<PAGE>   1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998
 
                                                           REGISTRATION NO. 333-
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
 
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                                   DYAX CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                              <C>                              <C>
            DELAWARE                           8731                          04-3053198
  (STATE OR OTHER JURISDICTION     (PRIMARY STANDARD INDUSTRIAL           (I.R.S. EMPLOYER
      OF INCORPORATION OR          CLASSIFICATION CODE NUMBER)         IDENTIFICATION NUMBER)
          ORGANIZATION)
</TABLE>
 
       ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139, (617) 225-2500
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
             HENRY E. BLAIR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
 DYAX CORP., ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139, (617) 225-2500
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                            ------------------------
 
                                   Copies to:
 
<TABLE>
<S>                                              <C>
          NATHANIEL S. GARDINER, ESQ.                         STEVEN D. SINGER, ESQ.
               PALMER & DODGE LLP                               HALE AND DORR LLP
               ONE BEACON STREET                                 60 STATE STREET
          BOSTON, MASSACHUSETTS 02108                      BOSTON, MASSACHUSETTS 02109
                 (617) 573-0100                                   (617) 526-6000
</TABLE>
 
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]
 
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]
------
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
------
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
------
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
                            the following box.  [ ]
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
=======================================================================================================================
                                                              PROPOSED MAXIMUM     PROPOSED MAXIMUM
         TITLE OF EACH CLASS OF             AMOUNT TO BE       OFFERING PRICE     AGGREGATE OFFERING      AMOUNT OF
       SECURITIES TO BE REGISTERED          REGISTERED(1)       PER SHARE(2)         PRICE(1)(2)      REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                  <C>                  <C>
Common Stock, $.01 par value per share...     2,875,000            $12.00            $34,500,000         $10,177.50
=======================================================================================================================
</TABLE>
 
(1) Includes shares which the Underwriters may purchase to cover
    over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
 
     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 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 MARCH 23, 1998
 
PROSPECTUS
 
                                2,500,000 SHARES
 
                                   DYAX CORP.
                                  COMMON STOCK
                               ------------------
 
     All of the 2,500,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), being offered hereby (the "Offering") are being sold by Dyax
Corp. ("Dyax" or the "Company"). Prior to this Offering, there has not been a
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $          and
$          per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
 
     Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "DYAX."
 
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
      SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
                               ------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
       EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
     SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
          PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
             REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
=============================================================================================================
                                                                 UNDERWRITING
                                         PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                          PUBLIC                COMMISSIONS(1)              COMPANY(2)
-------------------------------------------------------------------------------------------------------------
<S>                              <C>                       <C>                       <C>
Per Share                                   $                         $                         $
-------------------------------------------------------------------------------------------------------------
Total(3)                                    $                         $                         $
=============================================================================================================
</TABLE>
 
   (1) For information regarding indemnification of the Underwriters, see
       "Underwriting."
   (2) Before deducting expenses payable by the Company estimated at $900,000.
   (3) The Company has granted to the Underwriters a 30-day option to purchase
       up to an additional 375,000 shares of Common Stock solely to cover
       over-allotments, if any. See "Underwriting." If such option is exercised
       in full, the total Price to Public, Underwriting Discounts and
       Commissions, and Proceeds to Company will be $        , $        and
       $        , respectively.
 
                               ------------------
 
     The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or
            , 1998 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
                               ------------------
 
SALOMON SMITH BARNEY
                          CIBC OPPENHEIMER
                                          PACIFIC GROWTH EQUITIES, INC.
 
            , 1998.
<PAGE>   3
 
                                    [IMAGE]
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>   4
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, contained elsewhere in this Prospectus. Investors should carefully
consider the information set forth under the heading "Risk Factors." Unless
otherwise indicated the information in this Prospectus: (i) assumes the
conversion of all series of outstanding shares of the Company's Class A
Convertible Preferred Stock (the "Convertible Preferred Stock") into Common
Stock upon consummation of this Offering; (ii) assumes no exercise of the
Underwriters' over-allotment option; (iii) reflects a 0.652-for-1 reverse stock
split of the Common Stock; and (iv) reflects an amendment to the Company's
Restated Certificate of Incorporation to be filed upon closing of this Offering
to create a class of authorized but undesignated Preferred Stock.
 
                                  THE COMPANY
 
     Dyax's phage display technology has broad potential commercial applications
in the fields of therapeutic, diagnostic and separations products. The Company's
patented and proprietary phage display technology ("Phage Display") is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name. Dyax is using Phage Display and its expertise in separations
technology to pursue a diversified business strategy of non-exclusive patent
licensing, discovery and development of therapeutic and diagnostic products and
the development of innovative chromatography and affinity separations products.
Dyax currently has licensed its Phage Display patents to more than 25 companies,
is engaged in four corporate collaborative partnerships and is performing or has
completed eight funded discovery projects. In addition, the Company has sold its
Biotage products to over 50 pharmaceutical and biotechnology companies. Dyax is
generating near-term revenues from sales of its separations products, funding
from sponsored research and fees from patent licenses, while maintaining a
long-term focus on its therapeutic and diagnostic product development programs,
the expansion of existing separations product lines and the development of
affinity separations products.
 
     Phage Display is used to discover and develop compounds that bind (binding
compounds) to a molecule of interest (target). Molecular binding is the key to
the function of most therapeutic, diagnostic and separations products.
Therapeutic and diagnostic products bind to target molecules to achieve a
desired effect and are generally selected for their ability to distinguish
between the correct target and other closely related molecules (specificity) and
to bind tightly to a target (affinity) under appropriate physiological
conditions. Binding also plays a significant role in the separations products
used to purify material for the development and manufacture of a therapeutic
product. The failure to achieve high specificity and high affinity in binding
can result in low levels of efficacy, side effects and toxicities for
therapeutic products, inaccurate results for diagnostic products and reduced
yield and purity achieved with separations products.
 
     Using the speed and diversity of a self-replicating biological system,
Dyax's Phage Display allows scientists to select proteins that bind to a target.
The selection is made from a diverse set of up to hundreds of millions of
proteins displayed on the surface of a bacterial virus, bacteriophage, known
commonly as "phage." The Phage Display process generally consists of: (i)
generating a large collection of phage, known as a "library," that contains
genes encoding up to hundreds of millions of related proteins, or potential
binding compounds; (ii) screening the library by exposing it to a specified
target and isolating those phage whose displayed proteins bind to the target;
and (iii) analyzing the selected binding compounds for relative specificity and
affinity to the target.
 
     Compared to conventional or combinatorial chemistry approaches used for the
identification of binding compounds, the Company believes that Phage Display has
several advantages, including greater diversity and speed, ease of amplification
and rapid optimization. In the discovery of therapeutic and diagnostic products,
scientists can use Phage Display to identify binding compounds with high
specificity and affinity more rapidly than by using other existing methods. In
the development of separations processes, the Company believes that Phage
Display can be used to identify binding compounds that enable the purification
of therapeutic products more cost effectively and efficiently, thereby
shortening the development and manufacturing processes for such products.
                                        3
<PAGE>   5
 
     The Company has established a broad licensing program of its Phage Display
patents for use in the fields of therapeutics, antibody-based in vitro
diagnostics and Phage Display research kits. Since 1996, the Company has granted
non-exclusive licenses to more than 25 companies, including Affymax
Technologies, N.V. (and its parent, Glaxo Wellcome PLC), Bristol-Myers Squibb,
Chiron Corporation, Genzyme Corporation, Merck & Co., Inc., Monsanto Company and
Pharmacia & Upjohn, Co. Dyax believes that the success of its patent licensing
program provides support for its patent position in Phage Display and the
utility of Phage Display as an enabling discovery technology. Under these
licenses, Dyax has retained all rights to practice Phage Display in the fields
of separations and in vivo imaging.
 
     Dyax is leveraging its Phage Display in therapeutics and diagnostics
through collaborative arrangements as well as through internal discovery and
development programs. Dyax has used Phage Display to identify three proprietary
lead therapeutic compounds with potential applications in inflammatory diseases
and certain cancers and one lead diagnostic compound for in vivo imaging of
inflammation. One of these proprietary lead compounds, EPI-HNE4, is currently in
preclinical development for the treatment of pulmonary inflammation resulting
from cystic fibrosis in collaboration with Debiopharm S.A. A modified form of
EPI-HNE4 is in preclinical development as a diagnostic imaging agent for sites
of inflammation (including infection) in collaboration with the University of
Massachusetts Medical Center. Additionally, the Company is collaborating with
EPIX Medical Inc. in the field of cardiovascular imaging to identify binding
compounds to be used in an imaging agent to detect deep vein thrombosis and
pulmonary embolism. The Company is also collaborating with Novo Nordisk A/S to
develop new tools for the rapid evaluation of certain of Novo Nordisk's
therapeutic candidates. In addition, the Company has funded discovery projects
with SangStat Medical Corporation, Tularik, Inc. and Athena Neurosciences, Inc.
 
     Dyax is a leader in the development, manufacture and sale of cartridge
chromatography products and systems. Chromatography is used to purify a desired
product or to remove impurities from a mixture during the discovery, development
and manufacturing of a therapeutic product. The Company believes that its
cartridge-based systems provide advantages to its customers compared to
manually-packed and pre-packed columns, including greater speed and convenience,
lower cost, improved safety and reproducible performance. The Company has sold
its current line of Biotage chromatography products and systems to over 50
leading pharmaceutical and biotechnology companies worldwide, including Bachem
AG, Bayer Corporation, Genentech, Inc., F. Hoffmann-La Roche, Ltd., Merck & Co.,
Inc., Novartis, Pfizer, Inc. and Pharmacia & Upjohn, Co.
 
     The Company believes that Phage Display is a powerful tool for developing
new affinity separations media that can cost effectively and efficiently purify
complex therapeutic products, such as proteins and vaccines. Dyax is using Phage
Display to identify binding compounds known as affinity ligands that can be used
to purify therapeutic products in commercial quantities. The Company believes
that these new affinity separations products can reduce the time, cost and risk
associated with the purification process. Dyax plans to combine its Biotage
chromatography systems with any affinity separations media that may be developed
using Phage Display to provide fully-integrated systems for the purification of
natural products, peptides, proteins, organic compounds and other molecules.
Dyax has a collaborative arrangement with CropTech Development Corporation to
develop novel affinity separations technologies. Dyax also has funded discovery
projects with several different companies, including Argonex, Inc., Genetics
Institute, Inc., Genzyme Transgenics Corporation, Merck & Co., Inc. and Pall
Corporation.
 
     The Company was incorporated in Delaware in 1989 under the name Biotage,
Inc. and merged with Protein Engineering Corporation ("PEC") in August 1995. The
Company's principal executive offices are located at One Kendall Square,
Building 600, Cambridge, Massachusetts 02139, and its telephone number is (617)
225-2500.
 
                                        4
<PAGE>   6
 
                                  THE OFFERING
 
Common Stock offered................      2,500,000 shares
 
Common Stock outstanding after the
Offering............................      9,761,353 shares(1)
 
Use of Proceeds.....................      To fund research and development,
                                          repayment of $763,000 of indebtedness,
                                          working capital and other general
                                          corporate purposes, including possible
                                          technology in-licensing and
                                          acquisitions. See "Use of Proceeds."
 
Proposed Nasdaq National Market
Symbol..............................      DYAX
 
                                  RISK FACTORS
 
     See "Risk Factors" commencing on page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
 
                             SUMMARY FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                            1993       1994       1995       1996       1997
                                           -------    -------    -------    -------    -------
                                             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                        <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Total revenues.........................  $ 4,099    $ 2,713    $ 4,020    $ 7,037    $ 9,776
                                           -------    -------    -------    -------    -------
  Operating expenses:
     Cost of products sold...............    2,792      1,794      1,952      2,046      3,174
     Research and development............      894        894      1,343      3,140      5,575
     Selling, general and
       administrative....................    3,054      2,604      2,710      4,170      6,827
     Other expenses(2)...................       --         --      4,554         --         --
                                           -------    -------    -------    -------    -------
          Total operating expenses.......    6,740      5,292     10,559      9,356     15,576
                                           -------    -------    -------    -------    -------
  Loss from operations...................   (2,641)    (2,579)    (6,539)    (2,319)    (5,800)
  Interest income (expense), net.........      (97)       (89)       (46)       (78)       265
                                           -------    -------    -------    -------    -------
  Net loss...............................  $(2,738)   $(2,668)   $(6,585)   $(2,397)   $(5,535)
                                           =======    =======    =======    =======    =======
  Pro forma net loss per share -- basic
     and diluted(3)......................                                              $ (0.83)
                                                                                       =======
 
  Weighted average number of shares used
     in computing pro forma net loss per
     share -- basic and diluted..........                                            6,706,680
                                                                                    ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31, 1997
                                                              --------------------------
                                                               ACTUAL     AS ADJUSTED(4)
                                                              --------    --------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>         <C>
BALANCE SHEET DATA:
  Cash and cash equivalents.................................  $  4,664       $
  Working capital...........................................     5,905
  Total assets..............................................    10,532
  Long-term debt and capital lease obligations, less current
     portion................................................     1,078            383
  Accumulated deficit.......................................   (30,704)       (30,704)
  Total stockholders' equity................................     6,263
</TABLE>
 
---------------
(1) Excludes (i) 1,111,217 shares of Common Stock issuable upon the exercise of
    outstanding stock options at a weighted average exercise price of $1.63 per
    share, of which options to purchase 271,691 shares of Common Stock were
    exercisable as of March 17, 1998, and (ii) 27,022 shares of Common Stock
    issuable upon the exercise of outstanding warrants at an exercise price of
    $3.97 per share. See "Description of Capital Stock" and See
    "Management -- Stock Plans."
 
(2) Includes write-offs of an intangible asset in the amount of $456,000 and
    incomplete technology in the amount of $4,098,000 in the year ended December
    31, 1995.
 
(3) See Note 2 to Notes to Consolidated Financial Statements for a description
    of the calculation of pro forma net loss per share.
 
(4) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
    hereby at an assumed initial public offering price of $    per share (the
    mid-point of the range set forth on the front cover) less estimated
    underwriting discounts and commissions and offering expenses payable by the
    Company and the use of the estimated net proceeds therefrom. See "Use of
    Proceeds" and "Capitalization."
 
                                        5
<PAGE>   7
 
                                  RISK FACTORS
 
     In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. The
Prospectus may contain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
 
DEPENDENCE ON PHAGE DISPLAY; NEW AND UNCERTAIN TECHNOLOGY; NO CLINICAL TRIALS OR
SALES OF PHAGE DISPLAY-DERIVED PRODUCTS TO DATE
 
     The Company has invested substantial resources in its Phage Display and
believes that the identification, development and commercialization of lead
binding compounds derived using this technology are critical to the Company's
success. All of the Company's Phage Display-derived product candidates are in
research or development, and neither the Company nor, to its knowledge, any of
its collaborative partners or licensees, has commenced clinical trials or
commercialized any products developed using Phage Display. The discovery and
development of therapeutic, diagnostic and affinity separations products derived
from Phage Display will be subject to risks of failure inherent in the product
development process. These risks include, among others, the possibilities that
(i) any therapeutic or diagnostic product candidates will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; (ii) any therapeutic or diagnostic product candidates, if safe and
effective, will prove difficult or impossible to manufacture on a large scale,
will be uneconomical to market, or will not achieve market acceptance; (iii)
proprietary rights of third parties will preclude the Company or its
collaborative partners or licensees from marketing any such products; and (iv)
third parties will market equivalent or superior products. In addition, there
can be no assurance that affinity separations products developed using Phage
Display will become accepted as effective technology for use in the development
and implementation of purification processes for pharmaceutical manufacture. As
a result, there can be no assurance that the Company will ever have marketable
products developed using Phage Display or that it will ever generate revenues
from any such products developed and marketed by its collaborative partners or
licensees or develop a sustainable, profitable business. In any event, the
Company does not expect to receive revenues from the sale of any of such
products for the next several years, if ever. The failure to identify, develop
and commercialize lead binding compounds derived using Phage Display by the
Company and/or by its collaborative partners and licensees would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     The Company's success will depend upon the acceptance of Phage Display as
an effective discovery process for therapeutic and diagnostic products by its
current and prospective collaborative partners and licensees. There can be no
assurance that the Company's current and prospective collaborative partners and
licensees will continue to use or adopt Phage Display or other technologies
developed by the Company rather than alternative technologies, or that the
Company will be able to attract future collaborative partners or licensees on
acceptable terms. See "Business."
 
LIMITED REVENUES TO DATE FROM SEPARATIONS PRODUCTS; NEED TO DEVELOP NEW
SEPARATIONS PRODUCTS
 
     The Company has received only limited revenues to date from the sale of
chromatography separations products. Many of the Company's existing separations
products are in highly competitive, mature markets. The Company's ability to
compete successfully in the market for chromatography separations products will
depend upon its ability to develop, introduce and market new
chromatography-based products and new products based upon the application of
Phage Display to the processes used in the manufacture of biopharmaceuticals.
The Company is seeking to develop or acquire new separations products. There can
be no assurance that the Company's BioFLASH product line under development will
be successfully introduced or that the Company will be successful in developing,
acquiring or selling any new products. To date, the Company's high pressure
liquid chromatography ("HPLC") separations products have had the protection of
certain patent rights licensed exclusively to the Company. The Company cannot
predict what impact, if any, the recent expiration of the underlying patent will
have on its separations business.
                                        6
<PAGE>   8
 
     The Company is in the early stages of developing Phage Display-derived
affinity separations products. There can be no assurance that the Company's
affinity separations technology will result in commercialized products or that
such products will achieve market acceptance, which will depend in large part on
the Company's ability to develop and demonstrate the relative effectiveness,
efficiency, ease of use and safety of any such products compared to existing or
new separations technologies. If the Company's new chromatography products or
Phage Display-derived affinity separations products fail to achieve market
acceptance, it would have a material adverse effect on the Company's existing
separations business and on the Company's business, financial condition and
results of operations. See "Business -- Dyax Programs and Products -- Biotage
Separations Products and Research and Affinity Separations Development
Programs."
 
SIGNIFICANT FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
 
     The Company has experienced significant fluctuations in its revenues and
operating results from quarter to quarter and year to year, and it expects these
fluctuations to continue in the future. The Company also expects that an
increasingly significant portion of its anticipated revenues for the foreseeable
future will be comprised of up-front fees and research and development funding
paid pursuant to collaborative and licensing arrangements. The Company believes
that future fluctuations in revenues and operating results may depend on various
factors, such as the timing of the Company's increased research and development
expenses, the establishment of new collaborative arrangements, the development
and commercialization programs of current and prospective collaborative
partners, the completion of certain milestones and the timing of customer
purchases of larger separations equipment systems.
 
     The Company's current and planned expense levels are, to a large extent,
fixed in the short term, and are based in part on its expectations as to future
revenues. The Company may be unable to adjust spending in a timely manner to
compensate for any revenue shortfall. In addition, in any fiscal quarter the
Company may receive no payments from its collaborative partners. Consequently,
revenues are difficult to forecast and may vary significantly from quarter to
quarter or year to year and revenues or results of operations in any period will
not necessarily be indicative of revenues or operating results in subsequent
periods and should not be relied upon as any indication of future performance.
 
     Due to the foregoing or other factors, it is likely that such quarterly
fluctuations in revenue or operating results will from time to time not meet the
expectations of securities analysts or investors, which may have a material
adverse effect on the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"-- No Prior Public Market for Common Stock; Volatility of Stock Price."
 
DEPENDENCE ON COLLABORATIONS AND LICENSING
 
     The Company's success will depend upon the formation of multiple
collaborative arrangements with third parties on a regular basis and the
continued licensing and broad practice of Phage Display by licensed third
parties. There can be no assurance that the Company will be able to establish
additional collaborative arrangements on acceptable terms, or that current or
any prospective collaborative arrangements, or development programs of Phage
Display licensees, will ultimately be successful. The Company's receipt of
revenues, if any, from any current and prospective collaborative and licensing
arrangements will be affected by the timing and efforts expended by the Company
and its existing collaborative partners and licensees, as well as the
proprietary position of the technology and products resulting from such
collaborative arrangements. The failure to enter into additional collaborative
or licensing arrangements would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     The Company's collaborative arrangements do not obligate the collaborative
partners to develop or commercialize lead compounds discovered by the Company.
Collaborative partners may independently develop a competing lead compound
identified either on their own or in collaboration with others, including the
Company's competitors. In addition, there can be no assurance that current or
prospective collaborative partners will not pursue alternative technologies or
develop alternative products. A collaborative partner's performance under its
agreement with the Company could be materially adversely affected if such
collabora-
 
                                        7
<PAGE>   9
 
tive partner were involved in a business combination or in the event that the
collaborative partner had a significant strategic shift in its business focus.
The Company is also dependent upon the expertise and dedication of sufficient
resources by its collaborative partners to develop and commercialize any
products developed using Phage Display. The amount and timing of resources that
current and future collaborative partners, if any, devote to collaborative
arrangements with the Company are not within the control of the Company. See
"-- Dependence on Phage Display; New and Uncertain Technology; No Clinical
Trials or Sales of Phage Display-Derived Products to Date."
 
     The Company is dependent upon its collaborative partners and licensees to
inform Dyax of products developed using Phage Display-derived binding compounds.
Conflicts may arise between the Company and any of its collaborative partners
and licensees as to whether a potential product developed by the collaborative
partner or licensee is a Phage Display-derived product subject to milestone and
royalty payments to the Company. A product developed by a collaborative partner
or licensee may also be a derivative of one or more lead compounds provided to
the collaborative partner by the Company. While the Company's existing
collaborative arrangements and licenses provide that the Company retains
milestone and royalty payment rights with respect to potential products
developed from Phage Display-derived binding compounds, there can be no
assurance that any of the Company's collaborative partners and licensees will
not dispute their obligation to make payments with respect to any such products.
Further, the Company's collaborative partners and licensees generally may
terminate their agreements with the Company upon short notice. One collaborative
arrangement with the Company was recently terminated. The termination of a
significant number of the Company's existing or prospective collaborative
arrangements or licenses would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Collaborations" and "-- Uncertainties Related to Patents and
Proprietary Rights."
 
UNCERTAINTIES RELATED TO PATENTS AND PROPRIETARY RIGHTS
 
     The Company's success will significantly depend upon its ability to obtain
patent protection for its products and technologies under development, to defend
its issued patents, including patents and patent applications related to phage
display, biotechnology and separations, and to avoid the infringement of patents
issued to others. The Company is aware of certain patents for which it will
likely need to obtain licenses to commercialize its products and technologies.
While the Company believes that it will be able to obtain such licenses, there
can be no assurance that such licenses, or licenses to other patent rights, will
be available on reasonable terms, if at all. Further, if such licenses are not
available, the Company may need to halt or modify the activities which are
covered by the other patent rights, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
 
     Patent positions are complex in the fields of biotechnology, therapeutic
and diagnostic products and separations processes and products and the validity
or infringement of any given patent may be uncertain. In order for the Company
to commercialize a process or product, many patent rights of other parties may
need to be analyzed and often several licenses may be required. There can be no
assurance that any patents issued to the Company or its collaborative partners,
or for which the Company has licensed rights, will not be challenged, narrowed,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. In addition, there can be no assurance
that (i) the Company will be able to obtain patent protection for any
therapeutic, diagnostic or separations products it may develop; (ii) others will
not obtain patents covering the manufacture, use or sale of such products; (iii)
the Company's patents or any future patents will prevent other companies from
designing their products or conducting their activities so as to avoid the
coverage of the claims of the Company's patents; or (iv) others will not be able
to develop other competing technologies to supplement or replace the Company's
processes or products.
 
     There exists substantial patent litigation in the pharmaceutical,
biomedical and biotechnology industries. Patent litigation is generally
time-consuming, costly and involves complex legal and factual questions, and the
outcome is frequently difficult to predict. Litigation may be necessary to
enforce the Company's patent and license rights, to enforce or defend an
infringement claim, or to determine the scope and validity of others'
proprietary rights. Many of the Company's competitors have substantially greater
resources than the Company, and such competitors may be able to sustain the
costs of complex patent litigation to a greater
                                        8
<PAGE>   10
 
degree and for a longer period of time than the Company. In addition, such
proceedings or litigation, or any other proceedings or litigation to protect the
Company's intellectual property rights or defend against infringement claims by
others, could result in substantial costs and a diversion of management's time
and attention, subject the Company to significant liabilities to third parties,
and require the Company to cease using the technology or to license disputed
rights from third parties (which licenses may not be available at a reasonable
cost, if at all), any of which events could have a material adverse effect on
the business, financial condition and results of operations of the Company.
 
     The Company is particularly dependent on its U.S. and foreign patents and
patent applications relating to its Phage Display technology (the "Phage Display
Patent Rights"). Although the Company is not aware of any challenges to the
Phage Display Patent Rights to date in the United States, there can be no
assurance that a challenge will not be brought in the future. The Company plans
to protect its patent rights, including the Phage Display Patent Rights, to the
maximum practical extent. There can be no assurance that the Company will have
sufficient resources necessary to defend its patent rights against all such
challenges. However, if the Company commences legal action against an alleged
infringer of any of the Company's patent rights, the alleged infringer can be
expected to claim that the Company's patent rights are invalid for one or more
alleged reasons, thus subjecting the Company's patent rights in question to a
judicial determination of validity with the attendant risk that an adverse
determination could result in a loss of patent rights. In addition, in certain
situations, an alleged infringer could seek a declaratory judgment of invalidity
of the Company's patents. Uncertainties resulting from the initiation and
continuation of any patent or related litigation, including those involving the
Phage Display Patent Rights, could have a material adverse effect on the
Company's ability to maintain and expand its licensing program and collaborative
arrangements and to compete in the marketplace pending resolution of the
disputed matter.
 
     Two European patent oppositions were filed in late 1997 against the
Company's Phage Display patent issued by the European Patent Office ("EPO"), and
the Company expects that these oppositions will not be resolved for several
years. The oppositions are currently being reviewed by the Company's patent
counsel, and Dyax intends to vigorously defend its European patent. However,
there can be no assurance that the Company will prevail in the opposition
proceedings or any litigation contesting the validity or scope of this EPO
patent or other foreign patents, if any.
 
     The Phage Display Patent Rights are central to the Company's non-exclusive
patent licensing program. In connection with the licensing program, the Company
regularly monitors publications and other sources for information regarding the
practice by others of technology covered by the Phage Display Patent Rights, and
there are unlicensed parties whose activities the Company believes may be
covered by its issued patents. In such circumstances, the Company generally
seeks to negotiate a Phage Display license agreement. There can be no assurance,
however, that the Company will be able to identify all parties practicing the
Phage Display Patent Rights, all products derived by such parties, including its
licensees, or that the Company will be successful in entering into license
agreements with parties that the Company believes require such a license. In
jurisdictions where the Company has not applied for or obtained patent rights,
the Company will be unable to prevent others from developing or selling products
or technologies derived using Phage Display. In addition, even in jurisdictions
where the Company has Phage Display Patent Rights, there can be no assurance
that the Company will be able to prevent others from selling or importing
products or technologies derived elsewhere using Phage Display. The inability of
the Company to protect and enforce its patent rights, whether by licensing or
otherwise, could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     The Company is aware that other parties have patents and pending
applications to various phage display inventions. The Company has filed, and in
the future may file, oppositions to European and other patents issued to others.
To date, the Company has filed oppositions against two European patents in the
general field of phage display. The Company does not believe these European
patents cover any of its present activities, but the Company cannot predict
whether the claims in these patents may, in their current or future form, cover
the Company's activities or the activities of its collaborative partners and
licensees. In addition, through its patent licensing program, the Company has
secured a limited freedom to practice some of these patent rights pursuant to
its standard license agreement, which contains a covenant by the licensee that
it will not sue the
                                        9
<PAGE>   11
 
Company under certain of the licensee's phage display improvement patents. The
Company may from time to time seek affirmative rights of license or ownership
under existing patent rights relating to phage display technology of others.
There can be no assurance, however, that the Company will be successful in
maintaining any covenants of nonsuit from its licensees, or in acquiring similar
covenants in the future, or that the Company will be able to obtain satisfactory
licenses. The inability of the Company to obtain and maintain such licenses and
covenants could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     To protect its existing and future chromatography separations products, the
Company relies primarily upon trade secrets and know-how, as well as the
experience and skill of its technical personnel. The Company also has several
patents and patent applications on its proprietary chromatography technology
which are not based on Phage Display, but it cannot predict the extent to which
any such patents or future patents will provide protection for its existing or
any new separations products.
 
     In all of its activities, the Company relies substantially upon proprietary
materials and information, trade secrets and know-how to conduct its research
and development activities and to attract and retain collaborative partners,
licensees and customers. Although the Company takes steps to protect these
materials and information, including through the use of confidentiality and
other agreements with its employees, consultants and academic and commercial
relationships, there can be no assurance that these steps will be adequate, that
these agreements will not be violated, that there will be an available or
sufficient remedy for any such violation or that others will not also develop
similar proprietary information. See "Business -- Patents and Proprietary
Rights."
 
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
 
     The Company has a history of operating losses. For the years ended December
31, 1995, 1996 and 1997, the Company had net losses of approximately $6.6
million, $2.4 million, and $5.5 million, respectively. As of December 31, 1997,
the Company had an accumulated deficit of approximately $30.7 million. The
Company anticipates that its research and development efforts will increase
significantly in the future and it expects to incur significant operating losses
over the next several years. There can be no assurance that the Company will
ever be able to generate sufficient revenues from the sale of products to offset
the expenses of these efforts. The Company has not realized any significant
revenues from the achievement of milestones or royalties from the discovery,
development or sale of a commercial product by a collaborative partner or
licensee and no such revenue from these sources is expected for at least several
years, if ever. To date, all revenues have been generated from: (i) sales of
chromatography separations systems and products; (ii) signing and maintenance
fees paid for licenses of Phage Display patents; and (iii) research and
development funding paid by the Company's collaborative partners. The Company's
ability to achieve profitability will depend upon its ability, alone or with
others, to introduce new chromatography separations products, to develop
affinity separations products derived from Phage Display, to complete discovery
and development of therapeutic and diagnostic lead compounds and to establish
additional collaborative arrangements. There can be no assurance that the
Company will ever be able to achieve or sustain profitability. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
 
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
 
     The Company anticipates that its existing capital resources, including
anticipated revenues and the net proceeds from this Offering, will be adequate
to fund the Company's operations into the first half of 2000, although there can
be no assurance that the Company will not require additional funds prior to such
date. The Company will need additional debt or equity financing before that date
if the Company's cash requirements exceed its current expectations, if the
Company generates less revenue than currently projected or if the Company is
unable to raise all of the funding contemplated by this Offering. The Company's
capital requirements depend on numerous factors, including sales of existing and
new Biotage separations products, the ability of the Company to enter into
additional collaborative arrangements, competing technological and market
developments, changes in the Company's collaborative arrangements and licenses,
the cost of preparing, filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, the
                                       10
<PAGE>   12
 
purchase of additional capital equipment, the progress of the Company's drug
discovery and separations technology programs and the progress of the
development and commercialization of milestone and royalty-bearing compounds by
the Company's collaborative partners and licensees. There can be no assurance
that the Company's existing separations business, collaborative arrangements and
licensing program will produce revenues adequate to fund the Company's operating
expenses. The Company anticipates that it will be required to raise additional
capital in order to continue its operations. Such capital may be raised through
additional public or private financings, as well as collaborative arrangements,
borrowings and other sources. To the extent that additional capital is needed,
it may be raised through the issuance of debt or the sale of equity or
convertible debt securities, and the issuance of such securities could result in
dilution to the Company's existing stockholders. There can be no assurance that
additional funding, if necessary, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to curtail
operations significantly or relinquish rights to its technologies, product
candidates, products or potential markets that the Company would not otherwise
relinquish. The failure to receive additional funding would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
INTENSE COMPETITION; TECHNOLOGICAL OBSOLESCENCE
 
     The industries in which the Company competes is characterized by intense
competition and rapid technological change. Competitors of the Company may
discover or develop important discovery technologies, targets or lead compounds
or therapeutic or diagnostic products in advance of Dyax or which are superior
to those developed by the Company or its collaborative partners, or may obtain
regulatory approvals of their products more rapidly than the Company and its
collaborative partners, any of which circumstances could have a material adverse
effect on the Company's business, financial condition and results of operations.
Competition is intense among organizations attempting to identify, optimize and
generate lead compounds for the development of therapeutic and diagnostic
products and technologies to improve purification in the manufacturing processes
for therapeutics. There are other advanced technologies and approaches for
generating and developing lead compounds for therapeutic, diagnostic and
separations products, including combinatorial chemistry, rational drug design,
molecular modeling and applications of phage display other than those that are
pursued by the Company. Many large pharmaceutical companies, which represent one
of the largest potential markets for the Company's products and services, are
developing these and other methodologies to improve the speed with which targets
and binding compounds can be identified. These other approaches include high
throughput robotics technology and automated parallel synthesis of new compounds
against which new targets may be screened, as well as large collections of
compounds already synthesized by competitors and other compounds available from
chemical supply catalogues. The Company also competes with research departments
of biotechnology companies, combinatorial chemistry companies, governmental
agencies and research and academic institutions, both in the United States and
abroad. Many of these competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than the Company. The
Company anticipates that it will also face increased competition in the future
as new companies enter the market and advanced technologies are developed.
 
     The Company's chromatography separations business competes with several
companies that manufacture, market and sell chromatography separations and
purification systems. Many of these competitors have substantially greater
financial, technical and management resources and experience in marketing and
distribution of chromatography systems than the Company, and in some cases have
had long-term relationships with the Company's existing customers. In addition,
many therapeutic and diagnostic product manufacturers have traditionally
assembled their own chromatography systems. Furthermore, there can be no
assurance that any future affinity separations products developed using Phage
Display will become accepted as effective technology for use in purification
processes for the manufacture of pharmaceutical and other products. See
"-- Dependence on Collaborations and Licensing," "-- Limited Revenues to Date
from Separations Products; Need to Develop New Separations Products" and
"Business -- Competition."
 
                                       11
<PAGE>   13
 
RELIANCE ON THIRD PARTIES FOR CONDUCT OF CLINICAL TRIALS AND MANUFACTURING
 
     The Company has no preclinical or clinical development expertise and
intends to rely on third parties to design and conduct most of these activities,
if required. In addition, the Company has no manufacturing facilities for
therapeutics and diagnostics and intends to rely on third parties to produce the
materials for preclinical and clinical development purposes and commercial
manufacture. If any of these third parties are unable to perform these functions
or if the Company should encounter delays or difficulties with any such
providers, the development of one or more products could be delayed, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Extensive Government Regulations; No
Assurance of Regulatory Approval; Hazardous Materials" and
"Business -- Government Regulation."
 
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL; HAZARDOUS
MATERIALS
 
     The Company is subject to extensive governmental regulatory requirements
and a lengthy approval process for any therapeutic and diagnostic product
candidates it may develop. The development and commercial use of any therapeutic
or diagnostic products that may be developed by the Company will be regulated by
numerous federal, state and local governmental authorities in the United States,
including the U.S. Food and Drug Administration (the "FDA"), and comparable
foreign regulatory authorities. Such regulations govern or influence, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, reporting, approval and advertising and promotion of such
products. The regulations are a significant factor in the production and
marketing of any therapeutic or diagnostic product that may be developed by any
of the Company's collaborative partners or licensees, or if the Company
discovers such a product candidate and decides to develop it beyond the
preclinical phase. The nature and the extent to which such regulation may apply
will vary depending on the product. Virtually all products developed by or on
behalf of the Company or its collaborative partners or licensees will require
regulatory approval by such authorities prior to commercialization. In
particular, therapeutic products are subject to rigorous preclinical and
clinical testing and other approval procedures established by the FDA and
foreign regulatory authorities. Non-compliance with applicable regulations can
result in clinical study holds or delays, total or partial suspension of
production, governmental refusal to grant approvals, warning letters, fines,
withdrawal, recall or seizure of products, and civil and criminal penalties. The
process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal and foreign regulations and statutes is time-consuming
(usually requiring five to more than ten years) and requires the expenditure of
substantial resources. Even if FDA regulatory approvals are obtained, a marketed
product is still subject to continuing review, and any later discovery of
previously unknown problems or the failure to comply with the applicable
regulatory requirements may result in product marketing restrictions or product
withdrawal or recall as well as possible civil or criminal sanctions. In
addition, manufacturing facilities for therapeutic and diagnostic products are
subject to inspection by the FDA and must comply with Good Manufacturing
Practice ("GMP") regulations. To ensure full technical compliance with such
regulations, a manufacturer must spend funds, time and effort in the areas of
production and quality control.
 
     FDA regulations also apply to the production facilities and processes used
to manufacture therapeutic and diagnostic products, including the Company's
separations products and technology used in such processes. The Company believes
that the manufacturing procedures for its separations products and the
manufacturing procedures of its media suppliers comply with FDA regulations, but
any determination to the contrary that has substantial potential to adversely
affect the safety or effectiveness of the product could have a material adverse
affect on the Company's separations business. In addition, any change by a
biopharmaceutical company in its manufacturing process or equipment could
necessitate additional FDA review and approval. Such requirements will make it
more difficult for the Company to sell separations products and processes to
customers that have already applied for or obtained FDA approval for production
processes using different chromatography equipment or separations media.
Post-approval changes in labeling or promotion may also necessitate further FDA
review and approval.
 
     The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use,
                                       12
<PAGE>   14
 
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its activities currently comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that may result, and any such liability could exceed the
Company's insurance coverage, if applicable, and other resources of the Company.
In addition, there can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future. The occurrence of any such event or the incurrence of any such cost
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
 
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES
 
     The Company is highly dependent on the principal members of its management,
scientific and product development staff. The loss of one or more key members of
its staff could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain
key-man life insurance with respect to any of its employees and does not
currently intend to obtain such insurance. The Company's future success will
depend upon its ability to identify, hire, motivate and retain additional
qualified personnel. There is intense competition for such personnel and there
can be no assurance that the Company will be able to continue to attract and
retain such personnel. The failure to attract and retain key personnel would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Employees" and "Management."
 
DEPENDENCE ON EXPANSION OF OPERATIONS AND MANAGEMENT OF GROWTH
 
     The Company's success will depend upon the continued expansion of its
research and development and manufacturing operations, and its ability to enter
into additional collaborative and licensing arrangements. The Company's growth
has placed significant demands on the Company's management as well as its
administrative, technical, operational and financial resources. The Company's
ability to manage its growth will require it to improve and implement new
operational, financial and management information systems and to expand,
motivate and manage its workforce. No assurance can be given that the Company
will be successful in adding management and technical personnel as needed to
meet the staffing requirements for any additional collaborative relationships or
for any development, sales and/or marketing efforts. The failure to successfully
manage its expansion could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Need to Attract
and Retain Key Employees," "Business -- Collaborations" and
"Business -- Employees."
 
UNCERTAINTIES RELATED TO PRICING OF PRODUCTS AND THIRD PARTY REIMBURSEMENT
 
     The Company's realization of revenues with respect to therapeutic and
diagnostic products developed through Phage Display, if any, will depend in part
upon the extent to which reimbursement for the cost of such therapeutic and
diagnostic products will be available from third party payors, such as
government health administration authorities, private health care insurers,
health maintenance organizations and pharmacy benefits management companies.
Third party payors are increasingly challenging the prices charged for such
products. Significant uncertainty exists as to the reimbursement status of newly
approved pharmaceutical products. There can be no assurance that third party
reimbursement will be available or sufficient for any products developed through
Phage Display. The inability to maintain price levels for such products could
adversely affect the Company's business, financial condition and results of
operations. 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
governmental pricing control. Furthermore, in certain foreign markets, pricing
or profitability of prescription pharmaceuticals is subject to governmental
control.
 
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE
 
     The preclinical study, clinical development, manufacturing and marketing of
therapeutic and diagnostic products, as well as the testing, marketing and sale
of chromatography and other separations products exposes
                                       13
<PAGE>   15
 
the Company to the risk of substantial product liability claims. There can be no
assurance that product liability claims will not be asserted against the Company
or that the Company will not experience material product liability losses in the
future. The Company currently maintains product liability insurance coverage for
its separations products, but there can be no assurance that the current
insurance will continue to be available on acceptable terms or that such
coverage will be adequate for liabilities actually incurred, if any. The Company
does not currently maintain product liability insurance for therapeutic or
diagnostic products and there can be no assurance that any such insurance
coverage will be available on acceptable terms, if and when the Company enters
clinical trials and commercializes any such product, or that such coverage will
be adequate for liabilities actually incurred. A successful claim brought
against the Company in excess of its insurance coverage would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
 
     Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial offering
price will be determined by negotiations between the Company and the
Representatives of the Underwriters and is not necessarily indicative of the
market price at which the Common Stock will trade after this Offering. The
market prices for securities of biotechnology and similarly capitalized
companies have been highly volatile, often for reasons that are unrelated to the
operating results of such companies. Announcements of technological innovations
or new commercial products by the Company or its competitors, developments
concerning proprietary rights, including patents and litigation matters,
publicity regarding actual or potential results with respect to products or
compounds under development by the Company or its collaborative partners,
regulatory developments in both the United States and abroad, public concern as
to the efficacy of new technologies, general market conditions and comments by
securities analysts, as well as quarterly fluctuations in the Company's revenues
and financial results among other factors, may have a significant impact on the
market price of the Common Stock. In particular, the realization of any of the
risks described in these "Risk Factors" could have a dramatic and adverse impact
on such market price. See "Underwriting."
 
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
 
     Upon completion of this Offering, the Company's executive officers,
directors and affiliates will beneficially own approximately 34.6% of the
outstanding shares of Common Stock (33.4% if the Underwriters' over-allotment
option is exercised in full). As a result, these stockholders will be able to
exercise effective control over all matters requiring stockholder approval,
including the election of directors, mergers and the sale of all or
substantially all of the assets of the Company. This may prevent or discourage
unsolicited acquisition proposals or offers for the Company's Common Stock. See
"Principal Stockholders" and "Description of Capital Stock -- Anti-Takeover
Measures."
 
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS; DELAWARE LAW
 
     The Company's form of Amended and Restated Certificate of Incorporation to
be filed upon or after the closing of this Offering (the "Restated Certificate
of Incorporation") authorizes the Company's Board of Directors to issue, without
stockholder approval, up to 1,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, the
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. In addition, the
possible issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Restated Certificate of Incorporation
provides for staggered terms for the members of the Company's Board of Directors
which, together with certain provisions of the Company's Amended and Restated
By-laws and the Delaware General Corporation Law applicable to the Company,
could delay or make more difficult a merger,
 
                                       14
<PAGE>   16
 
tender offer or proxy contest involving the Company. Further, the Company's
equity incentive plans generally permit the Board of Directors to provide for
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company. In
addition, the Amended and Restated By-laws that will become effective upon the
closing of this Offering provide that the Company will be subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
restricts certain transactions and business combinations between a corporation
and a stockholder owning 15% or more of the corporation's outstanding voting
stock (an "interested stockholder") for a period of three years from the date
the stockholder becomes an interested stockholder. These provisions may have the
effect of delaying or preventing a change of control of the Company without
action by the stockholders and, therefore, could adversely affect the price of
the Company's Common Stock. See "Management," "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Anti-Takeover
Measures."
 
