the
development of small molecule drugs. As a result of its work on the monoclonal
antibody LDP-02 for the treatment of inflammatory bowel disease, LeukoSite
identified a key target implicated in the disease and has initiated the b7
integrin receptor small molecule antagonist development program.

Develop Small Molecule Antagonist Drugs. LeukoSite's small molecule
programs utilize proprietary assays to screen large numbers of test compounds
that bind to chemokine or integrin receptors and block their biological
function. The Company has used the libraries of its partners as well as its own
to search for leads. Once a lead is identified, the Company and its
collaborators employ medicinal and combinatorial chemistry to design and
synthesize potent and selective product candidates. In addition, LeukoSite uses
information about the structure of receptors, ligands and compounds in
computer-assisted molecular models to identify the cell surface locations of
these receptors and to assist in the design of lead drug candidates. The Company
has six small molecule discovery programs in screening and lead optimization:
CCR3 Antagonist, MCP-1 Antagonist, IL-8 Antagonist, CCR1/CXCR3 Antagonist, CCR5
Antagonist and b7 Integrin Receptor Antagonist.

Utilize Non-human Primates for Rapid Proof of Principle. Early in the
development process, LeukoSite rigorously tests the pharmacological rationale
for its drugs in progressively complex and relevant models of human disease.
Researchers at the Company administer monoclonal antibodies and small molecule
drugs to non-human primates in established models of inflammatory and autoimmune
disease. Such models validate biological targets, are important indicators of
safety and toxicity profiles, and provide important insight into human
therapeutic applications of potential drugs. LeukoSite's veterinary pathologists
are experienced in the use of monoclonal antibody immunotherapy in non-human
primates.

Minimize Investment in Manufacturing and Development
Infrastructure. LeukoSite's strategy is to dedicate its resources to
leukocyte-based drug discovery and development, an area in which the Company
believes it has a competitive advantage. The Company plans to outsource or
jointly pursue certain high cost activities associated with its drug development
programs, such as manufacturing and clinical development. LeukoSite has a senior
management team in place with experience in planning and managing these
strategic relationships.

In-license Technologically-related Products. The Company intends to
opportunistically in-license products that are based upon leukocyte biology to
supplement its product pipeline. LeukoSite has acquired rights to LDP-03, a
lymphocyte-depleting drug, which has been tested extensively in multiple human
clinical trials in several different indications. Based on its review of the
data, LeukoSite in-licensed LDP-03 and has entered into a joint venture with
Ilex to develop and commercialize LDP-03 for use in the treatment of CLL.

27
<PAGE> 30

LEUKOSITE'S DRUG DEVELOPMENT PROGRAMS

LeukoSite currently has three drugs in human clinical or late preclinical
development. These monoclonal antibody programs are based on leukocyte
selectivity and tissue specificity.

<TABLE>
<CAPTION>
COMMERCIALIZATION
DRUG CANDIDATES STATUS RIGHTS
- ----------------------------------- ----------------------------------- ---------------
<S> <C> <C>
Leukocyte Antigens

LDP-03 (ANTI-CAMPATH MAB)
Chronic lymphocytic leukemia Completed Phase II
LeukoSite/Ilex
Joint Venture
Integrin/Adhesion Molecules

LDP-01 (ANTI-b2 MAB)
Kidney transplant Phase I/IIa clinical trials in the
United Kingdom to begin in 1997 LeukoSite(1)

Thrombotic stroke Phase I/IIa clinical trials in the
United Kingdom planned in early LeukoSite(1)
1998(2)

Myocardial infarction Preclinical development completed
LeukoSite(1)

LDP-02 (ANTI-b7 MAB)
Inflammatory bowel disease Preclinical development in
progress(2) LeukoSite(1)
</TABLE>

- ------------------------
(1) LeukoSite currently retains all rights to these programs. The Company may
seek to enter into development and marketing agreements for some or all of
these programs.

(2) A Phase I/IIa clinical trial pursuant to a CTX is expected to commence in
the United Kingdom in early 1998. See "Business--Government Regulation."

LDP-03 (CAMPATH-1H)

LeukoSite's lead product candidate, LDP-03, is a humanized monoclonal
antibody to the leukocyte antigen CAMPATH, which the Company is developing
jointly with Ilex for the treatment of chronic lymphocytic leukemia ("CLL"). The
Company recently licensed LDP-03 from the British Technology Group ("BTG") after
reviewing data from Phase I and II clinical trials conducted by Burroughs
Wellcome ("BW") showing activity in the treatment of patients with CLL. LDP-03
combats CLL by selectively depleting lymphocytes while sparing hematopoietic
stem cells. This selective depletion permits the body to retain needed
hematopoietic stem cells that are the precursors to, and repopulate the blood
with, leukocytes and preserve normal immune function. LDP-03 binds to the
antigen CD52, which is expressed almost exclusively on lymphocytes and which is
not expressed on hematopoietic stem cells, and destroys the lymphocytes. By
attacking the antigen CD52 and its lymphocytes, LDP-03 is more selective than
currently approved drugs for lymphomas and leukemias which indiscriminately
deplete rapidly-dividing cells, including both lymphocytes and hematopoietic
stem cells.

LDP-03 was originally tested by BW under license from BTG for a broad range
of indications, including autoimmune diseases such as rheumatoid arthritis,
non-Hodgkin's lymphoma, CLL and solid organ and bone marrow transplantations. BW
discontinued the trials after the data from rheumatoid arthritis patients
suggested that the degree of lymphocyte depletion was too great for chronic
therapy. In addition, BW's data from non-Hodgkin's lymphoma patients indicated
that there may be increased risk of opportunistic infection and that the drug's
efficacy was insufficient for first line stand-alone therapy. BW notified the
FDA that it had discontinued all development of CAMPATH-1H and that no further
enrollment into the two FDA-authorized Phase I/II CAMPATH-1H clinical trials
would occur. BW informed the FDA that, based on preliminary results from certain
of the non-Hodgkin's lymphoma

28
<PAGE> 31

clinical studies, the drug's toxicity of greatest concern was infection and
there was little improvement in efficacy to offset this concern.

Studies involving 64 of the 75 patients with CLL and related prolymphocytic
leukemia who participated in the BW trials have been publicly reported. Three of
the four studies exclusively address patients who were refractory to, or who had
relapsed following, chemotherapy. All responses were evaluated according to
National Cancer Institute criteria, which define complete remission as the
absence of all clinically detectable disease for at least eight weeks, while a
partial remission is defined as 50% or greater reduction of detectable disease
for at least eight weeks. Major responses include complete and partial
remissions.

In a study of 29 refractory or relapsing patients with CLL published in the
Journal of Clinical Oncology in April 1997 by Osterborg et al., one patient (3%)
had a complete remission and eleven patients (38%) had partial remissions,
representing a total of twelve major responses (41%). Another study of seven
fludarabine-resistant CLL patients published in the British Journal of
Hematology in September 1996 by Dyer et al reported one complete remission (14%)
and two partial remissions (28%) for a total of three major responses (42%). A
thirteen patient study presented at the American Society of Hematology Annual
Meeting in December 1995 by Rai et al in fludarabine-resistant CLL patients
reported three complete remissions (23%) and six partial remissions (46%)
totaling nine major responses (69%). A study of fifteen patients with previously
treated prolymphocytic leukemia, accepted for publication in the Journal of
Clinical Oncology, reports nine patients with complete remissions (60%) and two
patients with partial remissions (13%) totaling eleven patients with major
responses (73%).

CLL patients are presently treated with chlorambucil and fludarabine as
first-line or second-line therapy. Despite this course of treatment, all
patients not dying of other causes eventually relapse. No approved therapy is
available to treat patients who fail therapy with fludarabine. Based on the data
from the clinical trials, the Company believes that LDP-03 may be effective for
symptomatic CLL patients who have failed the current standard of care and second
line therapies. The Company believes that there are approximately 56,000 CLL
patients in the United States, of which fewer than half receive treatment. The
Company estimates that in 1996 approximately 5,000 patients died with CLL.

LeukoSite entered into a joint venture with Ilex Oncology, a drug
development company with expertise in the clinical development and registration
of oncology drugs, for the clinical development and commercialization of LDP-03.
Several members of the senior management of Ilex have had direct experience in
the development of fludarabine for treating CLL before joining Ilex. The joint
venture is currently in negotiations with a contract drug manufacturing company
for the manufacture of material to be used for clinical trials and
commercialization. See "Collaboration Agreements -- Ilex."

Based on the BW Phase I and II clinical trial data from approximately 75
patients with relapsing or refractory CLL treated with LDP-03, the Company and
Ilex expect to file applications with U.S. and European regulatory agencies in
1998 to begin a multi-center late stage clinical trial in 50 to 100 previously
treated CLL patients to support licensure of the product. Patient responses will
be evaluated based on the National Cancer Institute criteria and other
parameters defined by the Company. There can be no assurance that the FDA would
permit the Company to initiate late stage clinical trials for LDP-03 in CLL
patients solely on the basis of the BW Phase I and II clinical trial data.

LDP-01 (anti-b2 mAb)

LeukoSite is developing LDP-01, a humanized monoclonal antibody to the b2
integrin on leukocytes for the prevention of post-ischemic reperfusion injury
such as that resulting from organ transplantation, stroke and myocardial
infarction. The Company believes that LDP-01 blocks the attachment of b2
integrins to their adhesion molecules and limits the recruitment of leukocytes
involved in the inflammatory process at multiple tissue sites. The b2 integrin
receptor on the surface of leukocytes interacts with specific adhesion molecules
on the surface of endothelial cells lining blood vessels. This interaction is
essential for leukocytes to migrate into tissues and organs.

29
<PAGE> 32

Upon the reestablishment of blood flow following transplantation of organs
from cadaver donors, leukocytes are recruited to the transplanted organ
resulting in tissue injury, organ dysfunction and potentially graft loss.
Methods that inhibit leukocyte recruitment following ischemic injury, such as
the blockade of b2 integrins, could be therapeutically beneficial to patients
with ischemic disease and to patients receiving organ transplants from cadavers.
The use of LDP-01 in the treatment of kidney transplant patients may result in a
reduction in the time for the transplanted graft to function and may enhance
graft survival. According to the United Network of Organ Sharing ("UNOS"), there
were approximately 11,000 kidney transplants performed in 1996, of which 70%
involved the use of cadaver organs. The Company intends to initiate a Phase
I/IIa clinical trial in 1997 in the United Kingdom to determine the safety,
efficacy and pharmacokinetics of LDP-01 for the reduction of post-ischemic
reperfusion injury and delayed graft function in patients receiving cadaver
kidney transplants. If the Company's anticipated study is supportive, it intends
to pursue an IND filing in the United States.

Stroke is the irreversible loss of brain cells following ischemia, the
interruption of blood flow depriving the brain of blood and oxygen. Further
damage to brain cells occurs as the result of reperfusion injury by leukocytes
when blood flow is reestablished. By inhibiting the recruitment of leukocytes,
LDP-01 may decrease the degree of reperfusion tissue damage and the extent of
the disability, and could significantly reduce the inpatient and rehabilitation
costs associated with this condition. The Company intends to initiate a Phase
I/IIa clinical trial in early 1998 in the United Kingdom to determine the
safety, efficacy and pharmacokinetics of LDP-01 for the reduction of reperfusion
tissue damage associated with ischemic stroke. If the Company's anticipated
study is supportive, it intends to pursue a IND filing in the United States.

The Company has also completed pre-clinical testing of LDP-01 for
myocardial infarction. If the Company's anticipated Phase I/IIa study in stroke
is supportive, the Company will consider pursuing an IND filing for myocardial
infarction in the United States.

Preclinical trials demonstrate that LDP-01 can block attachment of
leukocytes to endothelial cells and inhibit their inflammatory activities. In
two models of inflammation in chimpanzees, LDP-01 blocked the recruitment of
neutrophils, monocytes and lymphocytes and prevented inflammation. LDP-01 has
been administered to three patients in clinical studies sponsored by the
Therapeutic Antibody Centre ("TAC"): two for the treatment of vasculitis, an
inflammation of blood vessels, and one for the treatment of polymyositis, a
severe muscle disease resulting in the weakening of limb and trunk muscles. The
results in these patients provided clinical data that LDP-01 inhibited the
further recruitment of leukocytes into inflamed tissue.

LDP-02 (anti-b7 mAb)

LeukoSite is developing LDP-02, a humanized monoclonal antibody to the a4b7
integrin receptor on leukocytes. LDP-02 is being evaluated for the treatment of
inflammatory bowel disease, which includes ulcerative colitis and Crohn's
disease, chronic disorders characterized by inflammation and ulceration of the
intestines. Ulcerative colitis causes bleeding and inflammation of the mucosal
lining of the colon and rectum, while Crohn's disease is an inflammation that
extends deeper into all layers of the intestinal wall, and frequently involves
both the small and large intestine. Preclinical studies in rodents and non-human
primates have implicated the a4b7 integrin subset of leukocytes as major
contributors to the process of inflammatory bowel disease. LDP-02 is currently
in late preclinical development, and the Company intends to initiate a Phase
I/IIa study in the United Kingdom in early 1998.

The Company evaluated the murine homologue of LDP-02 before it was
humanized and demonstrated pharmacologic activity in three non-human primate
models of inflammatory bowel disease, including the colitic cotton-top tamarin
monkey. The Company believes that this model represents the most clinically
useful model of ulcerative colitis. In this model, when systematically
administered, the murine homologue of LDP-02 was found to be efficacious in
rapidly resolving diarrhea and in inhibiting the localization of leukocytes to
the colonic mucosa.

Current therapy for inflammatory bowel disease includes the administration
of steroids which can broadly suppress the immune system. Published data
indicate that in 1994 there were approximately

30
<PAGE> 33

300,000 Crohn's disease patients and 250,000 ulcerative colitis patients in the
United States. Based on published reports, the total annual medical cost in 1990
in the United States was estimated to be between $1.0 and $2.0 billion for
Crohn's disease patients and between $400 and $600 million for ulcerative
colitis. LeukoSite will seek to develop intravenous and subcutaneous
formulations of LDP-02 for the treatment and management of severe exacerbations
of inflammatory bowel disease.

LEUKOSITE RESEARCH AND DRUG DISCOVERY PROGRAMS

LeukoSite currently has seven research and discovery programs. These
chemokine and integrin targeted programs are based on the selective blockade of
specific chemokine, chemokine receptor or integrin controlled leukocyte pathways
or functions.

<TABLE>
<CAPTION>
COLLABORATIVE
DRUG CANDIDATE STATUS PARTNER
- -------------------------------- -------------------------------- --------------------
<S> <C> <C>
Chemokine/Chemokine Receptor
CCR3 ANTAGONIST
Asthma Allergic Small molecule screening and
hypersentitivity lead generation and optimization
Roche Bioscience(1)
MCP-1 ANTAGONIST
Atherosclerosis Rheumatoid Small molecule screening and
arthritis lead generation and optimization
Warner-Lambert(2)
IL-8 ANTAGONIST
Myocardial infarction Small molecule screening and
small molecule and mAb lead Warner-Lambert(2)
generation
CCR1 ANTAGONIST
Rheumatoid arthritis Multiple Small molecule and mAb lead
sclerosis Psoriasis generation and optimization
Kyowa(3)
CXCR3 ANTAGONIST
Rheumatoid arthritis Multiple Small molecule and mAb lead
sclerosis Psoriasis generation and optimization
Kyowa(3)
CCR5 ANTAGONIST
HIV-1 infection and Small molecule screening and
inflammatory diseases lead generation
Warner-Lambert(4)
Integrin/Adhesion Molecules
b7 INTEGRIN RECEPTOR ANTAGONIST
Inflammatory bowel disease Small molecule lead optimization
--(5)
</TABLE>

- ------------------------------
(1) Roche Bioscience has worldwide exclusive rights under the collaboration
agreement to market products.

(2) Warner-Lambert has worldwide exclusive rights under the collaboration
agreement to market products.

(3) Kyowa has exclusive rights in Asia under the collaboration agreement and
options in the rest of the world to market products related to these
targets.

(4) Warner-Lambert has an option for the exclusive right under the collaboration
agreement to market products in the United States and Europe.

(5) LeukoSite retains all rights to this program.

CCR3 Receptor Antagonist

LeukoSite is engaged in the discovery and development of an orally
available, small molecule antagonist to block eosinophil recruitment and
function for the treatment of asthma and allergies. Data in animal models and in
humans suggest that eosinophils, and their recruitment to the lung and other
tissues and organs, play a significant role in the pathogenesis of asthma and
other allergies. The

31
<PAGE> 34

Company, in connection with several of its academic collaborators, has
identified the principal eosinophil chemokine receptor, CCR3, filed a patent
application on the gene that encodes for the receptor and the therapeutic
applications of it and has developed a program to discover an antagonist to
block the CCR3 receptor and the recruitment of eosinophils to respiratory tract
tissue. The Company believes that a drug which blocks the detrimental effects of
eosinophil recruitment will reduce the inflammation that contributes to asthma
and allergies.

In July 1996, LeukoSite entered into an agreement with Roche Bioscience for
the Company's CCR3 antagonist program. Roche Bioscience is currently screening
its compound library against the Company's targets. LeukoSite is entitled to
receive payments from Roche Bioscience in the form of licensing fees, research
support and milestone payments and royalties on worldwide product sales
resulting from this collaboration. Roche Bioscience will be responsible for and
provide financial support for the preclinical and clinical development of
products resulting from this collaboration and will have worldwide exclusive
rights under the collaboration agreement to market products. See "Collaboration
Agreements--Roche Bioscience."

MCP-1 Receptor Antagonist

LeukoSite is engaged in the discovery and development of an orally
available, small molecule antagonist to the MCP-1 receptor for the treatment of
chronic inflammatory and autoimmune diseases. The chemokine MCP-1 recruits
monocytes and T cells from the bloodstream to tissues. MCP-1 activates monocytes
and T cells by binding to its receptor on the leukocyte cell membranes, often
resulting in damage to surrounding tissues and irretrievable loss of normal
function. The blockade of the MCP-1 interaction with its receptor may be an
effective approach for the treatment of chronic inflammatory and autoimmune
diseases in which monocytes and T cells play key roles. In preclinical studies,
LeukoSite and others have shown that MCP-1 is associated with the inflammatory
processes exhibited in rheumatoid arthritis and atherosclerosis.

LeukoSite entered into a collaboration agreement with Warner-Lambert in
September 1994 to discover and develop small molecule antagonists to MCP-1 and
its receptor. This collaborative effort has identified inhibitors to the MCP-1
receptor which have demonstrated pharmacological activity in animal models of
inflammatory disease. This collaboration entered into a second contractual stage
in April 1996 with the objective of optimizing the pharmacological profile of
these inhibitors and identifying a clinical development candidate.
Warner-Lambert is responsible for the worldwide clinical development of an MCP-1
antagonist derived from the collaboration, and it is anticipated that the
clinical development program will focus on the treatment of atherosclerosis and
rheumatoid arthritis.

Warner-Lambert has worldwide exclusive rights under the collaboration
agreement to develop and market products resulting from the collaboration.
LeukoSite is entitled to receive royalties on product sales. This collaboration
provides for additional sponsored research payments to be made by Warner-Lambert
to LeukoSite and for payments to be made upon the achievement of certain
specified milestones. See "Collaboration Agreements--Warner-Lambert."

IL-8 Receptor Antagonist

LeukoSite is engaged in the discovery and development of an orally
available, small molecule antagonist to the IL-8 chemokine receptor for the
treatment of diseases involving tissue injury that result from post-ischemic
reperfusion injury. Myocardial infarction results when blood flow to a region of
the heart is blocked as a result of a coronary artery becoming occluded. This
blockage results in injury to and death of heart tissue in the affected region.
A significant portion of the tissue injury and death is thought to be caused by
neutrophil-mediated inflammatory damage. IL-8 is a potent and selective
chemokine protein that causes the recruitment and activation of neutrophils,
which are responsible for subsequent inflammation and post-ischemic reperfusion
injury. The Company's program is directed at the discovery and development of
drugs which inhibit the binding of IL-8 to its

32
<PAGE> 35

receptor in order to block the recruitment of neutrophils and to prevent the
resulting inflammation and reperfusion injury.

In July 1995, LeukoSite entered into a collaboration agreement with
Warner-Lambert to discover and optimize lead candidates using LeukoSite's IL-8
receptor-based technology by screening Warner-Lambert's compound library.
Warner-Lambert is responsible for the development and commercialization of
products derived from this collaboration. LeukoSite currently intends to pursue
an IL-8 receptor antagonist for post-ischemic reperfusion tissue injury
resulting from myocardial infarction. Warner-Lambert has worldwide exclusive
rights under the collaboration agreement to develop and market products
resulting from this collaboration. LeukoSite is entitled to receive royalties on
product sales. This collaboration provides for additional sponsored research
payments to be made by Warner-Lambert to LeukoSite and for payments to be made
upon the achievement of certain specified milestones. See "Collaboration
Agreements--Warner-Lambert."

CXCR3 Receptor Antagonist and CCR1 Receptor Antagonist

LeukoSite is engaged in the discovery and development of orally available,
small molecule antagonists and monoclonal antibodies to block the leukocyte
recruitment pathways controlled by chemokine receptors CXCR3 and CCR1. Ligands
for the receptors, specifically the chemokines IP-10 and RANTES, play key roles
in recruiting T cells and monocytes to sites of inflammation. LeukoSite is
studying the role these receptors play in inflammation with a combination of
tools including monoclonal antibodies. Based upon knowledge of the cells which
express these receptors, small molecule antagonists may be of therapeutic value
in the treatment of chronic inflammatory and autoimmune disease.