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
 
     A substantial portion of the net proceeds to be received by the Company in
connection with this Offering will be allocated to working capital and general
corporate purposes. The Company is not yet able to estimate with any precision
the allocation of the majority of the proceeds from this Offering among the uses
of proceeds identified in this Prospectus, and the timing and amount of
expenditures will vary depending upon numerous factors. Purchasers of the Common
Stock offered hereby will be entrusting their funds to the Company's Board of
Directors and management, who will have broad discretion to allocate proceeds of
this Offering to uses that they believe 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."
 
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
 
     Future sales of Common Stock in the public market following this Offering
could adversely affect the market price of the Common Stock. Upon completion of
this Offering, the Company will have 9,761,353 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or warrants.
Of these shares, the 2,500,000 shares sold in this Offering (plus any additional
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are held by "affiliates" of the
Company as that term is used under the Securities Act and the regulations
promulgated thereunder. Each holder who signed a lock-up agreement has agreed,
subject to certain limited exceptions, not to sell or otherwise dispose of any
of the shares held by them as of the date of this Prospectus for a period of 180
days after the date of this Prospectus without the prior written consent of
Smith Barney Inc. At the end of such 180-day period, approximately 7,652,090
shares of Common Stock (including approximately 457,296 shares issuable upon
exercise of vested options) will be eligible for immediate resale, subject to
compliance with Rule 144 and Rule 701. The remainder of the approximately 66,559
shares of Common Stock outstanding or issuable upon exercise of options or
warrants held by existing stockholders or option holders will become eligible
for sale at various times over a period of approximately two years, and could be
sold earlier if the holders exercise any available registration rights or upon
vesting pursuant to the Company's standard four year vesting schedule. The
holders of 5,831,516 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock will have the right in certain circumstances to
require the Company to register their shares under the Securities Act for resale
to the public. If such holders, by exercising their demand registration rights,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the market price for the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
registration rights, such sales may have an adverse effect on the Company's
ability to raise needed capital. In addition, the Company expects to file within
90 days after the date of this Prospectus registration statements on Form S-8
registering a total of approximately 2,282,000 shares of Common Stock, including
those outstanding shares which may be repurchased by the Company and shares
issuable upon exercise of outstanding stock options or reserved for issuance
under the Company's equity incentive plan and employee stock purchase plan. See
"Management -- Stock Plans," "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
                                       15
<PAGE>   17
 
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
 
     Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution estimated to be $     per share in the net
tangible book value of their investment from the initial offering price.
Additional dilution will occur upon the exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale." The Company has never paid
dividends on its Common Stock and does not anticipate paying any cash dividends
in the foreseeable future. The Company currently intends to retain its earnings,
if any, for the development of its business. See "Dividend Policy."
 
                                       16
<PAGE>   18
 
                                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 are estimated to be approximately
$          ($          if the Underwriters' over-allotment option is exercised
in full) based on an assumed initial public offering price of $          per
share and after deducting the underwriting discounts and commissions and other
estimated offering expenses payable by the Company.
 
     The Company expects to use the net proceeds of this Offering primarily to
fund research and development, the retirement of $763,000 of outstanding debt
due upon completion of this Offering, and for working capital and general
corporate purposes, including possible technology in-licensing and acquisitions.
The Company is not yet able to estimate precisely the allocation of the proceeds
among such uses, and the timing and amount of expenditures will vary depending
upon numerous factors. The Company's Board of Directors and management retain
complete discretion with respect to the allocation of such proceeds and the
timing of expenditures. Although the Company may use a portion of the net
proceeds for possible in-licensing or acquisition of products and technologies
that are complementary to those of the Company, or acquisitions of complementary
businesses, there are currently no commitments in this regard. Pending such
uses, the Company plans to invest the net proceeds in investment grade,
interest-bearing securities. The Company intends to invest and use the proceeds
so as not to be considered an "investment company" under the Investment Company
Act of 1940, as amended.
 
     The Company believes that the net proceeds from this Offering and its
existing cash and cash equivalents will be sufficient to fund its operations
into the first half of 2000, although there can be no assurance that the Company
will not require additional funds prior to such date. Thereafter, the Company
may require additional funds to support its operating requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing would be obtainable on acceptable terms to the Company or would not be
dilutive. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional
Funding," "-- Broad Management Discretion in Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
 
                                DIVIDEND POLICY
 
     The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results,
restrictions imposed by financing arrangements, if any, legal and regulatory
restrictions on the payment of dividends, current and anticipated cash needs and
other factors that the Board of Directors deems relevant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
                                       17
<PAGE>   19
 
                                 CAPITALIZATION
 
     The following table sets forth the actual and as adjusted capitalization of
the Company as of December 31, 1997. The as adjusted capitalization gives effect
to the conversion upon the closing of this Offering of shares of Convertible
Preferred Stock into shares of Common Stock and the issuance and sale by the
Company of 2,500,000 shares of Common Stock at an assumed initial public
offering price of $          per share (after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company) and the
application of the net proceeds therefrom. This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto, "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1997
                                                              -----------------------
                                                               ACTUAL     AS ADJUSTED
                                                              --------    -----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>         <C>
Current portion of long-term debt and capital lease
  obligations...............................................  $    155     $     87
                                                              ========     ========
Long-term debt and capital lease obligations, less current
  portion...................................................     1,078          383
                                                              --------     --------
Stockholders' equity (1):
  Class A Convertible Preferred Stock, $.01 par value;
     9,440,832 shares authorized in series; 8,944,043 shares
     issued and outstanding actual; $25,947,000 liquidation
     preference; none issued and outstanding as adjusted....    27,258           --
  Common Stock, $.01 par value; 20,000,000 shares
     authorized; 1,278,114 shares issued and outstanding
     actual; 30,000,000 shares authorized as adjusted;
     9,609,630 shares issued and outstanding as
     adjusted(2)............................................        13           96
  Additional paid-in capital................................    11,519
  Accumulated deficit.......................................   (30,704)     (30,704)
  Deferred compensation.....................................    (1,682)      (1,682)
  Accumulated foreign currency translation adjustment.......      (141)        (141)
                                                              --------     --------
          Total stockholders' equity........................  $  6,263     $
                                                              --------     --------
               Total capitalization.........................  $  7,341     $
                                                              ========     ========
</TABLE>
 
---------------
(1) Effective upon the closing of this Offering, the Company's Restated
    Certificate of Incorporation will be further amended and restated to, among
    other matters, reduce the number of authorized shares of Preferred Stock
    from 9,440,832 to 1,000,000. See "Description of Capital Stock -- Preferred
    Stock."
 
(2) Excludes (i) 970,739 shares of Common Stock issuable upon the exercise of
    options outstanding at December 31, 1997 at a weighted average exercise
    price of $0.94 per share, of which options to purchase 233,165 shares of
    Common Stock were exercisable, and (ii) 27,022 shares of Common Stock
    issuable upon the exercise of warrants outstanding at December 31, 1997 at
    an exercise price of $3.97 per share. Reflects the conversion of 8,944,043
    shares of Convertible Preferred Stock into 5,831,516 shares of Common Stock
    upon the completion of this Offering. See "Management -- Stock Plans,"
    "Description of Capital Stock," "Use of Proceeds," "Selected Consolidated
    Financial Data" and Note 9 to Notes to Consolidated Financial Statements.
 
                                       18
<PAGE>   20
 
                                    DILUTION
 
     The net tangible book value of the Company as of December 31, 1997 was
$6,047,000, or $0.85 per share of outstanding Common Stock. Net tangible book
value per share is determined by dividing the amount of the Company's total
tangible assets less total liabilities by the number of outstanding shares of
Common Stock, which includes the conversion of all outstanding Convertible
Preferred Stock at the closing of this Offering. After giving effect to the sale
by the Company of 2,500,000 shares offered hereby (at an assumed initial public
offering price of $          per share and after deducting the underwriting
discounts and commissions and other estimated offering expenses), and the
application of the net proceeds therefrom, the net tangible book value of the
Company at December 31, 1997 would have been $     million, or $          per
share. This represents an immediate increase in such net tangible book value of
$          per share to existing stockholders and an immediate dilution of
$          per share to new stockholders purchasing shares in this Offering. The
following table illustrates this dilution per share:
 
<TABLE>
<S>                                                           <C>      <C>
Assumed initial public offering price per share.............           $
                                                                       -----
  Net tangible book value per share before Offering.........  $0.85
  Increase per share attributable to new investors..........
                                                              -----
Net tangible book value per share after Offering............
                                                                       -----
Dilution per share to new investors(1)......................           $
                                                                       =====
</TABLE>
 
---------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
    per share to new investors would be $         .
 
     The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between the existing stockholders and the new investors
with respect to the number of shares 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.................  7,109,630       74%     $37,207,000         %       $5.23
New investors.........................  2,500,000       26
                                        ---------      ---      -----------      ---
          Total.......................  9,609,630      100%                      100%
                                        =========      ===      ===========      ===
</TABLE>
 
     The foregoing tables and calculations assume no exercise of warrants or
stock options outstanding at December 31, 1997, at which date there were 970,739
shares of Common Stock issuable upon exercise of outstanding options at a
weighted average exercise price of $0.94 per share, of which options to purchase
233,165 shares of Common Stock were exercisable, and 27,022 shares of Common
Stock issuable upon exercise of outstanding warrants at an exercise price of
$3.97 per share. See "Management -- Stock Plans" and "Description of Capital
Stock." To the extent that such options become vested and are exercised, or the
warrants are exercised, there will be further dilution to new investors. See
"Risk Factors -- Immediate and Substantial Dilution; Absence of Dividends."
 
                                       19
<PAGE>   21
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data with respect to the
Company's statement of operations data for each of the three years in the period
ended December 31, 1997 and with respect to the Company's balance sheet data at
December 31, 1996 and 1997 are derived from consolidated financial statements of
the Company which have been audited by Coopers & Lybrand L.L.P., independent
accountants, and are included elsewhere herein. The statement of operations data
for the years ended December 31, 1993 and 1994 and the balance sheet data for
December 31, 1993, 1994 and 1995 are also derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements and Notes thereto and other financial information included herein.
The historical results are not necessarily indicative of the results to be
expected in the future.
 
<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                              --------   --------   --------   --------   --------
                                                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
 
  Revenues:
     Product sales..........................  $  4,099   $  2,713   $  3,592   $  4,478   $  7,625
     Product development....................        --         --        428      1,060      1,440
     License fees...........................        --         --         --      1,499        711
                                              --------   --------   --------   --------   --------
          Total revenues....................  $  4,099   $  2,713   $  4,020   $  7,037   $  9,776
                                              --------   --------   --------   --------   --------
  Operating expenses:
     Cost of products sold..................     2,792      1,794      1,952      2,046      3,174
     Research and development...............       894        894      1,343      3,140      5,575
     Selling, general and administrative....     3,054      2,604      2,710      4,170      6,827
     Other expenses(1)......................        --         --      4,554         --         --
                                              --------   --------   --------   --------   --------
          Total operating expenses..........     6,740      5,292     10,559      9,356     15,576
                                              --------   --------   --------   --------   --------
  Loss from operations......................    (2,641)    (2,579)    (6,539)    (2,319)    (5,800)
  Interest income (expense), net............       (97)       (89)       (46)       (78)       265
                                              --------   --------   --------   --------   --------
  Net loss..................................  $ (2,738)  $ (2,668)  $ (6,585)  $ (2,397)  $ (5,535)
                                              ========   ========   ========   ========   ========
  Net loss per common share:
     Historical(2):
       Basic and diluted....................  $ (30.88)  $ (28.16)  $ (27.53)  $  (2.38)  $  (5.14)
                                              ========   ========   ========   ========   ========
       Weighted average number of
          shares -- basic and diluted.......    88,667     94,755    239,212   1,006,730  1,076,469
                                              ========   ========   ========   ========   ========
     Pro forma (unaudited)(3):
       Basic and diluted....................                                              $  (0.83)
                                                                                          ========
       Weighted average number of
          shares -- basic and diluted.......                                              6,706,680
                                                                                          ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                              --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS)
<S>                                           <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
  Cash and cash equivalents.................  $  1,951   $    227   $  1,959   $  8,591   $  4,664
  Working capital...........................     2,657         36      1,870      9,241      5,905
  Total assets..............................     6,296      3,300      4,692     12,236     10,532
  Long-term debt and capital lease
     obligations, less current portion......        43         --      2,097        770      1,078
  Accumulated deficit.......................   (13,519)   (16,187)   (22,772)   (25,169)   (30,704)
  Total stockholders' equity................     4,414      1,666        705      9,321      6,263
</TABLE>
 
---------------
(1) Includes write-offs of an intangible asset in the amount of $456,000 and
    incomplete technology in the amount of $4,098,000 in the year ended December
    31, 1995. Also excludes the results of operations of PEC for periods before
    its acquisition by the Company on August 11, 1995.
(2) Reflects a 0.1352-for-1 reverse stock split effected on March 23, 1998, each
    of which is applied retroactively for all years presented. Weighted average
    number of shares for the years ended December 31, 1993 and 1994 and the
    period from January 1, 1995 to August 10, 1995 reflects shares of Biotage,
    Inc. prior to the acquisition of PEC.
(3) See Note 2 of Notes to Consolidated Financial Statements for a description
    of the computation of pro forma net income (loss) per share. Based on the
    number of shares outstanding as of December 31, 1997, after giving effect to
    the conversion of all of the outstanding shares of Preferred Stock into
    Common Stock. Excludes 970,739 shares of Common Stock issuable upon the
    exercise of outstanding stock options, 940,717 shares of Common Stock
    reserved for future issuance under the Company's 1995 Equity Incentive Plan
    and 27,022 shares of Common Stock issuable upon the exercise of outstanding
    warrants, as of such date. See "Management -- Stock Plans," "Description of
    Capital Stock" and "Shares Eligible for Future Sale."
                                       20
<PAGE>   22
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and 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 be read as being applicable to all related forward-looking statements
wherever they appear in this 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 in this Prospectus.
 
OVERVIEW
 
     Dyax's Phage Display has broad potential commercial applications in the
fields of therapeutic, diagnostic and separations products. Phage Display is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name.
 
     The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA government regulations and approval requirements.
 
     The Company has a history of operating losses. For the years ended December
31, 1995, 1996 and 1997, the Company had net losses of approximately $6.6
million, $2.4 million, and $5.5 million, respectively. As of December 31, 1997,
the Company had an accumulated deficit of approximately $30.7 million. The
Company anticipates that its research and development efforts will increase
significantly in the future and it expects to incur significant operating losses
over the next several years. There can be no assurance that the Company will
ever be able to generate sufficient revenues from the sale of products to offset
the expenses of these efforts. The Company has not realized any significant
revenues from the achievement of milestones or royalties from the discovery,
development or sale of a commercial product by a collaborative partner or
licensee and no significant revenue from these sources is expected for at least
several years, if ever. To date, all revenues have been generated from: (i)
sales of chromatography separations systems and products; (ii) signing and
maintenance fees paid for licenses of Phage Display patents; and (iii) research
and development funding paid by the Company's collaborative partners. The
Company's ability to achieve profitability will depend upon its ability, alone
or with others, to introduce new chromatographic separations products, to
develop affinity separations products derived from Phage Display, to complete
discovery and development of therapeutic and diagnostic lead compounds and to
establish additional collaborative arrangements. There can be no assurance that
the Company will ever be able to achieve or sustain profitability. See "Risk
Factors -- History of Operating Losses and Accumulated Deficit; Uncertainty of
Future Profitability."
 
     The Company has experienced significant fluctuations in its revenues and
operating results from quarter to quarter and year to year, and it expects these
fluctuations to continue in the future. The Company also expects that an
increasingly significant portion of its anticipated revenues for the foreseeable
future will be comprised of up-front fees and research and development funding
paid pursuant to collaborative and licensing arrangements. The Company believes
that future fluctuations in revenues and results may depend on various factors,
such as the timing of the Company's increased research and development expenses,
the establishment of new collaborations, the development and commercialization
programs of current and prospective collaborative partners, the completion of
certain milestones and the purchases of larger separations equipment systems by
customers. The Company's current and planned expense levels are, to a large
extent, fixed in the short term, and are based in part on its expectations as to
future revenues. Substantially all of the Company's product development revenue
in 1995 and 1996, and less than 10% of product development revenue in 1997,
 
                                       21
<PAGE>   23
 
was generated by one such collaborative arrangement, which was terminated in
1998. In the first quarter of 1998, the Company is receiving research funding
under eleven collaborative arrangements and anticipates that in 1998 no single
collaborative arrangement will contribute a majority of the Company's research
revenue. In any one fiscal quarter, however, the Company may receive no payments
from its collaborative partners. Consequently, results of operations are
difficult to forecast and may vary significantly from quarter to quarter or year
to year and revenue or results in any period will not necessarily be indicative
of results in subsequent periods and should not be relied upon as any indication
of future performance. Such quarterly fluctuations in revenue or financial
results will from time to time not meet the expectations of market analysts or
investors, which may have a material adverse effect on the price of the
Company's Common Stock. See "Risk Factors -- Significant Fluctuations in
Revenues and Operating Results."
 
     The Company's product sales are derived from sales of Biotage
chromatography separations systems and products. The Company's product
development revenues are derived from collaborative product development
agreements and may include signing fees, funding for research and development,
payments based on the achievement of certain future milestones and future
royalties on any product sales derived from the collaboration. The Company's
license fees are generated from non-exclusive licenses the Company grants to
third parties to use the Company's patent rights. Standard terms of the license
agreements generally include non-refundable signing fees, non-refundable annual
maintenance fees, milestone payments and royalties on product sales.
 
RESULTS OF OPERATIONS
 
  Years Ended December 31, 1997 and 1996
 
     Total revenue increased 39% to $9,776,000 for the year ended December 31,
1997 from $7,037,000 for the year ended December 31, 1996. For 1997, product
sales increased 70% to $7,625,000 from $4,478,000 for 1996, as the Company added
to its separations sales and marketing personnel and introduced new separations
products. The 36% increase in product development revenue to $1,440,000 in 1997
from $1,060,000 in 1996 resulted from new research discovery collaborative
arrangements established during 1997, principally to fund research using Phage
Display in the field of separations. The 53% decrease in license revenue to
$711,000 for 1997 from $1,499,000 for 1996, was due to a single $1,000,000
paid-up license fee from a single customer received and recorded in 1996.
 
     The cost of products sold increased to $3,174,000 for the year ended
December 31, 1997 from $2,046,000 for the year ended December 31, 1996 following
increases in product sales from year to year. The cost of products sold as a
percentage of product sales in 1997 was 42% compared with 46% in 1996. The
decrease in cost of products sold as a percentage of product sales was
principally the result of changes in product mix and, to a lesser extent,
increased manufacturing efficiencies resulting from higher unit volumes.
 
     Research and development expense increased 78% to $5,575,000 for the year
ended December 31, 1997 from $3,140,000 for the year ended December 31, 1996.
The increase is accounted for by funded research for the new research discovery
collaborative arrangements in the field of separations entered into during 1997
together with increases in the Company's ongoing internal efforts to develop
products in therapeutics, diagnostics and separations. In addition to the direct
costs associated with the increase in scientific personnel, 1997 included twelve
months of expenses associated with expanded laboratory facilities occupied at
the end of September 1996.
 
     Selling, general and administrative expenses increased 64% to $6,827,000
for the year ended December 31, 1997 from $4,170,000 for the year ended December
31, 1996 as the Company invested in increasing its separations sales and
marketing forces both domestically and in Europe to support current and planned
increases in product sales and in support of expanded revenues, research and
general operations.
 
     Interest income for the year ended December 31, 1997 and the year ended
December 31, 1996 was derived from investment of excess cash reserves in money
market funds, with a higher average invested balance accounting for the increase
in 1997 over 1996. Interest expense is related to long-term debt outstanding in
both 1997 and 1996.
 
     The net loss for the year ended December 31, 1997 was $5,535,000 compared
to $2,397,000 for the year ended December 31, 1996.
                                       22
<PAGE>   24
 
  Years Ended December 31, 1996 and 1995
 
     Total revenue increased 75% to $7,037,000 for the year ended December 31,
1996 from $4,020,000 for the year ended December 31, 1995. For 1996, product
sales increased 25% to $4,478,000 from $3,592,000 for 1995. The 148% increase in
product development revenue to $1,060,000 in 1996 from $428,000 in 1995 resulted
principally from increased activity during 1996 in a research discovery
collaborative arrangement established during 1995 with one customer. The
Company's technology license program began in 1996 and included a single
$1,000,000 paid-up license fee from one customer.
 
     The cost of products sold increased to $2,046,000 for the year ended
December 31, 1996 from $1,952,000 for the year ended December 31, 1995 following
increases in product sales from year to year. The cost of products sold as a
percentage of products sales in 1996 was 46% compared with 54% in 1995. The
decrease in cost of products sold as a percentage of product sales was
principally the result of changes in product mix and, to a lesser extent,
increased manufacturing efficiencies resulting from higher unit volumes.
 
     Research and development expenses increased 134% to $3,140,000 for the year
ended December 31, 1996 from $1,343,000 for the year ended December 31, 1995.
The increase was principally accounted for by the increase in funded research
for the new research discovery collaborative arrangement entered into during
1995, increases in the Company's ongoing internal efforts developing products in
therapeutics, imaging and separations and the effects of the merged operations
of PEC included for a full year in 1996 as compared to approximately four and
one-half months during 1995. In addition to the direct costs associated with the
increase in scientific personnel, 1996 included three months of expenses
associated with expanded laboratory facilities occupied at the end of September
1996.
 
     Selling, general and administrative expenses increased 54% to $4,170,000
for the year ended December 31, 1996 from $2,710,000 for the year ended December
31, 1995 principally as a result of increased expenditures for research and
general operations to support increased revenue levels. In addition, this
increase was due in part to additions to a core management team to support its
expanding business activities.
 
     During the year ended December 31, 1995, the Company wrote off $456,000 of
intangible assets acquired in a previous period and $4,098,000 of incomplete
technology in connection with its acquisition of PEC. There were no comparable
transactions during the year ended December 31, 1996.
 
     Interest income for the year ended December 31, 1996 and the year ended
December 31, 1995 was derived from investment of excess cash reserves in money
market funds. Interest expense is related to long-term debt outstanding in both
1996 and 1995.
 
     The net loss for the year ended December 31, 1996 was $2,397,000 compared
to $6,585,000 for the year ended December 31, 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has funded its operations since its merger with PEC in 1995
principally through product sales, funding received from product development
collaborative arrangements, license fees, interest income on excess cash
reserves, sales of equity securities (which provided aggregate net cash proceeds
during this period of approximately $15,639,000) and capital leases.
 
     At December 31, 1997, the Company had cash and cash equivalents totaling
$4,664,000. Cash in the amount of $5,720,000 was used by operating activities
during the year ended December 31, 1997. The Company purchased $961,000 of fixed
assets and repaid $121,000 of long-term debt during 1997. The Company received
$2,573,000 of net proceeds from the sale of Convertible Preferred Stock and the
exercise of stock options and $445,000 of net proceeds from a sale-leaseback of
fixed assets in 1997.
 
     The Company anticipates that its existing capital resources, including the
net proceeds from this Offering, will be adequate to fund the Company's
operations at least into the first half of 2000. The Company will need
additional debt or equity financing before that date if the Company's cash
requirements exceed its current expectations, if the Company generates less
revenue than currently projected, or if the Company is unable to raise all of
the funding contemplated by this Offering. The Company's capital requirements
depend on
                                       23
<PAGE>   25
 
numerous factors, including the ability of the Company to enter into additional
collaborative arrangements, competing technological and market developments,
changes in the Company's existing collaborative relationships, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the purchase of additional capital equipment, the
progress of the Company's drug discovery and separations technology programs and
the progress of the commercialization of milestone and royalty-bearing compounds
by the Company's collaborative partners. The Company anticipates that it will be
required to raise additional capital in order to continue to conduct its
operations. Such capital may be raised through additional public or private
financings, as well as collaborative arrangements, borrowings and other
available sources. To the extent that additional capital is needed, it may be
raised through the sale of equity or convertible debt securities, and the
issuance of such securities could result in dilution to the Company's existing
stockholders. There can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to curtail operations significantly or to
obtain funds through entering into arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets that the Company
would not otherwise relinquish. The failure to receive additional funding would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding." There can be no assurance that the Company's
existing separations business, collaborative arrangements and non-exclusive
licensing program will produce revenue adequate to fund the Company's operating
expenses. See "Risk Factors."
 
     The Company believes that inflation has had no significant impact on the
Company's business to date.
 
RECENTLY ISSUED FINANCIAL AND ACCOUNTING STANDARDS
 
     In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 130 and SFAS No. 131,
which require the Company to report and display certain information related to
comprehensive income and operating segments, respectively, as required in the
year ending December 31, 1998. The Company believes that the adoption of SFAS
No. 130 and SFAS No. 131 will not adversely impact the Company's business,
financial condition or results of operations.
 
YEAR 2000
 
     The Company is aware of the issues that many computer systems will face as
the millennium ("Year 2000") approaches. The Company already has installed Year
2000 compliant software in many of its major systems. The cost of the effort to
complete this activity for the balance of the Company's systems is not expected
to be material. The Company believes that the Year 2000 issue will not pose
significant operational problems. However, Year 2000 issues could have a
significant impact on the Company's business, financial condition and results of
operations if modifications cannot be completed on a timely basis, unforeseen
needs or problems arise, or if the systems operated by suppliers, collaborative
partners or licensees are not Year 2000 compliant.
 
                                       24
<PAGE>   26
 
                                    BUSINESS
 
OVERVIEW
 
     Dyax's Phage Display has broad potential commercial applications in the
fields of therapeutic, diagnostic and separations products. Phage Display is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name. Dyax is using Phage Display and its expertise in separations
technology to pursue a diversified business strategy of non-exclusive patent
licensing, discovery and development of therapeutic and diagnostic products and
the development of innovative chromatography and affinity separations products.
Dyax currently has licensed its Phage Display patents to more than 25 companies,
is engaged in four corporate collaborative partnerships and is performing or has
completed eight funded discovery projects. In addition, the Company has sold its
current line of Biotage chromatography separations products to over 50
pharmaceutical and biotechnology companies. Dyax is generating near-term
revenues from sales of its separations products, funding from sponsored research
and fees from patent licenses, while maintaining a long-term focus on its
therapeutic and diagnostic product development programs, the expansion of
existing separations product lines and the development of affinity separations
products.
 
BACKGROUND
 
     Molecular binding is the key to the function of most therapeutic,
diagnostic and separations products. The binding of a molecule to another
molecule (target) is the mechanism nature uses to modulate biochemical and
physiological processes such as cellular growth, differentiation, metabolism and
death. To effect these processes, naturally occurring binding molecules
typically distinguish between the correct target and other closely related
molecules (specificity) and bind tightly to the target (affinity) under
appropriate physiological conditions. Therapeutic and diagnostic products bind
to targets, including cellular receptors, ion channels or enzymes, to achieve a
desired effect, and are generally selected for their binding specificity and
affinity for the target. Binding also plays a significant role in the
separations products used to purify material for the development and manufacture
of a therapeutic product.
 
     The discovery, development and commercialization of effective therapeutic,
diagnostic and separations products is a time consuming, risky and expensive
process. For therapeutic products, the process starts with the identification of
a target that is involved in a disease. The safety and efficacy of a therapeutic
product is dependent on its specificity and affinity for the target. Scientists
typically screen libraries containing tens to hundreds of thousands of naturally
occurring or synthesized chemical compounds to identify those that bind to the
target. These binding compounds are then optimized one at a time via iterative
design, synthesis and testing to achieve desired binding specificity and
affinity for the target. Although combinatorial chemistry, computer modeling and
automated laboratory equipment have increased the throughput of the screening
and optimization process, the number of compounds that can be evaluated is still
limited by the time and cost required for chemical synthesis of each selected
compound. The accuracy of in vitro and in vivo diagnostic products also is
dependent on high specificity and high affinity binding to the target. Mouse
monoclonal antibodies continue to be the dominant type of binding compound used
for the development of diagnostic products. However, the generation of antibody
products using an animal system is a time-consuming, costly process and cannot
be used for targets that are toxic or nonimmunogenic to the animal. Products
used in traditional separations processes to purify therapeutic compounds also
rely on binding. These multi-step processes generally involve chromatography,
the separation of different molecules through media in a column. Separations
processes are typically developed through time-consuming trial and error and can
constitute over 50% of the cost to manufacture a therapeutic product for
commercialization. The failure to achieve high specificity and high affinity
binding can result in side effects, toxicities and low levels of efficacy for
therapeutic products, inaccurate results for diagnostic products and reduced
yield and purity achieved with separations products.
 
                                       25
<PAGE>   27
 
THE DYAX SOLUTION
 
     The Company believes that Phage Display can reduce costs, shorten
development times and lead to the commercialization of more effective
therapeutic, diagnostic and separations products. Phage Display is a versatile,
high throughput technology platform that is used for the discovery and
development of binding compounds. Using the speed and diversity of a
self-replicating biological system, Phage Display allows scientists to generate
and screen quickly up to hundreds of millions of potential binding compounds to
identify more rapidly those compounds that bind with the desired specificity and
affinity to a target of interest under predetermined conditions. In the
discovery of therapeutic products, scientists can use Phage Display to identify
high specificity and high affinity binding compounds more rapidly than by other
existing methods. In the discovery of diagnostic products, Phage Display can be
used to identify and isolate specific binding compounds, including antibodies,
more reliably and efficiently than by using an animal system. For separations
processes, the Company believes that Phage Display can provide a powerful tool
to develop products to purify therapeutic products more cost effectively and
efficiently, thereby streamlining the development of manufacturing processes for
these products.
 
     Living organisms, such as viruses, have the ability to present (display) a
foreign gene product (protein) on their surfaces. Beginning in the late 1980's,
scientists began exploring the use of such organisms as a means for the display
and identification of proteins of interest. Dyax scientists developed Phage
Display, a patented technology for displaying large collections of proteins on
filamentous "phage," a virus which infects laboratory bacteria. Dyax's Phage
Display has become the preferred method to display and select proteins with
desired binding properties.
 
  Features and Advantages of Phage Display
 
     The Company's Phage Display process generally consists of: (i) generating a
Phage Display library; (ii) screening the library and isolating phage that
display proteins (including structured peptides) that bind to the target of
interest; and (iii) producing and characterizing the selected binding compounds.
To start the Phage Display process, genes containing the instructions to produce
and display a wide variety of new proteins are inserted into phage genomes. Each
phage receives one distinct gene variant and, therefore, displays only one new
protein on its surface. The collection of phage produced in this manner is known
as a Phage Display "library." A Phage Display library can be generated in a few
weeks and can contain up to hundreds of millions of proteins that are potential
binding compounds. Scientists can screen Phage Display libraries to select
rapidly those proteins or peptides that bind to a target of interest. Screening
a Phage Display library involves exposing a Phage Display library to the target
under conditions in which binding is desired, removing phage that do not bind to
the target, dissociating bound phage from the target and amplifying the bound
phage by infecting laboratory bacteria. Screening is performed in small volumes,
usually less than one milliliter, in standard 96-well plates, and can generally
be done in a single day. Phage selected in the first round of screening are
generally amplified through growth in the host bacteria and rescreened to narrow
down the collection of phage to those that display binding compounds with
desired binding properties. The selected phage can then be amplified to produce
sufficient quantities for initial evaluation and identification of lead
compounds. See "-- Dyax Technology."
 
     The Company believes that Phage Display has the following advantages for
the identification of binding compounds:
 
     Diversity:  Phage Display libraries can contain up to hundreds of millions
of potential binding compounds that are variations based on a single protein or
peptide framework. The size of the library (diversity) significantly improves
the likelihood of identifying binding compounds with high specificity and high
affinity for the target. This diversity is far greater than that achievable with
current combinatorial chemistry approaches.
 
     Speed:  Phage Display libraries usually can be generated in a few weeks and
screened several times in a few days to identify a group of related binding
compounds. Using conventional or combinatorial chemistry approaches, this
process would generally require between several months and several years to
complete. The
 
                                       26
<PAGE>   28
 
Company believes that Phage Display can therefore reduce significantly the time
and expense required to identify compounds with desired binding characteristics.
 
     Amplification:  Phage Display is based on a self-replicating biological
system. Accordingly, the phage displaying a selected binding compound will
replicate into millions of identical copies in its bacterial host in less than
one day. This provides sufficient phage for initial characterization of the
displayed binding compound. Once generated, an entire Phage Display library can
be amplified and stored and subsequently used for a potentially unlimited number
of screenings. By comparison, amplification of compounds and libraries developed
using combinatorial chemistry approaches requires significant additional time
and resources for chemical synthesis.
 
     Rapid Optimization:  Screening of Phage Display libraries results in the
identification of groups of related binding compounds with high specificity and
high affinity for the desired target. These compounds can then be used as the
basis for successive generations of Phage Display libraries. Due to the relative
ease of library generation, Phage Display enables the rapid optimization of
compounds for the desired binding specificity and affinity.
 
     Controlled Binding and Release:  Phage Display can also be used to select
compounds which alternately bind to and release from a target under specific
conditions (e.g., changes in acidity or salt concentration or the presence of
contaminants) that simulate those encountered in a separations process used in
the manufacture of a therapeutic product. The Company believes that this ability
to control or predetermine the conditions under which selected compounds bind
and release will result in the development of more efficient and cost effective
separations products.
 
     Focused Design:  Each Phage Display library is generated based on a single
protein or peptide framework that allows scientists to select the desired
product properties such as structure, size, stability and lack of
immunogenicity. During library design, the exact degree and location of the
variability is controlled allowing for the conservation of certain of the
original framework characteristics.
 
     Small Molecule Design and Discovery:  The structural information of binding
compounds identified using Phage Display can be used to design small molecule
(nonpeptidic) compounds with comparable binding activity. Alternatively, Phage
Display-derived binding compounds can be used both for target validation and in
high throughput competitive binding assays to screen panels of small molecules
for those that interact at the same binding sites on the therapeutic targets.
 
BUSINESS STRATEGY
 
     Dyax is using Phage Display and its expertise in separations technology to
pursue a diversified business strategy of non-exclusive patent licensing,
discovery and development of therapeutic and diagnostic products, and
development of innovative chromatography and affinity separations products. Dyax
is generating near-term revenues from sales of its separations products, funding
from sponsored research and fees from patent licenses, while maintaining a
long-term focus on its therapeutic and diagnostic product development programs,
the expansion of existing separations product lines and the development of
affinity separations products. The following are the principal elements of the
Company's strategy:
 
     License Phage Display:  Dyax intends to continue to license its Phage
Display patents widely to permit and encourage the broad application of Phage
Display, and to obtain revenues from license fees, potential milestone payments
and royalties on Phage Display-derived products. Dyax offers non-exclusive
licenses in the fields of therapeutics, antibody-based in vitro diagnostics and
Phage Display research kits. Under these licenses, Dyax has retained all rights
to practice Phage Display in the fields of separations and in vivo imaging. To
date, more than 25 companies are licensed under Dyax's Phage Display patents.
 
     Discover and Internally Develop Therapeutic and Diagnostic Leads:  To date,
Dyax has used Phage Display to identify three proprietary lead therapeutic
compounds with potential applications that include inflammatory diseases and
certain cancers and one lead diagnostic compound for in vivo imaging of
inflammation. Dyax intends to discover and develop additional leads and
anticipates that initial leads arising from internally funded programs will be
selected for therapeutic and diagnostic targets that are readily available
 
                                       27
<PAGE>   29
 
in the public domain; however, the Company intends to identify new leads for
therapeutic and diagnostic targets that it discovers or licenses from others.
Dyax also plans to pursue an internally funded program to use Phage Display to
identify and develop new targeting agents for in vivo imaging using nuclear
medicine.
 
     Leverage Phage Display Through Collaborations:  Dyax is leveraging its
proprietary technology in the fields of therapeutics, diagnostics and
separations by entering into discovery and development collaborative
arrangements with biotechnology, pharmaceutical and diagnostics companies. The
Company currently is engaged in four collaborative arrangements and to date is
performing or has completed more than eight funded lead discovery projects.
Under these arrangements, Dyax is generally entitled to receive research funding
and potential long-term revenue upon commercialization of any resulting
products. The Company intends to enter into additional collaborative
arrangements for new lead discovery and preclinical and clinical evaluation of
its current and future lead therapeutic and diagnostic compounds, while
potentially retaining product rights by field or geographic area.
 
     Continue to Develop and Market Innovative Separations Products:  Dyax
believes that it is well positioned to meet the purification challenges of
complex therapeutic products such as proteins and vaccines. The Company intends
to leverage its existing Biotage chromatography product line through the
introduction of innovative separations products designed to meet the emerging
needs of the combinatorial chemistry and genomics markets and the continued
development of affinity separations products using Phage Display. Through
collaborative arrangements with pharmaceutical and biotechnology companies, Dyax
is using Phage Display to identify binding compounds, known as "affinity
ligands," that can potentially be used in products designed to purify quickly
and inexpensively therapeutics in commercial quantities. Dyax plans to develop
proprietary affinity separations products for purifying a customer's specific
compound and for separating classes of molecules that may be used by a number of
customers.
 
DYAX PROGRAMS AND PRODUCTS
 
     Dyax's business activities consist of: (i) a patent licensing program; (ii)
discovery and development programs in therapeutics, in vivo imaging and other
diagnostics; and (iii) the manufacture and sale of its Biotage chromatography
products and systems and research and development of innovative separations
products. See "Risk Factors -- Dependence on Phage Display; New and Uncertain
Technology; No Clinical Trials or Sales of Phage Display-Derived Products to
Date."
 
  Patent Licensing Program
 
     The Company has established a broad licensing program of its Phage Display
patents for use in the fields of therapeutics, antibody-based in vitro
diagnostics and Phage Display research kits. Through this program, Dyax grants
companies and research institutes non-exclusive licenses to practice Dyax's
Phage Display patents in their discovery and development efforts in the licensed
fields. Since the inception of this licensing program in 1996, the Company has
licensed more than 25 companies. Dyax believes that the success of its patent
licensing program provides support for its patent position in Phage Display and
the utility of Phage Display as an enabling discovery technology. Under these
licenses, Dyax has retained all rights to practice Phage Display in the fields
of separations and in vivo imaging.
 
     The Company's license agreements generally provide for a signing fee,
annual maintenance fees, milestone payments based on successful product
development and royalties based on any future product sales. In addition, under
the terms of the standard license, the licensee covenants not to sue the Company
under certain of the licensee's Phage Display improvement patents, which the
Company believes gives it greater freedom to practice enhancements of Phage
Display. To date, licensees have been offered standardized payment terms or, for
certain fields, the ability to choose from a matrix of fees and royalties. The
matrix generally ranges from lower signing and maintenance fees with higher
milestone payments and royalties to higher signing and maintenance fees with
lower milestone payments and royalties. The fees and royalty rates under this
program are subject to change from time to time. In the case of Affymax
Technologies, N.V. (and its parent, Glaxo Wellcome PLC), Dyax negotiated a fully
paid-up license. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
                                       28
<PAGE>   30
 
     The Company's licensees include Affymax Technologies, N.V. (and its parent,
Glaxo Wellcome PLC), Bristol-Myers Squibb Company, Cambridge Antibody Technology
Limited, Chiron Corporation, Chugai Biopharmaceuticals, Inc., Corvas
International, Inc., Cytogen Corporation, DuPont Merck Pharmaceutical Company,
Genzyme Corporation, IGEN International, Inc., Invitrogen Corp., Merck & Co.,
Inc., Millennium BioTherapeutics, Inc., Monsanto Company, MorphoSys GmbH, New
England BioLabs, Inc., Novagen, Inc., Pharmacia Biotech Inc., Pharmacia &
Upjohn, Co., Praecis Pharmaceuticals Inc., Prizm Pharmaceuticals, Inc., R.W.
Johnson Pharmaceutical Research Institute, Scios, Inc., Tera Biotechnology
Corporation, The Burnham Institute and Utrecht Biotechnology Systems B.V. The
Company expects that the number of its licensees will change from time to time.
 
  Therapeutic and Diagnostic Discovery and Development Programs
 
     Dyax is using Phage Display independently and through collaborative
arrangements to discover and develop therapeutic and diagnostic product
candidates. The following table summarizes the Company's therapeutic and
diagnostic discovery and development programs. This table is qualified in its
entirety by reference to the more detailed descriptions appearing elsewhere in
this Prospectus.
 
                    DYAX THERAPEUTIC AND DIAGNOSTIC PROGRAMS
 
<TABLE>
<CAPTION>
                                               LEAD
        DISEASE AREA/INDICATION              COMPOUND           STATUS            COLLABORATOR
        -----------------------              --------           ------            ------------
<S>                                       <C>               <C>               <C>
THERAPEUTICS:
Pulmonary Inflammation/Cystic Fibrosis    EPI-HNE4          Preclinical(1)    Debiopharm S.A.
 
Chronic Inflammation/Rheumatoid           EPI-KAL2          Lead                       --
  Arthritis and Inflammatory Bowel                          Identified(2)
  Disease
 
Cancer/Prostate Cancer                    EPI-PLA2          Lead                       --
                                                            Identified(2)
DIAGNOSTICS:
Inflammation/Infection                    EPI-HNE4          Preclinical(1)    University of
                                                                              Massachusetts
                                                                              Medical Center
Pulmonary Disease/Deep Vein Thrombosis    --                Discovery(3)      EPIX Medical Inc.
  and Pulmonary Embolism
</TABLE>
 
---------------
(1) "Preclinical" indicates efficacy and toxicology testing in vitro and in
    animals and may include process development and manufacturing scale-up for
    initial trials.
 
(2) "Lead Identified" indicates that a lead compound has been identified that
    meets certain criteria, but which may need to be further evaluated or
    modified before preclinical development, if any.
 
(3) "Discovery" indicates initial Phage Display screening or molecular design of
    a group of compounds before a lead compound is identified.
 
  Therapeutics
 
     The first step in the discovery and development of a therapeutic product is
generally the identification of a molecular target that is involved in a
disease. Once a target has been identified, the next step is typically a search
for a compound that will bind to this target to achieve a desired effect. This
time-consuming and costly step includes the screening of conventional libraries
of chemical compounds which can contain tens to hundreds of thousands of
independent potential binding compounds and the development of biological assays
for evaluation of selected compounds. The cost and time associated with
traditional drug development limits the number of potential drug candidates that
can be evaluated. In addition, scientific advances, such as genomics and related
target discovery technologies, are resulting in the identification of thousands
of new therapeutic target candidates. To take advantage of this increasing
number of target candidates, pharmaceutical and biotechnology companies are
seeking more efficient methods for target validation and identification of
 
                                       29
<PAGE>   31
 
binding compounds that can lead to new therapeutic products. Advances in
combinatorial chemistry have increased throughput of binding compound discovery
compared to traditional discovery methods, but the chemical synthesis of
selected compounds still requires months to years of expensive research.
 
     Using Phage Display, the Company believes scientists can discover binding
compounds with high specificity and high affinity more rapidly than by
conventional and combinatorial chemistry approaches. Phage Display libraries of
up to hundreds of millions of potential binding compounds can be generated in a
few weeks. These libraries are thousands of times greater in size than those
that can be generated using, for example, combinatorial chemistry. Furthermore,
the protein framework of the Phage Display library can be selected or designed
to ensure that all compounds in a library have predetermined properties, such as
structure, size, stability and lack of immunogenicity. Scientists can then use
Phage Display to rapidly select groups of related proteins that bind to a
therapeutic target with high specificity and high affinity. The Company believes
that by analyzing binding compounds identified through Phage Display with the
Company's proprietary structure activity relationship ("SAR") technology, it
will be possible to accelerate the process of small molecule drug design. In
addition, Phage Display can be used in conjunction with genomics technologies to
provide high-throughput analysis and purification of new gene products for
validating novel therapeutic targets. See "-- Dyax Technology."
 
     Dyax's current programs in therapeutic discovery and development are:
 
     Inflammation.  Inflammatory disorders occur when the immune system
overreacts to a perceived foreign substance. One aspect of this overreaction is
the activation of neutrophils and the release of neutrophil elastase, an enzyme
that digests proteins including bacterial and cellular debris. The unregulated
production of neutrophil elastase is thought to be the primary cause of tissue
damage and abnormal inflammatory response in disorders such as pulmonary
inflammation (cystic fibrosis, chronic bronchitis and emphysema), chronic
inflammation and acute inflammatory disorders (appendicitis and acute
respiratory distress syndrome). Another protease, plasma kallikrein, is elevated
at the inflammatory sites of rheumatoid arthritis and inflammatory bowel
disease. Plasma kallikrein is thought to contribute to the pathology of
rheumatoid arthritis both by activating an enzyme that degrades the collagen
matrix and by causing release of molecules that activate other inflammatory
cells. Similarly, activation of a localized inflammatory response by kallikrein
may contribute to the pathology of inflammatory bowel disease.
 
     Using Phage Display, Dyax has discovered a proprietary lead compound,
EPI-HNE4, that binds to and inhibits human neutrophil elastase. EPI-HNE4 is
currently in preclinical development for the treatment of inflammation resulting
from cystic fibrosis, an inherited disorder characterized by pulmonary
inflammation that leads to abnormally thick mucus secretions which impair
pulmonary function and can result in fatal infections. Because EPI-HNE4 binds to
its target protease with high specificity and high affinity, the Company
believes that it will reduce the inflammatory response while not interfering
with other physiological processes. Additional indications for EPI-HNE4 may
include other causes of pulmonary inflammation and acute inflammatory disorders.
Dyax has entered into an agreement to develop EPI-HNE4 with Debiopharm S.A., a
Swiss pharmaceutical company ("Debiopharm"). See "-- Collaborations."
 
     Using Phage Display, Dyax has also discovered EPI-KAL2, a proprietary lead
compound which binds to and inhibits plasma kallikrein. Like EPI-HNE4, EPI-KAL2
is a small, stable protein that can be delivered by injection. The Company
intends to work with academic investigators to test EPI-KAL2 in animal models of
chronic inflammatory disease including rheumatoid arthritis and inflammatory
bowel disease.
 
     Dyax is using its SAR technology to design and synthesize an orally
available small molecule with the inhibitory activity of EPI-HNE4 and intends to
similarly design and synthesize a small molecule for EPI-KAL2. Orally available
drugs are generally preferred for use in patients with chronic inflammatory
conditions compared to drugs delivered by inhalation or injection. Dyax
scientists have used the SAR data generated from EPI-HNE4 and related binding
compounds selected through Phage Display to design and synthesize small molecule
compounds that retain the neutrophil elastase inhibitory activity of EPI-HNE4
and have affinities in the range of existing therapeutic products. Dyax is
continuing to design additional small molecule compounds with the same
inhibitory profile, aiming to achieve higher specificity, higher affinity and
potentially greater efficacy with fewer side effects than existing treatments
for inflammation.
                                       30
<PAGE>   32
 
     Cancer.  Cancer is characterized by uncontrolled cellular growth, which can
lead to death. Growth and metastasis of some cancers has been shown to be
dependent on the activity of the protease, plasmin. Using Phage Display, Dyax
has discovered EPI-PLA2, a potent and specific inhibitor of plasmin. Dyax plans
to evaluate EPI-PLA2 in cell-based models of prostate cancer metastasis in
collaboration with the M.D. Anderson Cancer Center at the University of Texas.
The Company also intends to evaluate EPI-PLA2 for treatment of other metastatic
cancers.
 
     Other Therapeutic Discovery Programs.  The Company is also planning to
pursue other therapeutic discovery programs. One such indication is multiple
sclerosis ("MS"), the primary neurodegenerative disease of young adults, which
is caused when the patient's immune system attacks the protective protein layer
that insulates neurons of the central nervous system. The research group of Dr.
Stephen Hauser, a leading investigator in MS at the University of California,
San Francisco, has identified a protease involved in the entry of immune system
components into the central nervous system, where they attack the neurons and
initiate an MS episode. Dyax recently entered into a consulting agreement with
Dr. Hauser to assist the Company in developing a program to use Phage Display to
discover and develop a potential treatment for MS. The Company intends to
identify other opportunities for therapeutic product discovery and development
using Phage Display.
 
     Therapeutic Discovery Collaborations.  The Company has established a
collaborative arrangement with Novo Nordisk to use Phage Display to develop new
tools for the rapid evaluation of certain of Novo Nordisk's therapeutic
candidates. In addition, the Company has also entered into funded discovery
collaborative arrangements with SangStat Medical Corporation, Tularik Inc. and
Athena Neurosciences, Inc. Generally, in these collaborative arrangements, the
Company screens its Phage Display libraries to identify compounds that bind to a
collaborative partner's therapeutic or diagnostic targets of interest. If the
collaborative partner chooses to continue to develop the binding compound into
therapeutic lead candidates, the Company will be entitled to receive milestone
payments and/or royalties on product sales based on the collaborative partner's
successful development and marketing of such leads as products.
 
  Diagnostics
 
     An in vitro and in vivo diagnostic product generally consists of a
detectable marker linked to a binding compound with specificity and affinity for
a molecular target, thereby indicating the presence or absence of that target.
The higher the specificity and affinity of the binding compound used in a
diagnostic product, the more accurate and sensitive the test. In the case of in
vivo diagnostic imaging to detect certain disease conditions, it is also
necessary to have a targeting agent that will localize rapidly to the target
tissue or organ after it is administered to the patient.
 
     For the past twenty years, the method of producing monoclonal antibodies
using the natural immune system of the mouse (hybridoma technology) has been the
best available means of supplying binding compounds for in vitro and in vivo
diagnostics. In this method, a desired target is selected and injected into a
mouse, which produces antibodies. The mouse antibody-producing cells are then
isolated and propagated outside the animal. However, using hybridoma technology
for the discovery and development of antibody products has inherent limitations,
such as time, the inability to utilize certain types of targets (including those
which are toxic or nonimmunogenic to the animal) and the inability to control
specificity of antibodies produced in the mouse. As targeting agents for in vivo
imaging, mouse antibodies have additional limitations, including long clearance
times and slow penetration to the disease foci requiring 24 to 48 hours of
hospitalization after injection before a useful image can be obtained and
immunogenicity that limits the number of times a patient can be safely imaged
with any mouse antibodies.
 
     For in vivo diagnostic imaging products, Dyax believes that Phage Display
will enable the identification of binding compounds that are smaller in size and
have higher specificity and affinity and greater bioavailability than mouse
monoclonal antibodies, and that these compounds will be more effective
diagnostic imaging agents that will permit more accurate and, in some cases,
earlier diagnosis of disease. For in vitro diagnostic applications, the most
immediate opportunity is the use of Phage Display as a source of monoclonal
antibody reagents. Phage Display can be used to display large collections of
human antibodies. The Company believes that Phage Display allows more rapid
identification of antibodies and other binding compounds than hybridoma
technology and could potentially replace animals as a source of antibodies for
diagnostic and
 
                                       31
<PAGE>   33
 
research applications. Phage Display libraries can be screened in high
throughput formats so that antibodies that bind to any diagnostic target can be
isolated cost-effectively in a few weeks, compared to the six to nine months
required to immunize, isolate and propagate antibody-producing cells from mice.
 
     Dyax's current programs for the discovery and development of in vivo
diagnostics are:
 
     Inflammation/Infection Imaging.  Disease indications that are likely
candidates for inflammation-infection imaging include inflammatory bowel
disease, fever of unknown origin, arthritis, certain autoimmune disorders and
pulmonary diseases. The Company believes that there is a need for an imaging
agent that can provide early and accurate identification of both sterile and
infectious inflammatory sites in vivo and that there are no sensitive, specific
products for rapid diagnosis of these disorders currently available. The most
common tools currently available for locating inflammation are time-consuming,
inaccurate and/or expensive. Dyax is evaluating a modified form of EPI-HNE4 in
preclinical studies as a diagnostic imaging agent for sites of inflammation
(including infection) in collaboration with scientists at the University of
Massachusetts Medical Center. Preclinical development of EPI-HNE4 as an agent
for imaging inflammation has been supported by a Phase I Small Business
Innovation Research grant from the National Institutes of Health. The imaging
agent being developed by Dyax consists of EPI-HNE4 as the targeting portion with
technetium-99 as the detectable marker.
 
     Cardiovascular Imaging.  Disease indications that are likely candidates for
cardiovascular imaging include deep vein thrombosis ("DVT") and pulmonary
embolism ("PE"). DVT is caused by the formation of a fibrous blood clot in the
veins of the lower limbs. PE results when a DVT clot breaks loose and travels to
the lungs, where it can block blood flow. The Company believes that there is a
need for a safer and more accurate imaging product for DVT and PE. Dyax is
collaborating with EPIX Medical Inc. ("EPIX") using Phage Display to identify
binding compounds for a molecular component of fibrous blood clots which could
be used in an imaging agent for DVT and PE. Under the collaborative arrangement,
Dyax has identified a group of potential lead binding compounds. The product
under development with EPIX will be based on a novel labeling chemistry that
increases the sensitivity of an image generated using magnetic resonance imaging
("MRI"). EPIX plans to develop the identified binding compounds for use in MRI,
while Dyax has retained the right to develop these compounds for use in nuclear
medicine imaging. See "-- Collaborations."
 
  Biotage Separations Products and Research and Affinity Separations Development
Programs
 
     Purification of a therapeutic product is a complex, multi-step process,
which can account for over 50% of a product's manufacturing costs. A widely used
separations technology, chromatography, is used to purify the desired product or
to remove impurities from the production mixture during the discovery,
development and manufacturing of a therapeutic product. Chromatography is a
technology that separates molecules in a liquid mixture using differential
adsorption of molecules. In this technology, molecules pass through a chamber,
or column, packed with separations media. The migration rates of different
molecules through the column vary due to differences in the strength of binding
interactions with the media in the column. In conventional chromatography,
separations are based on broad physical properties such as size, charge or
hydrophobicity, and the types of available, standard chromatography media has
changed little in recent years. Chromatographic separations are achieved by
selection of the surface chemistry of the media and the solvent composition such
that different molecules exit the column at different times and therefore can be
collected and/or detected in purified form. For a given separation, the
available media generally has unpredictable specificity and there has been no
practical way to modify the existing materials to create specific binding to a
particular target. Thus, the development of useful separation processes relies
on trial and error and is time consuming and labor intensive.
 
     The Company believes that Phage Display is a powerful tool for developing
new affinity separations media that can cost effectively and efficiently purify
increasingly complex therapeutic products. In affinity chromatography, a ligand
that binds with high specificity and high affinity to either the desired
compound or a specific class of impurities to be removed is attached to the
media. When the desired compound is captured on the affinity media, impurities
are washed away. By changing the solvent conditions, the desired compound can be
released from the media resulting in a product that is (in most cases) at higher
concentration than in the
 
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<PAGE>   34
 
original mixture. Alternatively, a specific class of impurities is captured on
the media to allow the desired product to flow through in a purified form. Phage
Display can be used to generate small, stable ligands that have high specificity
and high affinity for the desired compound or impurity. Since affinity
chromatography can purify the desired compound in one column, one such affinity
chromatography column can replace multiple conventional chromatography columns
which otherwise would be required. Dyax has developed compounds that bind and
release in predetermined conditions, such as those conditions that can be used
for process-scale separations. The Company believes that these new affinity
separations products can reduce the time, cost and risk associated with
pharmaceutical purification at the discovery, development and production scale.
Dyax plans to combine its Biotage chromatography systems with any affinity
chromatography media that may be derived through Phage Display to provide system
solutions for the purification of natural products, peptides, proteins, organic
compounds and other molecules. See "Risk Factors -- Limited Revenues to Date
from Separations Products; Need to Develop New Separations Products."
 
     Biotage Separations Products
 
     Dyax develops, manufactures and sells chromatography separations systems
and is a leader in the development, manufacture and sale of cartridge
chromatography products and systems, which it sells under the Biotage trade
name. The Company's prepacked, disposable cartridges can be packed with a wide
range of media from a variety of sources. The Company believes that its
cartridge-based systems provide competitive advantages to its customers compared
to manually packed systems, including greater speed and convenience, lower cost,
improved safety (no exposure of production personnel to media) and reproducible
performance leading to significant cost savings due to reduction of labor and
decreased solvent usage. The Company has sold its current line of Biotage
chromatography products and systems to over 50 leading pharmaceutical and
biotechnology companies worldwide, including Bachem AG, Bayer Corporation,
Genentech, Inc., F. Hoffmann-La Roche, Ltd., Merck & Co., Inc., Novartis,
Pfizer, Inc., Pharmacia & Upjohn Co. and Wyeth-Ayerst Laboratories, Inc. (a
subsidiary of American Home Products Corporation).
 
     The following are the Company's principal chromatography products:
 
          FLASH Chromatography Systems and Cartridges:  FLASH systems are
     designed to efficiently and cost effectively purify a single chemical
     compound from a complex synthetic mixture. The FLASH systems range in price
     from $2,500 for discovery and development scale systems to over $100,000
     for production scale systems. The manufacturing scale systems can replace
     other processes, including chromatography using large glass or steel
     columns or batch adsorption and filtration using larger tanks and filters.
     The FLASH systems include radial compression modules that are designed to
     enhance performance by stabilizing the media and increasing flow rates. The
     Company believes that the FLASH product line, which was introduced by the
     Company in 1994, is the only commercially available line of prepacked
     disposable cartridges for separations from the discovery scale to the
     manufacturing scale.
 
          Parallex Parallel Purification System:  Dyax's automated Parallex
     system is a high throughput, high-resolution chromatography workstation
     designed for the combinatorial chemistry market. The integrated system
     includes four independent high pressure liquid chromatography ("HPLC")
     columns, bar-coded sample input and intelligent fraction collection based
     on analysis of the compounds as they emerge from the columns using a
     proprietary four-channel, dual wavelength UV detector. HPLC technology is
     widely used in the pharmaceutical industry, particularly for purification
     of synthetic organic molecules, synthetic peptides, oligonucleotides and
     natural products. Information is tracked and stored using the Company's
     proprietary software that can interface with commercially available central
     data management systems. Up to 900 samples can be run and purified
     automatically in a 24-hour period. To the Company's knowledge, there is
     currently no similar product available for this emerging market that can
     integrate the data from several hundred samples per day at comparable
     efficiency. The list prices for the Parallex systems, which were introduced
     by the Company in 1997, range from $190,000 to over $240,000.
 
          Kiloprep Systems and Cartridges:  The Company's Kiloprep systems are
     high resolution chromatography systems that use prepacked HPLC cartridges
     and radial compression technology for discovery,
 
                                       33
<PAGE>   35
 
     development and manufacturing scale purifications. Kiloprep HPLC systems
     work with a variety of solvents, include advanced automation features and
     provide documentation and validation for current GMP regulatory
     environments. Manufacturing scale Kiloprep systems are built to individual
     customer specifications. By contrast, competing process-scale HPLC systems
     rely on prepacked stainless steel columns or user-packed HPLC columns.
     Kiloprep cartridges are used exclusively in the Kiloprep system for
     purifications from the milligram to the kilogram scale. The list prices for
     the Kiloprep systems, which were introduced by the Company in 1990, range
     from $50,000 for laboratory systems to over $300,000 for custom ordered
     manufacturing scale systems.
 
          ProPrep Chromatography Systems:  The Company's ProPrep systems are
     customized to meet the requirements of development and manufacturing scale
     chromatography applications for cGMP production of biologics. The Company
     believes that, compared to other commercially available systems, the
     ProPrep line provides a superior turn-key, highly engineered system with
     superior gradient performance and an "explosion proof" design that allows
     the system to be used in a hazardous manufacturing plant environment. These
     systems will be used to support the new BioFLASH prepacked chromatography
     cartridges described below. The Company also plans to improve overall
     purification performance of any new affinity separations media that
     incorporate binding compounds discovered through Phage Display by using the
     ProPrep hardware and software technology platforms. The prices for ProPrep
     systems, which were introduced by the Company in 1993, range from $150,000
     to over $500,000.
 
          BioFLASH Prepacked Cartridges and Systems:  The Company's BioFLASH
     cartridges, which are expected to be introduced in the second half of 1998,
     will consist of prepacked, disposable cartridges containing media
     specifically designed for separations of biological materials. Virtually
     any chromatography media for separating biological material can be packed
     in these cartridges. This product line, which is derived from the Company's
     FLASH chromatography systems for traditional chemical separations, is
     designed to allow operation of the BioFLASH cartridges in a stand alone or
     radially compressed format. The Company believes that BioFLASH cartridges
     and systems will have competitive advantages over existing products for
     development and manufacturing scale because they provide reproducible
     performance, higher pressure ratings (i.e., faster, higher resolution
     separations) and reduced cross-contamination and sterilization capability
     for virtually any bioseparation that is currently carried out in a glass or
     stainless steel column. The Company plans to use the BioFLASH product line
     as the platform for its Phage Display-derived affinity separations products
     under development.
 
     Affinity Separations Development Programs
 
     Dyax is using Phage Display to develop new affinity separations products
which it believes will be more effective than conventional separations
technologies. Dyax has several funded discovery projects with different
companies, including Argonex, Inc., Genetics Institute, Inc., Genzyme
Transgenics Corporation, Merck & Co., Inc. and Pall Corporation. These projects
seek to identify one or more potential binding compounds that can be attached to
media for development into affinity separations products for purification of the
collaborative partner's designated therapeutic product. To date, Dyax has
discovered affinity ligands for such products as a viral vaccine, tissue
plasminogen activator, a recombinant blood product and transgenic animal and
plant products. Under certain of these programs, the Company has delivered
affinity separations products containing Phage Display-derived affinity ligands
for testing and evaluation. The Company is continuing to seek collaborative
partners in the discovery and development of affinity separations products.
 
     In addition to its custom-designed affinity separations products program,
Dyax is developing proprietary affinity separations products, including products
under development in a collaborative arrangement with CropTech for broad
commercial applications. The Company believes that these products will have
applications in research as well as in the process and manufacturing markets. To
date, none of the Company's affinity separations products have been used for
commercial scale manufacturing and there can be no assurance that such products
or other products developed in the future, if any, will be used for commercial
scale manufacturing. See "-- Collaborations."
 
                                       34
<PAGE>   36
 
DYAX TECHNOLOGY
 
  Phage Display
 
     Phage Display is used to select proteins that bind to a target of interest.
The selection is made from a diverse set of up to hundreds of millions of
proteins displayed on the surface of a bacterial virus, bacteriophage, known
commonly as "phage." The Company's Phage Display process generally consists of:
(i) generating a large collection of phage, known as a "library," that contains
genes encoding up to hundreds of millions of related proteins, or potential
binding compounds, (ii) screening the library by exposing it to a specified
target and isolating those phage whose displayed proteins bind to the target;
and (iii) analyzing the selected binding compounds by sequencing their genes and
by producing and characterizing small quantities for relative specificity and
affinity to the target.
 
     Generating a Phage Display Library.  The generation of a Phage Display
library is based upon a single protein framework and contains up to hundreds of
millions of variations of this protein. The first step in generating a library
is the selection of the protein framework upon which the library will be
created. This selection is based on desired product properties, such as
structure, size, stability, or lack of immunogenicity. Scientists then determine
which amino acids in the framework will be varied. Amino acids that contribute
to the chosen framework properties are not varied. The exact number and type of
different amino acids that are varied is also controlled, so that the resulting
Phage Display library consists of a diverse set of chemical entities, each of
which retains the desired physical and chemical properties of the original
framework.
 
                       GENERATING A PHAGE DISPLAY LIBRARY
 
                    [GENERATION OF A PHAGE DISPLAY LIBRARY]
     The next step is the creation of a collection of genes encoding the
designed variations of the framework protein. Scientists can easily generate
diverse collections of up to hundreds of millions of different synthetic DNA
sequences. Each new DNA sequence, or gene, encodes a single protein sequence
that will be displayed on the surface of the individual phage that contain this
gene. The new DNA sequences are combined with phage genome DNA and certain
enzymes so that the new DNA is inserted into a specific location of the phage
genome, such that the encoded protein will be displayed on the phage surface as
a fusion to one of the existing (naturally occurring) phage proteins. The phage
is a physical link between the displayed protein and its gene.
 
     The new phage genomes are then transferred into laboratory bacteria, where
the phage genome directs the bacterial cells to produce thousands of copies of
each new phage. The resulting collection of phage is the Phage Display library.
Because the Phage Display library can be reproduced by infecting a new culture
of
 
                                       35
<PAGE>   37
 
laboratory bacteria to produce thousands more copies of each phage, libraries
can be maintained for a potentially unlimited number of screenings.
 
     In addition to the creation of synthetic DNA sequences for a Phage Display
library, scientists can also use naturally occurring genes, such as genomic DNA
(all genes in an organism) or cDNA (sequences that represent all the expressed
genes in a cell or organism) as sources of the genes for a library. For example,
Phage Display libraries of human antibodies can be used to isolate monoclonal
antibodies in a significantly shorter period of time than required for existing
hybridoma technology.
 
     Screening Phage Display Libraries.  Once a Phage Display library is
generated, scientists can select binding compounds with high specificity and
high affinity by exposing the library to specified targets of interest and
isolating the phage that display compounds that bind to the target. For certain
applications of Phage Display, such as separations, scientists can design the
binding and release conditions into the selection. Each individual phage
contains the gene encoding one potential binding compound, and when its
displayed protein is selected in the screening procedure, it can be retrieved
and amplified by growth in laboratory bacteria.
 
     To screen a Phage Display library, the library is exposed to the target
under desired binding conditions. The target is normally attached to a fixed
surface, such as the bottom of a tube, or a bead, allowing phage whose potential
binding compounds do not bind to the target to be removed. Once these unbound
phage are washed away, the phage containing the selected binding compounds can
be released from the target. Since the phage are still viable, they can be
amplified rapidly by again infecting bacteria. This property of ready
amplification is unique to biological systems. Binding compounds identified
during the first round of selection generally include some that bind to the
target molecule with varying degrees of specificity and affinity. Therefore, the
amplified phage are again exposed to the target molecule in another round of
screening, to enrich for those phage whose displayed binding compounds have the
desired specificity and affinity. The procedure is repeated several times until
a group of related binding compounds with the desired characteristics can be
identified.
 
                       SCREENING A PHAGE DISPLAY LIBRARY
 
                     [SCREENING OF A PHAGE DISPLAY LIBRARY]
     Evaluation of Selected Binding Compounds.  Screening Phage Display
libraries generally results in the identification of one or more groups of
related binding compounds. These groups of compounds are valuable in providing
information about which chemical features are necessary for binding to the
target with specificity and affinity, as well as which features can be altered
without affecting binding. Using DNA sequencing, scientists can determine the
amino acid sequences of the binding compounds and identify the essential
 
                                       36
<PAGE>   38
 
components of desired binding properties by comparing similarities and
differences in such sequences. If desired, the binding compounds can be further
optimized by building additional Phage Display libraries based on these key
components and repeating this process. Small amounts of the binding compound can
be produced by growing and purifying the phage. For production of larger
amounts, the gene can be removed from the phage DNA and placed into a standard
recombinant protein expression system. Alternatively, if the identified binding
compound is sufficiently small, it can be chemically synthesized. These binding
compounds can be evaluated for desired properties including affinity,
specificity and stability under conditions that will be encountered in its
intended use. From each group of compounds, a lead compound with the best
properties can be identified and developed and tested as a therapeutic,
diagnostic or affinity separations product.
 
  Other Technologies
 
     Structure Activity Relationship Technology.  The SAR information obtained
from the group of Phage Display-derived binding compounds can be used to
initiate small molecule drug design. The framework selected or designed to
generate a Phage Display library can be structured so that the amino acids that
interact with the target during binding are from a small, structurally
constrained region of the protein framework. Selection of binding compounds from
such Phage Display libraries does not yield a single result, but rather a group
of closely related variants of the framework protein that bind to the target.
Dyax believes that its proprietary SAR technology, including molecular modeling
and computational chemistry capabilities, can be used for the discovery of small
molecules that are potentially orally available drug candidates. Traditionally,
structure-based rational drug design has relied on determination of the three
dimensional structure of the therapeutic target, which requires large quantities
of purified material. In contrast, Dyax's SAR approach does not require
structural information regarding the target molecule. Small molecule drug
candidates are instead designed using information derived from the group of
binding compounds selected through Phage Display, and can be performed with a
part of the target or with impure preparations of the whole target. The
structured peptide and small protein binding compounds discovered through Phage
Display are less complex and substantially more accessible to three-dimensional
structural determination through nuclear magnetic resonance and X-ray
crystallography methods than most therapeutic targets. Dyax has used this
strategy to design small molecule neutrophil elastase binding compounds that
have demonstrated the desired inhibitory activity in in vitro assays. See
"-- Dyax Programs and Products -- Therapeutic and Diagnostic Discovery and
Development Programs -- Therapeutics."
 
     Subtractive Antibody Screening.  Subtractive antibody screening ("SAS") is
a differential screening technology that identifies genes encoding cell surface
or secreted proteins that are expressed in one cell type (target cell type),
such as a diseased tissue type and not in another cell type (subtractive cell
type). Most therapeutic targets for which drugs exist today are either cell
surface or secreted proteins, which are more accessible to drugs. Dyax has
licensed exclusive rights to SAS technology developed by the Whitehead Institute
for Biomedical Research at the Massachusetts Institute of Technology and
Massachusetts General Hospital. Scientists using the SAS technology first
isolate the cell surface or secreted proteins from the target cell type. These
proteins are injected into an animal to generate antibodies. The antibodies that
recognize proteins from a subtractive cell type, such as a normal tissue type,
are removed. The remaining antibodies will bind to proteins that are unique to
the target cell or tissue type. The genes encoding protein products which react
with the remaining antibodies can be cloned using existing cDNA expression
cloning techniques. Dyax scientists plan to use SAS to identify novel accessible
target proteins. Dyax intends to use targets identified through SAS to screen
its Phage Display libraries to discover binding compounds that could be leads
for therapeutic and diagnostic products.
 
COLLABORATIONS
 
     To date, the Company has received a significant portion of its revenue from
its corporate collaborative partnerships and funded discovery projects and the
Company expects that it will continue to rely on several collaborative partners
to fund different product development efforts and new research and development
efforts for the foreseeable future.
 
                                       37
<PAGE>   39
 
  Therapeutics and Diagnostics
 
     Dyax is leveraging its Phage Display in therapeutics and diagnostics
through discovery and development collaborative arrangements with biotechnology,
pharmaceutical and diagnostics companies. Currently, the Company has three
corporate collaborative partnerships and three funded discovery projects for
applications of its Phage Display technology. The Company's principal ongoing
therapeutic and diagnostic corporate collaborative partnerships are:
 
     Debiopharm.  In March 1997, Dyax entered into a Research and Development
Agreement with Debiopharm for the clinical development of the Company's
neutrophil elastase inhibitors, including EPI-HNE4. Under the terms of the
agreement, Debiopharm will undertake at its own expense the development and
production of EPI-HNE4 for the treatment of inflammation resulting from cystic
fibrosis and other chronic pulmonary inflammatory disorders, in exchange for an
option to obtain an exclusive commercial license for therapeutic uses of
EPI-HNE4 in the European market. This option is exercisable by Debiopharm until
March 2000, subject to extension. Dyax has the right to use the regulatory
information, including preclinical, clinical and manufacturing data, generated
by Debiopharm and retained all rights to develop and produce EPI-HNE4 in all
other fields and territories. If Debiopharm exercises the option, the Company is
entitled to receive a royalty on revenues received by Debiopharm from the use or
sale in the European market of therapeutic products developed using such
information. In the event the Company chooses to use information owned solely by
Debiopharm for therapeutic uses of EPI-HNE4, the Company will be obligated to
pay to Debiopharm a royalty on revenues received by the Company from the use or
sale of products outside Europe.
 
     EPIX.  In June 1997, Dyax entered into a Collaboration Agreement with EPIX
pursuant to which EPIX agreed to fund a research program in which the Company
will use Phage Display to identify peptides for use in thrombi imaging
applications. EPIX and Dyax agreed, following the completion of the research
program, to jointly identify and develop compounds that specifically target
pulmonary embolism and deep vein thrombosis for use in MRI and nuclear medicine
in vivo imaging agents used to diagnose these disorders. EPIX will be
responsible for the development of, and will have exclusive commercial rights
to, imaging agents developed for the MRI field and the Company will be
responsible for the development of, and will have the exclusive commercial
rights to, imaging agents for the nuclear medicine field. If any products are
successfully developed under the agreement, the Company is entitled to receive
royalties from sales of MRI products and EPIX is entitled to receive royalties
from any sales of nuclear medicine products.
 
     Novo Nordisk.  Also in March 1997, the Company and Novo Nordisk A/S
established a two-year collaboration to use the Company's Phage Display
technology to develop new tools for the rapid evaluation of certain of Novo
Nordisk's therapeutic candidates. The Company expects to receive research
funding for two years and, in the event Novo Nordisk utilizes the new
purification tools in its therapeutic development programs, the Company will be
entitled to receive license and product-development milestones in the future.
 
     Discovery Collaborations.  In addition to the three corporate collaborative
partnerships described above, the Company has also entered into funded discovery
projects with SangStat Medical Corporation, Tularik Inc. and Athena
Neurosciences, Inc. Generally, the Company screens its Phage Display libraries
to identify compounds which bind to a collaborative partner's therapeutic or
diagnostic targets of interest. In addition, if the collaborative partner
chooses to continue to develop the binding compound into therapeutic leads, then
the Company will be entitled to receive milestone payments and/or royalties on
product sales based on the collaborative partner's successful development and
marketing of leads as products.
 
  Separations
 
     Dyax is also leveraging its Phage Display in the field of separations to
develop novel affinity separations technologies and products. In this field, the
Company has one corporate collaborative partnership and several funded discovery
projects.
 
     CropTech.  In October 1997, in connection with a $4.3 million Advanced
Technology Program grant from the National Institute of Standards and
Technology, CropTech Development Corporation
 
                                       38
<PAGE>   40
 
("CropTech") and Dyax entered into a four-year Joint Collaboration Agreement to
develop novel technologies for the production and separation of large volume
protein products, therapeutic glycoproteins and bioactive peptides. Under the
agreement, CropTech agreed to use its transgenic plant technology to develop
novel expression systems for these therapeutic products and Dyax agreed to use
Phage Display to develop affinity separations systems for use in purifying the
protein and peptide products.
 
     Discovery Projects.  Typically, in the funded discovery projects, the
corporate sponsors have agreed to fund the Company to use Phage Display to
discover affinity ligands for evaluation in the purification and separations
processes of the sponsor's pharmaceutical product candidates. These sponsors,
which include Argonex, Genetics Institute, Genzyme Transgenics, Merck and Pall,
generally fund the Company's costs of identifying and testing a custom affinity
ligand and are obligated to make a milestone payment upon the successful
evaluation of the ligand. Upon completion of the discovery phase, the sponsor
generally has the option to expand the project to a development phase and/or to
negotiate a license agreement for the commercial use of the affinity ligand in
conjunction with a media to purify the sponsor's product, although no product
has yet reached this stage. The Company's discovery phase projects to date have
included discovery of affinity ligands for such products as a viral vaccine,
tissue plasminogen activator, a recombinant blood product and transgenic animal
and plant products.
 
     The Company's collaborative arrangements are generally subject to
termination on prior written notice from the collaborative partner. One
collaborative arrangement was terminated in 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition,
there can be no assurance that the Company will be able to negotiate
collaborative arrangements on acceptable terms in the future, if at all, or that
the Company's current or future collaborative arrangements will be successful
and provide the Company with the anticipated benefits, or that current or future
collaborative partners will not pursue or develop alternative technologies or
products. See "Risk Factors -- Dependence on Collaborations and Licensing."
 
COMPETITION
 
     The industries in which the Company competes are characterized by intense
competition and rapid technological change. New developments occur and are
expected to continue to occur at a rapid pace, and there can be no assurance
that discoveries or commercial developments by the Company's competitors will
not render some or all of the Company's technologies or potential products
obsolete or non-competitive, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The Company's Phage Display technology is one of several technologies
available to generate libraries of compounds which can be used to discover and
develop new products. Other technologies used by the pharmaceutical, diagnostics
and biotechnology industries to identify molecules which bind to a desired
target include high throughput screening of chemical and natural products and
combinatorial chemistry. Further, the Company licenses other parties in the
fields of therapeutic and antibody-based in vitro diagnostic products on a
non-exclusive basis under its Phage Display patent portfolio, and, therefore,
its licensees may compete with the Company in the development of specific
therapeutic and diagnostic products.
 
     The Company's therapeutic and in vivo diagnostic compounds under
development are expected to address one or more indications in the therapeutic
or diagnostic markets. The Company will face significant competition in these
markets. Also, several companies are using conventional antibody technology and
other means to identify products for use as imaging agents, which may compete
with any future imaging products of the Company. Although Dyax's goal is to
focus its development efforts on selected disease markets in which it believes
there is an unmet need, there can be no assurance that others will not have
competing products in development or on the market or that the Company will be
able to successfully develop such products.
 
     Chromatography is only one of several types (e.g.,centrifugation,
filtration, etc.) of separations processes used in the manufacture of
therapeutic products. Dyax will continue to face intense competition from other
suppliers of separations products. The principal competitors in the Company's
target markets include Amersham Pharmacia Biotech, Millipore Corporation, E.
Merck AG, Bio-Rad Laboratories Inc., BioSepra, Inc. and Waters Corporation. In
addition, many pharmaceutical companies have historically
                                       39
<PAGE>   41
 
assembled their own chromatography systems. The Company is not aware of any
major competitor in the prepacked disposable cartridge market where its FLASH
cartridges are marketed and for which BioFLASH is targeted. Three former
employees of the Company's Biotage label products group have established their
own chromatography business, which is the subject of a lawsuit initiated by the
Company alleging misappropriation of trade secrets. Although the Company has
been able to launch and sell chromatography products in desired niche markets to
date, the continued success of these products will depend upon customer
acceptance, price and proprietary position, as well as the successful
introduction of new products. The Company's strategy for its custom affinity
separations products is to retain all proprietary rights to its Phage Display
intellectual property for the separations field and to retain all rights to any
affinity ligands it develops. There can be no assurance that others will not be
able to use conventional or combinatorial chemistry approaches, or develop new
technology, to identify binding molecules for use in separating and purifying
products, including molecules which may compete with the Company's affinity
ligands. See "Risk Factors -- Intense Competition; Technological Obsolescence."
 
PATENTS AND PROPRIETARY RIGHTS
 
     The Company's success will be significantly dependent upon its ability to
obtain patent protection for its products and technologies under development, to
defend its issued patents, including patents related to phage display
biotechnology and separations, and to avoid the infringement of patents issued
to others. The Company is aware of certain patents and patent applications for
which it will likely need to obtain licenses to commercialize its products and
technologies. While the Company believes that it will be able to obtain such
licenses, there can be no assurance that such licenses, or licenses to other
patent rights, will be available on reasonable terms, if at all. Further, if
such licenses are not available, the Company may need to halt or modify the
activities which are covered by the other patent rights, which could have a
material adverse effect on the Company's business financial conditions and
result of operations. The Company's policy generally is to file for patent
protection on new methods and technology useful for the display of binding
molecules, new therapeutic, diagnostic and separation product candidates
identified through Phage Display, and new chromatography separation methods and
products.
 
     Dyax's proprietary position in the field of phage display is based upon its
patent rights, technology, proprietary information, trade secrets and know-how.
Dyax's patents and patent applications for its Phage Display include U.S. Patent
Nos. 5,571,698, 5,403,484 and 5,223,409, EPO Patent No. 436,597, two allowed or
pending U.S. patent applications, and 15 allowed or pending foreign patent
applications (the "Phage Display Patent Rights"). These Phage Display Patent
Rights contain claims covering inventions in the field of the surface display of
proteins and certain other peptides, including surface display on bacteriophage.
 
     In addition to the Phage Display Patent Rights, Dyax has filed for patent
protection on certain of the proteins and peptides it has identified using Phage
Display. Dyax recently was issued U.S. Patent No. 5,666,143 covering sequences
of peptides which have neutrophil elastase inhibitory activity, including the
sequence for EPI-HNE4, which is in preclinical testing as a therapeutic and
imaging agent. The Company also has pending applications covering plasmin
kallikrein and plasmin peptide inhibitors, as well as peptide compounds which
can be used in the separation and purification of specific biopharmaceuticals.
 
     Although the Company is not aware of any legal challenges to the Phage
Display Patent Rights to date in the United States, there can be no assurance
that a challenge will not be brought in the future. The Company plans to protect
its patent rights, including the Phage Display Patent Rights, to the maximum
practical extent. There can be no assurance that the Company will have
sufficient resources necessary to defend its patent rights against any such
challenges. However, if the Company commences legal action against an alleged
infringer of any of the Company's patent rights, the alleged infringer can be
expected to claim that the Company's patent rights are invalid for one or more
reasons, thus subjecting the Company's patent rights to a judicial determination
of validity with the attendant risk that an adverse determination could result
in the loss of the patent rights. In addition, in certain situations, an alleged
infringer could seek a declaratory judgment of invalidity of the Company's
patents. Uncertainties resulting from the initiation and continuation of any
patent or related litigation, including those involving the Company's Phage
Display patents, could have a material adverse effect on the Company's ability
to maintain and expand its licensing program and collaborative
                                       40
<PAGE>   42
 
arrangements and to compete in the marketplace pending resolution of the
disputed matter. See "Risk Factors -- Uncertainties Related to Patents and
Proprietary Rights."
 
     Two European patent oppositions were filed in late 1997 against the
Company's Phage Display patent issued by the EPO and the Company expects that
these oppositions will not be resolved for several years. The oppositions are
currently being reviewed by the Company's patent counsel, and Dyax intends to
vigorously defend its European patent. However, there can be no assurance that
the Company will prevail in the opposition proceedings or any litigation
contesting the validity or scope of this EPO patent or other foreign patents.
 
     The Phage Display Patent Rights are central to the Company's non-exclusive
patent licensing program. The Company offers non-exclusive licenses under the
Phage Display Patent Rights to companies and non-profit institutes in the field
of therapeutics, antibody-based in vitro diagnostics and Phage Display research
products. To date, Dyax has licensed its Phage Display Patent Rights to more
than 25 companies. Dyax has retained the exclusive rights, and does not intend
to broadly license others, in the fields of in vivo diagnostic products and
separations. In connection with the licensing program, the Company regularly
monitors publications and other sources for information regarding the practice
by others of technology covered by the Phage Display Patent Rights. The Company
believes that there are unlicensed parties whose activities may be covered by
its issued patents. In such circumstances, the Company generally seeks to
negotiate a Phage Display license agreement. There can be no assurance, however,
that the Company will be able to identify all parties practicing the Phage
Display Patent Rights, all products derived by such parties, including its
licensees, or that the Company will be successful in entering into license
agreements with parties that the Company believes require such a license. In
jurisdictions where the Company has not applied for or obtained patent rights,
the Company will be unable to prevent others from developing or selling products
or technologies derived using Phage Display. In addition, in jurisdictions where
the Company has Phage Display Patent Rights, there can be no assurance that the
Company will be able to prevent others from selling or importing products or
technologies derived using Phage Display. The inability of the Company to
protect and enforce its patent rights, whether by licensing or otherwise, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
     The Company is aware that other parties have patents and pending
applications to various phage display inventions. The Company has filed, and in
the future may file, oppositions to European and other patents issued to others.
To date, the Company has filed oppositions against two European patents in the
general field of phage display. The Company does not believe these European
patents cover any of its present activities, but the Company cannot predict
whether the claims in these patents may, in their current or future form, cover
the Company's activities or the activities of its collaborative partners and
licensees. In addition, through its patent licensing program, the Company has
secured a limited freedom to practice some of these patent rights pursuant to
its standard license agreement, which contains a covenant by the licensee that
it will not sue the Company under certain of the licensee's phage display
improvement patents. The Company may from time to time seek affirmative rights
of license or ownership under existing patent rights relating to phage display
technology of others. There can be no assurance, however, that the Company will
be successful in maintaining the existing covenants of nonsuit from its
licensees, or in acquiring similar covenants in the future, or that the Company
will be able to obtain satisfactory licenses. The inability of the Company to
obtain and maintain such licenses and covenants could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
     To protect its existing and future chromatography separations products, the
Company relies primarily upon trade secrets and know-how, as well as the
experience and skill of its technical personnel. The Company also has several
patents and patent applications on its proprietary chromatography technology
which are not based on Phage Display, but it cannot predict the extent to which
any such patents or future patents will provide protection for its existing and
new separations products. See "Risk Factors -- Limited Revenues to Data from
Separations Products; Need to Develop New Separations Products."
 
     In all of its activities, the Company places substantial reliance on
proprietary materials and information, trade secrets and know-how to conduct its
research and development activities and to attract and retain
 
                                       41
<PAGE>   43
 
collaborative partners, licensees and customers. Although the Company takes
steps to protect these materials and information, including through the use of
confidentiality and other agreements with its employees, consultants and
academic and commercial relationships, there can be no assurance that these
steps will be adequate, that these agreements will not be violated, that there
will be an available or sufficient remedy for any such violation or that others
will not also develop similar proprietary information. See "Risk Factors --
Uncertainties Related to Patents and Proprietary Rights."
 
GOVERNMENT REGULATION
 
     The production and marketing of any of the Company's future therapeutic or
diagnostic products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and
in other countries where the products are intended to be sold. In addition, the
Company's research and development activities in the United States are subject
to various health and safety, employment and other laws and regulations.
Although the Company believes that it is in substantial compliance with all
applicable federal, state, local and foreign legal requirements, there can be no
assurance that government authorities will agree that the Company is in
compliance with all laws, that such requirements will not be changed or that new
requirements will not be adopted, any one of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
  United States FDA Approval
 
     In the United States, products intended for in vitro diagnostic use and in
vivo diagnostic and therapeutic use in humans are subject to rigorous FDA
regulation. In addition, products intended for use in the manufacture of these
products, such as separations equipment, are subject to certain FDA manufacture
and quality standards.
 
     The steps required before a new pharmaceutical or in vivo diagnostic
product can be sold in the United States include: (i) preclinical tests; (ii)
submission of an Investigative New Drug Application to the FDA which must become
effective before initial human clinical testing can begin; (iii) human clinical
trials to establish safety and effectiveness of the product, which normally
occurs in three Phases monitored by the FDA; (iv) submission and approval by the
FDA of a New Drug or Biologics License Application; and (v) compliance with the
FDA's GMP regulations and facility and equipment validation and inspection. The
requirements for testing and approval for in vitro diagnostic products may be
somewhat less onerous than for pharmaceutical products, but similar steps are
required. The Company cannot make any assurances that its therapeutic or
diagnostic product candidates, such as its neutrophil elastase inhibitor
EPI-HNE4, or the products of its partners and licensees, will be able to
successfully complete the FDA-required testing and approvals.
 