In April 1997, LeukoSite entered into a collaboration agreement with Kyowa
to discover small molecule antagonists and monoclonal antibody drugs that block
these chemokine receptors. Kyowa has the exclusive rights under the
collaboration agreement to develop and market products resulting from this
collaboration in Asia and an option for rights under the collaboration agreement
in the rest of the world. LeukoSite will be entitled to research support and
milestone payments and future royalties based on product sales. See
"Collaboration Agreements--Kyowa Hakko Kogyo."

CCR5 Receptor Antagonist

LeukoSite is engaged in the discovery and development of an orally
available, small molecule antagonist to the chemokine receptor CCR5. Such a drug
may be useful in the treatment of patients infected with HIV and as a therapy
for certain inflammatory and autoimmune diseases. The CCR5 receptor binds three
different chemokines and is found on lymphocytes and macrophages. The location
of this receptor and its presence on lymphocytes and macrophages suggest that
blocking it would have anti-inflammatory effects. Recent in vitro data indicate
that drugs that block CCR5 may inhibit the replication and growth of the HIV
virus. Furthermore, reports of individuals who are resistant to HIV link a
deletion in the CCR5 gene and a lack of CCR5 expression to their resistance to
the disease. LeukoSite and its collaborators have reported on the molecular
mechanism by which the virus binds to the CCR5 receptor and facilitates the
entry of HIV-1 into leukocytes.

In November 1996, LeukoSite entered into a collaboration agreement with
Warner-Lambert to discover and optimize small molecule lead candidates using
LeukoSite's CCR5 receptor-based technology by screening Warner-Lambert's
compound library. LeukoSite currently intends to pursue a CCR5 receptor
antagonist for HIV-1 and a distinct receptor antagonist for chronic
inflammation. Warner-Lambert has an option for the exclusive right under the
collaboration agreement to develop and commercialize products derived from the
collaboration in North America and Europe. In the event that this option is
exercised, LeukoSite will be entitled to receive payments upon the achievement
of milestones. LeukoSite is entitled to receive royalties on product sales.
LeukoSite retains commercialization rights under the collaboration agreement in
Asia.

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<PAGE> 36

Outside its collaboration with Warner-Lambert, the Company has generated
monoclonal antibodies to the CCR5 receptor. These antibodies block strains of
HIV from binding to and infecting human leukocytes. The Company is currently
evaluating these antibodies in preclinical studies to determine future clinical
plans. See "Collaboration Agreements--Warner-Lambert."

b7 Integrin Receptor Small Molecule Antagonist

LeukoSite is engaged in the discovery and development of a small molecule
antagonist to the a4b7 integrin receptor present on gut-homing T lymphocytes.
The goal of this program is to identify a potent orally-active agent for
patients with inflammatory bowel disease. In contrast to LDP-02, which is
intended to treat acute flares of inflammatory bowel disease, daily
administration of the oral b7 integrin receptor antagonist is intended for
patients with mild to moderate inflammatory bowel disease in need of chronic
therapy.

LeukoSite believes that it has a strong rationale for the discovery and
development of small molecule b7 integrin receptor antagonists as a result of
observations that monoclonal antibodies to the a4b7 integrin and its receptor,
mucosal addressin cell adhesion molecule ("MAdCAM"), produced significant
improvements in animal models of inflammatory bowel disease. LeukoSite has made
a significant advance in its program by cloning the human gene for MAdCAM, which
was disclosed in a United States patent application filed on September 1, 1995.
As a result of this advance, LeukoSite has obtained important structural
information in the design of active b7 antagonists. The Company screens its own
library as well as libraries from the combinatorial chemistry company, Oxford
Asymmetry, Ltd. in connection with this program. Under the terms of this
agreement, LeukoSite retains all rights under the agreement to commercialize
drugs which result from the program between LeukoSite and Oxford Asymmetry, Ltd.
The Company has developed a high throughput b7:MAdCAM cell-based adhesion assay.
Using this assay to screen compounds, LeukoSite has identified several active
compounds and is investigating the design of optimal drug candidates.

The Company has an agreement with Genzyme Corporation which provides
LeukoSite with access to more than 800,000 compounds to screen in its high
throughput assays. After screening is complete, should there be any active
compounds, Leukosite and Genzyme will negotiate the terms of a collaboration for
the research, development and commercialization of drug candidates.

COLLABORATION AGREEMENTS

As a key part of its business strategy, LeukoSite pursues collaboration
agreements with pharmaceutical companies, hospitals, manufacturers and other
organizations to combine the Company's drug discovery capabilities with the
collaborators' research, drug development, manufacturing, marketing and
financial resources. LeukoSite has existing collaboration agreements with
several pharmaceutical companies, contract manufacturers and medical research
institutions, and intends to continue to seek collaboration agreements with
additional third parties. The Company structures its collaborations around
specified targets, such as chemokines and chemokine receptors or integrins and
adhesion molecules, or around targeted objectives, such as the manufacture of a
certain monoclonal antibody or small molecule. This approach enables LeukoSite
to exploit its drug discovery technologies while retaining flexibility to pursue
additional collaborations.

As of June 30, 1997, LeukoSite had received $8.4 million under these
collaborations for research funding and license fees and will be entitled to
receive $13.0 million of additional funding that is not subject to the
achievement of milestones (assuming each collaboration remains in effect for its
full term). In addition, in the event that a product is successfully developed
and commercialized under each of the Warner-Lambert, Roche Bioscience and Kyowa
collaboration agreements, LeukoSite will be entitled to receive up to $44.3
million in development and commercialization milestone payments, as well as
royalties associated with product sales. As of June 30, 1997, Warner-Lambert had
invested $9.0 million and Roche Finance Ltd had invested $3.0 million in equity
of the Company.

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LeukoSite's principal existing collaborations are as follows:

Warner-Lambert

LeukoSite has entered into three collaboration agreements with
Warner-Lambert. In September 1994, LeukoSite and Warner-Lambert entered into a
drug discovery collaboration to discover and market small molecule antagonists
to the MCP-1 chemokine and its receptor (the "MCP-1 Agreement"). In July 1995,
LeukoSite and Warner-Lambert entered into a drug discovery collaboration to
discover and market small molecule antagonists to the IL-8 chemokine and its
receptor (the "IL-8 Agreement"). During the research term, Warner-Lambert may
become obligated under both agreements to make milestone payments to the
Company. The IL-8 Agreement and the MCP-1 Agreement are terminable by either
party at any time and for any reason upon six months' written notice. Upon
termination, each party retains a non-exclusive license to use all technology
arising from the respective collaboration, and an exclusive royalty-free license
to make and sell products incorporating such technology. If any product is
successfully commercialized under the collaboration, LeukoSite is entitled to
receive royalties on product sales. In the event that the initial public
offering price is less than $12.30 per share, Warner-Lambert will receive a
credit against such royalties. Assuming an initial public offering price of
$6.50 per share, the approximate amount of such credit would be $3.59 million.

In November 1996, LeukoSite and Warner-Lambert entered into a one-year
exclusive drug discovery collaboration to screen and characterize antagonists to
the CCR5 chemokine receptor (the "CCR5 Agreement"). The CCR5 Agreement
contemplates two phases: the initial research phase, and a second phase which
would involve the negotiation of a new collaboration agreement similar to the
MCP-1 and IL-8 Agreements described above. If a compound is discovered with
antiviral activity that selectively inhibits a CCR5 mechanism, Warner-Lambert
has the option to make a payment to LeukoSite or to terminate the CCR5
Agreement. If Warner-Lambert were to terminate the CCR5 Agreement, the Company
would have exclusive ownership rights with respect to all compounds discovered
thereunder. At the end of the initial term, if the parties do not agree to
continue the collaboration, either party has the right to exploit the research
results, and if either party successfully commercializes a compound derived from
a lead compound identified during the collaboration, it is obligated to pay the
other party a royalty.

Roche Bioscience

In April 1996, LeukoSite entered into a two-year collaboration agreement
with Roche Bioscience to research and discover small molecule antagonists and/or
monoclonal antibodies to the CCR3 receptor and other eosinophil recruitment
mechanisms (the "CCR3 Agreement"). Roche Bioscience is obligated under the CCR3
Agreement to provide funding to the Company to support (i) a team of
scientist-employees of the Company, (ii) humanization of monoclonal antibodies
to CCR3 and (iii) additional research if the parties mutually agree to extend
the CCR3 Agreement to a third year. In conjunction with the CCR3 Agreement, the
parties also entered into a license agreement (the "CCR3 License Agreement"),
whereby Roche Bioscience is granted the exclusive right to make and sell
products developed under the collaboration in exchange for a noncreditable
license fee. The CCR3 License Agreement also provides that milestone payments
shall be made by Roche to LeukoSite for monoclonal antibody products and for
non-monoclonal antibody products, each payment triggered by the successful
achievement by the Company of a discrete phase in the clinical trial of any such
product. In addition, LeukoSite is entitled to receive royalties on product
sales.

Kyowa Hakko Kogyo

In April 1997, LeukoSite entered into a two-year collaboration agreement
with Kyowa to research and discover small molecule antagonists to the CCR1 and
CXCR3 chemokine receptors (the "CCR1 Agreement"). Under the CCR1 Agreement,
Kyowa is obligated to provide to the Company with research funding payments and
an additional payment if Kyowa elects to extend the term of the agreement for a
period beyond its initial term. After the first year of the collaboration, Kyowa
may

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terminate its obligation upon 60 days' notice, upon which Kyowa's funding
obligation to the Company also terminates. In connection with the CCR1
Agreement, the parties also entered into a licensing agreement (the "CCR1
License Agreement"), pursuant to which Kyowa retains an exclusive license to
make and sell products developed through the collaboration in Asia. This
exclusive license may be extended worldwide if Kyowa enters into a sublicense
agreement upon specified terms. Until the license becomes worldwide, the Company
retains the exclusive right to make and sell products utilizing Kyowa-patented
technology in geographic regions outside of Asia. Under the CCR1 License
Agreement, Kyowa may become obligated to make milestone payments to the Company
based upon the identification of a drug candidate and the stage of such
candidate in clinical trials. Additional milestone payments are triggered if a
second drug target is identified through the collaboration. In addition,
LeukoSite is entitled to receive royalties on product sales.

Ilex

In May 1997, LeukoSite and Ilex entered into a joint venture whereby the
parties formed a limited partnership to develop and commercialize LDP-03 for the
treatment of chronic lymphocytic leukemia, pursuant to an agreement of limited
partnership and a license agreement between the LeukoSite/Ilex partnership and
LeukoSite. The partners are required to make contributions each time the
partnership requires working capital. The development and commercialization
activities of the joint venture will be managed with equal control by each
party. LeukoSite and Ilex will generally share equally in profits from the sales
of LDP-03 and in all research, development, clinical and commercialization
costs. LeukoSite and Ilex estimate that research, development and clinical costs
will be approximately $10 million over the next two years. The joint venture
expires in 2017, but provides for either partner, after the earlier of a change
in control (as defined therein) of the other partner or October 2, 2000, to
purchase the other partner's ownership of the joint venture in the event of an
unresolved deadlock. In addition, in the event that one party is unable or
unwilling to fulfill its funding obligations to the joint venture, then in
certain circumstances, the party that funds the joint venture shall gain control
of the management of the joint venture, subject to certain catch-up rights of
the other party.

Therapeutic Antibody Centre

In October 1994, LeukoSite, the University of Oxford and the U.K. Medical
Research Council ("MRC") entered into a collaboration agreement to jointly
construct and operate the TAC, a pharmaceutical discovery, testing and
manufacturing center. Under the terms of the collaboration, MRC and LeukoSite
contribute toward funding the cost of staffing, equipment, facility construction
and other operating expenses of the TAC. The Company retains an exclusive
worldwide right to license technology discovered at the TAC in exchange for
royalties payable to the University of Oxford and MRC. The collaboration expires
five years after the TAC is fully operational.

Other Collaboration Agreements

In addition, the Company has collaboration agreements in effect with The
Imperial College of Science, Technology of Medicine, Lynxvale, Ltd., Oxford
Asymmetry, Ltd., the National Heart and Lung Institute, the Theodor Kocher
Institute and the University of Oxford.

PATENTS AND PROPRIETARY RIGHTS

The Company's intellectual property strategy is to protect its processes
and compositions of matter by, among other things, filing patent applications in
the United States and other key markets. LeukoSite has eleven pending U.S.
patent applications and has filed four international patent applications under
the Patent Cooperation Treaty ("PCT"). In addition, LeukoSite has in-licensed
seven U.S. patents, nine U.S. patent applications, three foreign patents and 10
foreign patent applications.

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<PAGE> 39

In addition, LeukoSite has an exclusive license from British Technology
Group Limited ("BTG") under United States and foreign patents and patent
applications, variously covering certain humanized antibodies against the
CAMPATH antigen, pharmaceutical compositions, host cells useful in the
production of such antibodies, processes of producing such antibodies and
medical uses of such antibodies. The Company also has a non-exclusive sublicense
from BTG under additional U.S. and foreign patents and patent applications,
including U.S. patents which cover a method of treating a human suffering from a
disease or disorder, such as a cancer or a T cell-mediated disorder.

The Company is also aware of patents which have been issued to third
parties in the United States and/or Europe variously relating to certain
modified humanized immunoglobulins, methods of producing modified humanized
immunoglobulins, compositions useful in the production of modified humanized
immunoglobulins and methods of using of modified humanized immunoglobulins. The
European patents in these areas have also been opposed by third parties. The
Company, based on the analysis of Hamilton, Brook, Smith & Reynolds, P.C., the
Company's patent counsel, believes that, properly construed, the U.S. patent
claims do not cover the Company's LDP-01 and LDP-03 product candidates, and that
no valid claim of the European patents covers the Company's LDP-01 and LDP-03
product candidates. The Company is uncertain about the scope of the claims which
have issued in the United States and is uncertain whether these claims, when
properly construed, cover LDP-02. If it is determined that they do encompass
LDP-02, the Company will likely be required to seek a product license.

The Company is also aware of other third party published applications
relating to altered antibodies, methods of use of altered antibodies and methods
of production of altered antibodies. To the Company's knowledge, neither these
applications nor possible unpublished counterpart applications has proceeded to
grant in Europe or has issued as U.S. patents. There can be no assurance that
the Company will not be required to seek a license to some or all of the patents
which might issue from these patent applications.

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<PAGE> 40

resources and could have a material adverse effect on the Company. Moreover,
there can be no assurance that the Company would be successful in defending
against an infringement action or in challenging any such patents or patent
claims, and the failure to do so could have a material adverse effect on the
Company. If the Company does not obtain any required license, it could encounter
delays in product development while it attempts to design around the patents, or
it could find that the development, manufacture or sale of products requiring
such licenses could be foreclosed.

Patent law, as it relates to inventions in the pharmaceutical and
biotechnology fields, is still evolving and involves complex legal and factual
questions for which legal principles are not firmly established. Moreover,
because (i) patent applications in the United States are maintained in secrecy
until patents issue, (ii) patent applications in certain other countries
generally are not published until more than eighteen months after the earliest
priority date claimed, (iii) publication of technological developments in the
scientific or patent literature often lags behind the date of such developments
and (iv) searches of prior art may not reveal all relevant prior inventions, the
Company cannot be certain that it was the first to invent the subject matter
covered by its patent applications or that it was the first to file patent
applications for such inventions. Accordingly, there can be no assurance that
patents will be granted with respect to any of the Company's pending patent
applications or with respect to any patent applications filed by the Company in
the future. Similarly, the Company cannot be certain that the inventors of the
subject matter covered by applications which the Company has licensed were the
first to invent, or that the applicants of applications licensed by the Company
were the first to file. Accordingly, there can be no assurance that patents will
be granted with respect to any of the Company's pending licensed patent
applications or with respect to any future applications subject to a license.

The commercial success of the Company will depend in part on not infringing
patents or proprietary rights of others. There can be no assurance that the
Company will be able to obtain a license to any third party technology it may
require to conduct its business or that, if obtainable, such technology can be
licensed at a reasonable cost. Failure by the Company to obtain a license to
technology that it may require to utilize its technologies or commercialize its
products may have a material adverse effect on the Company's business, operating
results and financial condition. In some cases, litigation or other proceedings
may be necessary to defend against or assert claims of infringement, to enforce
patents issued to the Company, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the proprietary rights of third parties. Any potential litigation
could result in substantial costs to and diversion of resources by the Company
and could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that any of the
Company's issued or licensed patents would ultimately be held valid or that
efforts to assert or defend any of its patents, trade secrets, know-how or other
intellectual property rights would be successful. An adverse outcome in any such
litigation or proceeding could subject the Company to significant liabilities,
require the Company to cease using the subject technology or require the Company
to license the subject technology from the third party, all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills, which are not patentable, of key
scientific and technical personnel. To protect its rights to and to maintain the
confidentiality of trade secrets and proprietary information, the Company
requires employees, Scientific Advisory Board members and consultants to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with the Company. These agreements prohibit the disclosure of
confidential information outside the Company and require disclosure and
assignment to the Company of certain ideas, developments, discoveries and
inventions made by employees, advisors and consultants. There can be no
assurance, however, that these agreements will not be breached or that the
Company's trade secrets or proprietary information will not otherwise become
known or developed independently by others.

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GOVERNMENT REGULATION

Overview of FDA Regulations. Non-biological drugs and biological drugs,
including the Company's products under development, are subject to extensive and
rigorous regulation by the federal government, principally the FDA, and by state
and local governments. If these products are marketed abroad, they also are
subject to export requirements and to regulation by foreign governments. The
applicable regulatory clearance process, which must be completed prior to the
commercialization of a product, is lengthy and expensive. There can be no
assurance that the Company will be able to obtain the necessary regulatory
approvals on a timely basis, if at all, for any of its products under
development, and delays in receipt for failure to receive such approvals, the
loss of previously received approvals, or failure to comply with existing or
future regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.

The FDC Act and the PHS Act govern or influence the development, testing,
manufacture, labeling, storage, approval, advertising, promotion, sale and
distribution of most FDA-regulated products in the United States. Failure to
comply with the applicable FDA regulatory requirements could result in sanctions
being imposed on the Company (or its collaborative partners and contract
manufacturers), including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, FDA refusal to grant premarket approval of products and/or to
allow the Company to enter into government supply contracts, withdrawals of
previously approved marketing applications and criminal prosecutions.

FDA requirements for the Company's products under development vary
depending upon whether the product is a non-biological drug or biological drug.
Depending on the nature of the product, the Company's products under development
will be regulated as either non-biological drugs under the FDC Act or as
biological drugs under the FDC Act and the PHS Act. The Company believes that
its monoclonal antibody products currently in human clinical or late preclinical
development (i.e., LDP-03, LDP-01 and LDP-02) will be regulated by the FDA as
biological drugs. Because of the early research and development stages of its
small molecule antagonist program, the Company is uncertain as to whether
products under development in its small molecule antagonist program will be
regulated as non-biological drugs or biological drugs.

Regulation of Non-biological Drugs and Biological Drugs. Non-biological
drugs and biological drugs are subject to some of the same laws and regulations.
Ultimately, however, they are approved under different regulatory frameworks,
with non-biological drugs being approved under the FDC Act and biological drugs
being approved under the PHS Act. Product development and approval within either
regulatory framework takes a number of years, involves the expenditure of
substantial resources and is uncertain. Many non-biological drugs and biological
drugs that initially appear promising ultimately do not reach the market because
they are not found to be safe or effective or cannot meet the FDA's other
regulatory requirements. In addition, there can be no assurance that the current
regulatory framework will not change or that additional regulations will not
arise at any stage of the Company's product development that may affect
approval, delay the submission or review of an application or require additional
expenditures by the Company.

The activities required before a new non-biological drug or biological drug
can be marketed in the United States primarily begin with preclinical testing.
Preclinical tests include laboratory evaluation of product chemistry and other
characteristics and animal studies to assess the potential safety and efficacy
of the product as formulated. Many preclinical studies are regulated by the FDA
under the current Good Laboratory Practice ("GLP") regulations. Violations of
these regulations can, in some cases, lead to invalidation of the studies,
requiring such studies to be replicated if the data are to be submitted to the
FDA in support of a marketing application.

The entire body of preclinical development work necessary to administer
investigational non-biological drugs and biological drugs to human volunteers or
patients is summarized in an investigational new drug ("IND") application
submitted to the FDA. FDA regulations provide that human clinical trials may
begin 30 days following submission of an IND application, unless the FDA advises

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otherwise or requests additional information, clarification or additional time
to review the application. There is no assurance that the submission of an IND
will eventually allow a company to commence clinical trials. Once trials have
commenced, the FDA may stop the trials, or particular types of trials, by
placing a "clinical hold" on such trials because of concerns about, for example,
the safety of the product being tested. Such holds can cause substantial delay
and in some cases may require abandonment of a product.