     Certain of the Company's separations products are intended for use in the
manufacturing processes of clinical grade and commercial grade therapeutic and
diagnostic products. These separations products, therefore, are required to be
manufactured and delivered in accordance with certain GMP requirements, and
other applicable rules and regulations, and further may require the customer to
comply with certain quality and inspection regulations prior to use. The Company
has not yet produced any separations products under GMP conditions. There can be
no assurance that the Company or its customers will be successful in complying
with FDA and other regulations to permit the full clinical and commercial use of
the Company's separations products.
 
  Foreign Regulatory Approval
 
     Many countries outside the United States require the testing and marketing
of pharmaceutical and diagnostic products to be approved by governmental
authorities similar to the FDA. The approval procedures vary from country to
country. In the European Community (the "EC") for example, two different
approval procedures may apply to the products of the Company and its partners
and licensees: a centralized procedure which is mandatory for certain
biotechnology products and available as an approval option for certain other
products; and a decentralized procedure which requires approval by a regulatory
agency in each EC member state. Additionally, national laws of EC member states
govern clinical trials, manufacturing procedures, advertising and promotion and
pricing and reimbursement. Exporting of unapproved products to foreign
 
                                       42
<PAGE>   44
 
countries for testing, approval, or marketing is subject to United States law
and that of the importing country, and may require FDA approval.
 
  Other Regulation
 
     In addition to the laws and regulations which apply to the development,
manufacture and sale of the Company's products, the Company's operations are
subject to numerous federal, state and local laws and regulations. The research
and development activities of the Company involve the controlled use, storage,
handling and disposal of hazardous materials, chemicals and radioactive
compounds and, as a result, the Company is required to comply with regulations
and standards of the Occupational Safety and Health Act, Nuclear Regulatory
Commission, and other safety and environmental laws. Although the Company
believes that its activities currently comply with all applicable laws and
regulations, the risk of accidental contamination or injury cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, which could have a material adverse affect on the
Company's business, financial condition and results of operations.
 
MANUFACTURING
 
     The Company manufactures and sells chromatography systems and cartridges.
Components for chromatography systems are manufactured to the Company's
specifications by subcontractors. For certain prepacked cartridges, the Company
purchases commercial media which it repacks and sells in disposable cartridges.
A small number of components of the Company's chromatography systems are
currently purchased from single sources. However, the Company believes that
alternative sources for these components are readily available, if necessary,
and that it will be able to enter into acceptable agreements to obtain these
components from such alternate sources at similar costs with only a temporary
disruption or delay in production.
 
     For its new affinity separations products, the Company plans to supply
separations media containing Phage Display-derived affinity ligands directly to
customers and collaborative partners, and may from time to time license a third
party to supply its own requirements. For those affinity separations products
which are sold by the Company for use in a customer's or collaborative partner's
clinical or commercial manufacturing processes, the products will need to be
manufactured under GMP conditions. The Company has not yet established a
facility to manufacture affinity separations products under GMP conditions, and
there can be no assurance that the Company will be able to do so by the time
such facility is needed. The Company is currently contracting the production of
affinity ligands from manufacturers who have GMP facilities; however, should
this situation change, the Company's inability to obtain these components could
have a material adverse effect on its business, financial condition or results
of operations.
 
     In addition, the Company currently plans to rely on third party
manufacturers for production of its therapeutic lead candidates under
development. There can be no assurance that such third parties will be able to
successfully complete on behalf of the Company the required preclinical studies,
clinical development, regulatory approval, manufacturing and marketing of any
such therapeutic products. See "-- Government Regulation."
 
SALES AND MARKETING
 
     For the therapeutic, in vivo diagnostic and in vitro diagnostic products
which result from its research and development efforts, Dyax primarily plans to
commercialize such products through licensing, marketing, distribution and other
arrangements with pharmaceutical and diagnostic companies. If the Company
decides to market and sell any such product directly, Dyax does not expect to
establish direct sales capability until such time as one or more therapeutic or
diagnostic products in development obtain regulatory approval and are ready to
be commercialized.
 
     The Biotage separations business has a sales and marketing group of sixteen
people in the United States and Europe. Outside of the United States and certain
European countries, the Company sells these products through distributors. As
new products are introduced and the market for the Biotage label products grows,
the Company anticipates increasing its direct marketing and sales capacity.
 
                                       43
<PAGE>   45
 
     For the custom affinity separations products business, Dyax has ongoing
marketing efforts to develop new collaborative arrangements. For other affinity
ligand products that the Company may develop outside of a collaborative
arrangement, the Company plans to market and sell the ligands, either as
stand-alone products or integrated with separations media and equipment, through
a combination of direct sales, distributors and other marketing arrangements.
 
     To the extent that the Company establishes a direct sales capability for
therapeutic or diagnostic products, or undertakes to expand its marketing and
sales capabilities for the separations business, there can be no assurance that
such efforts will be successful. Further, the Company's ability to sustain and
grow the sales of separation products under the Biotage label is dependent upon
its ability to retain and attract qualified marketing and sales staff, which
cannot be assured. See "Risk Factors -- Dependence on Expansion of Operations
and Management of Growth."
 
FACILITIES
 
     The Company currently leases and occupies 22,500 square feet of laboratory
and office space in Cambridge, Massachusetts, as well as 20,000 square feet of
manufacturing and office space in Charlottesville, Virginia. The leases for the
Cambridge facilities expire in December 1999 and the lease for the
Charlottesville facility expires in April 2002. Dyax also leases approximately
4,000 square feet of office space in the United Kingdom to support marketing
efforts for its Biotage label products. The Company believes that its current
space is adequate for its needs through 1999 and that it will be able to obtain
additional space, as needed, on commercially reasonable terms.
 
EMPLOYEES
 
     Dyax had 84 employees on March 1, 1998, including 25 employees with Ph.D's.
Of the Company's employees, 26 were employed in research and development in
Cambridge, Massachusetts and 23 were employed in development and manufacture of
chromatography separations products and systems in Charlottesville, Virginia.
None of the Company's employees is represented by a collective bargaining
agreement and the Company believes that its relations with its employees are
good.
 
LEGAL PROCEEDINGS
 
     The Company is a party to patent oppositions in the European Patent Office.
The Company is not a party in any other material legal proceedings. See
"-- Patents and Proprietary Rights" and "-- Competition."
 
YEAR 2000
 
     The Company is aware of the issues that many computer systems will face as
the millennium ("Year 2000") approaches. The Company has installed Year 2000
compliant software in many of its major systems. The cost of the effort to
complete this activity for the balance of the Company's systems is not expected
to be material. The Company believes that the Year 2000 issue will not pose
significant operational problems. However, Year 2000 issues could have a
significant impact on the Company's business, financial condition and results of
operations if modifications cannot be completed on a timely basis, unforeseen
needs or problems arise, or if the systems operated by suppliers, collaborative
partners or licensees are not Year 2000 compliant.
 
                                       44
<PAGE>   46
 
STRATEGIC AND SCIENTIFIC ADVISORS
 
     Dyax has a Strategic Advisory Committee as well as scientific advisory
boards for the therapeutics, diagnostics and separations research programs.
Members of the Strategic Advisory Committee meet with the Company's management
on a quarterly basis and, like the members of the scientific advisory boards,
are available to the Company's management and scientific staff on an as-needed
basis for consultation in their respective areas of expertise. All of the
advisors are employed by and/or have consulting arrangements with other entities
and are expected to devote only a small portion of their time to the Company. No
advisor is employed by the Company. Advisors' other commitments to or consulting
or advisory contracts with their employers or other entities may conflict or
compete with their obligations to the Company.
 
     The Company's advisors are paid an annual retainer for attending meetings,
reimbursed for their expenses and have been granted options to purchase Common
Stock under the Company's Amended and Restated 1995 Equity Incentive Plan. The
Company has entered into consulting agreements with a number of the Scientific
Advisory Board members. The agreements generally are subject to termination by
either party with advance notice.
 
<TABLE>
<CAPTION>
              NAME                                PROFESSIONAL AFFILIATION
              ----                                ------------------------
<S>                               <C>
STRATEGIC ADVISORS
 
Charles L. Cooney, Ph.D.........  Professor, Department of Chemical and Biochemical
                                  Engineering and Executive Officer, Department of Chemical
                                  Engineering, Massachusetts Institute of Technology.
Peter Feinstein.................  Chairman, Feinstein Kean Partners Inc. and Kendall
                                  Strategies Inc.
James W. Fordyce................  General Partner, Prince Ventures LP, and President,
                                  Albert and Mary Lasker Foundation.
Harvey F. Lodish, Ph.D..........  Professor of Biology, Massachusetts Institute of
                                  Technology and Member, Whitehead Institute for Biomedical
                                  Research.
William A. Scott, Ph.D..........  President and Chief Executive Officer, Physiome Sciences,
                                  Inc., and previously Senior Vice President of Exploratory
                                  and Drug Discovery Research, Bristol-Myers Squibb
                                  Pharmaceutical Research Institute.
Thomas P. Stossel, M.D..........  American Cancer Society Professor of Medicine, Harvard
                                  Medical School, and Senior Physician, Hematology-Oncology
                                  Division, Brigham and Women's Hospital.
Henri A. Termeer................  Chairman, President and Chief Executive Officer, Genzyme
                                  Corporation.
Christopher T. Walsh, Ph.D......  Hamilton Kuhn Professor, Department of Biological
                                  Chemistry and Molecular Pharmacology, Harvard Medical
                                  School.
George M. Whitesides, Ph.D......  Mallinckrodt Professor of Chemistry, Harvard University.
Peter Wirth, Esq................  Executive Vice President and Chief Legal Officer, Genzyme
                                  Corporation.
</TABLE>
 
                                       45
<PAGE>   47
 
<TABLE>
<CAPTION>
              NAME                                PROFESSIONAL AFFILIATION
              ----                                ------------------------
<S>                               <C>
SCIENTIFIC ADVISORS -- THERAPEUTICS AND DIAGNOSTICS
 
Thomas J. Brady, M.D............  Director, Nuclear MRI Center, Massachusetts General
                                  Hospital; Professor of Radiology, Harvard Medical School.
Leonard Guarente, Ph.D..........  Professor of Biology, Massachusetts Institute of
                                  Technology.
Jordan Gutterman, M.D...........  Virginia Cockrell Professor of Medicine, University of
                                  Texas, M.D. Anderson Cancer Center.
Phillip W. Robbins, Ph.D........  Professor of Biochemistry, Massachusetts Institute of
                                  Technology.
Thomas M. Roberts, Ph.D.........  Chair, Department of Cancer Biology at Dana Farber Cancer
                                  Institute; Chair, Division of Medical Sciences and
                                  Professor of Pathology, Harvard Medical School.
H. William Strauss, M.D.........  Chief, Division of Nuclear Medicine, Stanford University.
Andrew Wright, Ph.D.............  Professor of Microbiology, Tufts University Medical
                                  School.
 
SCIENTIFIC ADVISORS -- SEPARATIONS
 
Stuart E. Builder, Ph.D.........  Consultant, and formerly Staff Scientist, Strategic
                                  Development, Genentech Inc.
Hubert Koster, Ph.D.............  Professor of Chemistry and Biochemistry, University of
                                  Hamburg; President and Chief Executive Officer, Sequenom,
                                  Inc.
Jack Johanssen, Ph.D............  President and CEO, Boston Probes, Inc.
Irving W. Wainer, Ph.D..........  Professor of Pharmacology, Georgetown University Medical
                                  Center; Director, Georgetown University Bioanalytical
                                  Center.
</TABLE>
 
                                       46
<PAGE>   48
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
     The executive officers and directors of the Company, as of March 1, 1998,
are as follows:
 
<TABLE>
<CAPTION>
                      NAME                        AGE                    POSITION
                      ----                        ---                    --------
<S>                                               <C>   <C>
Henry E. Blair..................................  54    Chairman of the Board, President and Chief
                                                        Executive Officer
L. Edward Cannon, Ph.D..........................  51    Executive Vice President, President,
                                                        Therapeutic and Diagnostic Division and
                                                        Director
Robert A. Dishman, Ph.D.........................  53    Executive Vice President, President,
                                                        Separations Division and Director
Keith S. Ehrlich................................  47    Senior Vice President, Finance and
                                                        Administration, and Chief Financial Officer
Robert Charles Ladner, Ph.D.....................  53    Senior Vice President and Chief Science
                                                        Officer
Constantine E. Anagnostopoulos, Ph.D.(1)........  75    Director
James W. Fordyce(1)(2)..........................  55    Director
Thomas L. Kempner(2)............................  70    Director
Henry R. Lewis, Ph.D.(1)(2).....................  72    Director
</TABLE>
 
---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
 
     HENRY E. BLAIR.  Mr. Blair has served as the Chairman of the Board and
President of the Company since the merger of PEC with the Company in August 1995
and as acting Chief Executive Officer from August 1995 until his appointment as
Chief Executive Officer in April 1997. He also served as a director and officer
of the Company since its formation in 1989. Mr. Blair is also a director of and
consultant to Genzyme Corporation, a company he co-founded in 1981. Mr. Blair
also co-founded Biocode, Inc. and GelTex Pharmaceuticals, Inc. In addition, he
is a director of Celtrix Pharmaceuticals, Inc. and Genzyme Transgenics
Corporation and a member of the Board of Overseers at each of the Tufts
University School of Medicine and the Lahey Hitchcock Clinic.
 
     L. EDWARD CANNON, PH.D.  Dr. Cannon has served as Executive Vice President
of the Company and President of the Therapeutics and Diagnostics Division. He
was Chief Executive Officer and held other senior management roles at PEC from
October 1992 to August 1995 and has been a director of the Company since the
merger of PEC with the Company. Dr. Cannon founded Hygeia Sciences, Inc. in 1980
and served as Chief Scientific Officer and Senior Vice President from 1986 to
1991.
 
     ROBERT A. DISHMAN, PH.D.  Dr. Dishman has served as Executive Vice
President of the Company and President of the Separations Division since the
merger of PEC with the Company and as a director since April 1994. He was
President and Chief Executive Officer of the Company from April 1994 until
August 1995. Prior to April 1994, Dr. Dishman co-founded and served as Chief
Executive Officer of the predecessor of ArQule Inc. and served as Executive Vice
President and Chief Operating Officer of Sepracor, Inc. Dr. Dishman also served
as President of Millipore's MilliGen (BioScience) Division, which he founded,
and Vice President, Business, Development and Marketing, of Millipore's Waters
Chromatography Division.
 
     KEITH S. EHRLICH.  Mr. Ehrlich joined the Company in January 1998 as Senior
Vice President, Finance and Administration, Chief Financial Officer and
Treasurer. From October 1993 to January 1998, he served as Vice President,
Finance and Administration, and Chief Financial Officer of Oravax, Inc. From May
1991 to October 1993, he served as Treasurer and Director of Finance of Vertex
Pharmaceutics, Inc. Previously, Mr. Ehrlich was a senior audit manager of
Coopers & Lybrand L.L.P.
 
     ROBERT CHARLES LADNER, PH.D.  Dr. Ladner joined the Company as Senior Vice
President and Chief Science Officer in August 1995. He was a co-founder of PEC
where he served as Senior Vice President and
 
                                       47
<PAGE>   49
 
Scientific Director from 1987 until its merger with the Company. Previously, Dr.
Ladner served as Senior Scientist of Genex Corp., where he was an inventor of
single chain antibodies.
 
     CONSTANTINE E. ANAGNOSTOPOULOS, PH.D.  Dr. Anagnostopoulos has been a
director of the Company since 1991. He is a Managing General Partner of Gateway
Associates L.P., a venture capital management firm which is the general partner
of Gateway Venture Partners II and Gateway Venture Partners III. Dr.
Anagnostopoulos has been a corporate officer of Monsanto Company. He is a
director of Genzyme Corporation.
 
     JAMES W. FORDYCE.  Mr. Fordyce has been a director of the Company since
August 1995. Since 1981, he has served as a general partner of Prince Ventures
Partners LP, a venture capital management firm, and its affiliated partnerships.
Prince Venture Partners IV is a venture capital limited partnership, managed by
Prince Ventures LP, which specializes in early stage investments in companies
involved in the medical and life science areas. He is also President of the
Albert and Mary Lasker Foundation.
 
     THOMAS L. KEMPNER.  Mr. Kempner has been a director of the Company since
August 1995 and previously was a director of PEC. Mr. Kempner is the Chairman
and Chief Executive Officer of Loeb Partners Corporation, an investment banking,
registered broker/dealer and registered investment advisory firm. He is also
President of Pinpoint Partners Corporation, the general partner of the Loeb
Investment Partnerships. Mr. Kempner is also a director of Alcide Corporation,
CCC Information Services Group, Inc., Energy Research Corporation, IGENE
BioTechnology, Inc., Intermagnetics General Corporation, Northwest Airlines,
Inc. and Roper Starch Worldwide, Inc.
 
     HENRY R. LEWIS, PH.D.  Dr. Lewis has been a director of the Company since
August 1995 and previously was a director of PEC. Mr. Lewis is a consultant to
several companies. From 1986 to February 1991, Mr. Lewis was the Vice Chairman
of the Board of Directors of Dennison Manufacturing Company, a manufacturer and
distributor of products for the stationery, technical paper and industrial and
retail systems markets. From 1982 to 1986, Mr. Lewis was a Senior Vice President
of Dennison Manufacturing Company. Mr. Lewis is a director of Genzyme
Corporation.
 
BOARD OF DIRECTORS
 
     The Company's Restated Certificate of Incorporation provides for a
classified board of directors consisting of three classes, with each class being
as nearly equal in number as possible. The term of one class expires and their
successors are elected for a term of three years at each annual meeting of the
Company's stockholders. The Company has designated three Class I directors (Mr.
Blair and Drs. Cannon and Dishman), two Class II directors (Messrs. Fordyce and
Kempner) and two Class III directors (Drs. Anagnostopoulos and Lewis). These
Class I, Class II and Class III directors will serve until the annual meeting of
stockholders to be held in 1999, 2000 and 2001, respectively, and until their
respective successors are duly elected and qualified, or until their earlier
resignation or removal. The Certificate provides that directors may be removed
only for cause by a majority of stockholders. See "Description of Capital
Stock -- Anti-Takeover Measures." There are no family relationships among any of
the directors or executive officers.
 
BOARD COMMITTEES
 
     The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Messrs. Fordyce and Kempner and Dr.
Lewis. The primary function of the Audit Committee is to assist the Board of
Directors in the discharge of its duties and responsibilities by providing the
Board with an independent review of the financial health of the Company and of
the reliability of the Company's financial controls and financial reporting
systems. The Audit Committee reviews the general scope of the Company's annual
audit, the fee charged by the Company's independent accountants and other
matters relating to internal control systems.
 
     The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The primary function of the
 
                                       48
<PAGE>   50
 
Compensation Committee is to administer the Company's Amended and Restated 1995
Equity Incentive Plan. The Compensation Committee consists of Mr. Fordyce and
Drs. Anagnostopoulos and Lewis.
 
DIRECTOR COMPENSATION
 
     Directors who are also employees of the Company do not receive additional
compensation for their services as directors. After the completion of this
Offering, each non-employee director will be paid $12,000 per year as
compensation for services as a director. Non-employee directors who serve as a
chairman of a committee of the Board of Directors will be paid an additional
$3,000 per year.
 
     Any non-employee director is also eligible to receive stock options granted
under the Company's Amended and Restated 1995 Equity Incentive Plan. In January
1998, each non-employee director of the Company was granted an option to
purchase 19,560 shares of Common Stock at an exercise price of $4.60 per share.
Such options vest and become exercisable with respect to 10,000 shares on each
of (i) the date of grant; (ii) the earlier of the next annual meeting of
stockholders or the one-year anniversary of the date of grant; and (iii) the
date one year after the last vesting date.
 
EXECUTIVE COMPENSATION
 
     Summary Compensation Table.  The following table sets forth certain
compensation information for the Chief Executive Officer of the Company and the
three other executive officers of the Company whose salary and bonus for the
fiscal year ended December 31, 1997 exceeded $100,000 (together, the "Named
Executive Officers"):
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                              LONG-TERM COMPENSATION AWARDS
                                                     ------------------------------------------------
                                                         ANNUAL         SECURITIES
                                                      COMPENSATION      UNDERLYING       ALL OTHER
            NAME AND PRINCIPAL POSITION                 SALARY(1)        OPTIONS      COMPENSATION(2)
            ---------------------------              ---------------    ----------    ---------------
<S>                                                  <C>                <C>           <C>
Henry E. Blair(3)..................................     $202,500          48,900           $668
  President and Chief Executive Officer
Robert A. Dishman, Ph.D. ..........................      200,000          39,120            668
  Executive Vice President
L. Edward Cannon, Ph.D. ...........................      160,000          39,120            668
  Executive Vice President
Robert Charles Ladner, Ph.D. ......................      160,000          39,120            668
  Senior Vice President and Chief Science Officer
</TABLE>
 
---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
    "Commission"), other compensation in the form of perquisites and other
    personal benefits has been omitted in those instances where the aggregate
    amount of such perquisites and other personal benefits constituted less than
    the lesser of $50,000 or 10% of the total amount of annual salary and bonus
    for the executive officer for the year ended December 31, 1997. No bonuses
    were paid for services rendered during the year ended December 31, 1997.
 
(2) Represents the group term life insurance premiums paid by the Company for
    each of the Named Executive Officers.
 
(3) On March 30, 1997, Mr. Blair was granted a restricted stock award pursuant
    to which he purchased 114,000 shares of Common Stock at a purchase price of
    $0.77 per share. These shares vest over 48 substantially equal monthly
    installments commencing on the first day of the month following the purchase
    date. The value of the restricted stock award is based on the fair market
    value of the Common Stock on the date of grant as determined by the Board of
    Directors ($0.77 per share) less the purchase price paid by Mr. Blair ($0.77
    per share). As of December 31, 1997, Mr. Blair held an aggregate of 95,083
    shares of unvested restricted stock, then valued at $72,917. There was no
    public trading market for the Common Stock as of December 31, 1997. This
    value was determined by multiplying the fair market value of the Common
    Stock most recently determined by the Board of Directors ($1.53 per share)
    before that date by the number of unvested shares held and subtracting the
    aggregate purchase price paid for such shares. No dividends were paid in
    1997 on the outstanding shares of restricted stock.
 
     In January 1998, Mr. Ehrlich joined the Company as Senior Vice President,
Finance and Administration, Chief Financial Officer and Treasurer. Pursuant to
his employment agreement with the Company, Mr. Ehrlich receives an annual salary
of $165,000 and is eligible to receive a bonus of $50,000. Mr. Ehrlich was
granted an
 
                                       49
<PAGE>   51
 
option to purchase 91,280 shares of Common Stock, 22,820 of which vest in full
six months after the date of commencement of his employment and 68,460 of which
vest in 48 substantially equal monthly installments commencing on the date of
his employment.
 
     For additional information regarding compensation, see "-- Employment
Agreements."
 
     Option Grants.  The following table sets forth certain information
regarding options granted by the Company to the Named Executive Officers during
the fiscal year ended December 31, 1997:
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                   INDIVIDUAL GRANTS                         POTENTIAL REALIZABLE
                               ---------------------------------------------------------       VALUE AT ASSUMED
                                 NUMBER OF     PERCENT OF TOTAL                             ANNUAL RATES OF STOCK
                                  SHARES           OPTIONS                                  PRICE APPRECIATION FOR
                                UNDERLYING        GRANTED TO      EXERCISE                      OPTION TERM(4)
                                  OPTIONS        EMPLOYEES IN     PRICE PER   EXPIRATION    ----------------------
            NAME                GRANTED(1)      FISCAL YEAR(2)    SHARE(3)       DATE         5%             10%
            ----               -------------   ----------------   ---------   ----------    -------        -------
<S>                            <C>             <C>                <C>         <C>           <C>            <C>
Henry E. Blair...............     48,900              9.9%          $1.53      10/30/07      $              $
Robert A. Dishman, Ph.D......     39,120              8.0            1.53      10/30/07
L. Edward Cannon, Ph.D ......     39,120              8.0            1.53      10/30/07
Robert Charles Ladner,
  Ph.D.......................     39,120              8.0            1.53      10/30/07
</TABLE>
 
---------------
(1) Options were granted under the Amended and Restated 1995 Equity Incentive
    Plan and become exercisable generally in 48 equal monthly installments
    commencing on the first day of each calendar month following the date of
    grant, subject to continued employment with the Company.
 
(2) Based on an aggregate of       options granted by the Company in the year
    ended December 31, 1997 to employees of and consultants to the Company,
    including the Named Executive Officers.
 
(3) The exercise price is equal to the fair market value of the Common Stock on
    the date of grant as determined by the Board of Directors.
 
(4) Amounts represent hypothetical gains for the respective options if exercised
    at the end of the option term. There was no public trading market for the
    Common Stock as of December 31, 1997. Accordingly, these values have been
    calculated based on the assumed initial public offering price of $
    per share. These gains are based on assumed rates of stock price
    appreciation of 5% and 10% compounded annually from the date that the
    respective options were granted until their expiration date. These
    assumptions are not intended to forecast future appreciation of the
    Company's stock price. The potential realizable value computation does not
    take into account federal or state income tax consequences or option
    exercises of appreciated stock.
 
     Option Exercises and Year-End Values.  The following table sets forth
certain information concerning exercisable and unexercisable stock options held
by the Named Executive Officers as of December 31, 1997:
 
              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                         FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES
                                                                    UNDERLYING                 VALUE OF UNEXERCISED
                                                              UNEXERCISED OPTIONS AT          IN-THE-MONEY OPTIONS AT
                                                                  FISCAL YEAR-END               FISCAL YEAR-END(1)
                              SHARES ACQUIRED    VALUE     -----------------------------   -----------------------------
            NAME                ON EXERCISE     REALIZED   EXERCISABLE     UNEXERCISABLE   EXERCISABLE     UNEXERCISABLE
            ----              ---------------   --------   -----------     -------------   -----------     -------------
<S>                           <C>               <C>        <C>         <C> <C>             <C>         <C> <C>
Henry E. Blair..............       9,253        $ 6,386        2,038    /     48,863         $          /     $
Robert A. Dishman, Ph.D. ...      64,056         76,596          397    /     56,167                    /
L. Edward Cannon, Ph.D. ....          --             --       64,453    /     56,167                    /
Robert Charles Ladner,
  Ph.D. ....................      18,677         22,917        9,207    /     45,707                    /
</TABLE>
 
---------------
(1) There was no public trading market for the Common Stock as of December 31,
    1997. Accordingly, pursuant to the rules of the Securities and Exchange
    Commission, these values have been calculated based on an assumed initial
    public offering price of $        per share less the aggregate exercise
    price.
 
                                       50
<PAGE>   52
 
EMPLOYMENT AGREEMENTS
 
     The only executive officers of Dyax with employment agreements are Dr.
Dishman, Dr. Ladner and Mr. Ehrlich.
 
     Under the terms of Dr. Dishman's employment agreement dated February 18,
1998, he is entitled to an annual base salary of not less than $200,000. If Dr.
Dishman's employment is terminated without cause, the Company is required to pay
to Dr. Dishman severance payments at his annual base salary rate for six months,
which shall be extended for up to an additional six months if he does not obtain
comparable employment (subject to reduction for any amounts earned during such
period), and all unvested stock options held by Dr. Dishman shall be
accelerated. In addition, the Company granted Dr. Dishman a restricted stock
award to purchase 78,240 shares of Common Stock at a price of $4.60 per share
(the "Restricted Stock Award"). Upon the purchase of the entire Restricted Stock
Award and the exercise in full of an accelerated option granted in 1997 to
purchase 39,120 shares of Common Stock (the "1997 Option"), the Company agreed
to loan to Dr. Dishman an aggregate of $453,600 pursuant to two promissory notes
in the amounts of $360,000 and $93,600 (the "Notes"), respectively. The Notes,
which are each secured by a corresponding pledge of the shares of Common Stock
purchased under the Restricted Stock Award and received upon exercise of the
1997 Option, respectively, are payable in four years, subject to acceleration
and become due (i) immediately if Dr. Dishman's employment is terminated other
than by the Company without cause or (ii) on the second anniversary of the date
of issuance if the Company completes an initial public offering or is sold. As
long as Dr. Dishman remains employed by the Company, the Company shall forgive
all interest accrued on the notes annually or through the date of any earlier
termination of employment.
 
     Under the terms of Dr. Ladner's employment agreement, Dr. Ladner is
entitled to an annual base salary of not less than $125,000. If Dr. Ladner's
employment is terminated without cause, the Company is required to pay to Dr.
Ladner severance payments at his annual base salary rate for 12 months and 50%
of his unvested stock options shall be accelerated. This employment agreement
terminates in August 1998.
 
     Under the terms of Mr. Ehrlich's employment agreement, if Mr. Ehrlich's
employment is terminated without cause or if his position and responsibilities
are adversely affected as a result of a change in control (as defined in the
employment agreement), the Company is required to pay to Mr. Ehrlich six months
severance, all of his unvested stock options shall be accelerated and the
exercise period for all vested options shall be extended for an additional three
years after termination.
 
STOCK PLANS
 
     Amended and Restated 1995 Equity Incentive Plan.  The Company's 1995 Equity
Incentive Plan was adopted in August 1995 and amended and restated in January
1998 (as amended and restated, the "Equity Plan"). The Equity Plan is designed
to provide the Company flexibility in awarding equity incentives by providing
for multiple types of incentives that may be awarded. The purpose of the Equity
Plan is to attract and retain key employees of and consultants to the Company
and to enable them to participate in the long-term growth of the Company. The
Equity Plan provides for the grant of stock options (incentive and
nonstatutory), stock appreciation rights, performance shares, restricted stock
or stock units for the purchase of an aggregate of 2,184,200 shares of Common
Stock, subject to adjustment for stock splits and similar capital changes.
Awards under the Equity Plan can be granted to officers, employees and other
individuals as determined by the Compensation Committee of the Board of
Directors, each of whose members is a "non-employee director" within the meaning
of Rule 16b-3 under the Securities Act. The Compensation Committee selects the
participants and establishes the terms and conditions of each option or other
equity right granted under the Equity Plan, including the exercise price, the
number of shares subject to options or other equity rights and the time at which
such options become exercisable. The exercise price of all "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), granted under the Equity Plan must be at least equal to
100% of the fair market value of the option shares on the date of grant. The
term of any incentive stock option granted under the Equity Plan may not exceed
ten years.
 
                                       51
<PAGE>   53
 
     As of December 31, 1997, options to purchase an aggregate of 1,160,768
shares of Common Stock had been granted under the Equity Plan. Options to
purchase 158,644 shares were exercised as of such date and options to purchase
31,385 shares had been cancelled. Of the options to purchase an aggregate of
970,739 shares of Common Stock that were outstanding as of such date, options to
purchase 233,165 shares were exercisable. As of December 31, 1997, one award to
purchase 114,100 shares of Restricted Common Stock had been granted under the
Equity Plan. As of March 17, 1998, one additional award to purchase 78,240
shares of Restricted Common Stock had been granted under the Equity Plan. See
"-- Executive Compensation." Except as set forth above, no other awards have
been granted under the Equity Plan.
 
     1998 Employee Stock Purchase Plan.  In January 1998, the Company adopted
the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 97,800 shares of Common Stock reserved for issuance
under the Purchase Plan. To date, no shares of Common Stock have been issued
under the Purchase Plan. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Rights to
purchase Common Stock under the Purchase Plan are granted at the discretion of
the Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
Common Stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may be
paid through payroll deductions, periodic lump sum payments or a combination of
both. The Purchase Plan terminates on January 30, 2008.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. See "Management -- Stock Plans." The
Compensation Committee currently consists of Drs. Anagnostopoulos and Lewis and
Mr. Fordyce. See "Principal Stockholders" and "Certain Transactions."
 
                                       52
<PAGE>   54
 
                              CERTAIN TRANSACTIONS
 
     Pursuant to the voting rights of the holders of the Company's Class A
Convertible Preferred Stock contained in the Company's Restated Certificate of
Incorporation, Mr. Fordyce was elected to the Company's Board of Directors in
August 1995. These voting rights will terminate upon the completion of this
Offering following the automatic conversion of all outstanding shares of Class A
Convertible Preferred Stock into shares of Common Stock.
 
     Since August 1995, the Company has issued and sold 8,944,043 shares of
Class A Convertible Preferred Stock convertible into an aggregate of 5,831,516
shares of Common Stock.
 
     Dr. Anagnostopoulos, a director of the Company, is a general partner of
Gateway Associates, L.P., the general partner of Gateway Venture Partners, a
stockholder of the Company. In August 1995, the Company issued to Gateway
Venture Partners III, L.P. an aggregate of 191,409 shares of Class A Series 1
Convertible Preferred Stock pursuant to a recapitalization of the Company. Also
in August 1995, the Company issued and sold to Gateway Venture Partners III,
L.P. an aggregate of 150,000 shares of Class A Series 3 Convertible Preferred
Stock at a purchase price of $2.00 per share. In October 1996, the Company
issued and sold to Gateway Venture Partners III, L.P. an aggregate of 75,000
shares of Class A Series 4 Convertible Preferred Stock at a purchase price of
$3.13 per share. Pursuant to the Company's Restated Certificate of
Incorporation, all of such shares of Class A Convertible Preferred Stock will
automatically convert into 271,498 shares of Common Stock upon the closing of
this Offering.
 
     Mr. Fordyce, a director of the Company, is a general partner of Prince
Ventures Partners LP, the general partner of Prince Venture Partners IV, a
stockholder of the Company. In August 1995, the Company issued and sold to
Prince Venture Partners IV an aggregate of 375,000 shares of Class A Series 3
Convertible Preferred Stock at a purchase price of $2.00 per share. In October
1996, the Company issued and sold to Prince Venture Partners IV an aggregate of
478,556 shares of Class A Series 4 Convertible Preferred Stock at a purchase
price of $3.13 per share. In September 1997, in an arm's length transaction,
Prince Venture Partners IV purchased from a group of related stockholder of the
Company an aggregate of (i) 119,946 shares of Class A Series 1 Convertible
Preferred Stock at a purchase price of $1.73 per share and (ii) 20,413 shares of
Common Stock at a purchase price of $0.50 per share. Pursuant to the Company's
Restated Certificate of Incorporation, all of such shares of Class A Convertible
Preferred Stock will automatically convert into 634,723 shares of Common Stock
upon the closing of this Offering.
 
     Mr. Kempner, a director of the Company, is the President of Pinpoint
Partners Corporation, the general partner of each of Loeb Investment Co. 106,
Loeb Investment Co. 106A, Loeb Investment Co. 106B and Loeb Investment Co. 106C
(collectively, "Loeb Investment Partnerships"), each of which is a stockholder
of the Company. In August 1995, the Company issued to the Loeb Investment
Partnerships an aggregate of 279,990 shares of Class A Series 2 Convertible
Preferred Stock pursuant to the merger with PEC. Also in August 1995, the
Company issued and sold to certain of the Loeb Investment Partnerships an
aggregate of 150,000 shares of Class A Series 3 Convertible Preferred Stock at a
purchase price of $2.00 per share. In October 1996, the Company issued and sold
to certain of the Loeb Investment Partnerships an aggregate of 286,845 shares of
Class A Series 4 Convertible Preferred Stock at a purchase price of $3.13 per
share. In March 1997, the Company issued and sold to certain of the Loeb
Investment Partnerships an aggregate of 32,644 shares of Class A Series 4
Convertible Preferred Stock at a purchase price of $3.13 per share. Pursuant to
the Company's Restated Certificate of Incorporation, all of such shares of Class
A Convertible Preferred Stock will automatically convert into 488,660 shares of
Common Stock upon the closing of this Offering.
 
     In March 1997, the Company awarded Henry E. Blair a right to purchase
114,100 shares of Restricted Common Stock pursuant to the Equity Plan at a
purchase price of $0.77 per share in connection with becoming the full-time
Chief Executive Officer of the Company. The unvested Restricted Common Stock,
which vests over 48 substantially equal monthly installments, is subject to
repurchase by the Company at the original purchase price if Mr. Blair ceases to
be employed by the Company.
 
     The Company is a party to employment agreements with certain of its
executive officers. For information regarding these agreements and a grant of
restricted stock to Dr. Dishman, see "Management -- Employment Agreements." See
also Note 12 to Notes to Consolidated Financial Statements, which are
incorporated herein by reference.
 
                                       53
<PAGE>   55
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 17, 1998, and as adjusted to reflect
the sale of the shares of the Common Stock offered hereby by the Company, by (i)
all those known by the Company to be beneficial owners of more than 5% of its
outstanding Common Stock, (ii) each director of the Company, (iii) each of the
Named Executive Officers of the Company and (iv) all directors and executive
officers of the Company as a group:
 
<TABLE>
<CAPTION>
                                                                                 PERCENTAGE OF SHARES
                                                                                  BENEFICIALLY OWNED
                                                    NUMBER OF SHARES            BEFORE            AFTER
               BENEFICIAL OWNERS                 BENEFICIALLY OWNED(1)         OFFERING        OFFERING(2)
               -----------------                 ----------------------      ------------      -----------
<S>                                              <C>                         <C>               <C>
PRINCIPAL STOCKHOLDERS:
 
New York Life Insurance Company(3).............          681,037                  9.4%             7.0%
Loeb Investment Partnerships(4)................          650,907                  9.0%             6.7%
Prince Venture Partners IV(5)..................          648,033                  8.9%             6.6%
Oak Investment Partnerships(6).................          461,223                  6.4%             4.7%
GMMI SBIC, L.P.(7).............................          458,275                  6.3%             4.7%
BancBoston Ventures, Inc.(8)...................          416,614                  5.7%             4.3%
Gateway Venture Partnerships(9)................          285,811                  3.9%             2.9%
 
DIRECTORS AND EXECUTIVE OFFICERS**
Henry E. Blair(10).............................          657,184                  9.0%             6.8%
L. Edward Cannon, Ph.D.(11)....................           71,108                  1.0%               *
Robert A. Dishman, Ph.D.(12)...................          186,838                  2.6%             1.9%
Robert Charles Ladner, Ph.D.(13)...............          163,223                  2.2%             1.7%
Keith S. Ehrlich(14)...........................            5,705                    *                *
Constantine E. Anagnostopoulos, Ph.D.(15)......          293,213                  4.0%             3.0%
James W. Fordyce(16)...........................          655,775                  9.0%             6.7%
Thomas L. Kempner(17)..........................          657,931                  9.1%             6.7%
Henry R. Lewis, Ph.D.(18)......................           47,423                    *                *
All current executive officers and directors as
  a group (9 persons)(19)......................        2,738,400                 37.1%            27.7%
</TABLE>
 
---------------
 
   * Indicates beneficial ownership of less than one percent.
 
  ** The address of the directors and executive officers is One Kendall Square,
     Cambridge, MA 02139
 
 (1) Reflects the conversion, prior to or contemporaneously with the closing of
     this Offering, of all outstanding shares of Preferred Stock of the Company
     into an aggregate of 5,831,516 shares of Common Stock. The number of shares
     of Common Stock deemed outstanding after this Offering includes the
     2,500,000 shares of Common Stock of the Company being offered for sale in
     this Offering. The persons and entities named in the table have sole voting
     and investment power with respect to the shares beneficially owned by them,
     except as noted below. Share numbers include shares of Common Stock
     issuable pursuant to the outstanding options and warrants that may be
     exercised within the 60-day period following March 17, 1998.
 
 (2) The shares of the named holder which are beneficially owned but are not
     outstanding are the only such beneficially owned shares that are treated as
     outstanding for purposes of computing the percentage ownership of the named
     holder.
 
 (3) The stockholder's address is 51 Madison Avenue, New York, NY 10010.
 
 (4) Includes: (i) 125,813 shares owned by Loeb Investment Co. 106, (ii) 218,988
     shares owned by Loeb Investment Co. 106A, (iii) 97,800 shares owned by Loeb
     Investment Co. 106B, and (iv) 208,307 shares owned by Loeb Investment Co.
     106C (collectively, "Loeb Investment Partnerships"). Pinpoint Partners
     Corporation, the general partner of each of the Loeb Investment
     Partnerships, exercises sole voting and investment control with respect to
     all shares held by each of the Loeb Investment Partnerships. The
     stockholder's address is c/o Irwin Rowe, 61 Broadway, 24th Floor, New York,
     NY 10006.
 
 (5) Prince Ventures Limited Partnership, the general partner of Prince Venture
     Partners IV, exercises sole voting and investment control with respect to
     all shares held by Prince Venture Partners IV. The stockholder's address is
     10 South Wacker Drive, Suite 2575, Chicago, IL 60606.
 
 (6) Includes 442,064 shares held by Oak Investment Partners IV Limited Partners
     and 19,159 shares held by Oak IV Affiliates Fund Limited Partnership
     (collectively, "Oak Investment Partnerships"). Oak Investment Partners IV
     Limited Partners, the general
 
                                       54
<PAGE>   56
 
     partner of each of the Oak Investment Partnerships, exercises sole voting
     and investment control with respect to all shares held by each of the Oak
     Investment Partnerships. The stockholder's address is One Gorham Island,
     Westport, CT 06880.
 
 (7) GMM Investors Corp., the general partner of GMMI SBIC, L.P., exercises sole
     voting and investment control with respect to all shares held by GMMI SBIC,
     L.P. The stockholder's address is 70 Walnut Street, Wellesley, MA 02181.
 
 (8) The stockholder's address is 100 Federal Street, Boston, MA 02110.
 
 (9) Includes 226 shares held by Gateway Venture Partners II, L.P. and 285,586
     shares held by Gateway Venture Partners III, L.P. (collectively, "Gateway
     Venture Partnerships"). Gateway Associates, L.P., the general partner of
     each of the Gateway Venture Partnerships, exercises sole voting and
     investment control with respect to all shares held by each of the Gateway
     Venture Partnerships. The stockholder's address is 8000 Maryland Avenue,
     Suite 1190, St. Louis, MO 63150.
 
(10) Includes 6,113 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(11) Includes 60,676 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(12) Includes 3,793 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(13) Includes: (i) 81,021 shares of Common Stock held jointly with Dr. Ladner's
     spouse; (ii) 9,058 shares of Common Stock held by Dr. Ladner's spouse;
     (iii) 27,589 shares of Common Stock held by Dr. Ladner's children as to
     which Dr. Ladner disclaims beneficial ownership; (iv) an aggregate of
     16,630 shares of Common Stock held in trust by Dr. Cannon for Dr. Ladner's
     minor child; and (v) 11,274 shares of Common Stock issuable upon exercise
     of outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(14) Consists of 5,705 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(15) Includes 285,811 shares held by Gateway Venture Partners. Dr.
     Anagnostopoulos, a director of the Company, is a general partner of Gateway
     Associates, L.P., the general partner of Gateway Venture Partners. Also
     includes 6,520 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(16) Includes 648,033 shares held by Prince Venture Partners IV. Mr. Fordyce, a
     director of the Company, is a general partner of Prince Ventures Limited
     Partnership, the general partner of Prince Venture Partners IV. Also
     includes 7,743 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(17) Includes 650,907 shares of Common Stock held by Loeb Investment
     Partnerships. Mr. Kempner, a director of the Company, is the President of
     Pinpoint Partners Corporation, the general partner of each of the Loeb
     Investment Partnerships. Also includes 7,023 shares of Common Stock
     issuable upon exercise of outstanding options exercisable within the 60-day
     period following March 17, 1998.
 
(18) Includes 7,062 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(19) Includes 115,908 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
                                       55
<PAGE>   57
 
                          DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
     The authorized capital stock of the Company currently consists of
20,000,000 shares of Common Stock, $0.01 par value per share, and 9,440,832
shares of Preferred Stock, $0.01 par value per share. Upon the completion of
this Offering, the authorized capital stock of the Company will consist of
30,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock after
giving effect to the amendment and restatement of the Company's Restated
Certificate of Incorporation to delete references to the Class A Series 1,
Series 2, Series 3 and Series 4 Convertible Preferred Stock (collectively the
"Class A Preferred Stock"). On March 17, 1998 there were outstanding an
aggregate of (i) 1,429,837 shares of Common Stock and (ii) 8,944,043 shares of
Preferred Stock, consisting of 1,942,936 shares of Class A Series 1 Convertible
Preferred Stock, 703,970 shares of Class A Series 2 Convertible Preferred Stock,
2,000,000 shares of Class A Series 3 Convertible Preferred Stock, and 4,297,137
shares of Class A Series 4 Convertible Preferred Stock, all of which shares will
automatically convert into an aggregate of 5,831,516 shares of Common Stock upon
the completion of this Offering. As of the date of this Prospectus, the Company
had approximately 260 stockholders. Upon the closing of this Offering, the
Company will have 9,761,353 shares of Common Stock outstanding.
 
     The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by (i) the provisions of the Company's Restated Certificate of
Incorporation and By-laws (each as filed and in effect, respectively, upon or
after the closing of this Offering and included as exhibits to the Registration
Statement) and (ii) the provisions of applicable law.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends, if declared by the Board of
Directors, out of funds legally available therefor. See "Dividend Policy." Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding shares of Preferred Stock. No shares of Preferred Stock will be
outstanding immediately following the closing of this Offering. The Common Stock
outstanding upon the effective date of the Registration Statement, and the
shares offered by the Company hereby, upon issuance and sale, will be fully paid
and nonassessable.
 
PREFERRED STOCK
 
     The Company is currently authorized to issue 9,440,832 shares of Preferred
Stock. Upon the completion of this Offering, all of the issued and outstanding
shares of Preferred Stock will be converted into an aggregate of 5,831,516
shares of Common Stock. Immediately following such conversion, such shares of
Preferred Stock will be cancelled, retired and eliminated from the Company's
authorized shares of capital stock and the number of authorized shares of
Preferred Stock will be decreased to 1,000,000 shares.
 
     Upon completion of this Offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Company believes that the power
to issue Preferred Stock will provide flexibility in connection with possible
certain corporate transactions. The issuance of Preferred Stock could adversely
affect the voting power of the holders of Common Stock, restrict their rights to
receive payment upon liquidation and have the effect of delaying, deferring or
preventing a change-in-control of the Company. See "Description of Capital
Stock -- Anti-Takeover Provisions." The Company has no present plans to issue
any shares of Preferred Stock.
 
                                       56
<PAGE>   58
 
WARRANTS
 
     In connection with the merger of the Company with PEC, the Company issued
warrants to purchase an aggregate of 27,022 shares of Common Stock at an
exercise price of $3.97 per share in substitution for warrants previously issued
by PEC. The warrants will expire on August 10, 2000. The exercise price of each
warrant is subject to adjustment in the event of a stock split, combination or
dividend by the Company.
 
ANTI-TAKEOVER MEASURES
 
     In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate of Incorporation and the By-laws contain several
other provisions that are commonly considered to discourage unsolicited
acquisition proposals. The Restated Certificate of Incorporation includes a
provision classifying the Board of Directors into three classes with staggered
three-year terms, and the By-laws include a provision prohibiting stockholder
action by written consent except as otherwise provided by law. Under the
Restated Certificate of Incorporation and By-laws, the Board of Directors may
enlarge the size of the Board of Directors and fill any vacancies. The Restated
Certificate of Incorporation requires the approval of the holders of at least
66 2/3% of the outstanding capital stock of the Company prior to (i) the merger
of the Company into another entity, (ii) the sale or disposition of all or
substantially all of the Company's assets and (iii) engaging in any other
business combination transaction, unless such transaction has been approved by a
majority of the Board of Directors. Further, provisions of the Restated
Certificate of Incorporation and the By-laws provide that the stockholders may
amend certain provisions of the Restated Certificate of Incorporation or the
By-laws only with the affirmative vote of the holders of 66 2/3% of the
Company's outstanding capital stock. The By-laws provide that nominations for
directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make such a nomination notifies the Company
of its intention a specified period in advance and furnishes certain
information. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President or the Board of Directors and
require advance notice of business to be brought by a stockholder before the
annual meeting.
 
     Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, a law regulating corporate takeovers (the "Anti-Takeover Law"). In certain
circumstances, the Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market, from
engaging in a "business combination" (which includes a merger or sale of more
than ten percent of the corporation's assets) with an "interested stockholder"
(a stockholder who owns 15% or more of the corporation's outstanding voting
stock) for three years following the date on which such stockholder became an
"interested stockholder" subject to certain exceptions, unless the transaction
is approved by the Board of Directors and the holders of at least 66 2/3% of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). The statutory ban does not apply if, upon consummation
of the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). A Delaware corporation subject to
the Anti-Takeover Law may "opt out" of the Anti-Takeover Law with an express
provision either in its certificate of incorporation or By-laws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares; such an amendment is effective twelve months from adoption. The
Company has not "opted out" of the Anti-Takeover Law.
 
     The foregoing provisions of the Restated Certificate of Incorporation and
By-laws and Delaware law could have the effect of discouraging others from
attempting hostile takeovers of the Company and, as a consequence, they may also
inhibit temporary fluctuations in the market price of the Common Stock that
might result from actual or rumored hostile takeover attempts. Such provisions
may also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Common Stock is Boston EquiServe
LP.
 
                                       57
<PAGE>   59
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of this Offering, the Company will have 9,761,353 shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options or warrants. Of these
shares, the 2,500,000 shares sold in this Offering will be freely tradable,
without restriction or further registration under the Securities Act, except for
shares purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act.
 
     The remaining 7,261,353 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144. These
may not be resold, except pursuant to an effective registration statement or an
applicable exemption from registration. Of these remaining shares, approximately
1,266,262 shares of Common Stock will be eligible for sale under Rules 144 and
701 on the ninety-first day after the effectiveness of this Offering.
Stockholders of the Company, holding in the aggregate 5,995,091 shares of Common
Stock, have agreed to enter into the 180-day lock-up agreements described below.
At the end of such 180-day period, an additional 5,928,532 shares of Common
Stock will be eligible for sale under Rules 144 and 701. The remaining
Restricted Shares will become eligible from time to time thereafter upon the
expiration of the minimum one-year holding period prescribed by Rule 144.
 
     In general, under Rule 144, as recently amended, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 97,614 shares
immediately after the offering) or the average weekly trading volume in the
public market during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner and notice of
sale and the availability of public information concerning the Company. All
sales of shares of the Company's Common Stock, including Restricted Shares, held
by affiliates of the Company must be sold under Rule 144, subject to the
foregoing volume limitations and other restrictions. In addition, under Rule
144(k), if a period of at least two years has elapsed between the later of the
date restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale is entitled
to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
 
     The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior written consent
of the representatives of the Underwriters, offer to sell, sell, contract to
sell, grant any option to sell or otherwise dispose of or require the Company to
file with the Commission a registration statement under the Securities Act to
register any shares of Common Stock or securities convertible or exchangeable
for shares of Common Stock or warrants or other rights to acquire shares of
Common Stock during the 180-day period following the effective date of the
Registration Statement.
 
     The Company plans to file registration statements under the Securities Act
to register approximately 2,184,200 and 97,800 shares of Common Stock issuable
under the Equity Plan and the Purchase Plan, respectively, 90 days after the
date of this Prospectus. Upon registration, such shares will be eligible for
immediate resale upon exercise, subject, in the case of affiliates, to the
volume, manner of sale and notice requirements of Rule 144.
 
     No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market may have an adverse impact on the
market price for the Common Stock. See "Risk Factors -- Dilution."
 
                                       58
<PAGE>   60
 
REGISTRATION RIGHTS
 
     The holders of the 5,831,516 shares of Common Stock to be issued upon
conversion of the Class A Preferred Stock (the "Registrable Shares") are
entitled to certain rights with respect to registration of the Registrable
Shares under the Securities Act commencing on October 31, 1998. If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, such holders are
entitled to notice of such registration and are entitled to include such
Registrable Shares in the registration. The rights are subject to certain
conditions and limitations, among them, the right of the underwriters of a
registered offering to limit the number of shares included in such registration.
Holders of Registrable Shares benefiting from these rights may also require the
Company to file at its expense a registration statement under the Securities Act
with respect to their shares of Common Stock and, subject to certain conditions
and limitations, the Company is required to use its best efforts to effect such
registration. Furthermore, such holders may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3 with respect to such Registrable Shares. Such holders did not have the
right to have shares of Common Stock registered under the Securities Act as part
of this Offering.
 
                                       59
<PAGE>   61
 
                                  UNDERWRITING
 
     Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such
Underwriter.
 
<TABLE>
<CAPTION>
                                                              NUMBER OF
UNDERWRITER                                                    SHARES
-----------                                                   ---------
<S>                                                           <C>
Smith Barney Inc. ..........................................
CIBC Oppenheimer Corp. .....................................
Pacific Growth Equities, Inc. ..............................
 
                                                              ---------
               Total........................................  2,500,000
                                                              =========
</TABLE>
 
     The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
 
     The Underwriters, for whom Smith Barney Inc., CIBC Oppenheimer Corp. and
Pacific Growth Equities, Inc., are acting as the Representatives, propose to
offer part of the shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $          per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $          per share to
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any shares to any
accounts over which they exercise discretionary authority.
 
     The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
 
     The Company and each of its officers and directors have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company.
 
     At the request of the Company, the Underwriters have reserved up to 125,000
shares of Common Stock for sale at the public offering price to directors,
officers and employees of the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters on the same basis as all other shares offered
hereby.
 
     In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may 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. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
 
                                       60
<PAGE>   62
 
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby if the
Representatives purchase Common Stock in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
receive from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
 
     Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management, the present state of the Company's development, past and
present revenues and earnings, the current states of the economy in the United
States and the current level of economic activity in the industry in which the
Company competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies which are comparable to the Company.
 
     The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Nathaniel S.
Gardiner, a partner of Palmer & Dodge LLP, is the Secretary of the Company.
Certain legal matters are being passed upon for the Underwriters by Hale and
Dorr LLP, Boston, Massachusetts.
 
                                    EXPERTS
 
     Statements relating to United States patent matters involving the Company's
Phage Display patents in the portions of this Prospectus entitled "Risk
Factors -- Uncertainties Related to Patents and Proprietary Rights" (except for
the last paragraph relating to employee confidentiality) and
"Business -- Patents and Proprietary Rights" (except for the last two
paragraphs), insofar as they constitute summaries of matters of United States
patent law, have been reviewed and approved by special patent counsel to the
Company, Yankwich & Associates, as experts in patent law.
 
     The consolidated balance sheets of the Company at December 31, 1997 and
1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997 appearing in this Prospectus and Registration Statement
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
 
     The consolidated statements of operations and accumulated deficit and cash
flows of PEC for the period from January 1, 1995 to August 11, 1995 appearing in
this Prospectus and Registration Statement have been audited by Coopers &
Lybrand L.L.P., independent accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
 
                                       61
<PAGE>   63
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. All statements made in this Prospectus
regarding the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are qualified by reference to the copy of
such document filed as an exhibit to the Registration Statement. A copy of the
Registration Statement may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and at the Commission's regional offices at 500 West Madison Street,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports and other information can also be reviewed
through the Commission's web site (http://www.sec.gov).
 
     Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
 
     The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements certified by an independent
public accounting firm and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year of
the Company.
 
     The Company has filed for trademark protection for the Dyax mark and the
Dyax logo. The Company has registered the Kiloprep mark in the United States,
Japan, Germany and the United Kingdom. In addition, the Company considers
"Biotage" as a trade name and considers Parallex, ProPrep and BioFLASH to be
trademarks. All other trademarks or service marks appearing in this Prospectus
are the property of their respective holders.
 
                                       62
<PAGE>   64
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
DYAX CORP.
 
Report of Independent Accountants...........................   F-2
Consolidated Balance Sheets as of December 31, 1996 and
  1997......................................................   F-3
Consolidated Statements of Operations for the years ended
  December 31, 1995, 1996 and 1997..........................   F-4
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 1995, 1996 and 1997......   F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1995, 1996 and 1997..........................   F-6
Notes to Consolidated Financial Statements..................   F-7
 
PROTEIN ENGINEERING CORPORATION
 
Report of Independent Accountants...........................  F-19
Consolidated Statement of Operations and Accumulated Deficit
  for the period from January 1, 1995 to August 11, 1995....  F-20
Consolidated Statement of Cash Flows for the period from
  January 1, 1995 to August 11, 1995........................  F-21
Notes to Consolidated Financial Statements..................  F-22
</TABLE>
 
                                       F-1
<PAGE>   65
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders and Board of Directors of Dyax Corp.:
 
     We have audited the accompanying consolidated balance sheets of Dyax Corp.
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of three
years in the period ended December 31, 1997. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dyax Corp. as
of December 31, 1996 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
 
                                               COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 20, 1998
 
                                       F-2
<PAGE>   66
 
                                   DYAX CORP.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                              ----------------------------
                                                                  1996            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................  $  8,591,000    $  4,664,000
  Accounts receivable, (net of allowances for doubtful
     accounts of $41,000 and $81,000 at December 31, 1996
     and 1997, respectively)................................     1,363,000       2,273,000
  Inventories...............................................     1,282,000       1,873,000
  Other current assets......................................       150,000         286,000
                                                              ------------    ------------
          Total current assets..............................    11,386,000       9,096,000
Fixed assets, net...........................................       505,000       1,151,000
Other assets, net...........................................       345,000         285,000
                                                              ------------    ------------
          Total assets......................................    12,236,000      10,532,000
                                                              ============    ============
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................     1,633,000       2,145,000
  Deferred revenue..........................................       384,000         891,000
  Current portion of long term debt.........................       121,000          68,000
  Current portion of capital leases.........................         7,000          87,000
                                                              ------------    ------------
          Total current liabilities.........................     2,145,000       3,191,000
Long term debt..............................................       763,000         695,000
Capital leases..............................................         7,000         383,000
                                                              ------------    ------------
          Total liabilities.................................     2,915,000       4,269,000
Commitments
Stockholders' equity:
  Class A convertible preferred stock; 9,440,832 shares
     authorized in series; 8,161,283 and 8,944,043 issued
     and outstanding at December 31, 1996 and 1997,
     respectively; $25,947,000 liquidation preference at
     December 31, 1997......................................    24,821,000      27,258,000
  Common stock, $.01 par value, 20,000,000 shares
     authorized, 1,021,455 and 1,278,114 issued at December
     31, 1996 and 1997, respectively........................        10,000          13,000
Additional paid-in capital..................................     9,629,000      11,519,000
Accumulated deficit.........................................   (25,169,000)    (30,704,000)
Treasury stock (1,378 common shares at cost)................            --              --
Deferred compensation.......................................            --      (1,682,000)
Accumulated foreign currency translation adjustment.........        30,000        (141,000)
                                                              ------------    ------------
          Total stockholders' equity........................     9,321,000       6,263,000
                                                              ------------    ------------
          Total liabilities and stockholders' equity........  $ 12,236,000    $ 10,532,000
                                                              ============    ============
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-3
<PAGE>   67
 
                                   DYAX CORP.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1995           1996            1997
                                                    ------------    -----------    ------------
<S>                                                 <C>             <C>            <C>
Revenues:
  Product sales...................................  $  3,592,000    $ 4,478,000    $  7,625,000
  Product development.............................       428,000      1,060,000       1,440,000
  License fees....................................            --      1,499,000         711,000
                                                    ------------    -----------    ------------
Total revenues....................................     4,020,000      7,037,000       9,776,000
Operating expenses:
  Cost of products sold...........................     1,952,000      2,046,000       3,174,000
  Research and development........................     1,343,000      3,140,000       5,575,000
  Selling, general and administrative.............     2,710,000      4,170,000       6,827,000
  Write-off of intangible asset...................       456,000             --              --
  Write-off of incomplete technology..............     4,098,000             --              --
                                                    ------------    -----------    ------------
Total operating expenses..........................    10,559,000      9,356,000      15,576,000
                                                    ------------    -----------    ------------
Loss from operations..............................    (6,539,000)    (2,319,000)     (5,800,000)
                                                    ------------    -----------    ------------
  Interest income.................................       123,000        108,000         339,000
  Interest expense................................      (169,000)      (186,000)        (74,000)
                                                    ------------    -----------    ------------
Net loss..........................................  $ (6,585,000)   $(2,397,000)   $ (5,535,000)
                                                    ============    ===========    ============
Net loss per common share -- Note 2:
  Historical:
     Basic and diluted............................  $     (27.53)   $     (2.38)   $      (5.14)
     Weighted average number of shares -- basic
       and diluted................................       239,212      1,006,730       1,076,469
  Pro forma (unaudited):
     Basic and diluted............................                                 $      (0.83)
     Weighted average number of shares -- basic
       and diluted................................                                    6,706,680
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-4
<PAGE>   68
 
                                   DYAX CORP
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
                                                            CONVERTIBLE PREFERRED STOCK
                                      ------------------------------------------------------------------------
                                                         CLASS A                       CLASS C
                                      ---------------------------------------------   ----------
                                      SERIES 1    SERIES 2   SERIES 3     SERIES 4
                                       SHARES      SHARES     SHARES       SHARES       SHARES       AMOUNT
                                      ---------   --------   ---------   ----------   ----------   -----------
<S>                                   <C>         <C>        <C>         <C>          <C>          <C>
Balance at December 31, 1994........         --        --           --                 5,530,569   $ 8,574,000
Conversion of Common Stock per 1995
 Plan of Recapitalization...........
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......  1,942,936                                       (5,530,569)
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........              703,970                                            1,408,000
Issuance of Preferred Stock.........                         2,000,000                               3,900,000
Purchase of 209 Shares of Treasury
 Stock at Cost......................
Foreign Currency Translation
 Adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1995........  1,942,936   703,970... 2,000,000           --           --   $13,882,000
                                      =========   =======    =========   ==========   ==========   ===========
Issuance of Preferred Stock.........                                      3,514,377                 10,939,000
Exercise of Stock Options under the
 1989 plan..........................
Exercise of Stock Options under the
 1995 plan..........................
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................
Foreign currency translation
 adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1996........  1,942,936   703,970    2,000,000    3,514,377           --   $24,821,000
                                      =========   =======    =========   ==========   ==========   ===========
Issuance of Preferred Stock.........                                        782,760                  2,437,000
Exercise of Stock Options under the
 1989 plan..........................
Exercise of Stock Options under the
 1995 plan..........................
Issuance of Restricted Stock under
 the 1995 plan......................
Deferred compensation...............
Compensation expense associated with
 stock options......................
Foreign currency translation
 adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1997........  1,942,936   703,970    2,000,000    4,297,137           --   $27,258,000
                                      =========   =======    =========   ==========   ==========   ===========
 
<CAPTION>
                                           COMMON STOCK
                                      ----------------------                                             ACCUMULATED
                                                                                                           FOREIGN
                                                                            ADDITIONAL                    CURRENCY
                                                                TREASURY      PAID-IN     ACCUMULATED    TRANSLATION     DEFERRED
                                        SHARES     PAR VALUE     STOCK        CAPITAL       DEFICIT      ADJUSTMENT    COMPENSATION
                                      ----------   ---------   ----------   -----------   ------------   -----------   ------------
<S>                                   <C>          <C>         <C>          <C>           <C>            <C>           <C>
Balance at December 31, 1994........     742,543      7,000    $       --   $ 9,336,000   $(16,187,000)   $ (65,000)
Conversion of Common Stock per 1995
 Plan of Recapitalization...........    (641,973)    (6,000)                      6,000
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................     899,443      9,000                     275,000
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........
Issuance of Preferred Stock.........
Purchase of 209 Shares of Treasury
 Stock at Cost......................                                   --
Foreign Currency Translation
 Adjustment.........................                                                                         31,000
Net Loss............................                                                        (6,585,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1995........   1,000,013     10,000            --   $ 9,617,000   $(22,772,000)   $ (34,000)   $         --
                                      ==========    =======    ==========   ===========   ============    =========    ============
Issuance of Preferred Stock.........
Exercise of Stock Options under the
 1989 plan..........................       5,264         --                       6,000
Exercise of Stock Options under the
 1995 plan..........................      16,178         --                       6,000
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................                                   --
Foreign currency translation
 adjustment.........................                                                                         64,000
Net Loss............................                                                        (2,397,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1996........   1,021,455    $10,000            --   $ 9,629,000   $(25,169,000)   $  30,000    $         --
                                      ==========    =======    ==========   ===========   ============    =========    ============
Issuance of Preferred Stock.........
Exercise of Stock Options under the
 1989 plan..........................          93         --                          --
Exercise of Stock Options under the
 1995 plan..........................     142,466      2,000                      46,000
Issuance of Restricted Stock under
 the 1995 plan......................     114,100      1,000                      87,000
Deferred compensation...............                                          1,750,000                                  (1,750,000)
Compensation expense associated with
 stock options......................                                              7,000                                      68,000
Foreign currency translation
 adjustment.........................                                                                       (171,000)
Net Loss............................                                                        (5,535,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1997........   1,278,114    $13,000    $       --   $11,519,000   $(30,704,000)   $(141,000)   $ (1,682,000)
                                      ==========    =======    ==========   ===========   ============    =========    ============
 
<CAPTION>
 
                                         TOTAL
                                      -----------
<S>                                   <C>
Balance at December 31, 1994........  $ 1,665,000
Conversion of Common Stock per 1995
 Plan of Recapitalization...........           --
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......           --
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................      284,000
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........    1,408,000
Issuance of Preferred Stock.........    3,900,000
Purchase of 209 Shares of Treasury
 Stock at Cost......................           --
Foreign Currency Translation
 Adjustment.........................       31,000
Net Loss............................   (6,585,000)
                                      -----------
Balance at December 31, 1995........  $   703,000
                                      ===========
Issuance of Preferred Stock.........   10,939,000
Exercise of Stock Options under the
 1989 plan..........................        6,000
Exercise of Stock Options under the
 1995 plan..........................        6,000
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................           --
Foreign currency translation
 adjustment.........................       64,000
Net Loss............................   (2,397,000)
                                      -----------
Balance at December 31, 1996........  $ 9,321,000
                                      ===========
Issuance of Preferred Stock.........    2,437,000
Exercise of Stock Options under the
 1989 plan..........................           --
Exercise of Stock Options under the
 1995 plan..........................       48,000
Issuance of Restricted Stock under
 the 1995 plan......................       88,000
Deferred compensation...............
Compensation expense associated with
 stock options......................       75,000
Foreign currency translation
 adjustment.........................     (171,000)
Net Loss............................   (5,535,000)
                                      -----------
Balance at December 31, 1997........  $ 6,263,000
                                      ===========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                       F-5
<PAGE>   69
 
                                   DYAX CORP.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1995           1996           1997
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Cash flows from operating activities:
  Net loss..........................................  $(6,585,000)   $(2,397,000)   $(5,535,000)
  Adjustments to reconcile net loss to net cash used
     in operating activities:
     Depreciation and amortization..................      411,000        310,000        333,000
     Loss on disposal of fixed assets...............           --         17,000         39,000
     Compensation expense associated with stock
       options......................................           --             --         75,000
     Write-off of intangible asset..................      456,000             --             --
     Purchase of incomplete technology..............    3,942,000             --             --
  Changes in operating assets and liabilities:
     Accounts receivable, net.......................     (426,000)      (183,000)      (939,000)
     Inventories....................................       82,000       (708,000)      (591,000)
     Other assets...................................        1,000        (95,000)      (128,000)
     Accounts payable and accrued expenses..........      123,000        571,000        518,000
     Deferred revenue...............................     (295,000)      (402,000)       508,000
                                                      -----------    -----------    -----------
Net cash used in operating activities...............   (2,291,000)    (2,887,000)    (5,720,000)
                                                      -----------    -----------    -----------
Cash flows from investing activities:
  Purchase of fixed assets..........................     (116,000)      (220,000)      (961,000)
                                                      -----------    -----------    -----------
Cash flows from financing activities:
  Net proceeds from issuance of preferred stock.....    2,712,000     10,343,000      2,437,000
  Cash acquired with PEC acquisition................      928,000             --             --
  Proceeds from the exercise of stock options.......           --         11,000        136,000
  Proceeds from sale-leaseback of equipment.........           --             --        445,000
  Purchase of treasury stock........................           --             --             --
  Increase in debt..................................      470,000        103,000             --
  Repayment of debt.................................           --       (759,000)      (121,000)
                                                      -----------    -----------    -----------
Net cash provided by financing activities...........    4,110,000      9,698,000      2,897,000
Effect of foreign currency translation on cash
  balances..........................................       29,000         41,000       (143,000)
                                                      -----------    -----------    -----------
Net increase (decrease) in cash and cash
  equivalents.......................................    1,732,000      6,632,000     (3,927,000)
Cash and cash equivalents at beginning of the
  year..............................................      227,000      1,959,000      8,591,000
                                                      -----------    -----------    -----------
Cash and cash equivalents at end of the year........  $ 1,959,000    $ 8,591,000    $ 4,664,000
                                                      ===========    ===========    ===========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-6
<PAGE>   70
 
                                   DYAX CORP.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  NATURE OF BUSINESS:
 
     Dyax's phage display technology has broad potential commercial applications
in the fields of therapeutic, diagnostic and separations products. Dyax's
patented and proprietary phage display technology is a versatile, high
throughput technology platform which the Company believes can reduce costs,
shorten development times and lead to the commercialization of more effective
products in these fields. The Company also develops, manufactures and sells
fully-integrated chromatography separations systems under the Biotage trade
name.
 
     The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA government regulations and approval requirements.
 
2.  ACCOUNTING POLICIES:
 
  Basis of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Protein Engineering Corporation,
P.E.C. Technology Corp. and Biotage, Ltd., a United Kingdom sales subsidiary.
All intercompany accounts and transactions have been eliminated. Protein
Engineering Corporation was not active during 1997 and was merged into the
Company on December 31, 1997. P.E.C. Technology was not active during 1995 or
1996 and was merged into Protein Engineering Corporation in May 1996.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts of assets and liabilities reported and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. The significant estimates and assumptions in these financial statements
include contract revenue recognition, receivable collectibility, inventory
valuation and tax valuation reserves. Actual results could differ from those
estimates.
 
  Concentration of Credit Risk
 
     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade accounts receivable. At December 31, 1997, approximately 71% of the
Company's cash and cash equivalents were invested in a single money market
account held by one financial institution.
 
     The Company provides most of its products and services to pharmaceutical
and biomedical companies worldwide. Concentrations of credit risk with respect
to trade receivable balances are limited due to the diverse number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers' financial conditions and maintains reserves for
potential credit loss. Activity for fiscal 1995, 1996 and 1997 included
provisions of $90,000, $9,000 and $40,000, respectively.
 
  Cash and Cash Equivalents
 
     Cash and cash equivalents consist principally of cash and a money market
account. The Company currently invests its excess cash in a single money market
account held by a financial institution.
 
                                       F-7
<PAGE>   71
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Inventories
 
     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
 
  Fixed Assets
 
     Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the related assets using the straight-line method.
Laboratory and production equipment and furniture and office equipment are
depreciated over a three to seven year period. Leasehold improvements are stated
at cost and are amortized over the lesser of the noncancelable term of the
related lease or their estimated useful lives. Leased equipment is depreciated
over the life of the lease. Maintenance and repairs are charged to expense as
incurred. When assets are retired or otherwise disposed of, the assets and
related accumulated depreciation and amortization are eliminated from the
accounts and any resulting gains and losses are included in operations in the
period of disposal.
 
  Long-Lived Assets
 
     The Company regularly reviews long-lived assets for impairment by comparing
the cumulative undiscounted cash flow from the assets with their carrying
amount. Any write-downs are treated as permanent reductions in the carrying
amount of the assets. Management's policy regarding long-lived assets is to
evaluate the recoverability of its assets when the facts and circumstances
suggest that these assets may be impaired. This analysis relies on a number of
factors, including operating results, business plans, budgets, economic
projections and changes in management's strategic direction or market emphasis.
The test of recoverability is a comparison of the asset value to its expected
cumulative net operating cash flow over the remaining life of the asset. During
1995, the Company determined certain acquired technology had no future value to
the Company and, accordingly, recorded a charge to operations of $456,000 to
write off these intangible assets.
 
  Revenue Recognition
 
     Product revenue, which is derived from sales of Biotage chromatography
separations systems and products, is recognized upon shipment to the customer.
Significant future obligations such as satisfaction of more than perfunctory
customer-mandated performance criteria may defer revenue recognition until the
obligation is satisfied. Costs of insignificant obligations are accrued when
revenue is recognized. One customer accounted for approximately 13%, 5% and 12%
of product revenue in 1995, 1996 and 1997, respectively, although the largest
customer was different in each of the three years.
 
     The Company enters into product development agreements with collaborative
partners for the development of therapeutic, diagnostic and separations
products. The terms of the agreements may include non-refundable signing fees
and may provide funding for research and development, payments based on the
achievement of certain milestones and royalties on any product sales derived
from the collaboration. Signing fees are recognized at the inception of the
agreements and collaborative research, product development and government grant
revenues are recorded as the related expenses are incurred. Milestones are
recognized when achieved and sales royalties will be recognized when earned.
Substantially all of the product development revenues during 1995 and 1996 were
earned under an agreement with one collaborator.
 
     The Company licenses its patent rights covering Phage Display on a
non-exclusive basis in the fields of therapeutics, antibody-based in vitro
diagnostics and research products. Standard terms of the license agreements,
which require no further active performance by the Company, generally include
non-refundable signing fees, non-refundable annual maintenance fees, milestone
payments and royalties on product sales. Signing fees are recorded as revenue at
the signing date, annual maintenance fees are recorded at the due date and
milestones payments are recognized at the time the milestone is achieved. Sales
royalties will be
 
                                       F-8
<PAGE>   72
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
recognized when earned. Under one license agreement, a licensee received a
license to the Company's phage display patent rights in a defined field of use,
for a one time non-refundable payment of $1,000,000, which is included in
license revenue for the year ended December 31, 1996.
 
     Payments received which have not met the appropriate criteria for revenue
recognition are recorded as deferred revenue.
 
  Product Warranty
 
     The Company provides customers with up to a twelve-month warranty on its
chromatography products from the date of customer startup or up to a fourteen
month warranty from the date of shipment, whichever is less. Estimated warranty
obligations, which are included in the results of operations, are evaluated and
provided for at the time of sale. Product warranty costs were not significant in
1995, 1996 or 1997.
 
  Research and Development
 
     Research and development costs are expensed as incurred.
 
  Patents
 
     The Company owns or is in the process of applying for patents in the United
States and other countries. All costs associated with these filings are expensed
as incurred.
 
  Income Taxes
 
     The Company utilizes the asset and liability method of accounting for
income taxes as set forth in Statement of Financial Accounting Standards No.
109, ("SFAS 109"), "Accounting for Income Taxes". Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities using the current statutory tax rates.
 
  Translation of Foreign Currencies
 
     Assets and liabilities of the Company's foreign subsidiary are translated
at year end exchange rates. Amounts included in the statements of operations are
translated at the average exchange rate for the year. The resulting currency
translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses that result from transactions in foreign
currencies, which are included in the statement of operations, have not been
material.
 
  Reclassifications
 
     Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with 1997 presentation.
 
  New Accounting Standards
 
     In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 130 and SFAS No. 131,
which require the Company to report and display certain information related to
comprehensive income and operating segments, respectively, as required in fiscal
year 1998. Adoption of SFAS No. 130 and SFAS No. 131 will not impact the
Company's financial position or results of operations.
 
                                       F-9
<PAGE>   73
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Historical Net Loss per Share
 
     Effective December 31, 1997, the Company adopted Statement of Financial
Accounting No. 128 (SFAS 128) "Earnings per Share". This statement specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS") to simplify the existing computational guidelines and increase
comparability on an international basis. This statement replaces primary EPS
with basic EPS, the principal difference being the exclusion of common stock
equivalents in the computation of basic EPS. In addition, this statement
requires the dual presentation of basic and diluted EPS on the face of statement
of operations.
 
     Under SFAS 128, the Company is required to present two EPS amounts, basic
and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reporting period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt.
 
     For the years ended December 31, 1995, 1996 and 1997 the Company had
convertible preferred stock, convertible debt, stock options and stock warrants
outstanding (see note 9). These securities could potentially dilute basic EPS in
the future and were not included in the computation of diluted EPS because to do
so would have been anti-dilutive for the periods presented. Consequently there
were no differences between basic and diluted EPS for these periods.
 
     Basic and diluted net loss per common share on a historical basis is
computed in the same manner as pro forma basic and diluted net loss per common
share, except that preferred stock is not assumed to be converted.
 
Pro Forma Net Loss per Share (unaudited)
 
     The pro forma basic and diluted net loss per common share is computed based
upon the weighted average number of common shares outstanding in accordance with
SFAS 128. In addition, all outstanding shares of convertible preferred stock,
which convert to common stock upon the closing of an initial public offering on
or before August 31, 1998 where the price per share is at least $8.00 and net
proceeds are at least $10,000,000, are treated as if converted to common stock.
 
3.  INVENTORIES:
 
     Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         1996          1997
                                                      ----------    ----------
<S>                                                   <C>           <C>
Raw materials.......................................     707,000     1,162,000
Work in process.....................................     518,000       281,000
Finished products...................................      57,000       430,000
                                                      ----------    ----------
                                                      $1,282,000    $1,873,000
                                                      ==========    ==========
</TABLE>
 
                                      F-10
<PAGE>   74
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  FIXED ASSETS:
 
     Fixed assets consist of the following:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                    --------------------------
                                                       1996           1997
                                                    -----------    -----------
<S>                                                 <C>            <C>
Laboratory and production equipment...............  $ 1,048,000    $ 1,470,000
Furniture and office equipment....................      705,000        873,000
Leasehold improvements............................      334,000        664,000
                                                    -----------    -----------
Total.............................................    2,087,000      3,007,000
Less: accumulated depreciation....................   (1,582,000)    (1,856,000)
                                                    -----------    -----------
                                                    $   505,000    $ 1,151,000
                                                    ===========    ===========
</TABLE>
 
     Depreciation expense and amortization of leasehold improvements was
$279,000, $260,000 and $283,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Assets held under capital leases at December 31, 1997
consisted of $304,000 of laboratory and production equipment and $141,000 of
furniture and office equipment. The net book value of leased equipment was
$445,000 at December 31,1997. There was no accumulated amortization of leased
assets at December 31, 1997.
 
5.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
 
     Accounts payable and accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         1996          1997
                                                      ----------    ----------
<S>                                                   <C>           <C>
Accounts payable....................................  $  929,000    $1,193,000
Accrued wages and related taxes.....................     310,000       372,000
Accrued warranty and installation costs.............      67,000       234,000
Other accrued liabilities...........................     327,000       346,000
                                                      ----------    ----------
Total...............................................  $1,633,000    $2,145,000
                                                      ==========    ==========
</TABLE>
 
6.  LONG-TERM DEBT:
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                        ---------------------
                                                          1996         1997
                                                        ---------    --------
<S>                                                     <C>          <C>
Shareholder collateralized convertible term note......  $ 500,000    $500,000
Shareholder convertible term note.....................    195,000     195,000
Shareholder installment note..........................    189,000      68,000
                                                        ---------    --------
                                                          884,000     763,000
Less current portion of long-term obligations.........   (121,000)    (68,000)
                                                        ---------    --------
                                                        $ 763,000    $695,000
                                                        =========    ========
</TABLE>
 
     On August 11, 1995, in exchange for extinguishing an equal amount of its
bank debt, for which there was no gain or loss, the Company issued an interest
bearing collateralized convertible term note to a shareholder, in a non-cash
transaction, in the amount of $500,000, payable at the earlier of five years or
upon the Company's closing of an initial public offering resulting in net
proceeds of not less than $10,000,000 and a per share of common stock sales
price of not less than $9.20 per share or an event of default. The note is
collateralized with certain assets of the Company, including certain
intellectual property and is convertible in
 
                                      F-11
<PAGE>   75
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
whole or in part into equity, during any Company financing. Since August 1995,
the Company has paid the interest on the note monthly at a rate equal to prime
plus one percent, as established by the lending institution (approximately 8% at
December 31, 1997). The principal balance of $500,000 was outstanding at
December 31, 1996 and 1997.
 
     On August 11, 1995 the Company issued a convertible term note to the same
shareholder, in the amount of $195,000, in exchange for a previously issued note
and other amounts owed to the shareholder, in a non-cash transaction. The
convertible term note is payable and convertible under the same conditions as is
the collateralized convertible term note described above. The annual interest
rate of 8% has been paid quarterly since August 1995. The principal balance of
$195,000 was outstanding at December 31, 1996 and 1997.
 
     On August 11, 1995, the Company issued an installment note to a shareholder
and previous officer of Protein Engineering Corporation in the amount of
$170,000 at 8% per annum, payable monthly for twenty months, commencing January
1, 1997. Principal and accrued interest of $189,000 was outstanding at December
31, 1996. The principal balance outstanding at December 31, 1997 was $68,000.
 
     Interest paid on long-term debt was $223,000, $115,000 and $93,000 in 1995,
1996 and 1997, respectively.
 
7.  CAPITAL LEASES:
 
     During 1997, the Company entered into a capital lease agreement providing
the Company with a $3,000,000 lease facility for furniture and equipment. In
1997, the Company sold to the lessor $445,000 of laboratory and production
equipment and furniture and office equipment under this lease facility and
leased $456,000 of laboratory and production equipment and furniture and office
equipment under this and other lease agreements, in non-cash transactions. At
December 31, 1997, $2,555,000 of the lease facility remained available.
 
     Minimum future payments under the Company's capital leases as of December
31,1997 were as follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $ 129,000
1999........................................................    121,000
2000........................................................    121,000
2001........................................................    112,000
2002........................................................    111,000
                                                              ---------
Total future minimum lease payments.........................    594,000
Less: amount representing interest..........................   (124,000)
                                                              ---------
Present value of future minimum lease payments..............    470,000
Less: current portion.......................................    (87,000)
                                                              ---------
Capital leases-long term....................................  $ 383,000
                                                              =========
</TABLE>
 
8.  COMMITMENTS:
 
     The Company has an operating lease for laboratory and office facilities in
Cambridge, Massachusetts through December 1999 and an operating lease for
production, laboratory and office facilities in Charlottesville, Virginia
through April 2002. The Charlottesville lease has a renewal option with an
escalation clause. The Company also leases office space in the United Kingdom
under an operating lease which permits the Company to renew after each five-year
period; however, should the Company elect not to renew, there is a termination
fee equal to one year's rent, which has been included in the following
commitment schedule. In addition, the Company leases various laboratory and
office equipment under operating leases with one to five year terms.
 
                                      F-12
<PAGE>   76
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The future minimum lease payments under non-cancelable operating leases as
of December 31, 1997 are as follows:
 
<TABLE>
<S>                                         <C>
1998......................................  $1,089,000
1999......................................  $1,054,000
2000......................................    $396,000
2001......................................    $199,000
2002......................................     $56,000
</TABLE>
 
     Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $290,000, $588,000 and $925,000, respectively.
 
9.  STOCKHOLDERS' EQUITY:
 
  Common Stock
 
     Effective as of March 23, 1998, the Company implemented a reverse stock
split for all common stock outstanding whereby each stockholder received 0.652
share for each share of common stock, $0.01 par value. All periods presented
have been retroactively restated to reflect the reverse stock split.
 
     On August 11, 1995, subsequent to the effect of the Company's 1995 Plan of
Recapitalization (which included a 0.1352-for-1 reverse stock split), the
Company issued 899,443 shares, valued at $284,000 in a non-cash transaction, and
reserved for issuance upon exercise of certain warrants 27,022 shares of common
stock, $0.01 par value, in exchange for 100% of the common shares outstanding of
Protein Engineering Corporation.
 
  Preferred Stock
 
     On August 11, 1995, the Company implemented the 1995 Plan of
Recapitalization which included a reverse stock split for all Class C Preferred
Stock outstanding where each of the outstanding shares of Class C Series 1
Preferred Stock, par value $0.01 per share, of the company was converted into
0.216064 of a share of Class A Series 1 Preferred Stock; $0.01 par value per
share, of the Company; each of the outstanding shares of Class C Series 2
Preferred Stock, par value $0.01 per share, of the Company was converted into
0.549613 of a share of Class A Series 1 Preferred Stock; and each of the
outstanding shares of Class C Series 3 Preferred Stock, par value $0.01 per
share, of the Company was converted into 0.356744 of a share of Class A Series 1
Preferred Stock of the Company. There were 1,944,500 shares of Class A Series 1
Preferred Stock authorized as of December 31, 1996 and 1997.
 
     On August 11, 1995, subsequent to the effect of the Company's 1995 Plan of
Recapitalization, the Company authorized 704,000 shares and issued 703,970
shares of Class A, Series 2 Preferred Stock, $0.01 par value per share, valued
at $1,408,000, in exchange for 100% of the preferred stock outstanding of
Protein Engineering Corporation in a non-cash transaction. (see note 13)
 
     On August 11, 1995, subsequent to the 1995 Plan of Recapitalization and the
merger with Protein Engineering Corporation, the Company issued 992,132 shares
of Class A Series 3 Preferred Stock and on October 27, 1995 the Company issued
1,007,868 shares of Class A Series 3 Preferred Stock, $0.01 par value per share,
at $2.00 per share. Net proceeds from the sale of Class A Series 3 Preferred
Stock were $3,900,000 after deducting related expenses of $100,000 and including
$1,188,000 of non-cash debt conversion. There were 2,000,000 shares of Class A
Series 3 Preferred Stock authorized at December 31, 1996 and 1997.
 
     On October 30, 1996, the Company issued 3,514,377 shares of Class A Series
4 Preferred Stock, $0.01 par value per share, at $3.13 per share. Net proceeds
were $10,939,000 after deducting associated expenses of $61,000 and including
$596,000 of non-cash debt conversion.
 
     On March 20, 1997 and March 27, 1997, the Company issued 472,825 and
309,935 shares, respectively, of Class A Series 4 Preferred Stock, $0.01 par
value per share, at $3.13 per share. Net proceeds were approximately $2,437,000
after deducting related expenses of $13,000. There were 4,792,332 shares of
Class A Series 4 Preferred Stock authorized at December 31, 1996 and 1997.
 