Clinical testing involves the administration of the investigational
non-biological drug or biological drug to healthy human volunteers or to
patients under the supervision of a qualified principal investigator, usually a
physician, pursuant to an FDA reviewed protocol. Each clinical study is
conducted under the auspices of an Institutional Review Board ("IRB") at each of
the institutions at which the study will be conducted. An IRB will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Human clinical trials typically are
conducted in three sequential phases, but the phases may overlap. Phase I trials
consist of testing the product in a small number of patients or normal
volunteers, primarily for safety, in one or more dosages, as well as
characterization of a drug's pharmacokinetic and/or pharmacodynamic profile. In
Phase II, in addition to safety, the efficacy of the product is evaluated in a
patient population. Phase III trials typically involve additional testing for
safety and clinical efficacy in an expanded population at geographically
dispersed sites. A clinical plan, or "protocol," accompanied by the approval of
an IRB, must be submitted to the FDA prior to commencement of each clinical
trial. All patients involved in the clinical trial must provide informed consent
prior to their participation. The FDA may order the temporary or permanent
discontinuance of a clinical trial at any time for a variety of reasons,
particularly if safety concerns exist. These clinical studies must be conducted
in conformance with the FDA's bioresearch monitoring regulations.

A company seeking FDA approval to market a new non-biological drug (in
contrast to biological drug) must file a new drug application ("NDA") with the
FDA pursuant to the FDC Act. In addition to reports of the preclinical and
clinical trials conducted under the FDA-approved IND application, the NDA
includes information pertaining to the preparation of the drug substance,
analytical methods, drug product formulation, detail on the manufacture of
finished products and proposed product packaging and labeling. In addition to
reports of the preclinical and clinical trials conducted under the
FDA-authorized IND application, the marketing application includes evidence of
the product's safety, purity, potency, and efficacy.

The FDA has established procedures designed to expedite the development,
evaluation and marketing of therapies intended to treat persons with cancer,
AIDS or other life-threatening and severely-debilitating illnesses, especially
when no satisfactory alternative therapy exists. Sponsors of such products may
request to meet with the FDA-reviewing officials early in the drug development
process to review and reach agreement on the design of necessary preclinical and
clinical studies. The term "life-threatening" is defined by FDA to mean: (1)
diseases or conditions where the likelihood or death is high unless the course
of the disease is interrupted; and (2) diseases or conditions with potentially
fatal outcomes, where the endpoint of clinical trial analysis is survival.
"Severely-debilitating" is defined by the FDA to mean diseases or conditions
that cause major irreversible morbidity. Treatment of patients with an
experimental non-biological or biological drug also may be allowed under a
Treatment IND before general marketing begins and pending FDA approval. Charging
for an investigation product also may be allowed under a Treatment IND to
recover certain costs of development if various requirements are met. There can
be no assurance that any of the Company's products under development will
qualify for expedited review or for treatment use.

Traditionally, a company seeking FDA approval to market a biological drug
(in contrast to a non-biological drug) is required to file a product license
application ("PLA"), and an establishment license application ("ELA") with the
FDA pursuant to the PHS Act before commercial marketing of a biological drug.
Recently, however, the FDA amended the biological drug regulations to eliminate
the ELA requirements for specified biotechnology and synthetic biological drugs
subject to licensing under the PHS Act, including, but not limited to,
monoclonal antibody products for in vivo use. For

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these specified products, in place of the ELA a company is required to prepare
and submit additional information for inclusion in a single biologics license
application ("BLA"). The Company believes that its monoclonal antibody products
will be subject to licensing under the BLA process, but there can be no
assurance that the FDA will determine that the Company's monoclonal antibody
products meet the agency's criteria for regulation under the BLA process.

Submission of a NDA, PLA, ELA or BLA does not assure FDA approval for
marketing. The application review process generally takes one to three years to
complete, although reviews of non-biological drugs and biological drugs for
life-threatening diseases may be accelerated or expedited. However, the process
may take substantially longer if, among other things, the FDA has questions or
concerns about the safety and/or efficacy of a product.

Since 1992, non-biological and biological drugs have been subject to the
Prescription Drug User Fee Act of 1992 ("PDUFA"). PDUFA requires that companies
submitting marketing applications for such products pay fees in connection with
review of the applications. In return, the FDA has committed to reviewing a
certain percentage of the applications within certain timeframes. For example,
in its Fiscal Year 1996 report on PDUFA, the FDA reported that 95 percent of
PLAs, BLAs and NDAs received in Fiscal Year 1995 were reviewed within 12 months
of application submission. FDA's PDUFA performance goal in Fiscal Year 1996 was
to complete its review of 70 percent of such applications within 12 months. In
Fiscal Year 1997, the FDA has committed to reaching an approval, disapproval or
additional-data-required decision on 90 percent of PLAs, BLAs and NDAs within 12
months of application submission. PDUFA is scheduled to expire on September 30,
1997. Although the Congress is considering legislation to extend PDUFA for an
additional period of time, there can be no assurance that the extension will be
enacted. Failure of the Congress to extend PDUFA or the imposition of other
requirements could have a significant adverse affect on the FDA's timeframe for
reviewing marketing applications.

In general, in order to approve a non-biological or biological drug, the
FDA requires at least two properly conducted, adequate and well-controlled
clinical studies demonstrating efficacy with sufficient levels of statistical
assurance. In the case of approval of a biological drug, one properly conducted,
adequate and well-controlled clinical study may suffice. The FDA, however,
recently proposed a new initiative under which the agency can determine that a
non-biological or biological drug is effective for a new use without requiring
data from two new clinical trials. However, additional information may be
required. For example, the FDA also may request long-term toxicity studies or
other studies relating to product safety or efficacy. Notwithstanding the
submission of such data, the FDA ultimately may decide that the NDA, PLA or BLA
does not satisfy its regulatory criteria for approval and disapprove the
application. Finally, the FDA may require additional clinical tests following
NDA, PLA or BLA approval to confirm safety and efficacy (Phase IV clinical
trials).

In addition, the FDA may, in some circumstances, impose restrictions on the
use of the non-biological drug or biological product that may be difficult and
expensive to administer. Product approval may be withdrawn if compliance with
regulatory requirements are not maintained or if problems occur after the
product reaches the market. The FDA requires reporting of certain safety and
other information that becomes known to a manufacturer of an approved
non-biological drug or biological product.

The product testing and approval process is likely to take a substantial
number of years and involves expenditure of substantial resources. There can be
no assurance that any approval will be granted on a timely basis, or at all. The
FDA also may require postmarket testing and surveillance to monitor the record
of the product and continued compliance with regulatory requirements. Upon
approval, a prescription non-biological drug or biological product may only be
marketed for the approved indications in the approved dosage forms and at the
approved dosage. Adverse experiences with the product must be reported to the
FDA.

Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's current Good Manufacturing
Practices ("GMP") regulations, as supple-

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mented by the regulations pertaining to biological drugs. In complying with the
GMP regulations, manufacturers must continue to expend time, money and effort in
product record keeping and quality control to assure that the product meets
applicable specifications and other requirements. The FDA periodically inspects
manufacturing facilities in the United States and abroad in order to assure
compliance with applicable GMP requirements. Failure of the Company or the
Company's contract manufacturer to comply with the FDA's GMP regulations or
other FDA regulatory requirements could have a significant adverse effect on the
Company's business, financial condition and results of operations.

Under the Orphan Drug Act, a sponsor of a marketing application may seek to
obtain a seven-year period of marketing exclusivity for a non-biological or
biological drug intended to treat a rare disease or condition (i.e., a disease
or condition that occurs in fewer than 200,000 patients). Before a product can
receive marketing exclusivity associated with orphan product status, it must
receive orphan product designation. If a product is designated as an orphan drug
or biologic by the FDA and it is the first FDA approved application of the
specified indication, the sponsor receives seven years of marketing exclusivity.
The Company intends to seek FDA orphan product designation for LDP-03 for the
treatment of chronic lymphocytic leukemia. Even if such designation is sought,
the FDA may not grant it. Moreover, even if the Company does receive orphan
product designation for LDP-03 or any of its other products under development,
other companies also may receive orphan designation and obtain the FDA marketing
approval before the Company obtains such approval. If another company obtains
marketing approval first and receives seven-year marketing exclusivity, the
Company would not be permitted by the FDA to market the Company's product in the
United States during the exclusivity period. In addition, the Company could
incur substantial costs in asserting any rights to prevent such uses it may have
under the Orphan Drug Act. If the Company receives seven-year marketing
exclusivity, FDA may rescind the period of exclusivity under certain
circumstances, including failure of the Company to assure a sufficient quantity
of the drug.

Foreign requirements. In addition to the applicable FDA requirements, if
the Company attempts to sell its products overseas, the Company will be subject
to foreign regulatory authorities governing clinical trials, approvals and
product sales. Whether or not FDA approval has been obtained, approval of a
product by the comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval. The
export of unapproved products also is subject to FDA regulation. Under certain
conditions, however, an unapproved non-biological or biological drug may be
exported to any country if the product complies with the laws of that country
and has valid marketing authorization in Australia, Canada, Israel, Japan, New
Zealand, Switzerland, South Africa, or in any country in the European Union
("EU") or the European Economic Area.

In Europe, the clinical trial approval process varies from country to
country, ranging from simple notification of intent to conduct a clinical trial
to a complete and lengthy approval process. The Company's success in obtaining
FDA approval of an IND application does not ensure clinical trial approval in
Europe, which must be pursued individually in each country in which the Company
intends to conduct clinical trials. The clinical trial approval process in the
United Kingdom (also referred to as the CTX process), where the Company intends
to conduct clinical trials beginning in 1997, is a rigidly time-limited process
depending upon acceptance by the regulatory authority in the United Kingdom of
an information summary containing details regarding the chemistry, pharmacy and
toxicology of the drug compressed into a 50-60 page document. Approval by the
regulatory authority in the United Kingdom, which must be given or refused
within 35 days, gives the applicant broad freedom to conduct trials in different
centers within the pre-agreed conditions of a usage guideline.

Unlike the highly individual approach to approval of clinical trials which
varies in Europe from country to country, the product registration system in the
EU combined with those of other European nations have been harmonized. After
1998, all non-biological and biological products which are to be marketed in
more than one EU member state must be approved either through the centralized or

42
<PAGE> 45

decentralized (mutual recognition) procedure. Use of the centralized process is
compulsory for biotechnology products, such as the Company's monoclonal antibody
products, and is available upon request for other innovative new products. The
centralized procedure involves the submission of an application to a central
authority, the European Agency for the Evaluation of Medicinal Products ("EMEA")
based in London, evaluation of the application by two of the member states
appointed as Rapporteurs and agreement by all other member states through the
decision of a delegate committee, the Committee on Proprietary Medicinal
Products ("CPMP"). The process is rigidly time-limited. In general, the total
time required for product approval ranges between one and two years. Product
approval permits the applicant to commercialize the product with a single set of
indications and contraindications throughout the European market.

Preconceived attitudes toward acceptable indications for a particular
non-biological or biological drugs may vary among member states and those
indications agreed upon by the CPMP may represent the compromise that could be
agreed upon by all members. Therefore, there can be no assurance that the
indications for use for which the Company initially seeks marketing approval
will be the same as those that are finally approved by the CPMP. In addition,
there can be no assurance that the CPMP will accept the same clinical end points
as the FDA in proving efficacy. Other applicants have found it necessary to
reassess their clinical trial results to satisfy different criteria before they
could obtain a consensus favorable opinion from the CPMP, even though the FDA
already had granted approval for marketing the product in the United States.
There can be no assurance that any application the Company submits to the EMEA
will be approved on a timely basis, or at all, and failure of the Company to
obtain marketing authorization in Europe for any of its products could have a
significant adverse effect on the Company's business, financial condition and
results of operations.

Other Regulations. The Company is subject to numerous federal, state and
local laws and regulations relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control, the
experimental use of animals and the disposal of hazardous or potentially
hazardous substances. There can be no assurance that the Company will not be
required to incur significant costs to comply with such laws and regulations in
the future or that such laws or regulations will not have a materially adverse
effect upon the Company's business, financial condition and results of
operations.

MANUFACTURING AND SUPPLY

The Company currently has no manufacturing facilities or staff for clinical
or commercial production of any monoclonal antibodies or small molecule
antagonists. The Company intends to rely initially on third parties to
manufacture certain of its product candidates for development, preclinical and
clinical trials and commercialization, if any. The monoclonal antibodies LDP-01
and LDP-02 will be manufactured for preclinical and early clinical trials in
collaboration with the TAC. The TAC has the capacity to produce these monoclonal
antibodies in sufficient quantity and of sufficient quality to support these
trials. The Company is currently in the final stages of discussions with a
contract manufacturer for the production of LDP-03 for some or all of the
Company's clinical trial production.

The Company expects that its collaborative partners will manufacture
products for clinical development and commercialization. Under the Company's
collaboration agreements with Warner-Lambert, Roche Bioscience and Kyowa, the
collaborative partners have the exclusive right under the collaboration
agreements to manufacture products that result from their programs.

COMPETITION

The biotechnology and pharmaceutical industries are intensely competitive
and subject to rapid and significant technological change. Competitors of the
Company in the United States and elsewhere are numerous and include, among
others, major multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. While the
Company believes that several of the drugs which may result from its research
and development efforts

43
<PAGE> 46

may be utilized in combination with existing drugs to treat specific diseases
(such as LDP-01 used in conjunction with t-PA or heparin and LDP-03 used in
conjunction with or following fludarabine), there can be no assurance that
patients, physicians or manufacturers of such existing drugs will view any of
the drugs that may be developed by the Company as complementary rather than
competitive. Many of the Company's potential competitors have greater financial
and other resources, including larger research and development staffs and more
effective marketing and manufacturing organizations, than the Company or its
collaborative partners. Acquisitions of competing companies and potential
competitors by large pharmaceutical companies or others could enhance the
financial, marketing and other resources available to such competitors. As a
result of academic and government institutions becoming increasingly aware of
the commercial value of their research findings, such institutions are more
likely to enter into exclusive licensing agreements with commercial enterprises,
including competitors of the Company. There can be no assurance that the
Company's competitors will not succeed in developing technologies and drugs that
are more effective or less costly than any which are being developed by the
Company or which would render the Company's technology and future drugs obsolete
or noncompetitive.

In addition, some of the Company's competitors have greater experience than
the Company in conducting preclinical and clinical trials and obtaining FDA and
other regulatory approvals. Accordingly, the Company's competitors may succeed
in obtaining FDA or other regulatory approvals for drug candidates more rapidly
than the Company. Companies that complete clinical trials, obtain required
regulatory agency approvals and commence commercial sale of their drugs before
their competitors may achieve a significant competitive advantage. There can be
no assurance that drugs resulting from the Company's research and development
efforts, or from the joint efforts of the Company and its collaborative
partners, will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere.

EMPLOYEES

As of June 30, 1997, the Company had 54 full-time employees, of whom 19
hold Ph.D. or M.D. degrees. Of the Company's total work force, 44 are engaged in
research and development activities and 10 are engaged in business development,
finance and administration. None of the Company's employees is represented by a
collective bargaining agreement, nor has the Company experienced work stoppages.
The Company believes that relations with its employees are good.

SCIENTIFIC ADVISORY BOARD

The Company has established a Scientific Advisory Board ("SAB") to advise
on scientific and medical matters. The members of the SAB, collectively, have
considerable experience in the area of immunology and of the principal molecules
and disease targets of interest to the Company. The SAB meets as a group at
least one time per year and individual members meet with LeukoSite on an ad hoc
basis several times per year. All of the Company's SAB members have entered into
consulting agreements with the Company and have either purchased shares of
Common Stock or been granted options to purchase Common Stock.

The members of LeukoSite's SAB are:

Timothy A. Springer, Ph.D. is the Founder of LeukoSite and Chairman of the
SAB. Dr. Springer is the Latham Family Professor, Harvard Medical School,
Department of Pathology and at the Center for Blood Research. He is an expert on
the molecular and cellular pathways involved in leukocyte recruitment and
adhesion. Dr. Springer received his Ph.D. in Biochemistry and Molecular Biology
from Harvard University. In recognition of Dr. Springer's important contribution
to this area of medical science, he was elected to membership in the National
Academy of Sciences.

Eugene C. Butcher, M.D. is the Vice Chairman of the SAB and an Associate
Professor of Pathology at Stanford University Medical Center and a Staff
Physician at the Palo Alto Veterans Association

44
<PAGE> 47

Medical Center. Dr. Butcher's expertise is in the molecular and cellular
processes which are involved in lymphocyte homing and recruitment. He consults
with the Company on scientific matters pertaining to the recruitment of
lymphocytes to mucosal tissue, and in particular the role of SS7 integrins and
mucosal addressin cell adhesion molecules (MAdCAM). Dr. Butcher received his
M.D. from Washington University School of Medicine.

Michael B. Brenner, M.D. is the K. Frank Austen Professor of Medicine at
Harvard Medical School and Brigham and Women's Hospital. Dr. Brenner is an
expert in and consults with the Company on the biology of T cells found in skin
and in the mucosal lining of the gastrointestinal tract. Dr. Brenner received
his M.D. from Vanderbilt University School of Medicine.

Bruce Ganem, Ph.D. is the Franz and Elisabeth Roessler Professor of
Chemistry and former Chairman of the Chemistry Department at Cornell University.
Dr. Ganem is a prominent chemist and consults with the Company in the fields of
organic synthesis and natural products chemistry. Dr. Ganem received his Ph.D.
in Organic Chemistry from Columbia University.

Craig Gerard, M.D., Ph.D. is an Associate Professor of Pediatrics at
Harvard Medical School and Children's Hospital/Brigham and Women's Hospital. Dr.
Gerard consults with the Company on the biochemistry, regulation and function of
G protein-coupled chemokine receptors and has a clinical specialty in genetic
lung diseases. Dr. Gerard received his M.D. degree from the Bowman Gray School
of Medicine and his Ph.D. in Chemistry from the University of California at San
Diego.

Martin Hemler, Ph.D. is an Associate Professor of Pathology at Harvard
Medical School and the Dana-Farber Cancer Institute. Dr. Hemler is a leader in
the field of SS1 integrins, molecules on activated leukocytes that are important
in adhesion to the endothelium and to the extracellular matrix and consults with
the Company on its integrin programs. Dr. Hemler received his Ph.D. in
Biological Chemistry from the University of Michigan.

Steven L. Kunkel, Ph.D. is a Professor of Pathology at the University of
Michigan. Dr. Kunkel is an expert on the molecular basis of inflammation and
consults with the Company on its chemokine programs. Dr. Kunkel received his
Ph.D. in Microbiology/Immunology from Kansas University.

Herman Waldmann, M.D., Ph.D., F.R.S. is a Professor of Pathology at the
University of Oxford. Dr. Waldmann is a Fellow of the Royal Society and an
expert on immunological tolerance. He consults with the Company on matters
relating to monoclonal antibodies and their use. Dr. Waldmann received his Ph.D.
in Pharmacology and Therapeutics and his M.D. from Cambridge University.

Timothy Williams, Ph.D. is a Professor of Applied Pharmacology at the
Imperial College of Science, Technology and Medicine. Dr. Williams is widely
known for his work on the molecular and cellular processes of inflammation, and
he consults with the Company on eosinophil recruitment and chemokines. Dr.
Williams received his Ph.D. in Pharmacology from University College, London.

Another key consultant to the Company is:

Daniel Podolsky, M.D. is a Professor of Medicine at Harvard Medical School
and Chairman of Gastroenterology at Massachusetts General Hospital. Dr. Podolsky
is an expert on the clinical management and research of inflammatory bowel
disease and consults with the Company on its inflammatory bowel disease program.
Dr. Podolsky received his M.D. from Harvard University.

FACILITIES

The Company's administrative and research and development facility is
located in Cambridge, Massachusetts. This 23,500 square foot facility is leased
for a term which expires in 1999. An additional 770 square feet of laboratory
and office space will become subject to the lease by December 1, 1997.

45
<PAGE> 48

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
June 30, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Christopher K. Mirabelli, Ph.D............. 42 Chairman of the Board of Directors,
President and Chief Executive Officer
Augustine Lawlor........................... 40 Vice President, Corporate Development and
Chief Financial Officer
Walter Newman, Ph.D........................ 52 Vice President, Research and Discovery
Lee Brettman, M.D.......................... 50 Vice President, Pharmaceutical Development:
Clinical Development and Medical Affairs
Douglas Ringler, V.M.D..................... 40 Vice President, Pharmaceutical Development:
Preclinical Development and Laboratory
Operations
Jay Luly, Ph.D............................. 40 Vice President, Drug Discovery
Catherine Bingham(1)....................... 31 Director
John W. Littlechild(2)..................... 45 Director
Martin Peretz, Ph.D.(2).................... 57 Director
Mark Skaletsky(1).......................... 49 Director
Christopher T. Walsh, Ph.D................. 53 Director
</TABLE>

- ------------------------------
(1) Member of Audit Committee of the Board of Directors.

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

Dr. Mirabelli has served as Chairman of the Board of Directors, President
and Chief Executive Officer since July 1993. Dr. Mirabelli was a founder of Isis
Pharmaceuticals, Inc., a biotechnology company, where he served as Executive
Vice President from 1992 to 1993, Senior Vice President of Research and
Preclinical Development from 1991 to 1992, and Vice President of Research from
1989 to 1991. From 1981 to 1989, Dr. Mirabelli served in various positions at
SmithKline & French Laboratories, most recently as Director of Molecular
Pharmacology. Dr. Mirabelli received his B.S. in Biology from the State
University of New York at Fredonia and his Ph.D. in Pharmacology from Baylor
College of Medicine.