                                      F-13
<PAGE>   77
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     All Class A preferred shares are convertible at the option of the holder,
at any time, into an equal number of common shares. The conversion ratio may be
adjusted to provide protection against future dilution. Also, Class A preferred
shares are automatically convertible into common shares, on a 0.652 share of
common stock for one share basis of Preferred Stock, upon the closing of a
public offering of common stock by the Company on or before August 31, 1998,
where the price per share is at least $8.00 with net proceeds to the Company of
at least $10,000,000. Holders of Class A Preferred Stock are entitled to receive
non-cumulative dividends at the same rate as common stock holders. Holders of
Class A Preferred Stock are entitled to one vote per share and, for certain
events such as certain preferred stock transactions, modifying rights,
preferences, privileges or limitations of Class A Preferred Stock, amending the
Certificate of Incorporation or certain significant corporate transactions, a
majority vote of Class A Preferred Stock holders is required. In addition, Class
A Series 3 and Series 4 Preferred Stock holders are each entitled to vote as a
separate class for the election of one Director by Series 3 and one Director by
Series 4. Holders of Class A Series 1, Series 2, Series 3 and Series 4 Preferred
Stock have liquidation preferences in the aggregate amounts of $4,247,000,
$4,250,000, $4,000,000 and $13,450,000, respectively. At December 31, 1997 the
Company had reserved 5,831,516 shares of common stock for conversion of
outstanding shares of all series of Class A Preferred Stock.
 
  Stock Options
 
     The Company's 1995 Equity Incentive Plan (the "Plan") is an equity plan
under which equity awards, including awards of incentive and nonqualified stock
options to purchase shares of common stock and restricted shares to employees
and consultants of the Company may be granted by action of the Board of
Directors. Options are granted at fair market value on the date of grant,
generally vest ratably over a 48 month period, and expire within ten years from
date of grant. During 1997, the Board increased the common stock options
available for grant under the Plan to 2,184,200. At December 31, 1997, there
were 1,911,456 shares of common stock reserved for issuance under outstanding
and future grants under the Plan of which 940,717 shares remained available for
future grant. In 1996 and 1995, the Company granted options for 32,600 and
89,368 shares respectively, (net of cancellations) to consultants; no
compensation charge for these options was recorded since management deemed their
value to be immaterial to the financial statements.
 
     All employees, directors, officers and consultants of the Company with
outstanding options granted under the Biotage, Inc. 1989 Stock Option Plan or
the Protein Engineering Corporation Stock Option Plan, were granted options
under the 1995 Equity Incentive Plan subject to the surrender of all options
granted prior to August 11, 1995, under the predecessor plan.
 
                                      F-14
<PAGE>   78
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Stock option activity for the 1995 Equity Incentive Plan is summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                                                              AVG. EXERCISE
                                                            OPTION SHARES         PRICE
                                                            --------------    -------------
<S>                                                         <C>               <C>
Granted during 1995.......................................      395,531           $0.31
Canceled during 1995......................................       (9,780)           0.31
                                                               --------
Outstanding at December 31, 1995..........................      385,751            0.31
Granted during 1996.......................................      136,170            0.31
Exercised during 1996.....................................      (16,178)           0.31
Canceled during 1996......................................       (4,981)           0.31
                                                               --------
Outstanding at December 31, 1996..........................      500,762            0.31
Granted during 1997.......................................      629,067            1.29
Exercised during 1997.....................................     (142,466)           0.34
Canceled during 1997......................................      (16,624)           0.35
                                                               --------
Outstanding at December 31, 1997..........................      970,739            0.94
                                                               ========
</TABLE>
 
     Summarized information about stock options outstanding at December 31, 1997
is as follows:
 
<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                             -------------------------------------   -----------------------
                                                                         WEIGHTED-                 WEIGHTED-
                                                            REMAINING     AVERAGE                   AVERAGE
                                               NUMBER      CONTRACTUAL   EXERCISE      NUMBER      EXERCISE
         RANGE OF EXERCISE PRICES            OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
         ------------------------            -----------   -----------   ---------   -----------   ---------
<S>                                          <C>           <C>           <C>         <C>           <C>
$.31 to $.49...............................    394,525         8.1         $ .32       194,561       $ .31
 .77 to 1.00................................    143,106         9.4         $ .81        23,582       $ .80
1.53.......................................    433,108         9.8         $1.53        15,022       $1.53
</TABLE>
 
     The weighted average fair value of options granted under the Plan during
1995, 1996 and 1997, as determined under the minimum value method, was $0.09,
$0.09 and $0.40. Total options exercisable at December 31, 1995, 1996 and 1997
were 185,585, 250,347 and 233,165, respectively.
 
     During 1996 and 1997, the Company issued 5,264 and 93 shares, respectively,
of $.01 par value common stock upon the exercise of employee stock options
granted under the Biotage, Inc. 1989 Stock Option Plan as extended by the Board
of Directors during 1995. The shares were purchased at $1.13 and $2.84 per share
in 1996 and 1997, respectively.
 
     SFAS 123, "Accounting for Stock-Based Compensation" requires that companies
either recognize compensation expense for grants of stock, stock options, and
other equity instruments based on fair value, or provide pro forma disclosure of
net income in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1996 and applied APB Opinion 25 and related
interpretations in accounting for its plan. Had compensation costs for the
Company's employee and director stock-based compensation plan been determined
based on the fair value at the grant dates as calculated in accordance with SFAS
123, the Company's net loss for the years ended December 31, 1995, 1996 and 1997
the Company's net loss and net loss per share would have increased to the pro
forma amounts shown below.
 
                                      F-15
<PAGE>   79
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 1995           1996           1997
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net loss as reported........................  $(6,585,000)   $(2,397,000)   $(5,535,000)
Pro forma...................................  $(6,601,000)   $(2,403,000)   $(5,555,000)
Historical net loss per share -- basic and
  diluted as reported.......................  $    (27.53)   $     (2.38)   $     (5.14)
Pro forma...................................  $    (27.59)   $     (2.39)   $     (5.16)
</TABLE>
 
     The fair value of each stock option granted is estimated on the grant date
using the minimum value method with the following weighted average assumptions
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                                        1995     1996     1997
                                                        -----    -----    -----
<S>                                                     <C>      <C>      <C>
Expected option term..................................   6.0      6.0      6.0
Risk-free interest rate...............................  5.72%    6.55%    6.31%
Expected dividend yield...............................  none     none     none
</TABLE>
 
     The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years.
 
     In connection with certain stock option grants in 1997, the Company
recorded $1,750,000 of deferred compensation expense which is being amortized
and charged to operations over the 48-month vesting period of the related
options. Total option-related compensation expense for 1997 was $75,000.
 
  Restricted Stock Purchase Agreement
 
     In March 1997, the Company granted a right to purchase 114,100 shares of
common stock at a purchase price of $0.77 per share to an officer under its 1995
Equity Incentive Plan, subject to a stock restriction agreement whereby the
Company has the right, but not the obligation, to repurchase the unvested
portion of the shares of common stock at the original purchase price per share
in the event of termination of the officer's employment with the Company. Shares
subject to this agreement vest monthly over a 48 month period. At December 31,
1997, there were 92,706 unvested common shares at a weighted average fair value,
as determined under the minimum value method, of $0.24 per share. The
restriction agreement may be terminated at any time at the Company's election.
 
  Warrants
 
     At December 31, 1995, 1996 and 1997, the Company had outstanding warrants
for the purchase of 45,932, 45,932 and 27,022 shares of common stock at prices
ranging from $3.97 to $165.58 per share for warrants in 1995 and 1996 and at
$3.97 per share in 1997. In 1997, warrants for 18,910 shares expired and the
remaining warrants expire on August 10, 2000. An equal number of shares of
common stock have been reserved for the exercise of outstanding warrants at
December 31, 1997.
 
     1998 Employee Stock Purchase Plan.  In January 1998, the Company adopted
the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 97,800 shares of Common Stock reserved for issuance
under the Purchase Plan. To date, no shares of Common Stock have been issued
under the Purchase Plan. Rights to purchase Common Stock under the Purchase Plan
are granted at the discretion of the Compensation Committee, which determines
the frequency and duration of individual offerings under the Purchase Plan and
the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. The purchase price per share of Common Stock in an offering is 85% of
the lesser of its fair market value at the beginning of the offering period or
on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both.
 
                                      F-16
<PAGE>   80
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  EMPLOYEE SAVINGS AND RETIREMENT PLAN:
 
     The Company has an employee savings and retirement plan (the "Plan"),
qualified under section 401(k) of the Internal Revenue Code, covering
substantially all of the Company's employees. Employees may elect to contribute
a portion of their pretax compensation to the Plan up to the annual maximum
allowed under the Plan. The Plan does not provide for a fixed matching
contribution by the Company, however, for each plan year the Company may
contribute to the Plan at its discretion. No contributions to the Plan were made
by the Company in 1995, 1996 or 1997.
 
11.  INCOME TAXES:
 
     For the years ended December 31, 1995, 1996 and 1997, the Company had no
income tax provisions.
 
     Temporary differences that give rise to significant deferred tax assets as
of December 31, 1995, 1996 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                               1995            1996            1997
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Deferred Tax asset:
Inventory costs..........................  $     84,000    $    126,000    $     86,000
Accelerated book depreciation............       124,000         126,000          84,000
Accelerated book amortization............        14,000          16,000          13,000
Allowance for doubtful accounts..........        16,000          18,000          32,000
Accrued expenses.........................        48,000          60,000         116,000
Net operating loss carryforwards.........    10,902,000       9,722,000      12,890,000
Research credit carryforwards............       665,000         635,000         742,000
Valuation allowance......................   (11,853,000)    (10,703,000)    (13,963,000)
                                           ------------    ------------    ------------
Net deferred tax asset...................            --              --              --
                                           ============    ============    ============
</TABLE>
 
     The Company has net operating loss carryforwards available to offset future
federal and state taxable income of approximately $31,376,000 as of December 31,
1997 and research credits of approximately $740,000, available to offset future
federal tax. These net operating loss and credit carryforwards expire in years
2005 through 2012. As a result of the acquisition of PEC and P.E.C. Technologies
Corp. (Note 13) and stock issued over the past five years, utilization of the
net operating loss and credit carryforwards will be subject to limitation under
section 382 of the Internal Revenue Code. In addition, at December 31, 1997, the
Company also had United Kingdom operating loss carryforwards for income tax
purposes of approximately $1,306,000 which are indefinitely available to offset
future taxable income in the United Kingdom.
 
12.  RELATED PARTY TRANSACTIONS:
 
     The President, Chief Executive Officer and Chairman of the Board of the
Company also serves as an outside director of and consultant to Genzyme
Corporation ("Genzyme") and outside director of Genzyme Transgenics Corporation.
In 1996, the Company entered into a sublease agreement with Genzyme for
laboratory and office facilities in Cambridge, Massachusetts which extends to
December 1999. The total commitment for the sublease is $1,230,000 at December
31, 1997 and $143,000 and $590,000 and was recorded as rent expense during 1996
and 1997, respectively. During 1996, the Company signed two patent license
agreements with Genzyme under the Company's standard license terms. The Company
recorded license revenues of $54,000 and $50,000 in 1996 and 1997, respectively,
in connection with the signing and maintenance fees on these two agreements. The
Company has entered into two funded discovery projects with Genzyme Transgenic
Corporation resulting in recorded revenues of $45,000 and $145,000 in 1996 and
1997.
 
                                      F-17
<PAGE>   81
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
13.  MERGER WITH PROTEIN ENGINEERING CORPORATION:
 
     On August 11, 1995, the Company completed a reverse merger of its newly
created wholly-owned subsidiary, Rational Separations, Inc., with Protein
Engineering Corporation ("PEC")(see Note 9). PEC was formed in 1987 with an
emphasis in the field of phage display technology. The financial results of PEC
are included in the Company's consolidated financial results of operations with
effect from the date of the merger. Each outstanding common share of PEC stock
was converted into 25.16 shares of the Company's common stock and each preferred
share of PEC stock was converted into 48.24 shares of the Company's Class A
Series 2 Preferred Stock. The merger was accounted for using the purchase method
of accounting. The excess of the purchase price over the fair value of the net
assets acquired was written off and recorded as a purchase of incomplete
technology, resulting in a non-cash charge to results of operations of
$3,942,000, which represents the value of acquired technologies which had not
reached commercialization at the time of acquisition.
 
<TABLE>
<S>                                                           <C>
Details of the merger are as follows:
  Total non-cash consideration:
     Common stock...........................................  $  284,000
     Preferred stock........................................   1,408,000
     Convertible term notes assumed.........................   1,764,000
     Installment notes assumed..............................     170,000
     Liabilities assumed....................................   1,309,000
                                                              ----------
                                                               4,935,000
     Less: Fair value of assets acquired including cash.....     993,000
                                                              ----------
     Write off of incomplete technology before acquisition
      costs.................................................   3,942,000
     Costs directly associated with the merger
      transaction...........................................     156,000
                                                              ----------
Write off of incomplete technology..........................  $4,098,000
                                                              ==========
</TABLE>
 
     The following unaudited pro forma data reflects the Company's results of
operations as if the Protein Engineering acquisition occurred on January 1,
1995.
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED
                                                       DECEMBER 31, 1995
                                                       -----------------
<S>                                                    <C>
Revenues.............................................     $ 4,280,000
Net loss.............................................      (6,924,000)
</TABLE>
 
     During the period ended August 11, 1995, Protein Engineering Corporation
earned approximately $210,000 of product development revenues under its
agreement with Dyax Corp. Intercompany revenue and related expenses have been
eliminated in the above pro forma data.
 
14. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
 
     The Company operates in one business segment and in the geographic segments
of the United States ("U.S.") and the United Kingdom ("U.K.") as indicated in
the table below.
 
<TABLE>
<CAPTION>
                                          1995                1996                 1997
                                     ---------------    -----------------    -----------------
                                      U.S.      U.K.     U.S.       U.K.      U.S.       U.K.
                                     -------    ----    -------    ------    -------    ------
<S>                                  <C>        <C>     <C>        <C>       <C>        <C>
Revenues...........................  $ 3,026    $994    $ 5,914    $1,123    $ 7,610    $2,166
Net income (loss)..................   (6,705)    120     (2,656)      259     (5,620)       85
Total assets.......................    4,288     404     11,612       624      9,136     1,396
</TABLE>
 
                                      F-18
<PAGE>   82
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders and Board of Directors of
Dyax Corp.:
 
     We have audited the accompanying consolidated statements of operations and
accumulated deficit and cash flows of Protein Engineering Corporation for the
period from January 1, 1995 to August 11, 1995. 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 audit.
 
     We conducted our audit 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 audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
for Protein Engineering Corporation for the period from January 1, 1995 to
August 11, 1995 in conformity with generally accepted accounting principles.
 
                                               COOPERS & LYBRAND L.L.P.
 
Boston, Massachusetts
February 17, 1998
 
                                      F-19
<PAGE>   83
 
                        PROTEIN ENGINEERING CORPORATION
 
          CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
             FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 11, 1995
 
<TABLE>
<CAPTION>
                                                                  1995
                                                              ------------
<S>                                                           <C>
Revenues:
  Product development.......................................  $    470,000
                                                              ------------
Operating expenses:
  Research and development..................................       395,000
  General and administrative................................       338,000
                                                              ------------
Total operating expenses....................................       733,000
                                                              ------------
Loss from operations........................................      (263,000)
                                                              ------------
  Interest income...........................................         3,000
  Interest expense..........................................       (79,000)
                                                              ------------
Net loss....................................................  $   (339,000)
Accumulated deficit at January 1, 1995......................   (10,157,000)
                                                              ------------
Accumulated deficit at August 11, 1995......................   (10,496,000)
                                                              ============
 
Basic and diluted net loss per common share.................  $     (24.70)
 
Weighted average number of basic and diluted common
  shares....................................................        13,722
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                      F-20
<PAGE>   84
 
                        PROTEIN ENGINEERING CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
             FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 11, 1995
 
<TABLE>
<S>                                                           <C>
Cash flows from operating activities:
  Net loss..................................................  $ (339,000)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................      10,000
  Changes in operating assets and liabilities:
     Other current assets...................................      (5,000)
     Accounts payable and accrued expenses..................     111,000
     Deferred revenue.......................................   1,043,000
                                                              ----------
Net cash provided by operating activities...................     820,000
                                                              ----------
Cash flows from financing activities:
  Proceeds from convertible notes...........................      78,000
  Repayment of capital leases...............................      (3,000)
                                                              ----------
Net cash provided by financing activities...................      75,000
                                                              ----------
Net increase in cash and cash equivalents...................     895,000
Cash and cash equivalents at December 31, 1994..............      33,000
                                                              ----------
Cash and cash equivalents at August 11, 1995................  $  928,000
                                                              ==========
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                      F-21
<PAGE>   85
 
                        PROTEIN ENGINEERING CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  NATURE OF BUSINESS:
 
     Protein Engineering Corporation, (the "Company") commenced operations in
March 1987 to perform scientific research in Phage Display for human therapeutic
applications. Since its formation, it devoted substantially all of its efforts
to establishing the business, conducting research and development and obtaining
financing. The Company was acquired by Dyax Corp. on August 11, 1995. See Note
6.
 
     The Company was subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and compliance with FDA government
regulations and approval requirements.
 
2.  ACCOUNTING POLICIES:
 
  Basis of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, P.E.C. Technology Corp. All
intercompany accounts and transactions have been eliminated.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the reported amounts of revenue and expenses during the
reporting period. The significant estimates and assumptions in these financial
statements include contract revenue recognition. Actual results could differ
from those estimates.
 
  Cash and cash equivalents
 
     Cash and cash equivalents consist principally of cash and money market
accounts. The Company invests its excess cash in U.S. treasury funds and a money
market account held by a financial institution.
 
  Fixed Assets
 
     Property and equipment are depreciated over the estimated useful lives of
the related assets using the straight-line method. Laboratory equipment and
office equipment are depreciated over five-to-seven year periods. Leasehold
improvements are amortized over the lesser of the noncancelable term of the
related lease or their estimated useful lives. Maintenance and repairs are
charged to expense as incurred.
 
  Revenue Recognition
 
     The Company entered into research agreements with various biotechnology
companies. During the period from January 1, 1995 to August 11, 1995, the terms
of these agreements included non-refundable fees, which were recognized when the
agreement was signed, and research revenues, which were deferred and recognized
as expenses were incurred. During the period from January 1, 1995 to August 11,
1995, three customers accounted for substantially all of the revenues.
 
  Research and Development
 
     Research and development costs are expensed as incurred.
 
                                      F-22
<PAGE>   86
                        PROTEIN ENGINEERING CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Patents
 
     The Company owns or was in the process of applying for patents in the
United States and other countries. All costs associated with these filings are
expensed as incurred
 
  Income Taxes
 
     The Company utilizes the asset and liability method of accounting for
income taxes as set forth in Statement of Financial Accounting Standards No.
109, ("SFAS 109"), Accounting for Income Taxes. For the period from January 1,
1995 to August 11, 1995, the Company had no income tax provision.
 
  Earnings per share
 
     The Company adopted Statement of Financial Accounting No. 128 (SFAS 128)
"Earnings per Share" retroactive to the period from January 1, 1995 to August
11, 1995. This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") to simplify the existing
computational guidelines and increase comparability on an international basis.
This statement replaces primary EPS with basic EPS, the principal difference
being the exclusion of common stock equivalents in the computation of basic EPS.
In addition, this statement requires the dual presentation of basic and diluted
EPS on the face of statement of operations.
 
     Under SFAS 128, the Company is required to present two EPS amounts, basic
and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reported period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt.
 
     For the period from January 1, 1995 to August 11, 1995 the Company had
convertible preferred stock, convertible debt, stock options and stock warrants
outstanding. These securities were not included in the computation of diluted
EPS because to do so would have been anti-dilutive for the periods presented.
Consequently there were no differences between basic and diluted EPS.
 
3.  FIXED ASSETS:
 
     Depreciation expense and amortization of leasehold improvements was $10,000
for the period from January 1, 1995 to August 11, 1995.
 
4.  LONG-TERM DEBT:
 
     At August 11, 1995, the Company had convertible term notes in the amount of
$1,764,000, with interest at 8% payable to stockholders and their affiliates.
 
     At August 11, 1995, the Company had an installment note outstanding in the
amount of $170,000, with interest at 8%, payable to an officer who is a
stockholder, which was issued in a non-cash transaction in exchange for $94,000
of accrued compensation and $76,000 of accrued lease payments, of which $44,000
and $22,000, respectively, related to the period from January 1, 1995 to August
11, 1995.
 
     There was no interest paid on long-term debt in the period from January 1,
1995 to August 11, 1995.
 
5.  COMMITMENTS:
 
     The Company rented its facilities in Cambridge, Massachusetts under a
tenant-at-will arrangement. In addition, the Company leased certain laboratory
and office equipment under operating leases. Rent expense for the period from
January 1, 1995 to August 11, 1995 was $80,000.
 
                                      F-23
<PAGE>   87
                        PROTEIN ENGINEERING CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6.  MERGER WITH DYAX CORP.:
 
     On August 11, 1995, the Company completed a reverse merger with Dyax Corp.
Each outstanding common share of Protein Engineering Corporation stock was
converted into 25.16 shares of Dyax Corp. common stock and each preferred share
of Protein Engineering Corporation stock was converted into 48.24 shares of Dyax
Corp. Class A, Series 2 preferred stock. All assets and liabilities of Protein
Engineering Corporation were assumed by Dyax Corp. upon the acquisition.
 
     Details of the merger are as follows:
 
<TABLE>
<S>                                                           <C>
  Total consideration:
     Common stock...........................................     284,000
     Preferred stock........................................   1,408,000
     Convertible term notes assumed.........................   1,764,000
     Installment note assumed...............................     170,000
     Liabilities assumed....................................   1,309,000
                                                              ----------
                                                              $4,935,000
                                                              ==========
</TABLE>
 
     During the period from January 1, 1995 to August 11, 1995, Protein
Engineering Corporation earned approximately $210,000 of product development
revenues under its agreement with Dyax Corp.
 
                                      F-24
<PAGE>   88
 
======================================================
 
     NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
 
                               ------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    3
Risk Factors..........................    6
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..............................   25
Management............................   47
Certain Transactions..................   53
Principal Stockholders................   54
Description of Capital Stock..........   56
Shares Eligible for Future Sale.......   58
Underwriting..........................   60
Legal Matters.........................   61
Experts...............................   61
Additional Information................   62
Index to Financial Statements.........  F-1
</TABLE>
 
Until             , 1998 (25 days after the commencement of the Offering), 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 obligations of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
 
======================================================
======================================================
                                2,500,000 SHARES
 
                                   DYAX CORP.
 
                                  COMMON STOCK
 
                                    [ Logo ]
 
                                  ------------
 
                                   PROSPECTUS
 
                                           , 1998
 
                                  ------------
 
                              SALOMON SMITH BARNEY
                                CIBC OPPENHEIMER
                         PACIFIC GROWTH EQUITIES, INC.
======================================================
<PAGE>   89
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The estimated expenses to be paid by the Registrant in connection with this
Offering are as follows:
 
<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $ 10,178
Nasdaq National Market fee..................................    48,614
NASD filing fee and expenses................................     3,950
Blue Sky fees and expenses..................................    15,000
Printing and engraving expenses.............................   100,000
Legal fees and expenses.....................................   250,000
Accounting fees and expenses................................   300,000
Transfer Agent and Registrar fees...........................    10,000
Miscellaneous expenses......................................   162,258
                                                              --------
Total.......................................................  $900,000
                                                              ========
</TABLE>
 
     All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
 
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him in
connection with any such action, suit or proceeding, if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. Except as ordered
by a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the corporation where the person involved is
adjudged to be liable to the Registrant.
 
     Article Eighth of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as that section may be amended and
supplemented from time to time, indemnify any and all persons whom it shall have
power under that section to indemnify against any expenses, liabilities or other
matters referred to in or covered by that section. The indemnification proved
for in Article Eighth is expressly not exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of heirs, executors
and administrators of such a person.
 
     Article Ninth of the Registrant's Restated Certificate of Incorporation
provides that no director shall be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding that provision, Article Ninth provides
that a director shall be liable to the extent provided by applicable law (i) for
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived improper personal benefit. Article Ninth further states that if
the Delaware General Corporation Law is hereafter amended to authorize a further
limitation or elimination of the liability of directors or officers, then the
liability of a director or officer of the Registrant shall, in addition to the
limitation on personal liability provided in Article Ninth, be limited or
eliminated to the fullest extent permitted by the Delaware General Corporation
Law, as from time to time amended. Article Ninth
                                      II-1
<PAGE>   90
 
also stipulates that no amendment to or repeal of Article Ninth shall apply to
or have any effect on the liability or alleged liability of any director or
officer of the Registrant for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
 
     The Registrant expects to obtain Directors' and Officers' insurance to
cover its directors and officers against certain liabilities they may incur when
acting in their capacity as directors or officers of the Registrant.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES
 
     Since March 1, 1995, the Registrant has issued and sold the following
unregistered securities:
 
     (a) Issuances of Stock
 
     On August 11, 1995 the Registrant issued an aggregate of 703,970 shares of
Class A Series 2 Preferred Stock and 899,443 shares of Common Stock (after
giving effect to the 0.652-for-1 reverse stock split) to certain former
stockholders of Protein Engineering Corporation in exchange for their
outstanding shares of Protein Engineering Corporation stock in connection with
the Registrant's acquisition of Protein Engineering Corporation.
 
     On August 11, 1995 the Registrant issued an aggregate of (i) 1,847,936
shares of Class A Series 1 Preferred Stock and 100,778 shares of Common Stock
(after giving effect to the 0.652-for-1 reverse stock split) to existing
stockholders of the Registrant in exchange for 5,381,383 shares of all series of
Class C Preferred Stock and 1,141,120 shares of Common Stock then outstanding in
a recapitalization; and (ii) 95,000 shares of Class A Series 1 Preferred Stock
in exchange for the release of a lien on the Registrant's license of Protein
Engineering Corporation technology in the field of separations.
 
     On August 11 and October 27, 1995 the Registrant sold an aggregate of
2,000,000 shares of Class A Series 3 Preferred Stock to certain stockholders at
a purchase price of $2.00 per share for an aggregate purchase price of
$4,000,000.
 
     On October 30, 1996, March 20, 1997 and March 27, 1997, the Registrant sold
an aggregate of 4,297,137 shares of Class A Series 4 Preferred Stock to certain
stockholders at a purchase price of $3.13 per share for an aggregate purchase
price of $13,450,038.
 
     From August 11, 1995 to March 17, 1998, the Registrant sold an aggregate of
192,340 shares of Common Stock to certain of the Registrant's employees at
prices ranging from $0.77 to $4.60 per share for an aggregate purchase price of
$447,500. These shares were issued pursuant to Awards of Restricted Stock under
the 1995 Equity Plan.
 
     (b) Grants and Exercises of Stock Options and Warrants.
 
     As of March 17, 1998, 1,378,645 options to purchase shares of the
Registrant's Common Stock had been granted under the Registrant's 1995 Equity
Plan, 1,111,217 of which are outstanding, 232,281 of which have been exercised
and 35,147 of which have been cancelled, and options to purchase 648,361 shares
of Common Stock remain available for future grant under the 1995 Equity Plan.
 
     On August 11, 1995, the Company issued warrants to purchase an aggregate of
27,022 shares of Common Stock at a purchase price of $3.97 per share to a former
stockholder at Protein Engineering Corporation. The warrants expire on August
10, 2000.
 
     No underwriter was engaged in connection with the foregoing sales of
securities. Sales of Common Stock to employees have been made in reliance upon
the exemption for the registration requirements afforded by Section 4(2) of the
Securities Act and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such individuals.
The Registrant has reason to believe that all of the foregoing purchasers were
familiar with or had access to information concerning the operations and
financial condition of the Registrant, and all of those individuals acquired
shares for investment and not with a view to the distribution thereof. At the
time of issuance, all of the foregoing shares of Common Stock were deemed to be
restricted securities for the purposes of the Securities Act, and the
certificates representing such securities bore legends to that effect.


                                      II-2
<PAGE>   91
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (a) List of Exhibits
 
     The following Exhibits are filed herewith:
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              EXHIBIT
-------                             -------
<C>       <S>
 1.1      Form of Underwriting Agreement.
 3.1      Certificate of Incorporation of the Registrant as amended
          and reinstated through March 23, 1998.
 3.2      Form of Restated Certificate of Incorporation of Registrant,
          as proposed to be amended and restated.
 3.3      By-laws of the Registrant.
 3.4      Form of Restated By-laws of Registrant, as proposed to be
          amended and restated.
   4.1*   Specimen Common Stock Certificate.
 5.1      Opinion of Palmer & Dodge LLP with respect to the legality
          of the securities being registered.
10.1      Amended and Restated 1995 Equity Incentive Plan.
10.2      1998 Employee Stock Purchase Plan.
10.3      Executive Employment Agreement, dated February 18, 1998,
          between Robert Dishman and the Registrant.
10.4      Executive Employment, Non-Compete and Confidentiality
          Agreement, dated August 1995, between Robert Ladner and the
          Registrant.
10.5      Consulting Agreement, dated October 15, 1997, between James
          W. Fordyce and the Registrant.
10.6      Employment Letter and Employee Confidentiality Agreement,
          dated January 6, 1998, between Keith S. Ehrlich and the
          Registrant.
10.7      Restricted Stockholder Agreement, dated March 30, 1997,
          between Henry E. Blair and the Registrant.
10.8      Secured Convertible Term Note, dated August 11, 1995,
          between Sheridan G. Snyder and the Registrant; Security
          Agreement, dated May 11, 1993, between Sheridan G. Snyder
          and the Registrant; and Assignment Agreement, dated May 11,
          1993, between Sheridan G. Snyder and Crestar Bank, N.A. as
          amended by the Amendment to Security Agreement and to
          Assignment Agreement, dated August 10, 1995, between
          Sheridan G. Snyder, Crestar Bank, N.A. and the Registrant.
10.9      Sublease Agreement, dated September 21, 1996, as amended on
          December 31, 1997 between Genzyme Corporation and the
          Registrant.
10.10     Lease Agreement, dated as of February 12, 1998, between
          AStec Partnership and the Registrant.
10.11     Lease Agreement, dated as of February 11, 1997, between
          AStec Partnership and the Registrant.
10.12     Lease Agreement, dated April 8, 1991, between Bridge Gate
          Real Estates Limited, Harforde Court Management Limited and
          the Registrant.
10.13     Lease Agreement, dated February 20, 1998, between Old
          Kendall Property LLC and the Registrant.
10.14     Master Lease Agreement, dated December 30, 1997, between
          Transamerica Business Credit Corporation and the Registrant.
10.15     Form of Sale and Leaseback Agreement, dated December 30,
          1997, between Transamerica Business Credit Corporation and
          the Registrant.
10.16     Form of License Agreement (Therapeutic Field) between the
          Licensee and the Registrant.
10.17     Form of License Agreement (Antibody Diagnostic Field)
          between the Licensee and the Registrant.
10.18     Collaboration Agreement, dated June 20, 1997, between EPIX
          Medical, Inc. and the Registrant.
10.19 +   Patent License Agreement, dated June 19, 1997, between
          Massachusetts Institute of Technology ("M.I.T."), Whitehead
          Institute for Biomedical Research ("Whitehead") and the
          Registrant as amended by the First Amendment thereto dated
          November 10, 1997, by and among M.I.T., Whitehead, The
          Massachusetts General Hospital and the Registrant.
</TABLE>
 
                                      II-3
<PAGE>   92
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              EXHIBIT
-------                             -------
<C>       <S>
10.20 +   Research and Development Agreement, dated March 10, 1997,
          between Debiopharm S.A. and the Registrant.
10.21 +   Joint Collaboration Agreement, dated October 1, 1997,
          between CropTech Development Corporation and the Registrant.
10.22 +   Cooperation Agreement, dated January 16, 1997, between Novo
          Nordisk A/S and the Registrant.
10.23     Form of Indemnification Agreement by and between certain
          directors and executive officers of the Registrant and the
          Registrant.
23.1      Consent of Coopers & Lybrand L.L.P., independent auditors.
23.2      Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.3      Consent of Yankwich & Associates, special patent counsel to
          the Company.
24.1      Powers of Attorney (included on the signature pages attached
          hereto).
27.1      Financial Data Schedule.
</TABLE>
 
---------------
*   To be filed by amendment.
 
+   Certain confidential material contained in the document has been omitted and
    filed separately with the Securities and Exchange Commission pursuant to
    Rule 406 of the Securities Act of 1933, as amended.
 
     (b) Financial Statement Schedules
 
     None.
 
ITEM 17.  UNDERTAKINGS
 
     (a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the 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.
 
     (b) The undersigned Registrant hereby undertakes:
 
          (1) to provide to the underwriters at the closing specified in the
     underwriting agreement, certificates in such denominations and registered
     in such names as required by the underwriter to permit prompt delivery to
     each purchaser;
 
          (2) that, for purposes of determining any liability under the
     Securities Act, 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; and
 
          (3) that, for purposes of determining any liability under the
     Securities Act, 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-4
<PAGE>   93
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of Cambridge,
Commonwealth of Massachusetts, on the 23rd day of March, 1998.
 
                                          DYAX CORP.
 
                                          By:      /s/ HENRY E. BLAIR
                                            ------------------------------------
                                            Henry E. Blair
                                            Chief Executive Officer
 
                               POWER OF ATTORNEY
 
     Each undersigned person hereby constitutes and appoints Henry E. Blair,
Pamela Hay and Nathaniel S. Gardiner and each of them with full power of
substitution and full power to act without the other, as his true and lawful
attorney-in-fact and agent, with full power to sign any and all amendments to
this Registration Statement on Form S-1 of Dyax Corp., and to file the same with
the Securities and Exchange Commission, including any and all post-effective
amendments and any subsequent Registration Statement for the same offering which
may be filed under Rule 462(b) and to execute all other documents and take all
other actions on behalf of such undersigned person as may be necessary or
advisable in connection with the registration of the shares covered by this
Registration Statement under the Securities Act of 1933, as amended, hereby
ratifying and confirming all that said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <S>                                <C>
                /s/ HENRY E. BLAIR                   President, Chief Executive         March 23, 1998
---------------------------------------------------    Officer and Chairman of the
                  Henry E. Blair                       Board of Directors (Principal
                                                       Executive Officer)
 
               /s/ KEITH S. EHRLICH                  Vice President, Finance and        March 23, 1998
---------------------------------------------------    Administration and Chief
                 Keith S. Ehrlich                      Financial Officer (Principal
                                                       Financial and Accounting
                                                       Officer)
 
               /s/ L. EDWARD CANNON                  Executive Vice President,          March 23, 1998
---------------------------------------------------    President, Therapeutic and
                 L. Edward Cannon                      Diagnostic Division, and
                                                       Director
 
               /s/ ROBERT A. DISHMAN                 Executive Vice President,          March 23, 1998
---------------------------------------------------    President, Separations
                 Robert A. Dishman                     Division, and Director
 
        /s/ CONSTANTINE E. ANAGNOSTOPOULOS           Director                           March 23, 1998
---------------------------------------------------
          Constantine E. Anagnostopoulos
 
               /s/ JAMES W. FORDYCE                  Director                           March 23, 1998
---------------------------------------------------
                 James W. Fordyce
 
               /s/ THOMAS L. KEMPNER                 Director                           March 23, 1998
---------------------------------------------------
                 Thomas L. Kempner
 
                /s/ HENRY R. LEWIS                   Director                           March 23, 1998
---------------------------------------------------
                  Henry R. Lewis
</TABLE>
 
                                      II-5
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1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998
 
                                                           REGISTRATION NO. 333-
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
 
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                                   DYAX CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE                           8731                          04-3053198
  (STATE OR OTHER JURISDICTION     (PRIMARY STANDARD INDUSTRIAL           (I.R.S. EMPLOYER
      OF INCORPORATION OR          CLASSIFICATION CODE NUMBER)         IDENTIFICATION NUMBER)
          ORGANIZATION)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139, (617) 225-2500
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
             HENRY E. BLAIR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
 DYAX CORP., ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139, (617) 225-2500
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                            ------------------------
 
                                   Copies to:
NATHANIEL S. GARDINER, ESQ.                         STEVEN D. SINGER, ESQ.
               PALMER & DODGE LLP                               HALE AND DORR LLP
               ONE BEACON STREET                                 60 STATE STREET
          BOSTON, MASSACHUSETTS 02108                      BOSTON, MASSACHUSETTS 02109
                 (617) 573-0100                                   (617) 526-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]
 
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]
------
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
------
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
------
 
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
                            the following box.  [ ]
                            ------------------------
 
                        CALCULATION OF REGISTRATION FEE
=======================================================================================================================
                                                              PROPOSED MAXIMUM     PROPOSED MAXIMUM
         TITLE OF EACH CLASS OF             AMOUNT TO BE       OFFERING PRICE     AGGREGATE OFFERING      AMOUNT OF
       SECURITIES TO BE REGISTERED          REGISTERED(1)       PER SHARE(2)         PRICE(1)(2)      REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share...     2,875,000            $12.00            $34,500,000         $10,177.50
=======================================================================================================================
(1) Includes shares which the Underwriters may purchase to cover
    over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
 
     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 SECTION 8(a), MAY
DETERMINE.
 
================================================================================
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 MARCH 23, 1998
 
PROSPECTUS
 
                                2,500,000 SHARES
 
                                   DYAX CORP.
                                  COMMON STOCK
                               ------------------
 
     All of the 2,500,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), being offered hereby (the "Offering") are being sold by Dyax
Corp. ("Dyax" or the "Company"). Prior to this Offering, there has not been a
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $          and
$          per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
 
     Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "DYAX."
 
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
      SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
                               ------------------
 
  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.
=============================================================================================================
                                                                 UNDERWRITING
                                         PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                          PUBLIC                COMMISSIONS(1)              COMPANY(2)
-------------------------------------------------------------------------------------------------------------
Per Share                                   $                         $                         $
-------------------------------------------------------------------------------------------------------------
Total(3)                                    $                         $                         $
=============================================================================================================
(1) For information regarding indemnification of the Underwriters, see
       "Underwriting."
   (2) Before deducting expenses payable by the Company estimated at $900,000.
   (3) The Company has granted to the Underwriters a 30-day option to purchase
       up to an additional 375,000 shares of Common Stock solely to cover
       over-allotments, if any. See "Underwriting." If such option is exercised
       in full, the total Price to Public, Underwriting Discounts and
       Commissions, and Proceeds to Company will be $        , $        and
       $        , respectively.
 
                               ------------------
 
     The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or
            , 1998 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
                               ------------------
 
SALOMON SMITH BARNEY
                          CIBC OPPENHEIMER
                                          PACIFIC GROWTH EQUITIES, INC.
 
            , 1998.
3
 
                                    [IMAGE]
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
4
 
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, contained elsewhere in this Prospectus. Investors should carefully
consider the information set forth under the heading "Risk Factors." Unless
otherwise indicated the information in this Prospectus: (i) assumes the
conversion of all series of outstanding shares of the Company's Class A
Convertible Preferred Stock (the "Convertible Preferred Stock") into Common
Stock upon consummation of this Offering; (ii) assumes no exercise of the
Underwriters' over-allotment option; (iii) reflects a 0.652-for-1 reverse stock
split of the Common Stock; and (iv) reflects an amendment to the Company's
Restated Certificate of Incorporation to be filed upon closing of this Offering
to create a class of authorized but undesignated Preferred Stock.
 
                                  THE COMPANY
 
     Dyax's phage display technology has broad potential commercial applications
in the fields of therapeutic, diagnostic and separations products. The Company's
patented and proprietary phage display technology ("Phage Display") is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name. Dyax is using Phage Display and its expertise in separations
technology to pursue a diversified business strategy of non-exclusive patent
licensing, discovery and development of therapeutic and diagnostic products and
the development of innovative chromatography and affinity separations products.
Dyax currently has licensed its Phage Display patents to more than 25 companies,
is engaged in four corporate collaborative partnerships and is performing or has
completed eight funded discovery projects. In addition, the Company has sold its
Biotage products to over 50 pharmaceutical and biotechnology companies. Dyax is
generating near-term revenues from sales of its separations products, funding
from sponsored research and fees from patent licenses, while maintaining a
long-term focus on its therapeutic and diagnostic product development programs,
the expansion of existing separations product lines and the development of
affinity separations products.
 
     Phage Display is used to discover and develop compounds that bind (binding
compounds) to a molecule of interest (target). Molecular binding is the key to
the function of most therapeutic, diagnostic and separations products.
Therapeutic and diagnostic products bind to target molecules to achieve a
desired effect and are generally selected for their ability to distinguish
between the correct target and other closely related molecules (specificity) and
to bind tightly to a target (affinity) under appropriate physiological
conditions. Binding also plays a significant role in the separations products
used to purify material for the development and manufacture of a therapeutic
product. The failure to achieve high specificity and high affinity in binding
can result in low levels of efficacy, side effects and toxicities for
therapeutic products, inaccurate results for diagnostic products and reduced
yield and purity achieved with separations products.
 
     Using the speed and diversity of a self-replicating biological system,
Dyax's Phage Display allows scientists to select proteins that bind to a target.
The selection is made from a diverse set of up to hundreds of millions of
proteins displayed on the surface of a bacterial virus, bacteriophage, known
commonly as "phage." The Phage Display process generally consists of: (i)
generating a large collection of phage, known as a "library," that contains
genes encoding up to hundreds of millions of related proteins, or potential
binding compounds; (ii) screening the library by exposing it to a specified
target and isolating those phage whose displayed proteins bind to the target;
and (iii) analyzing the selected binding compounds for relative specificity and
affinity to the target.
 
     Compared to conventional or combinatorial chemistry approaches used for the
identification of binding compounds, the Company believes that Phage Display has
several advantages, including greater diversity and speed, ease of amplification
and rapid optimization. In the discovery of therapeutic and diagnostic products,
scientists can use Phage Display to identify binding compounds with high
specificity and affinity more rapidly than by using other existing methods. In
the development of separations processes, the Company believes that Phage
Display can be used to identify binding compounds that enable the purification
of therapeutic products more cost effectively and efficiently, thereby
shortening the development and manufacturing processes for such products.
                                        3
5
 
     The Company has established a broad licensing program of its Phage Display
patents for use in the fields of therapeutics, antibody-based in vitro
diagnostics and Phage Display research kits. Since 1996, the Company has granted
non-exclusive licenses to more than 25 companies, including Affymax
Technologies, N.V. (and its parent, Glaxo Wellcome PLC), Bristol-Myers Squibb,
Chiron Corporation, Genzyme Corporation, Merck & Co., Inc., Monsanto Company and
Pharmacia & Upjohn, Co. Dyax believes that the success of its patent licensing
program provides support for its patent position in Phage Display and the
utility of Phage Display as an enabling discovery technology. Under these
licenses, Dyax has retained all rights to practice Phage Display in the fields
of separations and in vivo imaging.
 
     Dyax is leveraging its Phage Display in therapeutics and diagnostics
through collaborative arrangements as well as through internal discovery and
development programs. Dyax has used Phage Display to identify three proprietary
lead therapeutic compounds with potential applications in inflammatory diseases
and certain cancers and one lead diagnostic compound for in vivo imaging of
inflammation. One of these proprietary lead compounds, EPI-HNE4, is currently in
preclinical development for the treatment of pulmonary inflammation resulting
from cystic fibrosis in collaboration with Debiopharm S.A. A modified form of
EPI-HNE4 is in preclinical development as a diagnostic imaging agent for sites
of inflammation (including infection) in collaboration with the University of
Massachusetts Medical Center. Additionally, the Company is collaborating with
EPIX Medical Inc. in the field of cardiovascular imaging to identify binding
compounds to be used in an imaging agent to detect deep vein thrombosis and
pulmonary embolism. The Company is also collaborating with Novo Nordisk A/S to
develop new tools for the rapid evaluation of certain of Novo Nordisk's
therapeutic candidates. In addition, the Company has funded discovery projects
with SangStat Medical Corporation, Tularik, Inc. and Athena Neurosciences, Inc.
 
     Dyax is a leader in the development, manufacture and sale of cartridge
chromatography products and systems. Chromatography is used to purify a desired
product or to remove impurities from a mixture during the discovery, development
and manufacturing of a therapeutic product. The Company believes that its
cartridge-based systems provide advantages to its customers compared to
manually-packed and pre-packed columns, including greater speed and convenience,
lower cost, improved safety and reproducible performance. The Company has sold
its current line of Biotage chromatography products and systems to over 50
leading pharmaceutical and biotechnology companies worldwide, including Bachem
AG, Bayer Corporation, Genentech, Inc., F. Hoffmann-La Roche, Ltd., Merck & Co.,
Inc., Novartis, Pfizer, Inc. and Pharmacia & Upjohn, Co.
 
     The Company believes that Phage Display is a powerful tool for developing
new affinity separations media that can cost effectively and efficiently purify
complex therapeutic products, such as proteins and vaccines. Dyax is using Phage
Display to identify binding compounds known as affinity ligands that can be used
to purify therapeutic products in commercial quantities. The Company believes
that these new affinity separations products can reduce the time, cost and risk
associated with the purification process. Dyax plans to combine its Biotage
chromatography systems with any affinity separations media that may be developed
using Phage Display to provide fully-integrated systems for the purification of
natural products, peptides, proteins, organic compounds and other molecules.
Dyax has a collaborative arrangement with CropTech Development Corporation to
develop novel affinity separations technologies. Dyax also has funded discovery
projects with several different companies, including Argonex, Inc., Genetics
Institute, Inc., Genzyme Transgenics Corporation, Merck & Co., Inc. and Pall
Corporation.
 
     The Company was incorporated in Delaware in 1989 under the name Biotage,
Inc. and merged with Protein Engineering Corporation ("PEC") in August 1995. The
Company's principal executive offices are located at One Kendall Square,
Building 600, Cambridge, Massachusetts 02139, and its telephone number is (617)
225-2500.
 
                                        4
6
 
                                  THE OFFERING
 
Common Stock offered................      2,500,000 shares
 
Common Stock outstanding after the
Offering............................      9,761,353 shares(1)
 
Use of Proceeds.....................      To fund research and development,
                                          repayment of $763,000 of indebtedness,
                                          working capital and other general
                                          corporate purposes, including possible
                                          technology in-licensing and
                                          acquisitions. See "Use of Proceeds."
 
Proposed Nasdaq National Market
Symbol..............................      DYAX
 
                                  RISK FACTORS
 
     See "Risk Factors" commencing on page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
 
                             SUMMARY FINANCIAL DATA
YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                            1993       1994       1995       1996       1997
                                           -------    -------    -------    -------    -------
                                             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
  Total revenues.........................  $ 4,099    $ 2,713    $ 4,020    $ 7,037    $ 9,776
                                           -------    -------    -------    -------    -------
  Operating expenses:
     Cost of products sold...............    2,792      1,794      1,952      2,046      3,174
     Research and development............      894        894      1,343      3,140      5,575
     Selling, general and
       administrative....................    3,054      2,604      2,710      4,170      6,827
     Other expenses(2)...................       --         --      4,554         --         --
                                           -------    -------    -------    -------    -------
          Total operating expenses.......    6,740      5,292     10,559      9,356     15,576
                                           -------    -------    -------    -------    -------
  Loss from operations...................   (2,641)    (2,579)    (6,539)    (2,319)    (5,800)
  Interest income (expense), net.........      (97)       (89)       (46)       (78)       265
                                           -------    -------    -------    -------    -------
  Net loss...............................  $(2,738)   $(2,668)   $(6,585)   $(2,397)   $(5,535)
                                           =======    =======    =======    =======    =======
  Pro forma net loss per share -- basic
     and diluted(3)......................                                              $ (0.83)
                                                                                       =======
 
  Weighted average number of shares used
     in computing pro forma net loss per
     share -- basic and diluted..........                                            6,706,680
                                                                                    ==========
DECEMBER 31, 1997
                                                              --------------------------
                                                               ACTUAL     AS ADJUSTED(4)
                                                              --------    --------------
                                                                    (IN THOUSANDS)
BALANCE SHEET DATA:
  Cash and cash equivalents.................................  $  4,664       $
  Working capital...........................................     5,905
  Total assets..............................................    10,532
  Long-term debt and capital lease obligations, less current
     portion................................................     1,078            383
  Accumulated deficit.......................................   (30,704)       (30,704)
  Total stockholders' equity................................     6,263
---------------
(1) Excludes (i) 1,111,217 shares of Common Stock issuable upon the exercise of
    outstanding stock options at a weighted average exercise price of $1.63 per
    share, of which options to purchase 271,691 shares of Common Stock were
    exercisable as of March 17, 1998, and (ii) 27,022 shares of Common Stock
    issuable upon the exercise of outstanding warrants at an exercise price of
    $3.97 per share. See "Description of Capital Stock" and See
    "Management -- Stock Plans."
 
(2) Includes write-offs of an intangible asset in the amount of $456,000 and
    incomplete technology in the amount of $4,098,000 in the year ended December
    31, 1995.
 
(3) See Note 2 to Notes to Consolidated Financial Statements for a description
    of the calculation of pro forma net loss per share.
 
(4) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
    hereby at an assumed initial public offering price of $    per share (the
    mid-point of the range set forth on the front cover) less estimated
    underwriting discounts and commissions and offering expenses payable by the
    Company and the use of the estimated net proceeds therefrom. See "Use of
    Proceeds" and "Capitalization."
 
                                        5
7
 
                                  RISK FACTORS
 
     In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. The
Prospectus may contain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
 
DEPENDENCE ON PHAGE DISPLAY; NEW AND UNCERTAIN TECHNOLOGY; NO CLINICAL TRIALS OR
SALES OF PHAGE DISPLAY-DERIVED PRODUCTS TO DATE
 
     The Company has invested substantial resources in its Phage Display and
believes that the identification, development and commercialization of lead
binding compounds derived using this technology are critical to the Company's
success. All of the Company's Phage Display-derived product candidates are in
research or development, and neither the Company nor, to its knowledge, any of
its collaborative partners or licensees, has commenced clinical trials or
commercialized any products developed using Phage Display. The discovery and
development of therapeutic, diagnostic and affinity separations products derived
from Phage Display will be subject to risks of failure inherent in the product
development process. These risks include, among others, the possibilities that
(i) any therapeutic or diagnostic product candidates will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; (ii) any therapeutic or diagnostic product candidates, if safe and
effective, will prove difficult or impossible to manufacture on a large scale,
will be uneconomical to market, or will not achieve market acceptance; (iii)
proprietary rights of third parties will preclude the Company or its
collaborative partners or licensees from marketing any such products; and (iv)
third parties will market equivalent or superior products. In addition, there
can be no assurance that affinity separations products developed using Phage
Display will become accepted as effective technology for use in the development
and implementation of purification processes for pharmaceutical manufacture. As
a result, there can be no assurance that the Company will ever have marketable
products developed using Phage Display or that it will ever generate revenues
from any such products developed and marketed by its collaborative partners or
licensees or develop a sustainable, profitable business. In any event, the
Company does not expect to receive revenues from the sale of any of such
products for the next several years, if ever. The failure to identify, develop
and commercialize lead binding compounds derived using Phage Display by the
Company and/or by its collaborative partners and licensees would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     The Company's success will depend upon the acceptance of Phage Display as
an effective discovery process for therapeutic and diagnostic products by its
current and prospective collaborative partners and licensees. There can be no
assurance that the Company's current and prospective collaborative partners and
licensees will continue to use or adopt Phage Display or other technologies
developed by the Company rather than alternative technologies, or that the
Company will be able to attract future collaborative partners or licensees on
acceptable terms. See "Business."
 
LIMITED REVENUES TO DATE FROM SEPARATIONS PRODUCTS; NEED TO DEVELOP NEW
SEPARATIONS PRODUCTS
 
     The Company has received only limited revenues to date from the sale of
chromatography separations products. Many of the Company's existing separations
products are in highly competitive, mature markets. The Company's ability to
compete successfully in the market for chromatography separations products will
depend upon its ability to develop, introduce and market new
chromatography-based products and new products based upon the application of
Phage Display to the processes used in the manufacture of biopharmaceuticals.
The Company is seeking to develop or acquire new separations products. There can
be no assurance that the Company's BioFLASH product line under development will
be successfully introduced or that the Company will be successful in developing,
acquiring or selling any new products. To date, the Company's high pressure
liquid chromatography ("HPLC") separations products have had the protection of
certain patent rights licensed exclusively to the Company. The Company cannot
predict what impact, if any, the recent expiration of the underlying patent will
have on its separations business.
                                        6
8
 
     The Company is in the early stages of developing Phage Display-derived
affinity separations products. There can be no assurance that the Company's
affinity separations technology will result in commercialized products or that
such products will achieve market acceptance, which will depend in large part on
the Company's ability to develop and demonstrate the relative effectiveness,
efficiency, ease of use and safety of any such products compared to existing or
new separations technologies. If the Company's new chromatography products or
Phage Display-derived affinity separations products fail to achieve market
acceptance, it would have a material adverse effect on the Company's existing
separations business and on the Company's business, financial condition and
results of operations. See "Business -- Dyax Programs and Products -- Biotage
Separations Products and Research and Affinity Separations Development
Programs."
 
SIGNIFICANT FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
 
     The Company has experienced significant fluctuations in its revenues and
operating results from quarter to quarter and year to year, and it expects these
fluctuations to continue in the future. The Company also expects that an
increasingly significant portion of its anticipated revenues for the foreseeable
future will be comprised of up-front fees and research and development funding
paid pursuant to collaborative and licensing arrangements. The Company believes
that future fluctuations in revenues and operating results may depend on various
factors, such as the timing of the Company's increased research and development
expenses, the establishment of new collaborative arrangements, the development
and commercialization programs of current and prospective collaborative
partners, the completion of certain milestones and the timing of customer
purchases of larger separations equipment systems.
 
     The Company's current and planned expense levels are, to a large extent,
fixed in the short term, and are based in part on its expectations as to future
revenues. The Company may be unable to adjust spending in a timely manner to
compensate for any revenue shortfall. In addition, in any fiscal quarter the
Company may receive no payments from its collaborative partners. Consequently,
revenues are difficult to forecast and may vary significantly from quarter to
quarter or year to year and revenues or results of operations in any period will
not necessarily be indicative of revenues or operating results in subsequent
periods and should not be relied upon as any indication of future performance.
 
     Due to the foregoing or other factors, it is likely that such quarterly
fluctuations in revenue or operating results will from time to time not meet the
expectations of securities analysts or investors, which may have a material
adverse effect on the price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"-- No Prior Public Market for Common Stock; Volatility of Stock Price."
 
DEPENDENCE ON COLLABORATIONS AND LICENSING
 
     The Company's success will depend upon the formation of multiple
collaborative arrangements with third parties on a regular basis and the
continued licensing and broad practice of Phage Display by licensed third
parties. There can be no assurance that the Company will be able to establish
additional collaborative arrangements on acceptable terms, or that current or
any prospective collaborative arrangements, or development programs of Phage
Display licensees, will ultimately be successful. The Company's receipt of
revenues, if any, from any current and prospective collaborative and licensing
arrangements will be affected by the timing and efforts expended by the Company
and its existing collaborative partners and licensees, as well as the
proprietary position of the technology and products resulting from such
collaborative arrangements. The failure to enter into additional collaborative
or licensing arrangements would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     The Company's collaborative arrangements do not obligate the collaborative
partners to develop or commercialize lead compounds discovered by the Company.
Collaborative partners may independently develop a competing lead compound
identified either on their own or in collaboration with others, including the
Company's competitors. In addition, there can be no assurance that current or
prospective collaborative partners will not pursue alternative technologies or
develop alternative products. A collaborative partner's performance under its
agreement with the Company could be materially adversely affected if such
collabora-
 
                                        7
9
 
tive partner were involved in a business combination or in the event that the
collaborative partner had a significant strategic shift in its business focus.
The Company is also dependent upon the expertise and dedication of sufficient
resources by its collaborative partners to develop and commercialize any
products developed using Phage Display. The amount and timing of resources that
current and future collaborative partners, if any, devote to collaborative
arrangements with the Company are not within the control of the Company. See
"-- Dependence on Phage Display; New and Uncertain Technology; No Clinical
Trials or Sales of Phage Display-Derived Products to Date."
 
     The Company is dependent upon its collaborative partners and licensees to
inform Dyax of products developed using Phage Display-derived binding compounds.
Conflicts may arise between the Company and any of its collaborative partners
and licensees as to whether a potential product developed by the collaborative
partner or licensee is a Phage Display-derived product subject to milestone and
royalty payments to the Company. A product developed by a collaborative partner
or licensee may also be a derivative of one or more lead compounds provided to
the collaborative partner by the Company. While the Company's existing
collaborative arrangements and licenses provide that the Company retains
milestone and royalty payment rights with respect to potential products
developed from Phage Display-derived binding compounds, there can be no
assurance that any of the Company's collaborative partners and licensees will
not dispute their obligation to make payments with respect to any such products.
Further, the Company's collaborative partners and licensees generally may
terminate their agreements with the Company upon short notice. One collaborative
arrangement with the Company was recently terminated. The termination of a
significant number of the Company's existing or prospective collaborative
arrangements or licenses would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Collaborations" and "-- Uncertainties Related to Patents and
Proprietary Rights."
 
UNCERTAINTIES RELATED TO PATENTS AND PROPRIETARY RIGHTS
 
     The Company's success will significantly depend upon its ability to obtain
patent protection for its products and technologies under development, to defend
its issued patents, including patents and patent applications related to phage
display, biotechnology and separations, and to avoid the infringement of patents
issued to others. The Company is aware of certain patents for which it will
likely need to obtain licenses to commercialize its products and technologies.
While the Company believes that it will be able to obtain such licenses, there
can be no assurance that such licenses, or licenses to other patent rights, will
be available on reasonable terms, if at all. Further, if such licenses are not
available, the Company may need to halt or modify the activities which are
covered by the other patent rights, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
 
     Patent positions are complex in the fields of biotechnology, therapeutic
and diagnostic products and separations processes and products and the validity
or infringement of any given patent may be uncertain. In order for the Company
to commercialize a process or product, many patent rights of other parties may
need to be analyzed and often several licenses may be required. There can be no
assurance that any patents issued to the Company or its collaborative partners,
or for which the Company has licensed rights, will not be challenged, narrowed,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. In addition, there can be no assurance
that (i) the Company will be able to obtain patent protection for any
therapeutic, diagnostic or separations products it may develop; (ii) others will
not obtain patents covering the manufacture, use or sale of such products; (iii)
the Company's patents or any future patents will prevent other companies from
designing their products or conducting their activities so as to avoid the
coverage of the claims of the Company's patents; or (iv) others will not be able
to develop other competing technologies to supplement or replace the Company's
processes or products.
 
     There exists substantial patent litigation in the pharmaceutical,
biomedical and biotechnology industries. Patent litigation is generally
time-consuming, costly and involves complex legal and factual questions, and the
outcome is frequently difficult to predict. Litigation may be necessary to
enforce the Company's patent and license rights, to enforce or defend an
infringement claim, or to determine the scope and validity of others'
proprietary rights. Many of the Company's competitors have substantially greater
resources than the Company, and such competitors may be able to sustain the
costs of complex patent litigation to a greater
                                        8
10
 
degree and for a longer period of time than the Company. In addition, such
proceedings or litigation, or any other proceedings or litigation to protect the
Company's intellectual property rights or defend against infringement claims by
others, could result in substantial costs and a diversion of management's time
and attention, subject the Company to significant liabilities to third parties,
and require the Company to cease using the technology or to license disputed
rights from third parties (which licenses may not be available at a reasonable
cost, if at all), any of which events could have a material adverse effect on
the business, financial condition and results of operations of the Company.
 
     The Company is particularly dependent on its U.S. and foreign patents and
patent applications relating to its Phage Display technology (the "Phage Display
Patent Rights"). Although the Company is not aware of any challenges to the
Phage Display Patent Rights to date in the United States, there can be no
assurance that a challenge will not be brought in the future. The Company plans
to protect its patent rights, including the Phage Display Patent Rights, to the
maximum practical extent. There can be no assurance that the Company will have
sufficient resources necessary to defend its patent rights against all such
challenges. However, if the Company commences legal action against an alleged
infringer of any of the Company's patent rights, the alleged infringer can be
expected to claim that the Company's patent rights are invalid for one or more
alleged reasons, thus subjecting the Company's patent rights in question to a
judicial determination of validity with the attendant risk that an adverse
determination could result in a loss of patent rights. In addition, in certain
situations, an alleged infringer could seek a declaratory judgment of invalidity
of the Company's patents. Uncertainties resulting from the initiation and
continuation of any patent or related litigation, including those involving the
Phage Display Patent Rights, could have a material adverse effect on the
Company's ability to maintain and expand its licensing program and collaborative
arrangements and to compete in the marketplace pending resolution of the
disputed matter.
 
     Two European patent oppositions were filed in late 1997 against the
Company's Phage Display patent issued by the European Patent Office ("EPO"), and
the Company expects that these oppositions will not be resolved for several
years. The oppositions are currently being reviewed by the Company's patent
counsel, and Dyax intends to vigorously defend its European patent. However,
there can be no assurance that the Company will prevail in the opposition
proceedings or any litigation contesting the validity or scope of this EPO
patent or other foreign patents, if any.
 
     The Phage Display Patent Rights are central to the Company's non-exclusive
patent licensing program. In connection with the licensing program, the Company
regularly monitors publications and other sources for information regarding the
practice by others of technology covered by the Phage Display Patent Rights, and
there are unlicensed parties whose activities the Company believes may be
covered by its issued patents. In such circumstances, the Company generally
seeks to negotiate a Phage Display license agreement. There can be no assurance,
however, that the Company will be able to identify all parties practicing the
Phage Display Patent Rights, all products derived by such parties, including its
licensees, or that the Company will be successful in entering into license
agreements with parties that the Company believes require such a license. In
jurisdictions where the Company has not applied for or obtained patent rights,
the Company will be unable to prevent others from developing or selling products
or technologies derived using Phage Display. In addition, even in jurisdictions
where the Company has Phage Display Patent Rights, there can be no assurance
that the Company will be able to prevent others from selling or importing
products or technologies derived elsewhere using Phage Display. The inability of
the Company to protect and enforce its patent rights, whether by licensing or
otherwise, could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     The Company is aware that other parties have patents and pending
applications to various phage display inventions. The Company has filed, and in
the future may file, oppositions to European and other patents issued to others.
To date, the Company has filed oppositions against two European patents in the
general field of phage display. The Company does not believe these European
patents cover any of its present activities, but the Company cannot predict
whether the claims in these patents may, in their current or future form, cover
the Company's activities or the activities of its collaborative partners and
licensees. In addition, through its patent licensing program, the Company has
secured a limited freedom to practice some of these patent rights pursuant to
its standard license agreement, which contains a covenant by the licensee that
it will not sue the
                                        9
11
 
Company under certain of the licensee's phage display improvement patents. The
Company may from time to time seek affirmative rights of license or ownership
under existing patent rights relating to phage display technology of others.
There can be no assurance, however, that the Company will be successful in
maintaining any covenants of nonsuit from its licensees, or in acquiring similar
covenants in the future, or that the Company will be able to obtain satisfactory
licenses. The inability of the Company to obtain and maintain such licenses and
covenants could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     To protect its existing and future chromatography separations products, the
Company relies primarily upon trade secrets and know-how, as well as the
experience and skill of its technical personnel. The Company also has several
patents and patent applications on its proprietary chromatography technology
which are not based on Phage Display, but it cannot predict the extent to which
any such patents or future patents will provide protection for its existing or
any new separations products.
 
     In all of its activities, the Company relies substantially upon proprietary
materials and information, trade secrets and know-how to conduct its research
and development activities and to attract and retain collaborative partners,
licensees and customers. Although the Company takes steps to protect these
materials and information, including through the use of confidentiality and
other agreements with its employees, consultants and academic and commercial
relationships, there can be no assurance that these steps will be adequate, that
these agreements will not be violated, that there will be an available or
sufficient remedy for any such violation or that others will not also develop
similar proprietary information. See "Business -- Patents and Proprietary
Rights."
 
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
 
     The Company has a history of operating losses. For the years ended December
31, 1995, 1996 and 1997, the Company had net losses of approximately $6.6
million, $2.4 million, and $5.5 million, respectively. As of December 31, 1997,
the Company had an accumulated deficit of approximately $30.7 million. The
Company anticipates that its research and development efforts will increase
significantly in the future and it expects to incur significant operating losses
over the next several years. There can be no assurance that the Company will
ever be able to generate sufficient revenues from the sale of products to offset
the expenses of these efforts. The Company has not realized any significant
revenues from the achievement of milestones or royalties from the discovery,
development or sale of a commercial product by a collaborative partner or
licensee and no such revenue from these sources is expected for at least several
years, if ever. To date, all revenues have been generated from: (i) sales of
chromatography separations systems and products; (ii) signing and maintenance
fees paid for licenses of Phage Display patents; and (iii) research and
development funding paid by the Company's collaborative partners. The Company's
ability to achieve profitability will depend upon its ability, alone or with
others, to introduce new chromatography separations products, to develop
affinity separations products derived from Phage Display, to complete discovery
and development of therapeutic and diagnostic lead compounds and to establish
additional collaborative arrangements. There can be no assurance that the
Company will ever be able to achieve or sustain profitability. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
 
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
 
     The Company anticipates that its existing capital resources, including
anticipated revenues and the net proceeds from this Offering, will be adequate
to fund the Company's operations into the first half of 2000, although there can
be no assurance that the Company will not require additional funds prior to such
date. The Company will need additional debt or equity financing before that date
if the Company's cash requirements exceed its current expectations, if the
Company generates less revenue than currently projected or if the Company is
unable to raise all of the funding contemplated by this Offering. The Company's
capital requirements depend on numerous factors, including sales of existing and
new Biotage separations products, the ability of the Company to enter into
additional collaborative arrangements, competing technological and market
developments, changes in the Company's collaborative arrangements and licenses,
the cost of preparing, filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, the
                                       10
12
 
purchase of additional capital equipment, the progress of the Company's drug
discovery and separations technology programs and the progress of the
development and commercialization of milestone and royalty-bearing compounds by
the Company's collaborative partners and licensees. There can be no assurance
that the Company's existing separations business, collaborative arrangements and
licensing program will produce revenues adequate to fund the Company's operating
expenses. The Company anticipates that it will be required to raise additional
capital in order to continue its operations. Such capital may be raised through
additional public or private financings, as well as collaborative arrangements,
borrowings and other sources. To the extent that additional capital is needed,
it may be raised through the issuance of debt or the sale of equity or
convertible debt securities, and the issuance of such securities could result in
dilution to the Company's existing stockholders. There can be no assurance that
additional funding, if necessary, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to curtail
operations significantly or relinquish rights to its technologies, product
candidates, products or potential markets that the Company would not otherwise
relinquish. The failure to receive additional funding would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
INTENSE COMPETITION; TECHNOLOGICAL OBSOLESCENCE
 
     The industries in which the Company competes is characterized by intense
competition and rapid technological change. Competitors of the Company may
discover or develop important discovery technologies, targets or lead compounds
or therapeutic or diagnostic products in advance of Dyax or which are superior
to those developed by the Company or its collaborative partners, or may obtain
regulatory approvals of their products more rapidly than the Company and its
collaborative partners, any of which circumstances could have a material adverse
effect on the Company's business, financial condition and results of operations.
Competition is intense among organizations attempting to identify, optimize and
generate lead compounds for the development of therapeutic and diagnostic
products and technologies to improve purification in the manufacturing processes
for therapeutics. There are other advanced technologies and approaches for
generating and developing lead compounds for therapeutic, diagnostic and
separations products, including combinatorial chemistry, rational drug design,
molecular modeling and applications of phage display other than those that are
pursued by the Company. Many large pharmaceutical companies, which represent one
of the largest potential markets for the Company's products and services, are
developing these and other methodologies to improve the speed with which targets
and binding compounds can be identified. These other approaches include high
throughput robotics technology and automated parallel synthesis of new compounds
against which new targets may be screened, as well as large collections of
compounds already synthesized by competitors and other compounds available from
chemical supply catalogues. The Company also competes with research departments
of biotechnology companies, combinatorial chemistry companies, governmental
agencies and research and academic institutions, both in the United States and
abroad. Many of these competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than the Company. The
Company anticipates that it will also face increased competition in the future
as new companies enter the market and advanced technologies are developed.
 
     The Company's chromatography separations business competes with several
companies that manufacture, market and sell chromatography separations and
purification systems. Many of these competitors have substantially greater
financial, technical and management resources and experience in marketing and
distribution of chromatography systems than the Company, and in some cases have
had long-term relationships with the Company's existing customers. In addition,
many therapeutic and diagnostic product manufacturers have traditionally
assembled their own chromatography systems. Furthermore, there can be no
assurance that any future affinity separations products developed using Phage
Display will become accepted as effective technology for use in purification
processes for the manufacture of pharmaceutical and other products. See
"-- Dependence on Collaborations and Licensing," "-- Limited Revenues to Date
from Separations Products; Need to Develop New Separations Products" and
"Business -- Competition."
 
                                       11
13
 
RELIANCE ON THIRD PARTIES FOR CONDUCT OF CLINICAL TRIALS AND MANUFACTURING
 
     The Company has no preclinical or clinical development expertise and
intends to rely on third parties to design and conduct most of these activities,
if required. In addition, the Company has no manufacturing facilities for
therapeutics and diagnostics and intends to rely on third parties to produce the
materials for preclinical and clinical development purposes and commercial
manufacture. If any of these third parties are unable to perform these functions
or if the Company should encounter delays or difficulties with any such
providers, the development of one or more products could be delayed, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Extensive Government Regulations; No
Assurance of Regulatory Approval; Hazardous Materials" and
"Business -- Government Regulation."
 
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL; HAZARDOUS
MATERIALS
 
     The Company is subject to extensive governmental regulatory requirements
and a lengthy approval process for any therapeutic and diagnostic product
candidates it may develop. The development and commercial use of any therapeutic
or diagnostic products that may be developed by the Company will be regulated by
numerous federal, state and local governmental authorities in the United States,
including the U.S. Food and Drug Administration (the "FDA"), and comparable
foreign regulatory authorities. Such regulations govern or influence, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, reporting, approval and advertising and promotion of such
products. The regulations are a significant factor in the production and
marketing of any therapeutic or diagnostic product that may be developed by any
of the Company's collaborative partners or licensees, or if the Company
discovers such a product candidate and decides to develop it beyond the
preclinical phase. The nature and the extent to which such regulation may apply
will vary depending on the product. Virtually all products developed by or on
behalf of the Company or its collaborative partners or licensees will require
regulatory approval by such authorities prior to commercialization. In
particular, therapeutic products are subject to rigorous preclinical and
clinical testing and other approval procedures established by the FDA and
foreign regulatory authorities. Non-compliance with applicable regulations can
result in clinical study holds or delays, total or partial suspension of
production, governmental refusal to grant approvals, warning letters, fines,
withdrawal, recall or seizure of products, and civil and criminal penalties. The
process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal and foreign regulations and statutes is time-consuming
(usually requiring five to more than ten years) and requires the expenditure of
substantial resources. Even if FDA regulatory approvals are obtained, a marketed
product is still subject to continuing review, and any later discovery of
previously unknown problems or the failure to comply with the applicable
regulatory requirements may result in product marketing restrictions or product
withdrawal or recall as well as possible civil or criminal sanctions. In
addition, manufacturing facilities for therapeutic and diagnostic products are
subject to inspection by the FDA and must comply with Good Manufacturing
Practice ("GMP") regulations. To ensure full technical compliance with such
regulations, a manufacturer must spend funds, time and effort in the areas of
production and quality control.
 
     FDA regulations also apply to the production facilities and processes used
to manufacture therapeutic and diagnostic products, including the Company's
separations products and technology used in such processes. The Company believes
that the manufacturing procedures for its separations products and the
manufacturing procedures of its media suppliers comply with FDA regulations, but
any determination to the contrary that has substantial potential to adversely
affect the safety or effectiveness of the product could have a material adverse
affect on the Company's separations business. In addition, any change by a
biopharmaceutical company in its manufacturing process or equipment could
necessitate additional FDA review and approval. Such requirements will make it
more difficult for the Company to sell separations products and processes to
customers that have already applied for or obtained FDA approval for production
processes using different chromatography equipment or separations media.
Post-approval changes in labeling or promotion may also necessitate further FDA
review and approval.
 
     The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use,
                                       12
14
 
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its activities currently comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that may result, and any such liability could exceed the
Company's insurance coverage, if applicable, and other resources of the Company.
In addition, there can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future. The occurrence of any such event or the incurrence of any such cost
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
 
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES
 
     The Company is highly dependent on the principal members of its management,
scientific and product development staff. The loss of one or more key members of
its staff could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain
key-man life insurance with respect to any of its employees and does not
currently intend to obtain such insurance. The Company's future success will
depend upon its ability to identify, hire, motivate and retain additional
qualified personnel. There is intense competition for such personnel and there
can be no assurance that the Company will be able to continue to attract and
retain such personnel. The failure to attract and retain key personnel would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Employees" and "Management."
 
DEPENDENCE ON EXPANSION OF OPERATIONS AND MANAGEMENT OF GROWTH
 
     The Company's success will depend upon the continued expansion of its
research and development and manufacturing operations, and its ability to enter
into additional collaborative and licensing arrangements. The Company's growth
has placed significant demands on the Company's management as well as its
administrative, technical, operational and financial resources. The Company's
ability to manage its growth will require it to improve and implement new
operational, financial and management information systems and to expand,
motivate and manage its workforce. No assurance can be given that the Company
will be successful in adding management and technical personnel as needed to
meet the staffing requirements for any additional collaborative relationships or
for any development, sales and/or marketing efforts. The failure to successfully
manage its expansion could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Need to Attract
and Retain Key Employees," "Business -- Collaborations" and
"Business -- Employees."
 
UNCERTAINTIES RELATED TO PRICING OF PRODUCTS AND THIRD PARTY REIMBURSEMENT
 
     The Company's realization of revenues with respect to therapeutic and
diagnostic products developed through Phage Display, if any, will depend in part
upon the extent to which reimbursement for the cost of such therapeutic and
diagnostic products will be available from third party payors, such as
government health administration authorities, private health care insurers,
health maintenance organizations and pharmacy benefits management companies.
Third party payors are increasingly challenging the prices charged for such
products. Significant uncertainty exists as to the reimbursement status of newly
approved pharmaceutical products. There can be no assurance that third party
reimbursement will be available or sufficient for any products developed through
Phage Display. The inability to maintain price levels for such products could
adversely affect the Company's business, financial condition and results of
operations. 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
governmental pricing control. Furthermore, in certain foreign markets, pricing
or profitability of prescription pharmaceuticals is subject to governmental
control.
 
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE
 
     The preclinical study, clinical development, manufacturing and marketing of
therapeutic and diagnostic products, as well as the testing, marketing and sale
of chromatography and other separations products exposes
                                       13
15
 
the Company to the risk of substantial product liability claims. There can be no
assurance that product liability claims will not be asserted against the Company
or that the Company will not experience material product liability losses in the
future. The Company currently maintains product liability insurance coverage for
its separations products, but there can be no assurance that the current
insurance will continue to be available on acceptable terms or that such
coverage will be adequate for liabilities actually incurred, if any. The Company
does not currently maintain product liability insurance for therapeutic or
diagnostic products and there can be no assurance that any such insurance
coverage will be available on acceptable terms, if and when the Company enters
clinical trials and commercializes any such product, or that such coverage will
be adequate for liabilities actually incurred. A successful claim brought
against the Company in excess of its insurance coverage would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
 
     Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial offering
price will be determined by negotiations between the Company and the
Representatives of the Underwriters and is not necessarily indicative of the
market price at which the Common Stock will trade after this Offering. The
market prices for securities of biotechnology and similarly capitalized
companies have been highly volatile, often for reasons that are unrelated to the
operating results of such companies. Announcements of technological innovations
or new commercial products by the Company or its competitors, developments
concerning proprietary rights, including patents and litigation matters,
publicity regarding actual or potential results with respect to products or
compounds under development by the Company or its collaborative partners,
regulatory developments in both the United States and abroad, public concern as
to the efficacy of new technologies, general market conditions and comments by
securities analysts, as well as quarterly fluctuations in the Company's revenues
and financial results among other factors, may have a significant impact on the
market price of the Common Stock. In particular, the realization of any of the
risks described in these "Risk Factors" could have a dramatic and adverse impact
on such market price. See "Underwriting."
 
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
 
     Upon completion of this Offering, the Company's executive officers,
directors and affiliates will beneficially own approximately 34.6% of the
outstanding shares of Common Stock (33.4% if the Underwriters' over-allotment
option is exercised in full). As a result, these stockholders will be able to
exercise effective control over all matters requiring stockholder approval,
including the election of directors, mergers and the sale of all or
substantially all of the assets of the Company. This may prevent or discourage
unsolicited acquisition proposals or offers for the Company's Common Stock. See
"Principal Stockholders" and "Description of Capital Stock -- Anti-Takeover
Measures."
 
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS; DELAWARE LAW
 
     The Company's form of Amended and Restated Certificate of Incorporation to
be filed upon or after the closing of this Offering (the "Restated Certificate
of Incorporation") authorizes the Company's Board of Directors to issue, without
stockholder approval, up to 1,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, the
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. In addition, the
possible issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Restated Certificate of Incorporation
provides for staggered terms for the members of the Company's Board of Directors
which, together with certain provisions of the Company's Amended and Restated
By-laws and the Delaware General Corporation Law applicable to the Company,
could delay or make more difficult a merger,
 
                                       14
16
 
tender offer or proxy contest involving the Company. Further, the Company's
equity incentive plans generally permit the Board of Directors to provide for
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company. In
addition, the Amended and Restated By-laws that will become effective upon the
closing of this Offering provide that the Company will be subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
restricts certain transactions and business combinations between a corporation
and a stockholder owning 15% or more of the corporation's outstanding voting
stock (an "interested stockholder") for a period of three years from the date
the stockholder becomes an interested stockholder. These provisions may have the
effect of delaying or preventing a change of control of the Company without
action by the stockholders and, therefore, could adversely affect the price of
the Company's Common Stock. See "Management," "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Anti-Takeover
Measures."
 
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
 
     A substantial portion of the net proceeds to be received by the Company in
connection with this Offering will be allocated to working capital and general
corporate purposes. The Company is not yet able to estimate with any precision
the allocation of the majority of the proceeds from this Offering among the uses
of proceeds identified in this Prospectus, and the timing and amount of
expenditures will vary depending upon numerous factors. Purchasers of the Common
Stock offered hereby will be entrusting their funds to the Company's Board of
Directors and management, who will have broad discretion to allocate proceeds of
this Offering to uses that they believe 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."
 
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
 
     Future sales of Common Stock in the public market following this Offering
could adversely affect the market price of the Common Stock. Upon completion of
this Offering, the Company will have 9,761,353 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or warrants.
Of these shares, the 2,500,000 shares sold in this Offering (plus any additional
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are held by "affiliates" of the
Company as that term is used under the Securities Act and the regulations
promulgated thereunder. Each holder who signed a lock-up agreement has agreed,
subject to certain limited exceptions, not to sell or otherwise dispose of any
of the shares held by them as of the date of this Prospectus for a period of 180
days after the date of this Prospectus without the prior written consent of
Smith Barney Inc. At the end of such 180-day period, approximately 7,652,090
shares of Common Stock (including approximately 457,296 shares issuable upon
exercise of vested options) will be eligible for immediate resale, subject to
compliance with Rule 144 and Rule 701. The remainder of the approximately 66,559
shares of Common Stock outstanding or issuable upon exercise of options or
warrants held by existing stockholders or option holders will become eligible
for sale at various times over a period of approximately two years, and could be
sold earlier if the holders exercise any available registration rights or upon
vesting pursuant to the Company's standard four year vesting schedule. The
holders of 5,831,516 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock will have the right in certain circumstances to
require the Company to register their shares under the Securities Act for resale
to the public. If such holders, by exercising their demand registration rights,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the market price for the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
registration rights, such sales may have an adverse effect on the Company's
ability to raise needed capital. In addition, the Company expects to file within
90 days after the date of this Prospectus registration statements on Form S-8
registering a total of approximately 2,282,000 shares of Common Stock, including
those outstanding shares which may be repurchased by the Company and shares
issuable upon exercise of outstanding stock options or reserved for issuance
under the Company's equity incentive plan and employee stock purchase plan. See
"Management -- Stock Plans," "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
                                       15
17
 
IMMEDIATE AND SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
 
     Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution estimated to be $     per share in the net
tangible book value of their investment from the initial offering price.
Additional dilution will occur upon the exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale." The Company has never paid
dividends on its Common Stock and does not anticipate paying any cash dividends
in the foreseeable future. The Company currently intends to retain its earnings,
if any, for the development of its business. See "Dividend Policy."
 
                                       16
18
 
                                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 are estimated to be approximately
$          ($          if the Underwriters' over-allotment option is exercised
in full) based on an assumed initial public offering price of $          per
share and after deducting the underwriting discounts and commissions and other
estimated offering expenses payable by the Company.
 
     The Company expects to use the net proceeds of this Offering primarily to
fund research and development, the retirement of $763,000 of outstanding debt
due upon completion of this Offering, and for working capital and general
corporate purposes, including possible technology in-licensing and acquisitions.
The Company is not yet able to estimate precisely the allocation of the proceeds
among such uses, and the timing and amount of expenditures will vary depending
upon numerous factors. The Company's Board of Directors and management retain
complete discretion with respect to the allocation of such proceeds and the
timing of expenditures. Although the Company may use a portion of the net
proceeds for possible in-licensing or acquisition of products and technologies
that are complementary to those of the Company, or acquisitions of complementary
businesses, there are currently no commitments in this regard. Pending such
uses, the Company plans to invest the net proceeds in investment grade,
interest-bearing securities. The Company intends to invest and use the proceeds
so as not to be considered an "investment company" under the Investment Company
Act of 1940, as amended.
 
     The Company believes that the net proceeds from this Offering and its
existing cash and cash equivalents will be sufficient to fund its operations
into the first half of 2000, although there can be no assurance that the Company
will not require additional funds prior to such date. Thereafter, the Company
may require additional funds to support its operating requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing would be obtainable on acceptable terms to the Company or would not be
dilutive. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional
Funding," "-- Broad Management Discretion in Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
 
                                DIVIDEND POLICY
 
     The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results,
restrictions imposed by financing arrangements, if any, legal and regulatory
restrictions on the payment of dividends, current and anticipated cash needs and
other factors that the Board of Directors deems relevant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
                                       17
19
 
                                 CAPITALIZATION
 
     The following table sets forth the actual and as adjusted capitalization of
the Company as of December 31, 1997. The as adjusted capitalization gives effect
to the conversion upon the closing of this Offering of shares of Convertible
Preferred Stock into shares of Common Stock and the issuance and sale by the
Company of 2,500,000 shares of Common Stock at an assumed initial public
offering price of $          per share (after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company) and the
application of the net proceeds therefrom. This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto, "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this Prospectus.
DECEMBER 31, 1997
                                                              -----------------------
                                                               ACTUAL     AS ADJUSTED
                                                              --------    -----------
                                                                  (IN THOUSANDS)
Current portion of long-term debt and capital lease
  obligations...............................................  $    155     $     87
                                                              ========     ========
Long-term debt and capital lease obligations, less current
  portion...................................................     1,078          383
                                                              --------     --------
Stockholders' equity (1):
  Class A Convertible Preferred Stock, $.01 par value;
     9,440,832 shares authorized in series; 8,944,043 shares
     issued and outstanding actual; $25,947,000 liquidation
     preference; none issued and outstanding as adjusted....    27,258           --
  Common Stock, $.01 par value; 20,000,000 shares
     authorized; 1,278,114 shares issued and outstanding
     actual; 30,000,000 shares authorized as adjusted;
     9,609,630 shares issued and outstanding as
     adjusted(2)............................................        13           96
  Additional paid-in capital................................    11,519
  Accumulated deficit.......................................   (30,704)     (30,704)
  Deferred compensation.....................................    (1,682)      (1,682)
  Accumulated foreign currency translation adjustment.......      (141)        (141)
                                                              --------     --------
          Total stockholders' equity........................  $  6,263     $
                                                              --------     --------
               Total capitalization.........................  $  7,341     $
                                                              ========     ========
---------------
(1) Effective upon the closing of this Offering, the Company's Restated
    Certificate of Incorporation will be further amended and restated to, among
    other matters, reduce the number of authorized shares of Preferred Stock
    from 9,440,832 to 1,000,000. See "Description of Capital Stock -- Preferred
    Stock."
 
(2) Excludes (i) 970,739 shares of Common Stock issuable upon the exercise of
    options outstanding at December 31, 1997 at a weighted average exercise
    price of $0.94 per share, of which options to purchase 233,165 shares of
    Common Stock were exercisable, and (ii) 27,022 shares of Common Stock
    issuable upon the exercise of warrants outstanding at December 31, 1997 at
    an exercise price of $3.97 per share. Reflects the conversion of 8,944,043
    shares of Convertible Preferred Stock into 5,831,516 shares of Common Stock
    upon the completion of this Offering. See "Management -- Stock Plans,"
    "Description of Capital Stock," "Use of Proceeds," "Selected Consolidated
    Financial Data" and Note 9 to Notes to Consolidated Financial Statements.
 
                                       18
20
 
                                    DILUTION
 
     The net tangible book value of the Company as of December 31, 1997 was
$6,047,000, or $0.85 per share of outstanding Common Stock. Net tangible book
value per share is determined by dividing the amount of the Company's total
tangible assets less total liabilities by the number of outstanding shares of
Common Stock, which includes the conversion of all outstanding Convertible
Preferred Stock at the closing of this Offering. After giving effect to the sale
by the Company of 2,500,000 shares offered hereby (at an assumed initial public
offering price of $          per share and after deducting the underwriting
discounts and commissions and other estimated offering expenses), and the
application of the net proceeds therefrom, the net tangible book value of the
Company at December 31, 1997 would have been $     million, or $          per
share. This represents an immediate increase in such net tangible book value of
$          per share to existing stockholders and an immediate dilution of
$          per share to new stockholders purchasing shares in this Offering. The
following table illustrates this dilution per share:
Assumed initial public offering price per share.............           $
                                                                       -----
  Net tangible book value per share before Offering.........  $0.85
  Increase per share attributable to new investors..........
                                                              -----
Net tangible book value per share after Offering............
                                                                       -----
Dilution per share to new investors(1)......................           $
                                                                       =====
---------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
    per share to new investors would be $         .
 