Mr. Lawlor has served as Vice President, Corporate Development and Chief
Financial Officer since February 1997. From 1995 to 1997, he served as Chief
Financial Officer at Alpha-Beta Technology, Inc., a biotechnology company. From
1993 to 1995, Mr. Lawlor served as Chief Financial Officer at BioSurface
Technology, a biotechnology company. From 1989 to 1995, he served as Chief
Financial Officer at Armstrong Pharmaceuticals, Inc., a biotechnology company.
Mr. Lawlor received his B.A. from the University of New Hampshire and his
M.P.P.M. from the Yale School of Organizational Management.

Dr. Newman has served as Vice President, Research and Discovery since June
1996. Dr. Newman served the Company as Senior Director, Research from 1994 to
1996, and as a Director, Research from 1993 to 1994. From 1986 to 1993, he
served as Chief Scientist at Otsuka America Pharmaceuticals, a biotechnology
company, and leader of the Endothelial Cell Biology Group. Dr. Newman received
both his B.A. in Chemistry and his Ph.D. in Immunochemistry from Columbia
University.

Dr. Brettman has served as Vice President of Pharmaceutical Development:
Clinical Development and Medical Affairs since June 1996. From 1995 to 1996, he
served the Company as Senior Director, Clinical Development of the Company. From
1993 to 1995, Dr. Brettman served as Head of Clinical Research at Vertex
Pharmaceuticals, Inc., a biotechnology company. From 1990 to 1993, he served
first

46
<PAGE> 49

as Associate Director of the Anti-Infectives Group at the Robert Wood Johnson
Pharmaceutical Research Institute and then as the Director of Anti-infectives
Research at Schering Plough Company, a pharmaceutical company. Dr. Brettman
received his B.S. in Biology from the Massachusetts Institute of Technology and
his M.D. from Baylor College of Medicine.

Dr. Ringler has served as Vice President of Pharmaceutical Development:
Preclinical Development, Laboratory Operations and Experimental Therapies since
June 1996. Dr. Ringler served the Company as Senior Director, Preclinical
Development from 1994 to 1996, and Director of Experimental Therapeutics from
1993 to 1994. From 1985 to 1993, he served in various positions at Harvard
Medical School, including Associate Professor and Chairman of the Division of
Comparative Pathology. Dr. Ringler received both his B.A. in Biology and his
V.M.D. from the University of Pennsylvania.

Dr. Luly has served as Vice President, Drug Discovery since June 1997. From
1996 to 1997, Dr. Luly served as Director, Immunoregulation Research and
research fellow at Abbott Laboratories, a health care company. From 1993 to
1995, Dr. Luly served as senior project leader and research fellow at Abbott
Laboratories. From 1990 to 1993, he served as project leader and associate
research fellow at Abbott Laboratories. Dr. Luly received his B.S. from the
University of Illinois and his Ph.D. in Organic Chemistry from the University of
California, Berkeley.

Ms. Bingham has served as a Director since September 1994. Since 1991, Ms.
Bingham has served as a Partner at Schroder Ventures, a venture capital
management company. Ms. Bingham received her first class degree in Biochemistry
from the University of Oxford and her M.B.A. from Harvard Business School.

Mr. Littlechild has served as a Director since the Company's incorporation.
Since 1992, Mr. Littlechild has served as a general partner of HealthCare
Partners III L.P. and HealthCare Partners IV L.P., the general partner,
respectively, of each of HealthCare Ventures III L.P. and HealthCare Ventures IV
L.P., and as a principal of HealthCare Investment Corporation LLC, a venture
capital management company. He is a member of the Board of Directors of Orthofix
International N.V., a medical devices company, Diacrin Inc., a biotechnology
company, and Virus Research Institute, Inc., a biotechnology company. Mr.
Littlechild received his B.Sc. from the University of Manchester and his M.B.A.
from Manchester Business School.

Dr. Peretz has served as a Director since September 1993. Since 1974, Dr.
Peretz has served as the Editor-in-Chief of The New Republic, and has been a
faculty member of the Social Studies Department at Harvard University since
1965. He is Co-Chairman of the Board of Directors of The Street.com, a financial
daily on the World Wide Web. He serves on the Board of Directors of nine mutual
funds managed by the Dreyfus Corporation. Dr. Peretz received his B.A. in
History from Brandeis University and his Ph.D. in Government from Harvard
University.

Mr. Skaletsky has served as a Director since December 1996. Since May 1993,
Mr. Skaletsky has served as President and Chief Executive Officer of GelTex
Pharmaceuticals, Inc., a biotechnology company. Previously, he served as
Chairman and Chief Executive Officer of Enzytech, Inc., and Opta Food
Ingredients, Inc., each a biotechnology company. Mr. Skaletsky also served as
President and Chief Operating Officer of Biogen, Inc., a biotechnology company.
He is a member of the Board of Directors of Isis Pharmaceuticals, Inc., a
biotechnology company. Mr. Skaletsky is currently serving as president of the
Massachusetts Biotechnology Council and is a member of the Board of Directors of
the Biotechnology Industry Organization. Mr. Skaletsky received his B.S. in
Finance from Bentley College.

Dr. Walsh has served as a Director since January 1996. Since 1991, Dr.
Walsh has served as Hamilton Kuhn Professor of Biological Chemistry and
Molecular Pharmacology at Harvard Medical School. From 1987 to 1995, he was
Chairman of the Harvard Medical School Biological Chemistry and Molecular
Pharmacology Department. Dr. Walsh received his A.B. in Biology from Harvard
University and his Ph.D. in Life Sciences from Rockefeller University.

47
<PAGE> 50

BOARD OF DIRECTORS

All directors hold their positions until the annual meeting of stockholders
at which their respective successors are elected and qualified. Executive
officers of the Company are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors or until their successors are duly
elected and qualified.

The Board of Directors has appointed an Audit Committee and a Compensation
Committee. The Audit Committee reviews the scope and results of the annual audit
of the Company's financial statements conducted by the Company's independent
accountants, the scope of other services provided by the Company's independent
accountants, proposed changes in the Company's financial and accounting
standards and principles, and the Company's policies and procedures with respect
to its internal accounting, auditing and financial controls, and makes
recommendations to the Board of Directors on the engagement of the independent
accountants, as well as other matters which may come before it or as directed by
the Board of Directors. The Compensation Committee administers the Company's
compensation programs, including the Stock Option Plan, and performs such other
duties as may from time to time be determined by the Board of Directors.

DIRECTOR COMPENSATION

Dr. Walsh and Mr. Skaletsky each have received $2,500 and a stock option
grant of 9,756 shares of Common Stock as compensation for service on the Board
of Directors. No other director has received compensation for service on the
Board of Directors.

Following this offering, Non-Employee Directors will receive a fee of
$5,000 for each year of service on the Board of Directors and will be reimbursed
for expenses incurred in connection with their attendance. In addition, each
year, each Non-Employee Director will be granted automatically a stock option
exercisable for 2,000 shares of Common Stock, as described below under "Amended
and Restated 1993 Stock Option Plan."

48
<PAGE> 51

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
annual and long-term compensation paid by the Company during the fiscal year
ended December 31, 1996 to the Chief Executive Officer and its other three most
highly compensated executive officers (the "Named Executive Officers") whose
1996 compensation exceeded $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(4)
ANNUAL COMPENSATION ------------
------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)(2) COMPENSATION($)(3) OPTIONS(#)
- -------------------------------------- ------------ ----------- ------------------ ------------
<S> <C> <C> <C> <C>
Christopher K. Mirabelli.............. $222,000 $39,960 $8,097 50,914
President, Chief Executive
Officer and Chairman of the Board of
Directors

Walter Newman......................... 140,000 16,800 6,355 38,109
Vice President,
Research and Discovery

Douglas Ringler....................... 115,417 16,100 2,111 43,475
Vice President,
Pharmaceutical Development:
Preclinical Development and
Laboratory Operations

Lee Brettman.......................... 175,000 17,500 6,446 20,426
Vice President,
Pharmaceutical Development:
Clinical Development and
Medical Affairs
</TABLE>

- ------------------------------
(1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k)
Plan, and excludes bonus paid in 1996 for fiscal year 1995.

(2) Bonus amounts were accrued for fiscal 1996, but were not paid until the
first quarter of 1997.

(3) Other Annual Compensation consists of health and life insurance premiums
paid by the Company on behalf of the Named Executive Officer.

(4) The Company has no long-term compensation plan that includes long-term
incentive payments.

49
<PAGE> 52

The following table sets forth certain information with respect to grants
of stock options under the Company's Stock Option Plan to the Named Executive
Officers during the year ended December 31, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATE OF
----------------------------------------------------------- STOCK PRICE
NUMBER PERCENT OF TOTAL APPRECIATION FOR
OF SECURITIES OPTIONS GRANTED OPTIONS TERM(2)
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION -----------------
NAME: OPTIONS(1) FISCAL YEAR PRICE $/SH DATE 5% 10%
- ------------------------------ ------------- ----------------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Christopher K. Mirabelli...... 36,910 11.38% $5.125 4/22/06 $40,767 $87,792
14,004 4.32 6.15 12/16/06 18,560 39,970
Walter Newman................. 19,436 5.99 5.125 4/22/06 21,466 46,229
18,673 5.76 6.15 12/16/06 24,249 53,297
Douglas Ringler............... 19,200 5.92 5.125 4/22/06 21,206 45,668
24,275 7.48 6.15 12/16/06 32,174 69,287
Lee Brettman.................. 3,620 1.12 5.125 4/22/06 3,999 8,612
16,806 5.18 6.15 12/16/06 22,274 47,968
</TABLE>

- ------------------------------
(1) Represents incentive stock options granted under the Stock Option Plan to
each of the individuals listed above on April 22, 1996 and December 16,
1996. Each option becomes exercisable in four equal annual installments, and
has a maximum term of 10 years from the date of grant, subject to earlier
termination in the event of the optionee's cessation of service with the
Company. All of these options are exercisable during the holder's lifetime
only by the holder; they are exercisable by the holder only while the holder
is an employee of the Company and for certain limited periods of time
thereafter in the event of termination of employment.

(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed appreciation rates of five percent and ten percent in
the fair market value of shares of Common Stock from the fair market value
on the date of grant, which rates are set by the Securities and Exchange
Commission and compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of option exercise
prices, but do not include deductions for taxes or other expenses associated
with the exercises. Actual gains, if any, are dependent on the performance
of the Common Stock and the date on which the option is exercised. There can
be no assurance that the amounts reflected will be achieved or will
otherwise be indicative of the actual amounts received, if any.

50
<PAGE> 53

The following table sets forth information with respect to (i) the number
of unexercised options held by the Named Executive Officers as of December 31,
1996 and (ii) the value of unexercised in-the-money options (options for which
the fair market value of the Common Stock exceeds the exercise price) as of
December 31, 1996.

OPTION EXERCISES IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ----------- -------- ------------------------------- --------------------------
<S> <C> <C> <C> <C>
Christopher K. Mirabelli... 10,975 57,371 28,048/87,500 $146,425/$229,083
Walter Newman.............. -- -- 6,097/44,207 31,875/51,797
Douglas Ringler............ 20,549 119,318 0/54,416 0/79,493
Lee Brettman............... -- -- 6,097/38,719 30,750/95,961
</TABLE>

- ------------------------------
(1) Based on the fair market value of the Common Stock as of December 31, 1996,
of $6.15 per share, as determined by the Company's Board of Directors, less
the aggregate exercise price.

AMENDED AND RESTATED 1993 STOCK OPTION PLAN

The Stock Option Plan provides for the grant of options to purchase shares
of Common Stock to officers, employees and directors of and consultants to the
Company. The maximum number of shares of Common Stock that may be issued
pursuant to the Stock Option Plan is 1,500,000. The Stock Option Plan was
adopted by the Board of Directors and the stockholders of the Company on
September 21, 1993. The Stock Option Plan was amended and restated by the Board
of Directors on April 14, 1997, in order to increase the number of shares of
Common Stock to its current level and to provide the rights set forth below,
which amendment was approved by the stockholders of the Company as of June 25,
1997.

The Stock Option Plan will be administered by the Compensation Committee
which is presently comprised of John Littlechild and Martin Peretz. The
Compensation Committee will select participants (other than for the automatic
grants to Non-Employee Directors referred to below) and, in a manner consistent
with the terms of the Stock Option Plan, determine the number and duration of
the options to be granted and the terms and conditions of the option agreements.
In addition, each Non-Employee Director will receive, each year that such person
serves as a director, an option to purchase 2,000 shares of Common Stock at fair
market value on the date of grant. The Compensation Committee has the right to
alter, amend or terminate the Stock Option Plan at any time but any such
alteration, amendment or termination will not adversely affect options
previously granted.

The Stock Option Plan provides for grants of stock options intended to
qualify for preferential tax treatment (the "Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options that do not qualify for such treatment. All employees
of the Company are eligible for stock options under the Plan in amounts and at
prices determined by the Compensation Committee, provided that, in the case of
Incentive Stock Options, the exercise price will not be less than 100% of the
fair market value of the Common Stock on the date of grant, or not less than
110% of the fair market value of the Common Stock on the grant date if the
optionee owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock. No participant in the Stock Option Plan
may in any year be granted stock options with respect to more than 500,000
shares of Common Stock.

Under the Stock Option Plan, the Compensation Committee may establish with
respect to each option granted such vesting provisions as it determines to be
appropriate or advisable. In general, options granted under the Stock Option
Plan have a ten-year term, and such options vest or have

51
<PAGE> 54

vested over four-year periods at various rates. Unexercised options
automatically terminate upon the termination of a holder's relationship with the
Company. In addition, the Stock Option Plan includes a provision adjusting the
number of shares of Common Stock available for grant, the number of shares of
Common Stock subject to outstanding awards thereunder and the per share exercise
price thereof in the event of any stock dividend, stock split, recapitalization,
merger or certain other events.

The Stock Option Plan provides that each outstanding option will
immediately become fully exercisable upon a "Change in Control" of the Company,
as defined in the Stock Option Plan. A "Change in Control" includes the
acquisition by any third party (as hereinafter defined), directly or indirectly,
of more than 25% of the Common Stock outstanding at the time, without the prior
approval of the Company's Board of Directors. A "third party" for purposes of
the foregoing means any person other than the Company or a subsidiary or
employee benefit plan or trust maintained by the Company or any of its
subsidiaries together with any of such person's "affiliates" and "associates" as
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

As of June 30, 1997, an aggregate of 966,891 shares of Common Stock were
subject to outstanding stock options granted under the Stock Option Plan. As of
June 30, 1997, options to purchase 228,465 shares of Common Stock were
exercisable at prices ranging from $.04 to $7.18 per share.

1997 EMPLOYEE STOCK PURCHASE PLAN

In April 1997, the Board adopted the 1997 Employee Stock Purchase Plan (the
"Stock Purchase Plan"), which enables eligible employees to acquire shares of
the Company's Common Stock through payroll deductions. The Stock Purchase Plan
is intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code. Offerings under the Stock Purchase Plan are planned to commence on
January 1 and end on December 31 of each year. The initial offering period is
intended to commence upon January 1, 1998 and to end on December 31, 1998,
unless otherwise determined by the Board. During the offering period, an
eligible employee may select a rate of payroll deduction up to 10% of his or her
compensation up to an aggregate total payroll deduction not to exceed $10,000 in
any offering period. The purchase price for the Company's Common Stock purchased
under the Stock Purchase Plan is 85% of the lesser of the fair market value of
the shares on the first day or the last day of the offering period. A total of
150,000 shares of Common Stock have been reserved for issuance under the Stock
Purchase Plan.

401(K) PLAN

The Company has implemented a retirement savings plan (the "401(k) Plan"),
which covers all full-time employees. Pursuant to the 401(k) Plan, an employee
may elect to reduce his or her current compensation by up to 15% (subject to
certain overall dollar limits) and have the amount of such reduction contributed
to the 401(k) Plan. The 401(k) Plan allows employees to make certain tax-
deferred voluntary contributions. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions by employees, and earned income
thereon, are not taxable to employees until withdrawn from the 401(k) Plan. The
administrator of the 401(k) Plan will invest each employee's account at the
direction of each such employee, who can choose among certain investment
alternatives provided.

EMPLOYMENT AGREEMENTS

The Company has no employment agreements currently in effect between it and
its employees.

COMPENSATION COMMITTEE INTERLOCKS

The Compensation Committee is responsible for determining salaries,
incentives and all other forms of compensation for directors and officers of the
Company. The Compensation Committee also administers various incentive
compensation and benefit plans, including the Stock Option Plan and Stock
Purchase Plan. The members of the Compensation Committee of the Board of
Directors are

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<PAGE> 55

John W. Littlechild and Martin Peretz, neither of whom is an employee of the
Company. Mr. Littlechild is a general partner of the general partner of
HealthCare Ventures, III, L.P., and HealthCare Ventures, IV, L.P., each a
venture fund and a principal stockholder of the Company. Dr. Peretz may be
deemed to beneficially own the shares held by I.S. Partners, L.P., a venture
capital firm and a principal stockholder of the Company. See "Principal
Stockholders" and "Certain Transactions."

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<PAGE> 56

CERTAIN TRANSACTIONS

In June 1994, the Company sold an aggregate of 5,000,000 shares of Series A
Convertible Preferred Stock (convertible into 1,219,512 shares of Common Stock)
at a purchase price of $1.00 per share ($4.10 per share on an as-converted
basis) to a group of existing investors, including HealthCare Ventures III, L.P.
("HCV III"), HealthCare Ventures IV, L.P. ("HCV IV") and I.S. Partners, L.P.
("I.S. Partners").

In September 1994, the Company sold an aggregate of 1,666,667 shares of
Series B Convertible Preferred Stock (convertible into 406,504 shares of Common
Stock) at a purchase price of $1.20 per share ($4.92 per share on an
as-converted basis) to a group of new and existing investors, including Schroder
Ventures International Life Science Fund L.P. 1, Schroder Ventures International
Life Sciences Trust, Schroders Incorporated and I.S. Partners.

In November 1994, the Company entered into a Research, Development and
Marketing Agreement with Warner-Lambert relating to the Company's MCP-1 program.
In connection with such agreement, the Company issued and sold 1,000,000 shares
of Series C Convertible Preferred Stock (convertible into 243,902 shares of
Common Stock) at a purchase price of $3.00 per share ($12.30 per share on an
as-converted basis) to Warner-Lambert Company.

In May 1995, the Series A Common Stock, which was owned by Dr. Springer and
his affiliates, automatically converted pursuant to its terms into 893,782
shares of Common Stock.

In July 1995, the Company entered into a Research, Development and
Marketing Agreement with Warner-Lambert Company relating to the Company's IL-8
program and amended the Research, Development and Marketing Agreement relating
to the MCP-1 program.

In September 1995, the Company sold an aggregate of 1,481,482 shares of
Series D Convertible Preferred Stock (convertible into 361,337 shares of Common
Stock) at a purchase price of $1.35 per share ($5.54 per share on an
as-converted basis) to a group of new and existing investors, including HCV III,
HCV IV, I.S. Partners, Schroder Ventures International Life Science Fund L.P. 1,
Schroder Ventures International Life Sciences Trust, Schroders Incorporated and
Francis H. Spiegel, Jr.

In January 1996, the Company sold 625,000 shares of Series E Convertible
Preferred Stock (convertible into 152,439 shares of Common Stock) at a purchase
price of $4.00 per share ($16.40 per share on an as-converted basis) to
Warner-Lambert.

In February 1996, the Company sold an aggregate of 910,188 shares of Series
F Convertible Preferred Stock (convertible into 255,675 shares of Common Stock)
at a purchase price of $3.00 per share ($12.30 per share on an as-converted
basis) to a group of new and existing investors, including HCV III, HCV IV, I.S.
Partners, Schroder Ventures International Life Science Fund L.P. 1, Schroder
Ventures International Life Sciences Trust, Schroders Incorporated and Lombard
Odier & Cie.

In April 1996, the Company sold 625,000 shares of Series E Convertible
Preferred Stock (convertible into 204,535 shares of Common Stock) at a purchase
price of $4.00 per share ($16.40 per share on an as-converted basis) to
Warner-Lambert.

In June 1996, the Company sold an aggregate of 728,147 shares of Series F
Convertible Preferred Stock (convertible into 194,608 shares of Common Stock) at
a purchase price of $3.00 per share ($12.30 per share on an as converted basis)
to a group of existing investors, including HCV III, HCV IV, I.S. Partners,
Schroder Ventures International Life Science Fund L.P. 1, Schroder Ventures
International Life Sciences Trust, Schroders Incorporated and Lombard Odier &
Cie.

In July 1996, the Company entered into a Research Collaboration and License
Agreement with Roche Bioscience relating to the Company's CCR3 Antagonist
program. In connection with such agreement, Roche Bioscience made a $1.5 million
license fee payment.

In December 1996, the Company sold 857,143 shares of Series G Convertible
Preferred Stock (convertible into 562,937 shares of Common Stock) at a purchase
price of $5.33 per share ($7.47 on an

54
<PAGE> 57

as-converted basis) to Roche Finance Ltd. If the initial public offering price
varies within the estimated range, the number of shares of Common Stock issuable
upon the conversion of the Preferred Stock is subject to adjustment from a
maximum of 609,849 shares of Common Stock (in the event that the initial public
offering price is $6.00 per share) to a minimum of 522,728 shares of Common
Stock (in the event that the initial public offering price is $7.00 per share).
The pricing of this offering outside the estimated range will further affect the
number of shares of Common Stock into which the Preferred Stock is convertible.

In January 1997, the Company granted Augustine Lawlor, Vice President,
Corporate Development and Chief Financial Officer, an incentive stock option to
purchase 89,633 shares of Common Stock at an exercise price of $6.15, the fair
market value of the Common Stock on the date of grant.

In June 1997, the Company granted Jay Luly, Vice President, Drug Discovery,
an incentive stock option to purchase 85,366 shares of Common Stock at an
exercise price of $7.18, the fair market value of the Common Stock on the date
of grant.

In June 1997, the Company entered into an agreement with Warner-Lambert
pursuant to which (i) Warner-Lambert terminated all of its equity anti-dilution
rights in connection with Company's initial public offering and (ii)
Warner-Lambert agreed to reduce the number of shares of Common Stock into which
its shares of Series G Preferred Stock would be converted upon consummation of
the Company's initial public offering. In exchange for Warner-Lambert's
agreement to so reduce certain of its equity rights in the Company, the Company
agreed to reduce the amount of certain of the royalties due to the Company by
Warner-Lambert in connection with sales of products developed pursuant to any of
the research collaborations between the Company and Warner-Lambert, and the
Company also agreed in principle to waive its right to co-promote such products
under certain circumstances. In the event that the initial public offering price
is less than $12.30 per share, Warner-Lambert will receive a credit against such
royalties. Assuming an initial public offering price of $6.50 per share, the
approximate amount of such credit would be $3.59 million.

For a description of certain transactions and certain employment and other
arrangements between the Company and certain of its directors and executive
officers, see "Management Director Compensation" and "Executive Compensation."

The Company believes that the securities issued in the transactions
involving the Company described above were sold by the Company at their then
fair market value and that the terms of the transactions described were no less
favorable than the Company could have obtained from unaffiliated third parties.

The Company has adopted a policy, effective following the consummation of
this offering, that all future transactions between the Company and its
officers, directors and affiliates must (i) be approved by a majority of the
disinterested members of the Company's Board of Directors and (ii) be on terms
no less favorable to the Company than could be obtained from unrelated third
parties. In addition, this policy requires that any loans by the Company to its
officers, directors or other affiliates be for bona fide business purposes only.

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<PAGE> 58

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1997, giving effect to
the conversion of all outstanding shares of the Company's Preferred Stock into
an aggregate of 5,435,026 shares of Common Stock by (i) each person known to the
Company to be the beneficial owner of more than 5% of the shares of Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers and (iv) all current directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENT OWNED
SHARES ------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAMES AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Entities Affiliated with HealthCare Investment
Corporation(2)........................................... 1,999,835 30.5% 22.1%
Twin Tower at Metro Park
379 Thornall Street
Edison, New Jersey 08837
Timothy Springer(3)........................................ 769,970 11.8% 8.5%
Center for Blood Research
200 Longwood Avenue
Boston, Massachusetts 02115
I.S. Partners, L.P......................................... 736,785 11.2% 8.1%
c/o Clark Estates
30 Wall Street
New York, New York 10005
Warner-Lambert Company..................................... 618,466 9.4% 6.8%
201 Tabor Road
Morris Plains, New Jersey 07950
Roche Finance Ltd.......................................... 562,937 8.6% 6.2%
c/o Hoffmann-La Roche, Ltd.
124 Grensacherstrasse
CH-4002 Basel
Switzerland
Entities Affiliated with Schroders PLC(4).................. 452,895 6.9% 5.0%
120 Cheapside
London EC2V 6DS
England
Lombard Odier & Cie........................................ 421,363 6.4% 4.7%
Toedistrasse 36
CH8027
Zurich, Switzerland
John W. Littlechild(5)..................................... 1,999,835 30.5% 22.1%
Martin Peretz(6)........................................... 736,785 11.2% 8.1%
Catherine Bingham(7)....................................... 452,895 6.9% 5.0%
Christopher K. Mirabelli(8)................................ 146,485 2.2% 1.6%
Christopher T. Walsh....................................... 3,984 * *
Mark Skaletsky............................................. 0 * *
Walter Newman(9)........................................... 38,394 * *
Douglas Ringler(10)........................................ 28,395 * *
Lee Brettman(11)........................................... 7,003 * *
All current directors and executive officers
as a group (11 persons)(12).............................. 3,413,776 52.1% 37.7%
</TABLE>

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

* Less than 1%.

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<PAGE> 59

(1) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended. Shares of Common Stock issuable
pursuant to options, warrants and convertible securities, to the extent
such securities are currently exercisable or convertible within 60 days of
June 30, 1997, are treated as outstanding for computing the percentage of
the person holding such securities but are not treated as outstanding for
computing the percentage of any other person. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to shares, subject to community property laws where applicable.
Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or group to acquire them within 60 days are treated as
outstanding only for purposes of determining the number of and percent
owned by such person or group.

(2) Includes shares held by HealthCare Ventures III, L.P. ("HCV III") and
HealthCare Ventures IV, L.P. ("HCV IV").

(3) Includes shares held by Dr. Springer's wife and the Springer Family Trust.
Dr. Springer disclaims beneficial ownership of all shares owned by his wife
and beneficial ownership of the shares owned by the Springer Family Trust
except to the extent of his proportional interest.

(4) Includes shares held by Schroder Ventures International Life Sciences Fund
L.P. 1, Schroder Ventures International Life Sciences Fund L.P. 2, Schroder
Ventures International Life Sciences Trust, Schroders Incorporated,
Schroder Venture Managers Limited as Investment Manager for the Schroder
Ventures International Life Sciences Fund Co-Investment Scheme (together,
the "Schroder Group").

(5) Includes shares held by HCV III and HCV IV. Mr. Littlechild, a director of
the Company, is a general partner of the general partner of each of HCV III
and HCV IV. Mr. Littlechild shares voting and investment control with
respect to the shares owned by HCV III and HCV IV. Mr. Littlechild may be
deemed to beneficially own the shares held by HCV III and HCV IV although
he disclaims beneficial ownership except to the extent of his proportional
ownership interests.

(6) Includes shares held by I.S. Partners, L.P. Dr. Peretz, a director of the
Company, may be deemed to beneficially own the shares held by I.S. Partners
although he disclaims beneficial ownership except to the extent of his
proportionate ownership interest.

(7) Includes shares held by the Schroder Group. Ms. Bingham may be deemed to
beneficially own the shares held by the Schroder Group although she
disclaims beneficial ownership except to the extent of her proportionate
ownership interest.

(8) Includes 55,569 shares of Common Stock which Dr. Mirabelli has the right to
acquire within 60 days of June 30, 1997 upon the exercise of stock options.

(9) Includes 14,005 shares of Common Stock which Dr. Newman has the right to
acquire within 60 days of June 30, 1997 upon the exercise of stock options.
Includes shares held by the Newman Family Trust. Dr. Newman disclaims
beneficial ownership of all shares owned by the Newman Family Trust.

(10) Includes 7,848 shares of Common Stock which Dr. Ringler has the right to
acquire within 60 days of June 30, 1997 upon the exercise of stock options.

(11) Includes 7,003 shares of Common Stock which Dr. Brettman has the right to
acquire within 60 days of June 30, 1997 upon the exercise of stock options.

(12) Includes 84,425 shares of Common Stock which the directors and officers
have the right to acquire within 60 days of June 30, 1997 upon the exercise
of stock options.

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<PAGE> 60

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, the Company will be authorized to
issue 25,000,000 shares of Common Stock, $0.01 par value per share, of which
9,049,882 shares will be issued and outstanding, and 5,000,000 shares of
undesignated Preferred Stock, $0.01 par value per share, of which no shares will
be issued and outstanding.

COMMON STOCK

Upon the closing of this offering, the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") will authorize the
issuance of up to 25,000,000 shares of Common Stock, $0.01 par value per share.
Holders of 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. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor and subject to any preferential dividend rights
of any then outstanding Preferred Stock. Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to any liquidation preference of any then
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered by the Company in this offering will be, when
issued and paid for, fully paid and nonassessable.

As of July 31, 1997, there were 6,549,882 shares of Common Stock
outstanding held by 67 stockholders (after giving effect to the automatic
conversion of all outstanding shares of Preferred Stock into an aggregate of
5,435,026 shares of Common Stock effective upon the closing of this offering).
If the initial public offering price varies within the estimated range, the
number of shares of Common Stock issuable upon the conversion of the Preferred
Stock is subject to adjustment from a maximum of 5,535,184 shares of Common
Stock (in the event that the initial public offering price is $6.00 per share)
to a minimum of 5,348,533 shares of Common Stock (in the event that the initial
public offering price is $7.00 per share). The pricing of this offering outside
the estimated range will further affect the number of shares of Common Stock
into which the Preferred Stock is convertible.

PREFERRED STOCK

Upon the closing of this offering, the Restated Certificate of
Incorporation will have an authorized class of undesignated preferred stock
consisting of 5,000,000 shares, $0.01 par value per share. The Board of
Directors will be authorized, subject to any limitations prescribed by law,
without further stockholder approval, to issue from time to time shares of
preferred stock in one or more series. Each such series of preferred stock shall
have such number of shares, designations, preferences, voting powers,
qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.

The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Such rights may include voting and conversion rights which
could adversely affect the holders of Common Stock. Satisfaction of any dividend
preferences of outstanding preferred stock would reduce the amount of funds
available, if any, for the payment of dividends on Common Stock. See "Dividend
Policy." Holders of preferred stock would typically be entitled to receive a
preference payment in the event of a liquidation, dissolution or winding up of
the Company before any payment is made to the holders of Common Stock.
Additionally, the issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of the

58
<PAGE> 61

outstanding voting stock of the Company. The Company has no present plans to
issue any shares of preferred stock.

WARRANTS

As of July 31, 1997, there were outstanding warrants exercisable for up to
84,145 shares of Common Stock (after giving effect to the conversion of all
outstanding warrants to purchase shares of the Company's Series A Preferred
Stock into warrants for shares of Common Stock which will occur upon the closing
of this offering). Such warrants have expiration dates of five years from the
closing of this offering and have a weighted average exercise price equal to
$4.10. The holders of the warrants are entitled to certain registration rights
in respect of the shares of Common Stock issuable upon exercise of their
respective warrants. See "Registration Rights."

REGISTRATION RIGHTS

Certain persons and entities have rights with respect to the registration
of Common Stock under the Securities Act. Immediately after the closing of this
offering, those rights will cover approximately 6,328,807 shares of Common Stock
(the "Registrable Shares"). In general, in the event that the Company proposes
to register any shares of Common Stock under the Securities Act for its own
account or the account of other stockholders at any time or times, subject to
certain exceptions, the Company must, upon the written request of a holder of
Registrable Shares, use its best efforts to cause to be registered under the
Securities Act all of the Registrable Shares requested to be registered,
provided, however, that the Company is not required to register Registrable
Securities in excess of the amount, if any, of Common Stock which the principal
underwriter of an underwritten offering shall agree to include in such offering.
The holders of 6,328,807 of the Registrable Shares will also have the right to
require the Company to prepare and file from time to time a registration
statement under the Securities Act with respect to their Registrable Shares,
provided that such holders may not exercise such right more than twice with
respect to a registration statement on Form S-1 or more than two times in any
calendar year with respect to a registration statement on Form S-3. Upon receipt
of any such request from such holders, the Company will be required to use its
best efforts to effect such registration, subject to certain conditions and
limitations.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation 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 the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or within three years prior did own, 15% or more of the
corporation's voting stock.

The Restated Certificate of Incorporation and Amended and Restated By-Laws
(the "By-Laws") provide that, effective upon the consummation of this offering,
any action required or permitted to be taken by the stockholders of the Company
may be taken only at duly called annual or special meetings of the stockholders,
and that special meetings may be called only by the Chairman of the Board of
Directors, the President, a majority of the Board of Directors of the Company or
holders of 20% or more of the then outstanding shares of capital stock of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired all or a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.

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<PAGE> 62

The Company's Restated Certificate of Incorporation and By-Laws provided
that, effective upon the consummation of this offering, for nominations for the
Board of Directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
notice of nominations or other business to be brought before a stockholders
meeting must be delivered not less than 50 days prior to such stockholders
meeting, provided that in the event that less than 55 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders, a
notice of nominations or other business to be brought before such stockholders
meeting must be delivered within 7 days following the day on which such notice
of the date of the stockholders meeting was given or such public disclosure was
made. The notice must contain, among other things, certain information about the
stockholder delivering the notice and, as applicable, background information
about each nominee or a description of the proposed business to be brought
before the meeting.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Company's Restated Certificate of Incorporation requires the affirmative vote of
the holders of at least 75% of the outstanding voting stock of the Company to
amend or repeal any of the foregoing provisions, or to reduce the number of
authorized shares of Common Stock and Preferred Stock. A 75% vote is also
required to amend or repeal any of the foregoing By-Law provisions. Such 75%
stockholder vote would in either case be in addition to any separate class vote
that might in the future be required pursuant to the terms of any Preferred
Stock that might be outstanding at the time any such amendments are submitted to
stockholders. The By-Laws may also be amended or repealed by a majority vote of
the Board of Directors.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire control of the Company.

The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as the breach of a director's duty of
loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of law. These provisions do not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Company's Restated Certificate of Incorporation and By-Laws also contain
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company.

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<PAGE> 63

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
9,049,882 shares of Common Stock (9,424,882 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,500,000
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company as that term is defined in Rule 144. The remaining 6,549,882
shares outstanding upon completion of this offering will be "restricted
securities" as that term is defined under Rule 144 (the "Restricted Shares").
Sales of Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock.
The executive officers, directors, employees and other stockholders of the
Company who beneficially own an aggregate of 6,549,882 shares of Common Stock
outstanding prior to this offering have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them for a period of 180 days after the date of this Prospectus (the
"Lock-Up Period"). See "Underwriting."

Upon expiration of the Lock-Up Period, approximately 659,289 Restricted
Shares held by non-affiliates will be eligible for sale in the public market
without restriction pursuant to Rule 144(k) under the Securities Act and
approximately 3,980,257 Restricted Shares held by affiliates and approximately
417,541 Restricted Shares held by non-affiliates will be so eligible subject to
compliance with the volume limitations of Rule 144 described below. The
remaining 1,249,656 Restricted Shares may be sold pursuant to Rule 144 only
after they have been fully paid for and held for at least one year from the
later of the date of issuance by the Company or acquisition from an affiliate
(which dates do not occur until after the expiration of the Lock-Up Period).

Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon exercise of options granted by the Company prior to the date of
this Prospectus will also be eligible for sale in the public market pursuant to
Rule 701 under the Securities Act. In general, Rule 701 permits resales of
shares issued pursuant to certain compensatory benefit plans and contracts
commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities and Exchange Act of 1934, as amended, in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144. If all the requirements of
Rule 701 are met, upon expiration of the Lock-Up Period an aggregate of 221,075
shares of Common Stock currently outstanding, and an additional 947,272 shares
of Common Stock issuable upon exercise of currently outstanding options will be
eligible for sale pursuant to such rule.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owned Restricted Shares for at
least one year, including persons who may be deemed "affiliates" of the Company,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of one percent of the number of shares of Common
Stock then outstanding or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding the
sale, and who has beneficially owned for at least two years the shares proposed
to be sold, would be entitled to sell such shares under Rule 144(k) without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

The Company is unable to estimate accurately the number of Restricted
Shares that will be sold under Rule 144 since this will depend in part on the
market price for the Common Stock, the personal circumstances of the sellers and
other factors.

Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as defined
in Rule 144A.

61
<PAGE> 64

The Company intends to file a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable under the Stock
Option Plan. That registration statement is expected to be filed approximately
180 days after the date of this Prospectus and is expected to become effective
immediately upon filing. Shares covered by such registration statement will be
eligible for resale in the public market after the effective date of such
registration statements, subject to Rule 144 limitations applicable to
affiliates and to the Lock-Up Period, if applicable.

In addition, upon completion of this offering, the holders of 6,328,807
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."

Prior to this offering, there has been no public market for the Common
Stock and no predictions can be made as to the effect, if any, that public sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.

62
<PAGE> 65

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and UBS Securities LLC, have severally agreed to purchase from the Company the
following respective number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC.....................................................
UBS Securities LLC........................................................

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

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Underwriters have informed the Company that the Underwriters do not intend
to confirm sales of Common Stock offered hereby to accounts over which they
exercise discretionary authority.

The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell such shares to
the Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

63
<PAGE> 66

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

The executive officers, directors, employees and other stockholders of the
Company, who beneficially own an aggregate of 6,549,882 shares of Common Stock
outstanding prior to this offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 180 day period following the date of this Prospectus.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock during the 180 day
period following the date of this Prospectus, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under its stock option plans, provided that, without
the prior written consent of Hambrecht & Quist LLC, such additional options
shall not be exercisable during such period.

Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, certain financial information of the Company,
market valuation of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operation, the Company's management and
other factors deemed relevant. The estimated initial public offering price set
forth on the cover page of this Prospectus is subject to change as a result of
market conditions and other factors.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby and certain legal
matters will be passed on for the Company by Bingham, Dana & Gould LLP, Boston,
Massachusetts. Justin P. Morreale, a partner at Bingham, Dana & Gould LLP, is
the Secretary of the Company. Certain legal matters will be passed on for the
Underwriters by Hale and Dorr LLP, Boston, Massachusetts.

EXPERTS

The audited consolidated financial statements of the Company as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.

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

64
<PAGE> 67

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered by the Company has been filed with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules thereto. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, NW., Washington, DC. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's World Wide Web site is http://www.sec.gov.

65
<PAGE> 68

LEUKOSITE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants........................................... F-2
Consolidated Balance Sheets as of December 31, 1995, 1996 and June 30, 1997
(Unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996, for the Six Months Ended June 30, 1996 and 1997 (Unaudited) and for the
Period from Inception (May 1, 1992) to June 30, 1997 (Unaudited)................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Period from
Inception (May 1, 1992) to December 31, 1996, for the six months ended June 30,
1997 (Unaudited) and Pro Forma June 30, 1997 (unaudited)......................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996, for the Six Months Ended June 30, 1996 and 1997 (Unaudited) and for the
Period from Inception (May 1, 1992) to June 30, 1997 (Unaudited)................. F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>

F-1
<PAGE> 69

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To LeukoSite, Inc.:

We have audited the accompanying consolidated balance sheets of LeukoSite,
Inc. (a Delaware corporation in the development stage) and subsidiary as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LeukoSite,
Inc. and subsidiary as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

Boston, Massachusetts /s/ Arthur Andersen LLP
March 4, 1997 (except for the matter
discussed in Note 9(a), as to which the
date is August 8, 1997)

F-2
<PAGE> 70

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,734,188 $ 4,430,507 $ 6,620,171 $ 6,620,171
Marketable securities............................... -- 4,953,902 5,028,374 5,028,374
Other current assets................................ 87,509 153,779 321,802 321,802
----------- ----------- ------------ ------------
Total current assets......................... 1,821,697 9,538,188 11,970,347 11,970,347
----------- ----------- ------------ ------------
Property and equipment, at cost:
Laboratory furniture, fixtures and equipment........ 1,867,903 2,209,222 2,443,448 2,443,448
Leasehold improvements.............................. 1,700,025 1,792,989 2,045,703 2,045,703
Office furniture, fixtures and equipment............ 174,061 268,254 274,786 274,786
----------- ----------- ------------ ------------
3,741,989 4,270,465 4,763,937 4,763,937
Less--Accumulated depreciation and amortization..... 1,053,149 1,962,009 (2,502,008) (2,502,008)
----------- ----------- ------------ ------------
2,688,840 2,308,456 2,261,929 2,261,929
Other assets.......................................... 27,526 27,526 551,772 551,772
----------- ----------- ------------ ------------
Total assets................................. $ 4,538,063 $11,874,170 $ 14,784,048 $ 14,784,048
=========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 83,419 $ 118,018 $ 175,729 $ 175,729
Accrued expenses.................................... 647,481 1,044,080 1,908,891 1,908,891
Deferred revenue.................................... -- 261,250 2,425,000 2,425,000
Deferred rent, current portion...................... -- 104,357 221,051 221,051
Current portion of capital lease obligations........ 652,090 784,168 468,288 468,288
----------- ----------- ------------ ------------
Total current liabilities.................... 1,382,990 2,311,873 5,198,959 5,198,959
----------- ----------- ------------ ------------
Deferred rent, net of current portion................. 336,231 466,078 344,493 344,493
----------- ----------- ------------ ------------
Capital lease obligations, less current portion....... 1,246,998 763,621 778,436 778,436
----------- ----------- ------------ ------------
Commitments and contingencies (Notes 3, 7, 12 and 14)
Redeemable convertible preferred stock, $.01 par
value--
Authorized--21,667,199 shares
Issued and outstanding--13,148,149 shares at
December 31, 1995, 15,643,627 shares at December
31, 1996, 16,746,346 shares at June 30, 1997 and
no shares pro forma............................... 13,732,798 20,913,405 25,220,911 --
----------- ----------- ------------ ------------
Stockholders' equity (deficit):
Preferred stock $.01 par value--
Authorized--5,000,000 shares
Issued and outstanding--no shares................. -- -- -- --
Convertible preferred stock $.01 par value--
Authorized--2,250,000 shares
Issued and outstanding--1,000,000 shares at
December 31, 1995, 2,250,000 shares at December
31, 1996 and at June 30, 1997 and no shares pro
forma........................................... 10,000 22,500 22,500 --
Common stock, $.01 par value--
Authorized--25,000,000 shares
Issued and outstanding--1,041,099 shares at
December 31, 1995, 1,086,590 shares at December
31, 1996, 1,095,241 shares at June 30, 1997 and
6,530,267 shares pro forma...................... 10,411 10,866 10,952 65,302
Additional paid-in capital.......................... 3,121,267 8,710,149 8,720,235 33,909,296
Deficit accumulated during the development stage.... (15,302,632) (21,324,322) (25,512,438) (25,512,438)
----------- ----------- ------------ ------------
Total stockholders' equity (deficit)......... (12,160,954) (12,580,807) (16,758,751) 8,462,160
----------- ----------- ------------ ------------
Total liabilities and stockholders' equity
(deficit).................................. $ 4,538,063 $11,874,170 $ 14,784,048 $ 14,784,048
=========== =========== ============ ============
</TABLE>

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

F-3
<PAGE> 71

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED INCEPTION
YEAR ENDED DECEMBER 31, JUNE 30, (MAY 1, 1992)
--------------------------------------- ------------------------- THROUGH
1994 1995 1996 1996 1997 JUNE 30, 1997
----------- ----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Corporate collaborations.... $ -- $ 250,000 $ 3,591,000 $ 523,500 $ 2,070,024 $ 5,911,024
Government grants........... -- 200,000 82,770 -- 205,422 488,192
----------- ----------- ----------- ----------- ----------- ------------
Total revenues...... -- 450,000 3,673,770 523,500 2,275,446 6,399,216
----------- ----------- ----------- ----------- ----------- ------------
Operating expenses:
Research and development.... 5,055,447 7,051,287 8,502,187 3,924,628 5,451,437 27,641,324
General and
administrative........... 726,084 865,311 1,370,538 495,274 735,562 4,289,842
----------- ----------- ----------- ----------- ----------- ------------
Total operating
expenses.......... 5,781,531 7,916,598 9,872,725 4,419,902 6,186,999 31,931,166
----------- ----------- ----------- ----------- ----------- ------------
Loss from
operations........ (5,781,531) (7,466,598) (6,198,955) (3,896,402) (3,911,553) (25,531,950)
Interest income............... 205,735 219,510 378,924 172,139 294,794 1,098,963
Interest expense.............. (58,215) (229,665) (201,659) (109,157) (83,357) (591,451)
----------- ----------- ----------- ----------- ----------- ------------
Net loss............ $(5,634,011) $(7,476,753) $(6,021,690) $(3,833,420) $(3,700,116) $ (25,024,438)
=========== =========== =========== =========== =========== ============
Pro forma net loss per common
share....................... $ (1.03) $ (.57)
=========== ===========
Shares used in computing pro
forma net loss per common
share....................... 5,857,479 6,540,255
=========== ===========
</TABLE>

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

F-4
<PAGE> 72

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
CONVERTIBLE SERIES A
PREFERRED STOCK COMMON STOCK COMMON STOCK
---------------------- --------------------- --------------------- ADDITIONAL
NUMBER $.01 NUMBER $.01 NUMBER $.01 PAID-IN
OF SHARES PAR VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL
---------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK................ -- $ -- -- $ -- 804,878 $ 8,049 $ (7,629)
Net loss.............................. -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, DECEMBER 31, 1992.............. -- -- -- -- 804,878 8,049 (7,629)
Issuance of common stock.............. -- -- -- -- 121,951 1,220 3,780
Conversion of common stock to Series A
common stock........................ -- -- 804,878 8,049 (804,878) (8,049) --
Preferred stock warrants issued in
connection with lease obligations... -- -- -- -- -- -- 35,000
Net loss.............................. -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, DECEMBER 31, 1993.............. -- -- 804,878 8,049 121,951 1,220 31,151
Issuance of Series C convertible
preferred stock, net of issuance
costs of $47,691.................... 1,000,000 10,000 -- -- -- -- 2,942,309
Exercise of stock options............. -- -- -- -- 9,451 94 1,344
Preferred stock warrants issued in
connection with lease obligations... -- -- -- -- -- -- 55,500
Net loss.............................. -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, DECEMBER 31, 1994.............. 1,000,000 10,000 804,878 8,049 131,402 1,314 3,030,304
Conversion of Series A common stock to
common stock........................ -- -- (804,878) (8,049) 893,782 8,938 88,450
Exercise of stock options............. -- -- -- -- 15,915 159 2,513
Net loss.............................. -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, DECEMBER 31, 1995.............. 1,000,000 10,000 -- -- 1,041,099 10,411 3,121,267
Issuance of Series E convertible
preferred stock, net of issuance
costs of $40,434.................... 1,250,000 12,500 -- -- -- -- 4,947,066
Exercise of stock options............. -- -- -- -- 45,491 455 31,816
Value ascribed to guaranteed rate of
return on redeemable convertible
preferred stock..................... -- -- -- -- -- -- 610,000
Net loss.............................. -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, DECEMBER 31, 1996.............. 2,250,000 22,500 -- -- 1,086,590 10,866 8,710,149
Exercise of stock options
(unaudited)......................... -- -- -- -- 8,651 86 10,086
Net loss (unaudited).................. -- -- -- -- -- -- --
Accretion of redeemable convertible
preferred stock dividends
(unaudited)......................... -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- ----------
BALANCE, JUNE 30, 1997 (UNAUDITED)...... 2,250,000 22,500 -- -- 1,095,241 10,952 8,720,235
Conversion of convertible preferred
stock (unaudited)................... (2,250,000) (22,500) -- -- 548,780 5,488 17,012
Conversion of redeemable convertible
preferred stock (unaudited)......... -- -- -- -- 4,886,246 48,862 25,172,049
--------- ------- -------- ------- --------- ------- ----------
PRO FORMA BALANCE, JUNE 30, 1997
(UNAUDITED)........................... -- $ -- -- $ -- 6,530,267 $65,302 $33,909,296
========= ======= ======== ======= ========= ======= ==========

<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
------------ ------------
<S> <<C> <C>
ISSUANCE OF COMMON STOCK................ $ -- $ 420
Net loss.............................. (128,634) (128,634)
------------ ------------
BALANCE, DECEMBER 31, 1992.............. (128,634) (128,214)
Issuance of common stock.............. -- 5,000
Conversion of common stock to Series A
common stock........................ -- --
Preferred stock warrants issued in
connection with lease obligations... -- 35,000
Net loss.............................. (2,063,234) (2,063,234)
------------ ------------
BALANCE, DECEMBER 31, 1993.............. (2,191,868) (2,151,448)
Issuance of Series C convertible
preferred stock, net of issuance
costs of $47,691.................... -- 2,952,309
Exercise of stock options............. -- 1,438
Preferred stock warrants issued in
connection with lease obligations... -- 55,500
Net loss.............................. (5,634,011) (5,634,011)
------------ ------------
BALANCE, DECEMBER 31, 1994.............. (7,825,879) (4,776,212)
Conversion of Series A common stock to
common stock........................ -- 89,339
Exercise of stock options............. -- 2,672
Net loss.............................. (7,476,753) (7,476,753)
------------ ------------
BALANCE, DECEMBER 31, 1995.............. (15,302,632) (12,160,954)
Issuance of Series E convertible
preferred stock, net of issuance
costs of $40,434.................... -- 4,959,566
Exercise of stock options............. -- 32,271
Value ascribed to guaranteed rate of
return on redeemable convertible
preferred stock..................... -- 610,000
Net loss.............................. (6,021,690) (6,021,690)
------------ ------------
BALANCE, DECEMBER 31, 1996.............. (21,324,322) (12,580,807)
Exercise of stock options
(unaudited)......................... -- 10,172
Net loss (unaudited).................. (3,700,116) (3,700,116)
Accretion of redeemable convertible
preferred stock dividends
(unaudited)......................... (488,000) (488,000)
------------ ------------
BALANCE, JUNE 30, 1997 (UNAUDITED)...... (25,512,438) (16,758,751)
Conversion of convertible preferred
stock (unaudited)................... -- --
Conversion of redeemable convertible
preferred stock (unaudited)......... -- 25,220,911
------------ ------------
PRO FORMA BALANCE, JUNE 30, 1997
(UNAUDITED)........................... $(25,512,438) $ 8,462,160
============ ============
</TABLE>

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

F-5
<PAGE> 73

LEUKOSITE, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS INCEPTION
YEAR ENDED DECEMBER 31, ENDED JUNE 30, (MAY 1, 1992)
---------------------------------------- ------------------------- THROUGH
1994 1995 1996 1996 1997 JUNE 30, 1997
----------- ----------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(5,634,011) $(7,476,753) $ (6,021,690) $(3,833,420) $(3,700,116) $(25,024,438)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Stock compensation expense........ 86,058 3,281 -- -- -- 89,339
Depreciation and amortization..... 261,249 774,146 908,860 450,000 539,999 2,491,784
Changes in operating assets and
liabilities--
Other current assets.......... (124,143) 76,530 (66,270) (57,923) (168,023) (321,802)
Accounts payable and accrued
expenses.................... 1,139,006 (809,953) 431,198 35,567 922,522 2,651,322
Deferred revenue.............. -- -- 261,250 511,250 2,163,750 2,425,000
Deferred rent................. 27,407 308,824 234,204 118,576 (4,891) 565,544
----------- ----------- ------------ ----------- ----------- ------------
Net cash used in operating
activities.............. (4,244,434) (7,123,925) (4,252,448) (2,775,950) (246,759) (17,123,251)
----------- ----------- ------------ ----------- ----------- ------------
Cash flows from investing activities:
Investment in marketable
securities........................ (3,797,645) (1,458,329) (11,741,504) (3,759,041) (4,953,064) (21,950,542)
Proceeds from maturities of
marketable securities............. 1,797,474 3,458,500 6,787,602 -- 4,878,592 16,922,168
Purchases of property and
equipment......................... (974,502) (40,283) (184,549) (22,797) (405,981) (2,192,541)
Decrease (increase) in other
assets............................ 7,500 (436) -- -- (524,246) (551,772)
----------- ----------- ------------ ----------- ----------- ------------
Net cash provided by (used
in) investing
activities.............. (2,967,173) 1,959,452 (5,138,451) (3,781,838) (1,004,699) (7,772,687)
----------- ----------- ------------ ----------- ----------- ------------
Cash flows from financing activities:
Principal payments on capital
leases............................ (148,588) (558,280) (695,226) (311,006) (388,556) (1,790,650)
Net proceeds from notes payable..... -- -- -- -- -- 2,086,312
Proceeds from redeemable convertible
preferred stock, net of issuance
costs............................. 6,907,860 1,950,908 7,790,607 4,851,717 3,819,506 23,256,599
Exercise of stock options........... 1,438 2,672 32,271 23,075 10,172 51,973
Issuance of convertible preferred
stock, net of issuance costs...... 2,952,309 -- 4,959,566 4,959,566 -- 7,911,875
----------- ----------- ------------ ----------- ----------- ------------
Net cash provided by
financing activities.... 9,713,019 1,395,300 12,087,218 9,523,352 3,441,122 31,516,109
----------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents.................... $ 2,501,412 $(3,769,173) $ 2,696,319 $ 2,965,564 $ 2,189,664 $ 6,620,171
Cash and cash equivalents, beginning
of period........................... 3,001,949 5,503,361 1,734,188 1,734,188 4,430,507 --
----------- ----------- ------------ ----------- ----------- ------------
Cash and cash equivalents, end of
period.............................. $ 5,503,361 $ 1,734,188 $ 4,430,507 $ 4,699,752 $ 6,620,171 $ 6,620,171
=========== =========== ============ =========== =========== ============
Supplemental cash flow information:
Cash paid during the period for
interest.......................... $ 51,887 $ 193,197 $ 201,659 $ 109,158 $ 83,357 $ 805,066
=========== =========== ============ =========== =========== ============
Supplemental disclosure of noncash
investing and financing activities:
Property and equipment purchased
under capital lease obligations... $ 1,614,765 $ 435,301 $ 343,927 $ 70,143 $ 87,491 $ 2,811,174
=========== =========== ============ =========== =========== ============
</TABLE>

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

F-6
<PAGE> 74

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(1) THE COMPANY

LeukoSite, Inc. (the "Company") was incorporated on May 1, 1992. The
Company is engaged in the development of a new class of proprietary
immunomodulatory therapeutics for the treatment of inflammatory and autoimmune
diseases.

The Company is in the development stage and is devoting substantially all
of its efforts toward product research and development and raising capital.
Management anticipates that all future revenues will be derived from products
under development or those developed in the future. Principal risks to the
Company include the successful development and marketing of products to obtain
profitable operations, dependence on collaborative partners, the ability to
obtain adequate financing to fund future operations, United States Food and Drug
Administration clearance and regulation, dependence on key individuals and
competition from substitute products and larger companies.

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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Pro Forma Presentation

The unaudited pro forma consolidated balance sheet as of June 30, 1997
reflects the automatic conversion of all outstanding shares of redeemable
convertible preferred stock and convertible preferred stock into 5,435,026
shares of common stock (assuming an initial public offering price of $6.50 per
share) to occur upon the closing of the Company's proposed initial public
offering.

(b) Interim Financial Statements

The accompanying consolidated balance sheet as of June 30, 1997, the
consolidated statements of operations, cash flows for the six months ended June
30, 1996 and 1997 and for the period from inception (May 1, 1992) to June 30,
1997 and the consolidated statement of changes in stockholder equity (deficit)
for the period ended June 30, 1997 are unaudited, but, in the opinion of
management, have been prepared on a basis substantially consistent with the
audited financial statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
of these interim periods. The results of the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the entire year.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany accounts
and transactions have been eliminated in consolidation.

(d) Cash Equivalents and Marketable Securities

Cash equivalents are highly liquid investments with original maturities of
less than three months. Marketable securities consist of U.S. government agency
securities with original maturities of greater than three months. The Company
accounts for cash equivalents and marketable securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In accordance with SFAS No.
115, the Company has classified its investments as held-to-maturity. These
investments that the Company has the positive intent and ability to hold to
maturity, which consist of cash equivalents and marketable securities, are
reported at amortized cost, which approximates fair market value. As of June 30,
1997, there were no material

F-7
<PAGE> 75

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

unrealized gains or losses on any investments. All investments mature within one
year and the average maturity of the Company's marketable securities was
approximately 6.3 months at June 30, 1997.

(e) Depreciation and Amortization

The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts estimated to allocate
the cost of property and equipment over their estimated useful lives as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIVES
------------------------------------------------------- -------------
<S> <C>
Laboratory furniture, fixtures and equipment........... 4-5 Years
Leasehold improvements................................. Life of lease
Office furniture, fixtures and equipment............... 4-5 Years
</TABLE>

(f) Revenue Recognition

Substantially all of the Company's revenues are derived from corporate
collaborative research arrangements and government grants. Corporate
collaboration revenues and government grants, which are not subject to achieving
development milestones, are recognized on a straight-line basis over the period
of the contract, which approximates when work is performed and costs are
incurred. Revenues which are earned upon the achievement of development
milestones are recognized when the milestones are achieved and payment is due.
License fee revenue represents technology transfer fees received for rights to
certain technology of the Company. License fees are recognized as revenue as
earned. Deferred revenue represents payments received in advance of revenue
recognition.

(g) Research and Development

All research and development costs are expensed as incurred. Research and
development expenses in the accompanying consolidated statements of operations
include funded and unfunded expenses.

(h) Disclosure of Fair Value of Financial Instruments

The Company's financial instruments consist mainly of cash and cash
equivalents, marketable securities, accounts payable and redeemable convertible
preferred stock. The carrying amounts of these financial instruments approximate
fair value due to the short-term nature of these instruments.

(i) Pro Forma Net Loss per Common Share

Pro forma net loss per common share is based on the pro forma weighted
average number of common and common equivalent shares outstanding during the
period, assuming the automatic conversion of all outstanding shares of
redeemable convertible preferred stock and convertible preferred stock into
5,435,026 shares of common stock to occur upon the consummation of the Company's
proposed initial public offering. Pursuant to the requirements of the Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common and common
equivalent shares issued during the 12 months immediately prior to the date of
the initial filing of the Company's registration statement have been included in
the calculation of weighted average number of common shares outstanding for all
periods presented using the treasury stock method and the proposed initial

F-8
<PAGE> 76

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

public offering price of $6.50 per share. Historical net loss per share has not
been presented as it is not meaningful.

(3) RESEARCH, LICENSE AND CONSULTING AGREEMENTS

The Company has entered into various research, license and consulting
agreements to support its research and development activities. These agreements
generally expire over several years. Certain of such agreements contain
provisions for future royalties to be paid on sales of products developed under
the agreements. The Company also has commitments to fund research and
development under arrangements discussed in Notes 7 and 14.

Future minimum commitments under research, license and consulting
agreements at December 31, 1996 are approximately as follows:

(4) WARNER-LAMBERT AGREEMENTS

The Company and Warner-Lambert Company (Warner) have entered into research,
development and marketing agreements to share expertise in the discovery and
development of compounds that inhibit the action of MCP-1 and IL-8 and to
research and market applications thereof.

The agreement for developing the MCP-1 technology was executed in September
1994 and amended in July 1995 (the MCP-1 Agreement). Under the MCP-1 Agreement,
the Company and Warner are working to screen and select compounds for further
development. In conjunction with the MCP-1 Agreement, Warner agreed to purchase
preferred stock at a predetermined share price and to fund a portion of the
Company's research expenses for the next three years. Warner purchased
$3,000,000 of Series C convertible preferred stock in 1995 and $5,000,000 of
Series E convertible preferred stock in 1996.

The agreement for developing the IL-8 technology was executed in July 1995
(the IL-8 Agreement). Under the IL-8 Agreement, the Company and Warner are
working to screen and select compounds for further development. In connection
with the IL-8 Agreement, Warner paid the Company $250,000 for the grant of a
license to the technology and made a $1 million equity investment in the Series
G preferred stock in March 1997.

The Company receives quarterly research funding under the MCP-1 and IL-8
Agreements. As of June 30, 1997, the Company had received $1,285,000 in research
support under the MCP-1 and IL-8 Agreements. The MCP-1 and IL-8 Agreements also
contain milestone payments payable to the Company beginning upon the designation
of a product candidate for development. In addition, under the MCP-1 and IL-8
Agreements, Warner will pay royalties as a percentage of sales, as defined, for
certain products developed under the agreements. Warner has waived its
antidilution rights relating to the Series C, E and G preferred stock it holds
in exchange for a credit against future royalties, if any become payable, under
the MCP-1 and IL-8 Agreements and the Kyowa Hakko Kogyo Agreement discussed in
Note 6. Assuming an initial public offering price of $6.50 per share, the
approximate amount of such credit is $3,590,000. The MCP-1 and IL-8 Agreements
can be terminated by either party with six months' written notice or for cause,
as defined.

F-9
<PAGE> 77

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(5) ROCHE BIOSCIENCE AGREEMENT

In July 1996, the Company entered into an agreement with Roche Bioscience
(Roche) for the development of a drug to block the binding of eotoxin. As part
of this agreement, Roche will make payments to the Company in the form of
licensing fees, research support and milestone payments and royalties on
world-wide sales of products resulting from the collaboration. As of June 30,
1997, the Company had received $4,125,000, in licensing and research support
payments from Roche. Roche will be responsible for preclinical and clinical
development of products and will have worldwide exclusive rights to market
products.

(6) KYOWA HAKKO KOGYO AGREEMENT

In April 1997, the Company entered into a collaboration agreement with
Kyowa Hakko Kogyo (Kyowa) to discover and develop small molecule antagonists and
monoclonal antibody drugs to CXCR3 and CCR1. Kyowa will have exclusive rights to
develop and market products resulting from this collaboration in Japan and Asia
and has an option for rights in the rest of the world. The Company is entitled
to research support and payments and milestones, as well as royalties based on
net sales, as defined. As of June 30, 1997, the Company has received $3,000,000
of research funding of which the Company has deferred recognizing as revenue
$2,250,000.

(7) ILEX AGREEMENT

In May 1997, the Company and Ilex Oncology, Inc. (Ilex) entered into a
joint venture whereby the parties formed a limited partnership to develop and
commercialize LDP-03 for the treatment of chronic lymphocytic leukemia, pursuant
to an agreement of limited partnership and a license agreement between the
Company/Ilex partnership and the Company. The partners are required to make
contributions each time the partnership requires working capital. The
development and commercialization activities of the joint venture will be
managed with equal control by each party. The Company and Ilex will generally
share equally in profits from the sales of LDP-03 and in all future research,
development, clinical and commercialization costs. The Company and Ilex estimate
that research, development and clinical costs will be approximately $10.0
million over the next two years. The joint venture expires in 2017, but provides
for either partner, after the earlier of a change in control (as defined
therein) of the other partner or October 2, 2000, to purchase the other
partner's ownership of the joint venture in the event of an unresolved deadlock.
In addition, in the event that one party is unable or unwilling to fulfill its
funding obligations to the joint venture, then in certain circumstances, the
party that funds the joint venture shall gain control of the management of the
joint venture, subject to certain catch-up rights of the other party.

The Company accounts for its investment in the joint venture under the
equity method of accounting. There was no significant activity in the joint
venture for the period from inception of the joint venture (May 1997) through
June 30, 1997. The Company had no investment in the joint venture at June 30,
1997.

(8) CAPITAL LEASE

In 1993, the Company entered into a master lease agreement for the sale and
leaseback or lease of up to $2,250,000 of laboratory and office equipment and
leasehold improvements. At December 31, 1996, the Company had acquired
approximately $2,130,000 of laboratory and office equipment and leasehold
improvements under the lease agreement. The Company also has an obligation to
purchase $750,000 of leasehold improvements at the expiration of the lease term
for 15% of its original cost. The Company has issued warrants for the purchase
of 210,000 shares of Series A redeemable convertible preferred stock at an
exercise price of $1.00 per share to the lessors under the master lease
agreement (see Note 11(b)).

F-10
<PAGE> 78

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

In 1994, the Company entered into a second master equipment lease agreement
for the lease of up to $750,000 of laboratory and office equipment. At December
31, 1996, the Company had acquired approximately $730,000 of equipment under the
lease. The leased equipment reverts back to the lessor at the end of the lease
term or the Company may purchase all of the equipment for fair market value,
which will not be less than 10% or more than 20% of the cost of the equipment.
On January 18, 1996, this agreement was amended to provide an additional
$300,000 of lease availability. On March 14, 1997, the Company entered into
another lease agreement for the lease of up to $1,200,000 of laboratory and
office equipment of which $450,000 may be utilized for leasehold improvements.
As of June 30, 1997, $1,168,000 is available under this lease commitment.

Future minimum lease payments under these lease agreements at December 31,
1996 are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year Ending December 31,
1997.............................................. $ 911,796
1998.............................................. 593,201
1999.............................................. 182,368
2000.............................................. 32,285
----------
Total..................................... 1,719,650
Less--Amount representing interest................ 171,861
----------
Present value of future lease payments.... 1,547,789
Less--Amounts due within one year................. 784,168
----------
Amounts due after one year................ $ 763,621
==========
</TABLE>

(9) CAPITAL STOCK

(a) Stock Split and Amendment to Charter

On August 8, 1997, the Company amended its Restated Certificate of
Incorporation, which included a 1-for-4.10 reverse stock split of the Company's
common stock and a change in the par value of the Company's common stock to $.01
per share. Accordingly, all share and per share amounts of common stock for all
periods presented have been retroactively adjusted to reflect the reverse stock
split and change in par value. Upon completion of the Company's initial public
offering, the Company will be authorized to issue 25,000,000 shares of common
stock, $.01 par value, and 5,000,000 shares of preferred stock, $.01 par value.

(b) Series A Common Stock

On May 5, 1995, the Series A common stock automatically converted into
893,782 shares of common stock, which represented approximately 20% of the total
number of shares of common stock then outstanding on a fully-diluted basis. The
Company recognized a compensation charge of $89,339, which represents the fair
market value, as determined by the Company's Board of Directors, of the
additional shares issued on May 5, 1995.

F-11
<PAGE> 79

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(10) PREFERRED STOCK

(a) Redeemable Convertible Preferred Stock

As of June 30, 1997, the Company's Board of Directors authorized 21,667,199
shares of $.01 par value redeemable convertible preferred stock. As discussed in
Note 9(a), on August 8, 1997 the Company amended its charter that changed the
authorized capital stock of the Company.

Redeemable convertible preferred stock activity since inception is as
follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES D SERIES F
NUMBER CARRYING NUMBER CARRYING NUMBER CARRYING NUMBER
OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES
---------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A preferred stock,
net of issuance costs of $125,970....... 5,000,000 $4,874,030 -- $ -- -- $ -- --
---------- ---------- --------- ---------- --------- ---------- ---------
Balance, December 31, 1993.............. 5,000,000 4,874,030 -- -- -- -- --
Issuance of Series A preferred stock,
net of issuance costs of $18,769........ 5,000,000 4,981,231 -- -- -- -- --
Issuance of Series B preferred stock,
net of issuance costs of $73,371........ -- -- 1,666,667 1,926,629 -- -- --
---------- ---------- --------- ---------- --------- ---------- ---------
Balance, December 31, 1994.............. 10,000,000 9,855,261 1,666,667 1,926,629 -- -- --
Issuance of Series D preferred stock,
net of issuance costs of $49,093........ -- -- -- -- 1,481,482 1,950,908 --
---------- ---------- --------- ---------- --------- ---------- ---------
Balance, December 31, 1995.............. 10,000,000 9,855,261 1,666,667 1,926,629 1,481,482 1,950,908 --
Issuance of Series F preferred stock,
net of issuance costs of $34,838........ -- -- -- -- -- -- 1,638,335
Issuance of Series G preferred stock,
net of issuance costs of $90,000........ -- -- -- -- -- -- --
Value ascribed to guaranteed rate of
return on redeemable convertible
preferred stock......................... -- -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ---------- ---------
Balance, December 31, 1996.............. 10,000,000 9,855,261 1,666,667 1,926,629 1,481,482 1,950,908 1,638,335
Issuance of Series G preferred stock,
net of issuance costs of $40,000........ -- -- -- -- -- -- --
Accretion of redeemable convertible
preferred stock dividend................ -- -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ---------- ---------
Balance, June 30, 1997.................. 10,000,000 $9,855,261 1,666,667 $1,926,629 1,481,482 $1,950,908 1,638,335
========== ========== ========= ========== ========= ========== =========

<CAPTION>
SERIES G
CARRYING NUMBER CARRYING
VALUE OF SHARES VALUE
---------- --------- ----------
<S> <C> <C> <C>
Issuance of Series A preferred stock,
net of issuance costs of $125,970....... $ -- -- $ --
---------- ------- ----------
Balance, December 31, 1993.............. -- -- --
Issuance of Series A preferred stock,
net of issuance costs of $18,769........ -- -- --
Issuance of Series B preferred stock,
net of issuance costs of $73,371........ -- -- --
---------- ------- ----------
Balance, December 31, 1994.............. -- -- --
Issuance of Series D preferred stock,
net of issuance costs of $49,093........ -- -- --
---------- ------- ----------
Balance, December 31, 1995.............. -- -- --
Issuance of Series F preferred stock,
net of issuance costs of $34,838........ 4,880,607 -- --
Issuance of Series G preferred stock,
net of issuance costs of $90,000........ -- 857,143 2,910,000
Value ascribed to guaranteed rate of
return on redeemable convertible
preferred stock......................... -- -- (610,000)
---------- ------- ----------
Balance, December 31, 1996.............. 4,880,607 857,143 2,300,000
Issuance of Series G preferred stock,
net of issuance costs of $40,000........ -- 1,102,719 3,819,506
Accretion of redeemable convertible
preferred stock dividend................ -- -- 488,000
---------- ------- ----------
Balance, June 30, 1997.................. $4,880,607 1,959,862 $6,607,506
========== ======= ==========
</TABLE>

F-12
<PAGE> 80

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

The rights and preferences of the redeemable convertible preferred stock
are as follows:

Voting

Preferred stockholders are entitled to the number of votes equal to the
number of shares of common stock into which each share of preferred stock is
then convertible.

Dividends

In certain events, including liquidation, dissolution or winding up of the
Company, the holders of Series A, Series B, Series D, Series F, and Series G
redeemable convertible preferred stock are entitled to $1.00, $1.20, $1.35,
$3.00, and $3.50 per share, respectively, plus 10% per annum per share, plus any
declared but unpaid dividends before any distribution may be made to other
stockholders. If the assets of the Company are insufficient to permit payment in
full to the holders of preferred stock, the assets of the Company which are
available for distribution shall be distributed in proportion to the full
preferential amount to which each such holder is entitled. Series A, Series B,
Series D, Series F, and Series G stockholders also are entitled to share ratably
in amounts available for distribution to Series C and Series E convertible
preferred and common stockholders subject to certain defined maximum amounts.

Conversion

Conversion is at the option of the holder and is mandatory upon an initial
public offering. Each share of preferred stock is convertible into .24390 share
of common stock at any time, subject to certain antidilutive adjustments. The
number of shares of common stock into which certain outstanding shares of Series
G would be converted into shall be the greater of (i) the Series G minimum
conversion shares and (ii) .24390. The Series G minimum conversion shares is
obtained by dividing the Series G original purchase price by the special
applicable conversion price. The special applicable conversion price shall mean
that if the closing of a designated public offering, as defined, occurs at any
time on or prior to the first anniversary of the original issuance date, an
amount equal to the designated offering price less a twenty-five percent (25%)
discount from such designated public offering price. The discount percentage
increases over time.

The Company also has a separate agreement with certain Series G
shareholders whereby their shares will be converted into common stock based on a
specific return on their original investment, as defined. The Company has
recorded the value attributed to the guaranteed rate of return (based on an
original investment of $3,000,000, an annual rate of return of 33% and an
estimated period of approximately 7.5 months before conversion into common
stock) as additional paid in capital and will be accreting it as a preferred
stock dividend over the estimated period that the stock is outstanding. The
Company has recorded $488,000 of such accretion through June 30, 1997.

Redemption

At the request of the holders of a majority of each series, the Company
shall redeem up to 25% of the preferred stock commencing on January 1, 1998,
September 1, 1999, September 12, 2000, February 29, 2001 and December 20, 2001
for Series A, Series B, Series D, Series F and Series G, respectively. Each year
thereafter, upon the anniversary of the respective series' redemption date, up
to 25% of the remaining preferred stock may be redeemed, subject to certain
limitations. The redemption price per share for the Series A, Series B, Series
D, Series F and Series G shall be $1.00, $1.20, $1.35, $3.00 and $3.50,
respectively, plus all declared but unpaid dividends thereon.

F-13
<PAGE> 81

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Right of First Refusal

The Company's Series A, B, D, F and G preferred stockholders have a right
of first refusal to purchase any new securities offered by the Company. In each
case, this right of first refusal terminates upon the closing of an initial
public offering of the Company's common stock.

Warrants

In connection with the issuance of the Company's Series G redeemable
convertible preferred stock, the Company granted warrants to purchase up to
7,317 shares of common stock. The total warrants issued and the exercise price
will be determined once the Company completes a designated public offering, as
defined, after December 20, 2000. The warrants shall become exercisable only if
the Company's initial public offering occurs after the fourth anniversary of the
first closing (December 20, 1996). If the Company's initial public offering
occurs on or prior to the fourth anniversary, the warrants shall become null and
void. The warrants are exercisable beginning on the later of (i) the date of the
first public offering, as defined, after December 20, 2000, or (ii) the date of
closing in connection with, or expiration of, the underwriters' overallotment
option in connection with the public offering. The warrants expire on the
earlier of (i) the date of closing of the first designated public offering, as
defined, provided the closing occurs on or prior to December 20, 2000, or (ii)
December 20, 2003.

(b) Convertible Preferred Stock

The Company's convertible preferred stock consists of the following:

In November 1994, the Company sold 1,000,000 shares of Series C convertible
preferred stock, which resulted in proceeds of $3,000,000.

In January 1996, the Company issued 625,000 shares of Series E convertible
preferred stock, which resulted in proceeds of $2,500,000.

In April 1996, the Company sold 625,000 shares of Series E convertible
preferred stock, which resulted in proceeds of $2,500,000.

The rights and preferences of the Company's Series C and Series E
convertible preferred stock are as follows:

Voting

The Company's Series C and E preferred stockholders are entitled to the
number of votes equal to the number of shares of common stock into which each
share of preferred stock is then convertible.

Dividends

The Company's Series C and E preferred stockholders are entitled to receive
dividends when and as declared by the Board of Directors.

Liquidation Rights

In certain events, including liquidation, dissolution or winding up of the
Company, the Company's Series C and Series E preferred stockholders are entitled
to $3.00 and $4.00 per share, respectively, plus any declared but unpaid
dividends before any distribution may be made to common stockholders. The

F-14
<PAGE> 82

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Company's Series A, Series B, Series D and Series F redeemable convertible
preferred stockholders also share ratably in amounts available for distribution
to Series C and Series E convertible preferred and common stockholders subject
to certain defined maximums.

Conversion

Each share of the Company's Series C and E preferred stock is convertible
into .24390 share of common stock at any time, subject to certain antidilutive
adjustments. As discussed in Note 4, the Series C and E stockholders have waived
their antidilution rights in exchange for a credit against future royalties that
may become payable to the Company.

(11) STOCK OPTIONS AND WARRANTS

(a) Stock Options

The Company has adopted the 1993 Stock Option Plan (the "Plan") under which
it may grant both incentive stock options and nonstatutory stock options. The
Plan provides for the granting of options to purchase up to 1,500,000 shares of
common stock. As of June 30, 1997, 453,602 shares are available for future grant
under the Plan.

During 1993, the Company granted a stock option to purchase 135,000 shares
of Series A redeemable convertible preferred stock at $1.00 per share pursuant
to a stock restriction agreement with a consultant. Upon conversion of the
Series A redeemable convertible preferred stock into common stock as discussed
in Note 2(a), the option holder will be entitled to purchase 32,927 shares of
common stock at an exercise price of $4.10 per share. This option expires on the
earlier of November 2, 2003 or five years from the effective date of the
Company's initial public offering.

F-15
<PAGE> 83

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

The Company had the following common stock option activity from inception
(May 1, 1992) through June 30, 1997:

<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992.................. -- $ -- $ --
Granted................................... 256,707 .04- .62 .45
------- --------- ------
Balance, December 31, 1993.................. 256,707 .04- .62 .45
Granted................................... 176,917 .04- .94 .90
Exercised................................. (9,451) .04- .62 .16
Canceled.................................. (3,659) .04- .72 .21
------- --------- ------
Balance, December 31, 1994.................. 420,514 .04- .94 .66
Granted................................... 74,756 1.00- 1.19 1.07
Exercised................................. (15,915) .04- .94 .16
Canceled.................................. (10,579) .04- 1.00 .25
------- --------- ------
Balance, December 31, 1995.................. 468,776 .04- 1.19 .74
Granted................................... 324,356 1.19- 6.15 5.37
Exercised................................. (45,491) .04- 1.19 .70
Canceled.................................. (15,212) .82- 5.13 2.30
------- --------- ------
Balance, December 31, 1996.................. 732,429 .04- 6.15 2.75
Granted................................... 284,170 6.15- 7.18 6.81
Exercised................................. (8,651) .04- 5.13 1.72
Canceled.................................. (41,057) .70- 7.18 3.20
------- --------- ------
Balance, June 30, 1997...................... 966,891 $ .04- 7.18 $ 3.89
======= ========= ======
Exercisable June 30, 1997................... 228,465 $ .04- 7.18 $ .70
======= ========= ======
</TABLE>

In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value of stock options or warrants to be included in the
statement of operations or disclosed in the notes to financial statements. The
Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The Company has
computed the pro forma disclosures required under SFAS No. 123 for options
granted in 1995 and 1996 using the Black-Scholes option pricing model prescribed
by SFAS No. 123. The weighted average assumptions used for the years ended
December 31, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Risk free interest rate................................... 5.63%-7.79% 5.54%-6.83%
Expected dividend yield................................... 0% 0%
Expected life............................................. 7 Years 7 Years
Expected volatility....................................... 35% 35%
</TABLE>

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility.

F-16
<PAGE> 84

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

The total value of the options granted during the years ended 1995 and 1996
was computed as approximately $40,000 and $867,000, respectively. Of these
amounts approximately $4,000 and $99,000 would be charged to operations for the
years ended December 31, 1995 and 1996, respectively. The remaining amount would
be amortized over the related vesting periods. The resulting pro forma
compensation expense may not be representative of the amount to be expected in
future years as pro forma compensation expense may vary based upon the number of
options granted.

The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax benefit
has not been considered since a substantial portion of the stock options granted
are incentive stock options and the Company does not anticipate a future
deduction associated with the exercise of these stock options. The pro forma
effect of SFAS No. 123 for the years ended December 31, 1995 and 1996 is as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1996
--------------------------- ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss...................... $(7,476,753) $(7,480,575) $(6,021,690) $(6,121,057)
=========== =========== =========== ===========
Pro forma net loss per common
share....................... $ (1.04) $ (1.06)
=========== ===========
</TABLE>

(b) Warrants

In conjunction with the Company's master lease agreement (see Note 8), the
Company issued warrants for the purchase of 210,000 shares of Series A
redeemable convertible preferred stock at an exercise price of $1.00 per share.
Upon conversion of the Series A redeemable convertible preferred stock into
common stock as discussed in Note 2(a), the warrantholder will be entitled to
purchase 51,220 shares of common stock at an exercise price of $4.10 per share.
The warrants are fully exercisable and expire on December 13, 2003 or five years
from the effective date of an initial public offering of stock by the Company,
whichever occurs first. The value assigned to the warrants, $90,500, is being
accounted for as debt discount and is being amortized over the lease period.

(12) OPERATING LEASE

In December 1994, the Company entered into an operating lease for its
office and research facilities. The lease expires in December 1999 with an
option to renew for two additional five-year terms. The Company has received
certain rent concessions during the initial term of the lease. Rent expense is
being recognized ratably over the term of the lease. Deferred rent included in
the accompanying consolidated balance sheet represents the difference between
cash paid to date and rent expense recognized to date. Rent expense for 1994,
1995 and 1996 amounted to approximately $329,000, $503,000 and $459,000,
respectively. Rent expense for the six months ended June 30, 1996 and 1997
amounted to approximately $222,000 and $236,000, respectively.

F-17
<PAGE> 85

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Future minimum rental payments at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year Ending December 31,
1997................................................. $ 592,000
1998................................................. 804,000
1999................................................. 717,000
----------
$2,113,000
==========
</TABLE>

(13) INCOME TAXES

The Company follows the provisions of SFAS No. 109, Accounting for Income
Taxes, whereby a deferred tax asset or liability is measured by the enacted tax
rates that would be in effect when any differences between the financial
statement and tax bases of assets or liabilities reverse. The Company has
elected to defer certain research and development costs as defined in the
Internal Revenue Code. As of December 31, 1996, the Company has available
deferred research and development costs of approximately $15,669,000, net
operating loss carryforwards of approximately $2,433,000 and research and
development credit carryforwards of approximately $500,000 to reduce future
federal income taxes, if any. The net operating loss and credit carryforwards
expire beginning in the year 2007 and are subject to review and possible
adjustment by the Internal Revenue Service. Due to the uncertainty related to
the realization of future tax return benefits of the deferred tax assets, a full
valuation allowance has been provided.

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Operating loss carryforwards................ $ 94,000 $ 973,000
Tax credit carryforwards.................... 357,000 500,000
Start-up costs.............................. 491,000 465,000
Development costs........................... 5,068,000 6,492,000
Nondeductible accruals...................... 70,000 191,000
Depreciation................................ 273,000 94,000
---------- ----------
6,353,000 8,715,000
Less--Valuation allowance................... 6,353,000 8,715,000
---------- ----------
$ -- $ --
========== ==========
</TABLE>

The United States Tax Reform Act of 1986 contains provisions that may limit
the Company's net operating loss and credit carryforwards available to be used
in any given year in the event of significant changes in the ownership interests
of significant stockholders. The Company has completed numerous financings since
its inception and has incurred ownership changes, as defined in the Tax Reform
Act of 1986. The Company believes that the ownership changes will not
significantly impact its ability to utilize its net operating loss and tax
credit carryforwards.

(14) LEUKOSITE (U.K.) LIMITED

In 1994, the Company formed a wholly owned subsidiary, LeukoSite U.K.
Limited ("LeukoSite UK"). LeukoSite UK was incorporated for the purpose of
entering into a research agreement to fund research activity in the United
Kingdom. An agreement has been established whereby LeukoSite UK will contribute
$3,000,000 towards funding the construction, equipping and the operations of a

F-18
<PAGE> 86

LEUKOSITE, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

research center in the UK. The Company has paid and charged to operations
$1,750,000 of such commitment as of June 30, 1997, and the balance will be paid
in six-month intervals of $250,000 each. It is expected that the Company will
fund most of the cash requirements of LeukoSite UK.

(15) ACCRUED EXPENSES

Accrued expenses in the accompanying consolidated balance sheets consist of
the following:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Payroll and payroll related............. $274,898 $ 338,441 $ 262,905
Consulting and contract research........ 153,631 314,595 428,101
Legal fees.............................. 17,903 62,832 303,852
Other................................... 201,049 328,212 914,033
-------- ---------- ----------
$647,481 $1,044,080 $1,908,891
======== ========== ==========
</TABLE>

(16) NEW ACCOUNTING STANDARD

In March, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 is required for fiscal years ending after
December 15, 1997 and early adoption is not permitted. The adoption of SFAS No.
128 is not expected to have a material effect on the Company's net loss per
share.

F-19
<PAGE> 87

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Consolidated Financial Data....... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 24
Management................................. 46
Certain Transactions....................... 54
Principal Stockholders..................... 56
Description of Capital Stock............... 58
Shares Eligible for Future Sale............ 61
Underwriting............................... 63
Legal Matters.............................. 64
Experts.................................... 64
Additional Information..................... 65
Index to Financial Statements.............. F-1
</TABLE>

------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================================

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

2,500,000 SHARES
LOGO
COMMON STOCK
-------------------

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

HAMBRECHT & QUIST

UBS SECURITIES
, 1997

============================================================
<PAGE> 88

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount and
commissions, are estimated as follows:

<TABLE>
<S> <C>
SEC Registration Fee.................................................... $ 8,713
NASD Fees............................................................... 3,375
Nasdaq National Market Listing Fees..................................... 43,000
Printing and Engraving Expenses......................................... 75,000
Legal Fees and Expenses................................................. 275,000
Accountants' Fees and Expenses.......................................... 75,000
Expenses of Qualification Under State
Securities Laws, Including Attorneys' Fees......................... 10,000
Transfer Agent and Registrar's Fees..................................... 10,000
Miscellaneous Costs..................................................... 99,912
--------
Total.............................................................. $600,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.

The Restated Certificate of Incorporation and the Amended and Restated
By-Laws of the Company, copies of which are filed herein as Exhibit 3.3 and 3.4,
provide for advancement of expenses and indemnification of officers and
directors of the Registrant and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions to the fullest extent permissible under Delaware law.

Section of the Underwriting Agreement between the Registrant and the
Underwriters, a copy of which is filed herein as Exhibit 1.1, will provide for
indemnification by the Registrant of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, which may include liabilities under the Securities Act of 1933.
The Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Registrant, its directors, officers and controlling persons, as
set forth therein.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Described below is information regarding all unregistered securities of the
Company sold by the Company within the past three years. The share and per share
amounts set forth below have been adjusted to reflect the Company's one-for-4.1
reverse Common Stock split effected on August 8, 1997.

From its incorporation (May 1992) to June 1997, the Company has entered
into stock option agreements with certain employees, officers and consultants to
the Company pursuant to the Company's Amended and Restated 1993 Stock Option
Plan, as amended, covering approximately 1,046,619 shares of its Common Stock,
of which 79,508 shares of Common Stock have been issued by the Company upon
exercise of such stock options. The purchase price under the options is $0.041
to $7.175 based on the fair market value of the Common Stock on the date of
grant. These grants and sales

II-1
<PAGE> 89

were made in reliance upon Rule 701 promulgated under the Securities Act and are
deemed to be exempt transactions as sales of an issuer's securities pursuant to
a written plan or contract relating to the compensation of such individuals and
upon Section 4(2) of the Securities Act as transactions not involving any public
offering.

In June 1994, the Company issued and sold an aggregate of 5,000,000 shares
of Series A Convertible Preferred Stock (convertible into 1,219,512 shares of
Common Stock) at a purchase price of $1.00 per share ($4.10 per share on an
as-converted basis) to HealthCare Ventures III, L.P., HealthCare Ventures IV,
L.P., I.S. Partners, L.P. and Everest Trust. The issuance and sales of such
shares of Series A Convertible Preferred Stock were made in reliance upon Rule
506 of Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.

In September 1994, the Company issued and sold an aggregate of 1,666,667
shares of Series B Convertible Preferred Stock (convertible into 406,504 shares
of Common Stock) at a purchase price of $1.20 per share ($4.92 per share on an
as-converted basis) to Schroder Ventures International Life Science Fund L.P. 1,
Schroder Ventures International Life Science Fund L.P. 2, Schroder Ventures
International Life Sciences Trust, Schroders Incorporated, Schroder Venture
Managers Limited as investment manager for the Schroder Ventures International
Life Sciences Fund Co-Investment Scheme, I.S. Partners, L.P. and Everest Trust.
The issuance and sales of such shares of Series B Convertible Preferred Stock
were made in reliance upon Rule 506 of Regulation D promulgated under the
Securities Act and Section 4(2) of the Securities Act.

In November 1994, the Company issued and sold 1,000,000 shares of Series C
Convertible Preferred Stock (convertible into 243,902 shares of Common Stock) at
a purchase price of $3.00 per share ($12.30 per share on an as-converted basis)
to Warner-Lambert Company. The issuance and sale of such shares of Series C
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.

In September 1995, the Company issued and sold an aggregate of 1,481,482
shares of Series D Convertible Preferred Stock (convertible into 361,337 shares
of Common Stock) at a purchase price of $1.35 per share ($5.54 per share on an
as-converted basis) to HealthCare Ventures III, L.P., HealthCare Ventures IV,
L.P., Schroder Ventures International Life Science Fund L.P. 1, Schroder
Ventures International Life Science Fund L.P. 2, Schroder Ventures International
Life Sciences Trust, Schroders Incorporated, Schroder Venture Managers Limited
as investment manager for the Schroder Ventures International Life Sciences Fund
Co-Investment Scheme, I.S. Partners, L.P., Everest Trust, Hudson Trust and
Francis H. Spiegel, Jr. The issuance and sales of such shares of Series D
Convertible Preferred Stock were made in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act and Section 4(2) of the Securities Act.

In January 1996, the Company issued and sold 625,000 shares of Series E
Convertible Preferred Stock (convertible into 152,439 shares of Common Stock) at
a purchase price of $4.00 per share ($16.40 per share on an as-converted basis)
to Warner-Lambert Company. The issuance and sale of such shares of Series E
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.

In February 1996, the Company issued and sold an aggregate of 910,188
shares of Series F Convertible Preferred Stock (convertible into 252,294 shares
of Common Stock) at a purchase price of $3.00 per share ($12.30 per share on an
as-converted basis) to HealthCare Ventures III, L.P., HealthCare Ventures IV,
L.P., I.S. Partners, L.P., Schroder Ventures International Life Science Fund
L.P. 1, Schroder Ventures International Life Science Fund L.P. 2, Schroder
Ventures International Life Sciences Trust, Schroders Incorporated, Schroder
Venture Managers Limited as investment manager for the Schroder Ventures
International Life Sciences Fund Co-Investment Scheme, I.S. Partners, L.P.,
Everest Trust, Hudson Trust, Francis H. Spiegel, Jr., Christopher T. Walsh and
Lombard Odier & Cie. The issuance and sales of such shares of Series F
Convertible Preferred Stock were made in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act and Section 4(2) of the Securities Act.

II-2
<PAGE> 90

In April 1996, the Company issued and sold 625,000 shares of Series E
Convertible Preferred Stock (convertible into 201,832 shares of Common Stock) at
a purchase price of $4.00 per share ($16.40 per share on an as-converted basis)
to Warner-Lambert Company. The issuance and sale of such shares of Series E
Convertible Preferred Stock were made in reliance upon Section 4(2) of the
Securities Act.

In June 1996, the Company issued and sold an aggregate of 728,147 shares of
Series F Convertible Preferred Stock (convertible into 201,832 shares of Common
Stock) at a purchase price of $3.00 per share ($12.30 per share on an
as-converted basis) to HealthCare Ventures III, L.P., HealthCare Ventures IV,
L.P., I.S. Partners, L.P., Schroder Ventures International Life Science Fund
L.P. 1, Schroder Ventures International Life Science Fund L.P. 2, Schroder
Ventures International Life Sciences Trust, Schroders Incorporated, Schroder
Venture Managers Limited as investment manager for the Schroder Ventures
International Life Sciences Fund Co-Investment Scheme, I.S. Partners, L.P.,
Everest Trust, Hudson Trust, Christopher T. Walsh and Lombard Odier & Cie. The
issuance and sales of such shares of Series F Convertible Preferred Stock were
made in reliance upon Rule 506 of Regulation D promulgated under the Securities
Act and Section 4(2) of the Securities Act.

In December 1996, the Company sold 857,143 shares of Series G Convertible
Preferred Stock (convertible into 562,937 shares of Common Stock) at a purchase
price of $3.50 ($5.33 on an as-converted basis) to Roche Finance Ltd. If the
initial public offering price varies within the estimated range, the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock is
subject to adjustment from a maximum of 609,849 shares of Common Stock (in the
event that the initial public offering price is $6.00 per share) to a minimum of
522,728 shares of Common Stock (in the event that the initial public offering
price is $7.00 per share). The pricing of this offering outside the estimated
range will further effect the number of shares of Common Stock into which the
Preferred Stock is convertible. The issuance and sales of such shares of Series
G Convertible Preferred Stock were made in reliance on Reg. Rule 506 of
Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.

In March through June 1997, the Company sold an aggregate of 1,102,719
shares of Series G Convertible Preferred Stock (convertible into 680,635 shares
of Common Stock) at a purchase price of $3.50 ($4.88 on an as-converted basis)
to a group of new and existing investors, including Schroder Ventures
International Life Sciences Fund L.P. 1, Schroder Ventures International Life
Sciences Fund L.P. 2, Schroder Ventures International Life Sciences Trust,
Schroders Incorporated, Schroder Ventures Managers Limited, as Investment
Manager for the Schroder Ventures International Life Sciences Fund Co-Investment
Scheme, S.R. One, Ltd., New Day Investment Partnership, L.P., WPG Life Sciences
Fund, L.P., WPG Institutional Life Sciences, L.P., Warner-Lambert Company, James
Cramer, Dr. Barbara Schildkrout, The Springer Family Trust and Daniel Kisner. If
the initial public offering price varies within the estimated range, the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock is
subject to adjustment from a maximum of 729,519 shares of Common Stock (in the
event that the initial public offering price is $6.00 per share) to a minimum of
638,740 shares of Common Stock (in the event that the initial public offering
price is $7.00 per share). The pricing of this offering outside the estimated
range will further effect the number of shares of Common Stock into which the
Preferred Stock is convertible. The issuance and sales of such shares of Series
G Convertible Preferred Stock were made in reliance on Reg. Rule 506 of
Regulation D promulgated under the Securities Act and Section 4(e) of the
Securities Act.

No Underwriters were engaged in connection of any of foregoing sales of
securities.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant.
</TABLE>

II-3
<PAGE> 91

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
*3.2 Form of Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant (to be filed with the State of Delaware prior to the effectiveness
of the Registration Statement).
*3.3 Form of Restated Certificate of Incorporation of the Registrant (to be filed with
the State of Delaware upon the closing of the Offering).
*3.4 Amended and Restated By-Laws of the Registrant, as amended to date.
*4.1 Specimen certificate for shares of Common Stock.
*4.2 Description of Capital Stock (contained in the Restated Certificate of
Incorporation of the Registrant, filed as Exhibit 3.3).
*5 Opinion of Bingham, Dana & Gould LLP, with respect to the legality of the shares
being registered.
*10.1 Consulting Agreement, dated January 22, 1993, between the Registrant and Timothy
Springer.
+*10.2 License Agreement, dated June 15, 1993, between the Registrant and the Center for
Blood Research, Inc.
+*10.3 License Agreement, dated as of January 2, 1995, between the Registrant and Stanford
University.
+*10.4 (a) The Research, Development and Marketing Agreement, dated September 30, 1994,
between the Registrant and Warner-Lambert Company, as amended by First Amendment to
the Research, Development and Marketing Agreement, dated as of July 1, 1995.
(b) The Research, Development and Marketing Agreement, dated July 1, 1995, between
the Registrant and Warner-Lambert Company.
+*10.5 License Agreement, dated March 15, 1995, between the Registrant and Lynxvale Ltd.
*10.6 Service Agreement, dated as of March 9, 1995, between the Registrant and MRC
Collaborative Centre.
+*10.7 License Agreement, dated March 25, 1996, between the Registrant and Children's
Medical Center Corporation.
+*10.8 (a) License Agreement, dated January 31, 1996, between the Registrant and The
Imperial College of Science, Technology & Medicine, Imperial Exploitation Limited.
(b) Research Agreement, dated March 14, 1996, between the Registrant and The
Imperial College of Science, Technology & Medicine, Imperial Exploitation Limited.
+*10.9 Research Collaboration and License Agreement, dated July 12, 1996, between the
Registrant and Roche Bioscience.
+*10.10 Agreement for the construction and operation of a Therapeutic Antibody Centre
within the University of Oxford, dated October 6, 1994, among the University of
Oxford, The Medical Research Council, the Registrant and LeukoSite Limited.
+*10.11 License Agreement between the Registrant and British Technology Group Limited.
+*10.12 Letter Agreement, dated September 30, 1996, between the Registrant and The Wellcome
Foundation Limited.
*10.13 Material Release Agreement, dated September 30, 1996, between the Registrant and
The Wellcome Foundation Limited.
+*10.14 Letter Agreement, dated October 7, 1996, between the Registrant and Warner-
Lambert/Parke-Davis.
+*10.15 Research Collaboration and License Agreement, dated April 24, 1997, between the
Registrant and Kyowa Hakko Kogyo Co. Ltd.
+*10.16 Agreement, dated September 25, 1996, between the Registrant and Oxford Asymmetry
Limited.
+*10.17 (a) Agreement of Limited Partnership of L&I Partners, L.P.
(b) License Agreement, dated May 2, 1997, between L&I Partners, L.P. and the
Registrant.
*10.18 Lease agreement for portion of 215 First Street, Cambridge, MA, dated June 8, 1994,
between the Registrant and Robert A. Jones and K. George Najarian, as Trustees for
Athenaeum Realty Nominee Trust.
*10.19 Master Lease Agreement, dated December 13, 1993, between the Registrant and
Comdisco, Inc.
</TABLE>

II-4
<PAGE> 92

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
*10.20 (a) Warrant, dated December 13, 1993, between the Registrant and Comdisco, Inc.
(b) Warrant, dated December 13, 1993, between the Registrant and Comdisco, Inc.
*10.21 Master Equipment Lease, dated as of October 3, 1994, between the Registrant and
Phoenix Leasing Incorporated.
*10.22 Senior Loan and Security Agreement, dated March 14, 1997, between the Registrant
and Phoenix Leasing Incorporated.
*10.23 Amended and Restated 1993 Stock Option Plan.
*10.24 1997 Employee Stock Purchase Plan.
*10.25 (a) Series C Convertible Preferred Stock Purchase Agreement, dated as of November
8, 1994, between the Registrant and Warner-Lambert Company.
(b) Series E Convertible Preferred Stock Purchase Agreement, dated as of January 3,
1996, between the Registrant and Warner-Lambert Company.
(c) Amendment, Modification and Conversion Agreement, dated June 26, 1997, between
the Registrant and Warner-Lambert Company.
*10.26 Second Amended and Restated Stockholders' Agreement, dated December 20, 1996, by
and among the Registrant and parties signatory thereto, as amended.
*10.27 Deed of Assumption, dated June 16, 1997, among the University of Oxford, the
Medical Research Council, LeukoSite, Inc. and LeukoSite (U.K.) Limited.
*10.28 Letter Agreement, dated June 26, 1997, between the Registrant and HealthCare
Ventures III, L.P. and HealthCare Ventures IV, L.P.
*11.1 Computation of Income Per Share.
*21.1 Subsidiary of the Registrant.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
*24.1 Power of Attorney.
*27.1 Financial Data Schedule.
</TABLE>

- ------------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential Treatment requested as to certain portions.

(b) Financial Statement Schedules:

All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth in
the Financial Statements and notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-5
<PAGE> 93

The undersigned registrant hereby undertakes:

(1) To provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.

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

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

II-6
<PAGE> 94

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts, on this 14th day of August, 1997.

LEUKOSITE, INC.

By: /s/ CHRISTOPHER K. MIRABELLI
------------------------------------
Christopher K. Mirabelli
Chairman of the Board of Directors,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed below by the following
persons in the capacities and on

August 14, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------
<C> <S> <C>

/s/ CHRISTOPHER K. MIRABELLI Chairman of the Board of Directors,
- ---------------------------------------- President and
Christopher K. Mirabelli Chief Executive Officer
(Principal Executive Officer)

/s/ AUGUSTINE LAWLOR Vice President, Corporate
- ---------------------------------------- Development and Chief
Augustine Lawlor Financial Officer (Principal
Financial and Accounting
Officer)

* Director
- ----------------------------------------
Catherine Bingham

* Director
- ----------------------------------------
John W. Littlechild

* Director
- ----------------------------------------
Martin Peretz

* Director
- ----------------------------------------
Mark Skaletsky

* Director
- ----------------------------------------
Dr. Christopher T. Walsh
</TABLE>

*By:
/s/ CHRISTOPHER K. MIRABELLI
- ---------------------------------
Attorney-in-Fact

II-7
<PAGE> 95

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
*1.1 Proposed Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Registrant.
*3.2 Form of Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant (to be filed with the State of Delaware prior to the effectiveness
of the Registration Statement).
*3.3 Form of Restated Certificate of Incorporation of the Registrant (to be filed with
the State of Delaware upon the closing of the Offering).
*3.4 Amended and Restated By-Laws of the Registrant, as amended to date.
*4.1 Specimen certificate for shares of Common Stock.
*4.2 Description of Capital Stock (contained in the Restated Certificate of
Incorporation of the Registrant, filed as Exhibit 3.3).
*5 Opinion of Bingham, Dana & Gould LLP, with respect to the legality of the shares
being registered.
*10.1 Consulting Agreement, dated January 22, 1993, between the Registrant and Timothy
Springer.
+*10.2 License Agreement, dated June 15, 1993, between the Registrant and the Center for
Blood Research, Inc.
+*10.3 License Agreement, dated as of January 2, 1995, between the Registrant and Stanford
University.
+*10.4 (a) The Research, Development and Marketing Agreement, dated September 30, 1994,
between the Registrant and Warner-Lambert Company, as amended by First Amendment to
the Research, Development and Marketing Agreement, dated as of July 1, 1995.
(b) The Research, Development and Marketing Agreement, dated July 1, 1995, between
the Registrant and Warner-Lambert Company.
+*10.5 License Agreement, dated March 15, 1995, between the Registrant and Lynxvale Ltd.
*10.6 Service Agreement, dated as of March 9, 1995, between the Registrant and MRC
Collaborative Centre.
+*10.7 License Agreement, dated March 25, 1996, between the Registrant and Children's
Medical Center Corporation.
+*10.8 (a) License Agreement, dated January 31, 1996, between the Registrant and The
Imperial College of Science, Technology & Medicine, Imperial Exploitation Limited.
(b) Research Agreement, dated March 14, 1996, between the Registrant and The
Imperial College of Science, Technology & Medicine, Imperial Exploitation Limited.
+*10.9 Research Collaboration and License Agreement, dated July 12, 1996, between the
Registrant and Roche Bioscience.
+*10.10 Agreement for the construction and operation of a Therapeutic Antibody Centre
within the University of Oxford, dated October 6, 1994, among the University of
Oxford, The Medical Research Council, the Registrant and LeukoSite Limited.
+*10.11 License Agreement between the Registrant and British Technology Group Limited.
+*10.12 Letter Agreement, dated September 30, 1996, between the Registrant and The Wellcome
Foundation Limited.
*10.13 Material Release Agreement, dated September 30, 1996, between the Registrant and
The Wellcome Foundation Limited.
+*10.14 Letter Agreement, dated October 7, 1996, between the Registrant and Warner-
Lambert/Parke-Davis.
+*10.15 Research Collaboration and License Agreement, dated April 24, 1997, between the
Registrant and Kyowa Hakko Kogyo Co. Ltd.
+*10.16 Agreement, dated September 25, 1996, between the Registrant and Oxford Asymmetry
Limited.
+*10.17 (a) Agreement of Limited Partnership of L&I Partners, L.P.
(b) License Agreement, dated May 2, 1997, between L&I Partners, L.P. and the
Registrant.
</TABLE>

<PAGE> 96

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
*10.18 Lease agreement for portion of 215 First Street, Cambridge, MA, dated June 8, 1994,
between the Registrant and Robert A. Jones and K. George Najarian, as Trustees for
Athenaeum Realty Nominee Trust.
*10.19 Master Lease Agreement, dated December 13, 1993, between the Registrant and
Comdisco, Inc.
*10.20 (a) Warrant, dated December 13, 1993, between the Registrant and Comdisco, Inc.
(b) Warrant, dated December 13, 1993, between the Registrant and Comdisco, Inc.
*10.21 Master Equipment Lease, dated as of October 3, 1994, between the Registrant and
Phoenix Leasing Incorporated.
*10.22 Senior Loan and Security Agreement, dated March 14, 1997, between the Registrant
and Phoenix Leasing Incorporated.
*10.23 Amended and Restated 1993 Stock Option Plan.
*10.24 1997 Employee Stock Purchase Plan.
*10.25 (a) Series C Convertible Preferred Stock Purchase Agreement, dated as of November
8, 1994, between the Registrant and Warner-Lambert Company.
(b) Series E Convertible Preferred Stock Purchase Agreement, dated as of January 3,
1996, between the Registrant and Warner-Lambert Company.
*10.26 Second Amended and Restated Stockholders' Agreement, dated December 20, 1996, by
and among the Registrant and parties signatory thereto, as amended.
*10.27 Deed of Assumption, dated June 16, 1997, among the University of Oxford, the
Medical Research Council, LeukoSite, Inc. and LeukoSite (U.K.) Limited.
*10.28 Letter Agreement, dated June 26, 1997, between the Registrant and HealthCare
Ventures III, L.P. and HealthCare Ventures IV, L.P.
*11.1 Computation of Income Per Share.
*21.1 Subsidiary of the Registrant.
*23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
*24.1 Power of Attorney.
*27.1 Financial Data Schedule.
</TABLE>

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

+ Confidential Treatment requested as to certain portions.

<PAGE> 1

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made part of this
Registration Statement.

/s/ Arthur Andersen LLP

Boston, Massachusetts

August 14, 1997

<PAGE> 1
Exhibit 23.3

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

CONSENT OF SPECIAL COUNSEL FOR LEUKOSITE, INC.

We hereby consent to the reference to our name, and to the statements
with respect to us, in LeukoSite, Inc.'s Registration Statement on Form S-1 and
the Prospectus relating thereto under the caption "Experts".

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

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

Dated: August 14, 1997