     The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between the existing stockholders and the new investors
with respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid.
SHARES PURCHASED       TOTAL CONSIDERATION       AVERAGE
                                        --------------------    ----------------------      PRICE
                                         NUMBER      PERCENT      AMOUNT       PERCENT    PER SHARE
                                        ---------    -------    -----------    -------    ---------
Existing stockholders.................  7,109,630       74%     $37,207,000         %       $5.23
New investors.........................  2,500,000       26
                                        ---------      ---      -----------      ---
          Total.......................  9,609,630      100%                      100%
                                        =========      ===      ===========      ===
The foregoing tables and calculations assume no exercise of warrants or
stock options outstanding at December 31, 1997, at which date there were 970,739
shares of Common Stock issuable upon exercise of outstanding options at a
weighted average exercise price of $0.94 per share, of which options to purchase
233,165 shares of Common Stock were exercisable, and 27,022 shares of Common
Stock issuable upon exercise of outstanding warrants at an exercise price of
$3.97 per share. See "Management -- Stock Plans" and "Description of Capital
Stock." To the extent that such options become vested and are exercised, or the
warrants are exercised, there will be further dilution to new investors. See
"Risk Factors -- Immediate and Substantial Dilution; Absence of Dividends."
 
                                       19
21
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data with respect to the
Company's statement of operations data for each of the three years in the period
ended December 31, 1997 and with respect to the Company's balance sheet data at
December 31, 1996 and 1997 are derived from consolidated financial statements of
the Company which have been audited by Coopers & Lybrand L.L.P., independent
accountants, and are included elsewhere herein. The statement of operations data
for the years ended December 31, 1993 and 1994 and the balance sheet data for
December 31, 1993, 1994 and 1995 are also derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements and Notes thereto and other financial information included herein.
The historical results are not necessarily indicative of the results to be
expected in the future.
YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                              --------   --------   --------   --------   --------
                                                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
 
  Revenues:
     Product sales..........................  $  4,099   $  2,713   $  3,592   $  4,478   $  7,625
     Product development....................        --         --        428      1,060      1,440
     License fees...........................        --         --         --      1,499        711
                                              --------   --------   --------   --------   --------
          Total revenues....................  $  4,099   $  2,713   $  4,020   $  7,037   $  9,776
                                              --------   --------   --------   --------   --------
  Operating expenses:
     Cost of products sold..................     2,792      1,794      1,952      2,046      3,174
     Research and development...............       894        894      1,343      3,140      5,575
     Selling, general and administrative....     3,054      2,604      2,710      4,170      6,827
     Other expenses(1)......................        --         --      4,554         --         --
                                              --------   --------   --------   --------   --------
          Total operating expenses..........     6,740      5,292     10,559      9,356     15,576
                                              --------   --------   --------   --------   --------
  Loss from operations......................    (2,641)    (2,579)    (6,539)    (2,319)    (5,800)
  Interest income (expense), net............       (97)       (89)       (46)       (78)       265
                                              --------   --------   --------   --------   --------
  Net loss..................................  $ (2,738)  $ (2,668)  $ (6,585)  $ (2,397)  $ (5,535)
                                              ========   ========   ========   ========   ========
  Net loss per common share:
     Historical(2):
       Basic and diluted....................  $ (30.88)  $ (28.16)  $ (27.53)  $  (2.38)  $  (5.14)
                                              ========   ========   ========   ========   ========
       Weighted average number of
          shares -- basic and diluted.......    88,667     94,755    239,212   1,006,730  1,076,469
                                              ========   ========   ========   ========   ========
     Pro forma (unaudited)(3):
       Basic and diluted....................                                              $  (0.83)
                                                                                          ========
       Weighted average number of
          shares -- basic and diluted.......                                              6,706,680
                                                                                          ========
DECEMBER 31,
                                              ----------------------------------------------------
                                                1993       1994       1995       1996       1997
                                              --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS)
BALANCE SHEET DATA:
  Cash and cash equivalents.................  $  1,951   $    227   $  1,959   $  8,591   $  4,664
  Working capital...........................     2,657         36      1,870      9,241      5,905
  Total assets..............................     6,296      3,300      4,692     12,236     10,532
  Long-term debt and capital lease
     obligations, less current portion......        43         --      2,097        770      1,078
  Accumulated deficit.......................   (13,519)   (16,187)   (22,772)   (25,169)   (30,704)
  Total stockholders' equity................     4,414      1,666        705      9,321      6,263
---------------
(1) Includes write-offs of an intangible asset in the amount of $456,000 and
    incomplete technology in the amount of $4,098,000 in the year ended December
    31, 1995. Also excludes the results of operations of PEC for periods before
    its acquisition by the Company on August 11, 1995.
(2) Reflects a 0.1352-for-1 reverse stock split effected on March 23, 1998, each
    of which is applied retroactively for all years presented. Weighted average
    number of shares for the years ended December 31, 1993 and 1994 and the
    period from January 1, 1995 to August 10, 1995 reflects shares of Biotage,
    Inc. prior to the acquisition of PEC.
(3) See Note 2 of Notes to Consolidated Financial Statements for a description
    of the computation of pro forma net income (loss) per share. Based on the
    number of shares outstanding as of December 31, 1997, after giving effect to
    the conversion of all of the outstanding shares of Preferred Stock into
    Common Stock. Excludes 970,739 shares of Common Stock issuable upon the
    exercise of outstanding stock options, 940,717 shares of Common Stock
    reserved for future issuance under the Company's 1995 Equity Incentive Plan
    and 27,022 shares of Common Stock issuable upon the exercise of outstanding
    warrants, as of such date. See "Management -- Stock Plans," "Description of
    Capital Stock" and "Shares Eligible for Future Sale."
                                       20
22
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and 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 be read as being applicable to all related forward-looking statements
wherever they appear in this 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 in this Prospectus.
 
OVERVIEW
 
     Dyax's Phage Display has broad potential commercial applications in the
fields of therapeutic, diagnostic and separations products. Phage Display is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name.
 
     The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA government regulations and approval requirements.
 
     The Company has a history of operating losses. For the years ended December
31, 1995, 1996 and 1997, the Company had net losses of approximately $6.6
million, $2.4 million, and $5.5 million, respectively. As of December 31, 1997,
the Company had an accumulated deficit of approximately $30.7 million. The
Company anticipates that its research and development efforts will increase
significantly in the future and it expects to incur significant operating losses
over the next several years. There can be no assurance that the Company will
ever be able to generate sufficient revenues from the sale of products to offset
the expenses of these efforts. The Company has not realized any significant
revenues from the achievement of milestones or royalties from the discovery,
development or sale of a commercial product by a collaborative partner or
licensee and no significant revenue from these sources is expected for at least
several years, if ever. To date, all revenues have been generated from: (i)
sales of chromatography separations systems and products; (ii) signing and
maintenance fees paid for licenses of Phage Display patents; and (iii) research
and development funding paid by the Company's collaborative partners. The
Company's ability to achieve profitability will depend upon its ability, alone
or with others, to introduce new chromatographic separations products, to
develop affinity separations products derived from Phage Display, to complete
discovery and development of therapeutic and diagnostic lead compounds and to
establish additional collaborative arrangements. There can be no assurance that
the Company will ever be able to achieve or sustain profitability. See "Risk
Factors -- History of Operating Losses and Accumulated Deficit; Uncertainty of
Future Profitability."
 
     The Company has experienced significant fluctuations in its revenues and
operating results from quarter to quarter and year to year, and it expects these
fluctuations to continue in the future. The Company also expects that an
increasingly significant portion of its anticipated revenues for the foreseeable
future will be comprised of up-front fees and research and development funding
paid pursuant to collaborative and licensing arrangements. The Company believes
that future fluctuations in revenues and results may depend on various factors,
such as the timing of the Company's increased research and development expenses,
the establishment of new collaborations, the development and commercialization
programs of current and prospective collaborative partners, the completion of
certain milestones and the purchases of larger separations equipment systems by
customers. The Company's current and planned expense levels are, to a large
extent, fixed in the short term, and are based in part on its expectations as to
future revenues. Substantially all of the Company's product development revenue
in 1995 and 1996, and less than 10% of product development revenue in 1997,
 
                                       21
23
 
was generated by one such collaborative arrangement, which was terminated in
1998. In the first quarter of 1998, the Company is receiving research funding
under eleven collaborative arrangements and anticipates that in 1998 no single
collaborative arrangement will contribute a majority of the Company's research
revenue. In any one fiscal quarter, however, the Company may receive no payments
from its collaborative partners. Consequently, results of operations are
difficult to forecast and may vary significantly from quarter to quarter or year
to year and revenue or results in any period will not necessarily be indicative
of results in subsequent periods and should not be relied upon as any indication
of future performance. Such quarterly fluctuations in revenue or financial
results will from time to time not meet the expectations of market analysts or
investors, which may have a material adverse effect on the price of the
Company's Common Stock. See "Risk Factors -- Significant Fluctuations in
Revenues and Operating Results."
 
     The Company's product sales are derived from sales of Biotage
chromatography separations systems and products. The Company's product
development revenues are derived from collaborative product development
agreements and may include signing fees, funding for research and development,
payments based on the achievement of certain future milestones and future
royalties on any product sales derived from the collaboration. The Company's
license fees are generated from non-exclusive licenses the Company grants to
third parties to use the Company's patent rights. Standard terms of the license
agreements generally include non-refundable signing fees, non-refundable annual
maintenance fees, milestone payments and royalties on product sales.
 
RESULTS OF OPERATIONS
 
  Years Ended December 31, 1997 and 1996
 
     Total revenue increased 39% to $9,776,000 for the year ended December 31,
1997 from $7,037,000 for the year ended December 31, 1996. For 1997, product
sales increased 70% to $7,625,000 from $4,478,000 for 1996, as the Company added
to its separations sales and marketing personnel and introduced new separations
products. The 36% increase in product development revenue to $1,440,000 in 1997
from $1,060,000 in 1996 resulted from new research discovery collaborative
arrangements established during 1997, principally to fund research using Phage
Display in the field of separations. The 53% decrease in license revenue to
$711,000 for 1997 from $1,499,000 for 1996, was due to a single $1,000,000
paid-up license fee from a single customer received and recorded in 1996.
 
     The cost of products sold increased to $3,174,000 for the year ended
December 31, 1997 from $2,046,000 for the year ended December 31, 1996 following
increases in product sales from year to year. The cost of products sold as a
percentage of product sales in 1997 was 42% compared with 46% in 1996. The
decrease in cost of products sold as a percentage of product sales was
principally the result of changes in product mix and, to a lesser extent,
increased manufacturing efficiencies resulting from higher unit volumes.
 
     Research and development expense increased 78% to $5,575,000 for the year
ended December 31, 1997 from $3,140,000 for the year ended December 31, 1996.
The increase is accounted for by funded research for the new research discovery
collaborative arrangements in the field of separations entered into during 1997
together with increases in the Company's ongoing internal efforts to develop
products in therapeutics, diagnostics and separations. In addition to the direct
costs associated with the increase in scientific personnel, 1997 included twelve
months of expenses associated with expanded laboratory facilities occupied at
the end of September 1996.
 
     Selling, general and administrative expenses increased 64% to $6,827,000
for the year ended December 31, 1997 from $4,170,000 for the year ended December
31, 1996 as the Company invested in increasing its separations sales and
marketing forces both domestically and in Europe to support current and planned
increases in product sales and in support of expanded revenues, research and
general operations.
 
     Interest income for the year ended December 31, 1997 and the year ended
December 31, 1996 was derived from investment of excess cash reserves in money
market funds, with a higher average invested balance accounting for the increase
in 1997 over 1996. Interest expense is related to long-term debt outstanding in
both 1997 and 1996.
 
     The net loss for the year ended December 31, 1997 was $5,535,000 compared
to $2,397,000 for the year ended December 31, 1996.
                                       22
24
 
  Years Ended December 31, 1996 and 1995
 
     Total revenue increased 75% to $7,037,000 for the year ended December 31,
1996 from $4,020,000 for the year ended December 31, 1995. For 1996, product
sales increased 25% to $4,478,000 from $3,592,000 for 1995. The 148% increase in
product development revenue to $1,060,000 in 1996 from $428,000 in 1995 resulted
principally from increased activity during 1996 in a research discovery
collaborative arrangement established during 1995 with one customer. The
Company's technology license program began in 1996 and included a single
$1,000,000 paid-up license fee from one customer.
 
     The cost of products sold increased to $2,046,000 for the year ended
December 31, 1996 from $1,952,000 for the year ended December 31, 1995 following
increases in product sales from year to year. The cost of products sold as a
percentage of products sales in 1996 was 46% compared with 54% in 1995. The
decrease in cost of products sold as a percentage of product sales was
principally the result of changes in product mix and, to a lesser extent,
increased manufacturing efficiencies resulting from higher unit volumes.
 
     Research and development expenses increased 134% to $3,140,000 for the year
ended December 31, 1996 from $1,343,000 for the year ended December 31, 1995.
The increase was principally accounted for by the increase in funded research
for the new research discovery collaborative arrangement entered into during
1995, increases in the Company's ongoing internal efforts developing products in
therapeutics, imaging and separations and the effects of the merged operations
of PEC included for a full year in 1996 as compared to approximately four and
one-half months during 1995. In addition to the direct costs associated with the
increase in scientific personnel, 1996 included three months of expenses
associated with expanded laboratory facilities occupied at the end of September
1996.
 
     Selling, general and administrative expenses increased 54% to $4,170,000
for the year ended December 31, 1996 from $2,710,000 for the year ended December
31, 1995 principally as a result of increased expenditures for research and
general operations to support increased revenue levels. In addition, this
increase was due in part to additions to a core management team to support its
expanding business activities.
 
     During the year ended December 31, 1995, the Company wrote off $456,000 of
intangible assets acquired in a previous period and $4,098,000 of incomplete
technology in connection with its acquisition of PEC. There were no comparable
transactions during the year ended December 31, 1996.
 
     Interest income for the year ended December 31, 1996 and the year ended
December 31, 1995 was derived from investment of excess cash reserves in money
market funds. Interest expense is related to long-term debt outstanding in both
1996 and 1995.
 
     The net loss for the year ended December 31, 1996 was $2,397,000 compared
to $6,585,000 for the year ended December 31, 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has funded its operations since its merger with PEC in 1995
principally through product sales, funding received from product development
collaborative arrangements, license fees, interest income on excess cash
reserves, sales of equity securities (which provided aggregate net cash proceeds
during this period of approximately $15,639,000) and capital leases.
 
     At December 31, 1997, the Company had cash and cash equivalents totaling
$4,664,000. Cash in the amount of $5,720,000 was used by operating activities
during the year ended December 31, 1997. The Company purchased $961,000 of fixed
assets and repaid $121,000 of long-term debt during 1997. The Company received
$2,573,000 of net proceeds from the sale of Convertible Preferred Stock and the
exercise of stock options and $445,000 of net proceeds from a sale-leaseback of
fixed assets in 1997.
 
     The Company anticipates that its existing capital resources, including the
net proceeds from this Offering, will be adequate to fund the Company's
operations at least into the first half of 2000. The Company will need
additional debt or equity financing before that date if the Company's cash
requirements exceed its current expectations, if the Company generates less
revenue than currently projected, or if the Company is unable to raise all of
the funding contemplated by this Offering. The Company's capital requirements
depend on
                                       23
25
 
numerous factors, including the ability of the Company to enter into additional
collaborative arrangements, competing technological and market developments,
changes in the Company's existing collaborative relationships, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the purchase of additional capital equipment, the
progress of the Company's drug discovery and separations technology programs and
the progress of the commercialization of milestone and royalty-bearing compounds
by the Company's collaborative partners. The Company anticipates that it will be
required to raise additional capital in order to continue to conduct its
operations. Such capital may be raised through additional public or private
financings, as well as collaborative arrangements, borrowings and other
available sources. To the extent that additional capital is needed, it may be
raised through the sale of equity or convertible debt securities, and the
issuance of such securities could result in dilution to the Company's existing
stockholders. There can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to curtail operations significantly or to
obtain funds through entering into arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets that the Company
would not otherwise relinquish. The failure to receive additional funding would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding." There can be no assurance that the Company's
existing separations business, collaborative arrangements and non-exclusive
licensing program will produce revenue adequate to fund the Company's operating
expenses. See "Risk Factors."
 
     The Company believes that inflation has had no significant impact on the
Company's business to date.
 
RECENTLY ISSUED FINANCIAL AND ACCOUNTING STANDARDS
 
     In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 130 and SFAS No. 131,
which require the Company to report and display certain information related to
comprehensive income and operating segments, respectively, as required in the
year ending December 31, 1998. The Company believes that the adoption of SFAS
No. 130 and SFAS No. 131 will not adversely impact the Company's business,
financial condition or results of operations.
 
YEAR 2000
 
     The Company is aware of the issues that many computer systems will face as
the millennium ("Year 2000") approaches. The Company already has installed Year
2000 compliant software in many of its major systems. The cost of the effort to
complete this activity for the balance of the Company's systems is not expected
to be material. The Company believes that the Year 2000 issue will not pose
significant operational problems. However, Year 2000 issues could have a
significant impact on the Company's business, financial condition and results of
operations if modifications cannot be completed on a timely basis, unforeseen
needs or problems arise, or if the systems operated by suppliers, collaborative
partners or licensees are not Year 2000 compliant.
 
                                       24
26
 
                                    BUSINESS
 
OVERVIEW
 
     Dyax's Phage Display has broad potential commercial applications in the
fields of therapeutic, diagnostic and separations products. Phage Display is a
versatile, high throughput technology platform which the Company believes can
reduce costs, shorten development times and lead to the commercialization of
more effective products in these fields. The Company also develops, manufactures
and sells fully-integrated chromatography separations systems under the Biotage
trade name. Dyax is using Phage Display and its expertise in separations
technology to pursue a diversified business strategy of non-exclusive patent
licensing, discovery and development of therapeutic and diagnostic products and
the development of innovative chromatography and affinity separations products.
Dyax currently has licensed its Phage Display patents to more than 25 companies,
is engaged in four corporate collaborative partnerships and is performing or has
completed eight funded discovery projects. In addition, the Company has sold its
current line of Biotage chromatography separations products to over 50
pharmaceutical and biotechnology companies. Dyax is generating near-term
revenues from sales of its separations products, funding from sponsored research
and fees from patent licenses, while maintaining a long-term focus on its
therapeutic and diagnostic product development programs, the expansion of
existing separations product lines and the development of affinity separations
products.
 
BACKGROUND
 
     Molecular binding is the key to the function of most therapeutic,
diagnostic and separations products. The binding of a molecule to another
molecule (target) is the mechanism nature uses to modulate biochemical and
physiological processes such as cellular growth, differentiation, metabolism and
death. To effect these processes, naturally occurring binding molecules
typically distinguish between the correct target and other closely related
molecules (specificity) and bind tightly to the target (affinity) under
appropriate physiological conditions. Therapeutic and diagnostic products bind
to targets, including cellular receptors, ion channels or enzymes, to achieve a
desired effect, and are generally selected for their binding specificity and
affinity for the target. Binding also plays a significant role in the
separations products used to purify material for the development and manufacture
of a therapeutic product.
 
     The discovery, development and commercialization of effective therapeutic,
diagnostic and separations products is a time consuming, risky and expensive
process. For therapeutic products, the process starts with the identification of
a target that is involved in a disease. The safety and efficacy of a therapeutic
product is dependent on its specificity and affinity for the target. Scientists
typically screen libraries containing tens to hundreds of thousands of naturally
occurring or synthesized chemical compounds to identify those that bind to the
target. These binding compounds are then optimized one at a time via iterative
design, synthesis and testing to achieve desired binding specificity and
affinity for the target. Although combinatorial chemistry, computer modeling and
automated laboratory equipment have increased the throughput of the screening
and optimization process, the number of compounds that can be evaluated is still
limited by the time and cost required for chemical synthesis of each selected
compound. The accuracy of in vitro and in vivo diagnostic products also is
dependent on high specificity and high affinity binding to the target. Mouse
monoclonal antibodies continue to be the dominant type of binding compound used
for the development of diagnostic products. However, the generation of antibody
products using an animal system is a time-consuming, costly process and cannot
be used for targets that are toxic or nonimmunogenic to the animal. Products
used in traditional separations processes to purify therapeutic compounds also
rely on binding. These multi-step processes generally involve chromatography,
the separation of different molecules through media in a column. Separations
processes are typically developed through time-consuming trial and error and can
constitute over 50% of the cost to manufacture a therapeutic product for
commercialization. The failure to achieve high specificity and high affinity
binding can result in side effects, toxicities and low levels of efficacy for
therapeutic products, inaccurate results for diagnostic products and reduced
yield and purity achieved with separations products.
 
                                       25
27
 
THE DYAX SOLUTION
 
     The Company believes that Phage Display can reduce costs, shorten
development times and lead to the commercialization of more effective
therapeutic, diagnostic and separations products. Phage Display is a versatile,
high throughput technology platform that is used for the discovery and
development of binding compounds. Using the speed and diversity of a
self-replicating biological system, Phage Display allows scientists to generate
and screen quickly up to hundreds of millions of potential binding compounds to
identify more rapidly those compounds that bind with the desired specificity and
affinity to a target of interest under predetermined conditions. In the
discovery of therapeutic products, scientists can use Phage Display to identify
high specificity and high affinity binding compounds more rapidly than by other
existing methods. In the discovery of diagnostic products, Phage Display can be
used to identify and isolate specific binding compounds, including antibodies,
more reliably and efficiently than by using an animal system. For separations
processes, the Company believes that Phage Display can provide a powerful tool
to develop products to purify therapeutic products more cost effectively and
efficiently, thereby streamlining the development of manufacturing processes for
these products.
 
     Living organisms, such as viruses, have the ability to present (display) a
foreign gene product (protein) on their surfaces. Beginning in the late 1980's,
scientists began exploring the use of such organisms as a means for the display
and identification of proteins of interest. Dyax scientists developed Phage
Display, a patented technology for displaying large collections of proteins on
filamentous "phage," a virus which infects laboratory bacteria. Dyax's Phage
Display has become the preferred method to display and select proteins with
desired binding properties.
 
  Features and Advantages of Phage Display
 
     The Company's Phage Display process generally consists of: (i) generating a
Phage Display library; (ii) screening the library and isolating phage that
display proteins (including structured peptides) that bind to the target of
interest; and (iii) producing and characterizing the selected binding compounds.
To start the Phage Display process, genes containing the instructions to produce
and display a wide variety of new proteins are inserted into phage genomes. Each
phage receives one distinct gene variant and, therefore, displays only one new
protein on its surface. The collection of phage produced in this manner is known
as a Phage Display "library." A Phage Display library can be generated in a few
weeks and can contain up to hundreds of millions of proteins that are potential
binding compounds. Scientists can screen Phage Display libraries to select
rapidly those proteins or peptides that bind to a target of interest. Screening
a Phage Display library involves exposing a Phage Display library to the target
under conditions in which binding is desired, removing phage that do not bind to
the target, dissociating bound phage from the target and amplifying the bound
phage by infecting laboratory bacteria. Screening is performed in small volumes,
usually less than one milliliter, in standard 96-well plates, and can generally
be done in a single day. Phage selected in the first round of screening are
generally amplified through growth in the host bacteria and rescreened to narrow
down the collection of phage to those that display binding compounds with
desired binding properties. The selected phage can then be amplified to produce
sufficient quantities for initial evaluation and identification of lead
compounds. See "-- Dyax Technology."
 
     The Company believes that Phage Display has the following advantages for
the identification of binding compounds:
 
     Diversity:  Phage Display libraries can contain up to hundreds of millions
of potential binding compounds that are variations based on a single protein or
peptide framework. The size of the library (diversity) significantly improves
the likelihood of identifying binding compounds with high specificity and high
affinity for the target. This diversity is far greater than that achievable with
current combinatorial chemistry approaches.
 
     Speed:  Phage Display libraries usually can be generated in a few weeks and
screened several times in a few days to identify a group of related binding
compounds. Using conventional or combinatorial chemistry approaches, this
process would generally require between several months and several years to
complete. The
 
                                       26
28
 
Company believes that Phage Display can therefore reduce significantly the time
and expense required to identify compounds with desired binding characteristics.
 
     Amplification:  Phage Display is based on a self-replicating biological
system. Accordingly, the phage displaying a selected binding compound will
replicate into millions of identical copies in its bacterial host in less than
one day. This provides sufficient phage for initial characterization of the
displayed binding compound. Once generated, an entire Phage Display library can
be amplified and stored and subsequently used for a potentially unlimited number
of screenings. By comparison, amplification of compounds and libraries developed
using combinatorial chemistry approaches requires significant additional time
and resources for chemical synthesis.
 
     Rapid Optimization:  Screening of Phage Display libraries results in the
identification of groups of related binding compounds with high specificity and
high affinity for the desired target. These compounds can then be used as the
basis for successive generations of Phage Display libraries. Due to the relative
ease of library generation, Phage Display enables the rapid optimization of
compounds for the desired binding specificity and affinity.
 
     Controlled Binding and Release:  Phage Display can also be used to select
compounds which alternately bind to and release from a target under specific
conditions (e.g., changes in acidity or salt concentration or the presence of
contaminants) that simulate those encountered in a separations process used in
the manufacture of a therapeutic product. The Company believes that this ability
to control or predetermine the conditions under which selected compounds bind
and release will result in the development of more efficient and cost effective
separations products.
 
     Focused Design:  Each Phage Display library is generated based on a single
protein or peptide framework that allows scientists to select the desired
product properties such as structure, size, stability and lack of
immunogenicity. During library design, the exact degree and location of the
variability is controlled allowing for the conservation of certain of the
original framework characteristics.
 
     Small Molecule Design and Discovery:  The structural information of binding
compounds identified using Phage Display can be used to design small molecule
(nonpeptidic) compounds with comparable binding activity. Alternatively, Phage
Display-derived binding compounds can be used both for target validation and in
high throughput competitive binding assays to screen panels of small molecules
for those that interact at the same binding sites on the therapeutic targets.
 
BUSINESS STRATEGY
 
     Dyax is using Phage Display and its expertise in separations technology to
pursue a diversified business strategy of non-exclusive patent licensing,
discovery and development of therapeutic and diagnostic products, and
development of innovative chromatography and affinity separations products. Dyax
is generating near-term revenues from sales of its separations products, funding
from sponsored research and fees from patent licenses, while maintaining a
long-term focus on its therapeutic and diagnostic product development programs,
the expansion of existing separations product lines and the development of
affinity separations products. The following are the principal elements of the
Company's strategy:
 
     License Phage Display:  Dyax intends to continue to license its Phage
Display patents widely to permit and encourage the broad application of Phage
Display, and to obtain revenues from license fees, potential milestone payments
and royalties on Phage Display-derived products. Dyax offers non-exclusive
licenses in the fields of therapeutics, antibody-based in vitro diagnostics and
Phage Display research kits. Under these licenses, Dyax has retained all rights
to practice Phage Display in the fields of separations and in vivo imaging. To
date, more than 25 companies are licensed under Dyax's Phage Display patents.
 
     Discover and Internally Develop Therapeutic and Diagnostic Leads:  To date,
Dyax has used Phage Display to identify three proprietary lead therapeutic
compounds with potential applications that include inflammatory diseases and
certain cancers and one lead diagnostic compound for in vivo imaging of
inflammation. Dyax intends to discover and develop additional leads and
anticipates that initial leads arising from internally funded programs will be
selected for therapeutic and diagnostic targets that are readily available
 
                                       27
29
 
in the public domain; however, the Company intends to identify new leads for
therapeutic and diagnostic targets that it discovers or licenses from others.
Dyax also plans to pursue an internally funded program to use Phage Display to
identify and develop new targeting agents for in vivo imaging using nuclear
medicine.
 
     Leverage Phage Display Through Collaborations:  Dyax is leveraging its
proprietary technology in the fields of therapeutics, diagnostics and
separations by entering into discovery and development collaborative
arrangements with biotechnology, pharmaceutical and diagnostics companies. The
Company currently is engaged in four collaborative arrangements and to date is
performing or has completed more than eight funded lead discovery projects.
Under these arrangements, Dyax is generally entitled to receive research funding
and potential long-term revenue upon commercialization of any resulting
products. The Company intends to enter into additional collaborative
arrangements for new lead discovery and preclinical and clinical evaluation of
its current and future lead therapeutic and diagnostic compounds, while
potentially retaining product rights by field or geographic area.
 
     Continue to Develop and Market Innovative Separations Products:  Dyax
believes that it is well positioned to meet the purification challenges of
complex therapeutic products such as proteins and vaccines. The Company intends
to leverage its existing Biotage chromatography product line through the
introduction of innovative separations products designed to meet the emerging
needs of the combinatorial chemistry and genomics markets and the continued
development of affinity separations products using Phage Display. Through
collaborative arrangements with pharmaceutical and biotechnology companies, Dyax
is using Phage Display to identify binding compounds, known as "affinity
ligands," that can potentially be used in products designed to purify quickly
and inexpensively therapeutics in commercial quantities. Dyax plans to develop
proprietary affinity separations products for purifying a customer's specific
compound and for separating classes of molecules that may be used by a number of
customers.
 
DYAX PROGRAMS AND PRODUCTS
 
     Dyax's business activities consist of: (i) a patent licensing program; (ii)
discovery and development programs in therapeutics, in vivo imaging and other
diagnostics; and (iii) the manufacture and sale of its Biotage chromatography
products and systems and research and development of innovative separations
products. See "Risk Factors -- Dependence on Phage Display; New and Uncertain
Technology; No Clinical Trials or Sales of Phage Display-Derived Products to
Date."
 
  Patent Licensing Program
 
     The Company has established a broad licensing program of its Phage Display
patents for use in the fields of therapeutics, antibody-based in vitro
diagnostics and Phage Display research kits. Through this program, Dyax grants
companies and research institutes non-exclusive licenses to practice Dyax's
Phage Display patents in their discovery and development efforts in the licensed
fields. Since the inception of this licensing program in 1996, the Company has
licensed more than 25 companies. Dyax believes that the success of its patent
licensing program provides support for its patent position in Phage Display and
the utility of Phage Display as an enabling discovery technology. Under these
licenses, Dyax has retained all rights to practice Phage Display in the fields
of separations and in vivo imaging.
 
     The Company's license agreements generally provide for a signing fee,
annual maintenance fees, milestone payments based on successful product
development and royalties based on any future product sales. In addition, under
the terms of the standard license, the licensee covenants not to sue the Company
under certain of the licensee's Phage Display improvement patents, which the
Company believes gives it greater freedom to practice enhancements of Phage
Display. To date, licensees have been offered standardized payment terms or, for
certain fields, the ability to choose from a matrix of fees and royalties. The
matrix generally ranges from lower signing and maintenance fees with higher
milestone payments and royalties to higher signing and maintenance fees with
lower milestone payments and royalties. The fees and royalty rates under this
program are subject to change from time to time. In the case of Affymax
Technologies, N.V. (and its parent, Glaxo Wellcome PLC), Dyax negotiated a fully
paid-up license. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
                                       28
30
 
     The Company's licensees include Affymax Technologies, N.V. (and its parent,
Glaxo Wellcome PLC), Bristol-Myers Squibb Company, Cambridge Antibody Technology
Limited, Chiron Corporation, Chugai Biopharmaceuticals, Inc., Corvas
International, Inc., Cytogen Corporation, DuPont Merck Pharmaceutical Company,
Genzyme Corporation, IGEN International, Inc., Invitrogen Corp., Merck & Co.,
Inc., Millennium BioTherapeutics, Inc., Monsanto Company, MorphoSys GmbH, New
England BioLabs, Inc., Novagen, Inc., Pharmacia Biotech Inc., Pharmacia &
Upjohn, Co., Praecis Pharmaceuticals Inc., Prizm Pharmaceuticals, Inc., R.W.
Johnson Pharmaceutical Research Institute, Scios, Inc., Tera Biotechnology
Corporation, The Burnham Institute and Utrecht Biotechnology Systems B.V. The
Company expects that the number of its licensees will change from time to time.
 
  Therapeutic and Diagnostic Discovery and Development Programs
 
     Dyax is using Phage Display independently and through collaborative
arrangements to discover and develop therapeutic and diagnostic product
candidates. The following table summarizes the Company's therapeutic and
diagnostic discovery and development programs. This table is qualified in its
entirety by reference to the more detailed descriptions appearing elsewhere in
this Prospectus.
 
                    DYAX THERAPEUTIC AND DIAGNOSTIC PROGRAMS
LEAD
        DISEASE AREA/INDICATION              COMPOUND           STATUS            COLLABORATOR
        -----------------------              --------           ------            ------------
THERAPEUTICS:
Pulmonary Inflammation/Cystic Fibrosis    EPI-HNE4          Preclinical(1)    Debiopharm S.A.
 
Chronic Inflammation/Rheumatoid           EPI-KAL2          Lead                       --
  Arthritis and Inflammatory Bowel                          Identified(2)
  Disease
 
Cancer/Prostate Cancer                    EPI-PLA2          Lead                       --
                                                            Identified(2)
DIAGNOSTICS:
Inflammation/Infection                    EPI-HNE4          Preclinical(1)    University of
                                                                              Massachusetts
                                                                              Medical Center
Pulmonary Disease/Deep Vein Thrombosis    --                Discovery(3)      EPIX Medical Inc.
  and Pulmonary Embolism
---------------
(1) "Preclinical" indicates efficacy and toxicology testing in vitro and in
    animals and may include process development and manufacturing scale-up for
    initial trials.
 
(2) "Lead Identified" indicates that a lead compound has been identified that
    meets certain criteria, but which may need to be further evaluated or
    modified before preclinical development, if any.
 
(3) "Discovery" indicates initial Phage Display screening or molecular design of
    a group of compounds before a lead compound is identified.
 
  Therapeutics
 
     The first step in the discovery and development of a therapeutic product is
generally the identification of a molecular target that is involved in a
disease. Once a target has been identified, the next step is typically a search
for a compound that will bind to this target to achieve a desired effect. This
time-consuming and costly step includes the screening of conventional libraries
of chemical compounds which can contain tens to hundreds of thousands of
independent potential binding compounds and the development of biological assays
for evaluation of selected compounds. The cost and time associated with
traditional drug development limits the number of potential drug candidates that
can be evaluated. In addition, scientific advances, such as genomics and related
target discovery technologies, are resulting in the identification of thousands
of new therapeutic target candidates. To take advantage of this increasing
number of target candidates, pharmaceutical and biotechnology companies are
seeking more efficient methods for target validation and identification of
 
                                       29
31
 
binding compounds that can lead to new therapeutic products. Advances in
combinatorial chemistry have increased throughput of binding compound discovery
compared to traditional discovery methods, but the chemical synthesis of
selected compounds still requires months to years of expensive research.
 
     Using Phage Display, the Company believes scientists can discover binding
compounds with high specificity and high affinity more rapidly than by
conventional and combinatorial chemistry approaches. Phage Display libraries of
up to hundreds of millions of potential binding compounds can be generated in a
few weeks. These libraries are thousands of times greater in size than those
that can be generated using, for example, combinatorial chemistry. Furthermore,
the protein framework of the Phage Display library can be selected or designed
to ensure that all compounds in a library have predetermined properties, such as
structure, size, stability and lack of immunogenicity. Scientists can then use
Phage Display to rapidly select groups of related proteins that bind to a
therapeutic target with high specificity and high affinity. The Company believes
that by analyzing binding compounds identified through Phage Display with the
Company's proprietary structure activity relationship ("SAR") technology, it
will be possible to accelerate the process of small molecule drug design. In
addition, Phage Display can be used in conjunction with genomics technologies to
provide high-throughput analysis and purification of new gene products for
validating novel therapeutic targets. See "-- Dyax Technology."
 
     Dyax's current programs in therapeutic discovery and development are:
 
     Inflammation.  Inflammatory disorders occur when the immune system
overreacts to a perceived foreign substance. One aspect of this overreaction is
the activation of neutrophils and the release of neutrophil elastase, an enzyme
that digests proteins including bacterial and cellular debris. The unregulated
production of neutrophil elastase is thought to be the primary cause of tissue
damage and abnormal inflammatory response in disorders such as pulmonary
inflammation (cystic fibrosis, chronic bronchitis and emphysema), chronic
inflammation and acute inflammatory disorders (appendicitis and acute
respiratory distress syndrome). Another protease, plasma kallikrein, is elevated
at the inflammatory sites of rheumatoid arthritis and inflammatory bowel
disease. Plasma kallikrein is thought to contribute to the pathology of
rheumatoid arthritis both by activating an enzyme that degrades the collagen
matrix and by causing release of molecules that activate other inflammatory
cells. Similarly, activation of a localized inflammatory response by kallikrein
may contribute to the pathology of inflammatory bowel disease.
 
     Using Phage Display, Dyax has discovered a proprietary lead compound,
EPI-HNE4, that binds to and inhibits human neutrophil elastase. EPI-HNE4 is
currently in preclinical development for the treatment of inflammation resulting
from cystic fibrosis, an inherited disorder characterized by pulmonary
inflammation that leads to abnormally thick mucus secretions which impair
pulmonary function and can result in fatal infections. Because EPI-HNE4 binds to
its target protease with high specificity and high affinity, the Company
believes that it will reduce the inflammatory response while not interfering
with other physiological processes. Additional indications for EPI-HNE4 may
include other causes of pulmonary inflammation and acute inflammatory disorders.
Dyax has entered into an agreement to develop EPI-HNE4 with Debiopharm S.A., a
Swiss pharmaceutical company ("Debiopharm"). See "-- Collaborations."
 
     Using Phage Display, Dyax has also discovered EPI-KAL2, a proprietary lead
compound which binds to and inhibits plasma kallikrein. Like EPI-HNE4, EPI-KAL2
is a small, stable protein that can be delivered by injection. The Company
intends to work with academic investigators to test EPI-KAL2 in animal models of
chronic inflammatory disease including rheumatoid arthritis and inflammatory
bowel disease.
 
     Dyax is using its SAR technology to design and synthesize an orally
available small molecule with the inhibitory activity of EPI-HNE4 and intends to
similarly design and synthesize a small molecule for EPI-KAL2. Orally available
drugs are generally preferred for use in patients with chronic inflammatory
conditions compared to drugs delivered by inhalation or injection. Dyax
scientists have used the SAR data generated from EPI-HNE4 and related binding
compounds selected through Phage Display to design and synthesize small molecule
compounds that retain the neutrophil elastase inhibitory activity of EPI-HNE4
and have affinities in the range of existing therapeutic products. Dyax is
continuing to design additional small molecule compounds with the same
inhibitory profile, aiming to achieve higher specificity, higher affinity and
potentially greater efficacy with fewer side effects than existing treatments
for inflammation.
                                       30
32
 
     Cancer.  Cancer is characterized by uncontrolled cellular growth, which can
lead to death. Growth and metastasis of some cancers has been shown to be
dependent on the activity of the protease, plasmin. Using Phage Display, Dyax
has discovered EPI-PLA2, a potent and specific inhibitor of plasmin. Dyax plans
to evaluate EPI-PLA2 in cell-based models of prostate cancer metastasis in
collaboration with the M.D. Anderson Cancer Center at the University of Texas.
The Company also intends to evaluate EPI-PLA2 for treatment of other metastatic
cancers.
 
     Other Therapeutic Discovery Programs.  The Company is also planning to
pursue other therapeutic discovery programs. One such indication is multiple
sclerosis ("MS"), the primary neurodegenerative disease of young adults, which
is caused when the patient's immune system attacks the protective protein layer
that insulates neurons of the central nervous system. The research group of Dr.
Stephen Hauser, a leading investigator in MS at the University of California,
San Francisco, has identified a protease involved in the entry of immune system
components into the central nervous system, where they attack the neurons and
initiate an MS episode. Dyax recently entered into a consulting agreement with
Dr. Hauser to assist the Company in developing a program to use Phage Display to
discover and develop a potential treatment for MS. The Company intends to
identify other opportunities for therapeutic product discovery and development
using Phage Display.
 
     Therapeutic Discovery Collaborations.  The Company has established a
collaborative arrangement with Novo Nordisk to use Phage Display to develop new
tools for the rapid evaluation of certain of Novo Nordisk's therapeutic
candidates. In addition, the Company has also entered into funded discovery
collaborative arrangements with SangStat Medical Corporation, Tularik Inc. and
Athena Neurosciences, Inc. Generally, in these collaborative arrangements, the
Company screens its Phage Display libraries to identify compounds that bind to a
collaborative partner's therapeutic or diagnostic targets of interest. If the
collaborative partner chooses to continue to develop the binding compound into
therapeutic lead candidates, the Company will be entitled to receive milestone
payments and/or royalties on product sales based on the collaborative partner's
successful development and marketing of such leads as products.
 
  Diagnostics
 
     An in vitro and in vivo diagnostic product generally consists of a
detectable marker linked to a binding compound with specificity and affinity for
a molecular target, thereby indicating the presence or absence of that target.
The higher the specificity and affinity of the binding compound used in a
diagnostic product, the more accurate and sensitive the test. In the case of in
vivo diagnostic imaging to detect certain disease conditions, it is also
necessary to have a targeting agent that will localize rapidly to the target
tissue or organ after it is administered to the patient.
 
     For the past twenty years, the method of producing monoclonal antibodies
using the natural immune system of the mouse (hybridoma technology) has been the
best available means of supplying binding compounds for in vitro and in vivo
diagnostics. In this method, a desired target is selected and injected into a
mouse, which produces antibodies. The mouse antibody-producing cells are then
isolated and propagated outside the animal. However, using hybridoma technology
for the discovery and development of antibody products has inherent limitations,
such as time, the inability to utilize certain types of targets (including those
which are toxic or nonimmunogenic to the animal) and the inability to control
specificity of antibodies produced in the mouse. As targeting agents for in vivo
imaging, mouse antibodies have additional limitations, including long clearance
times and slow penetration to the disease foci requiring 24 to 48 hours of
hospitalization after injection before a useful image can be obtained and
immunogenicity that limits the number of times a patient can be safely imaged
with any mouse antibodies.
 
     For in vivo diagnostic imaging products, Dyax believes that Phage Display
will enable the identification of binding compounds that are smaller in size and
have higher specificity and affinity and greater bioavailability than mouse
monoclonal antibodies, and that these compounds will be more effective
diagnostic imaging agents that will permit more accurate and, in some cases,
earlier diagnosis of disease. For in vitro diagnostic applications, the most
immediate opportunity is the use of Phage Display as a source of monoclonal
antibody reagents. Phage Display can be used to display large collections of
human antibodies. The Company believes that Phage Display allows more rapid
identification of antibodies and other binding compounds than hybridoma
technology and could potentially replace animals as a source of antibodies for
diagnostic and
 
                                       31
33
 
research applications. Phage Display libraries can be screened in high
throughput formats so that antibodies that bind to any diagnostic target can be
isolated cost-effectively in a few weeks, compared to the six to nine months
required to immunize, isolate and propagate antibody-producing cells from mice.
 
     Dyax's current programs for the discovery and development of in vivo
diagnostics are:
 
     Inflammation/Infection Imaging.  Disease indications that are likely
candidates for inflammation-infection imaging include inflammatory bowel
disease, fever of unknown origin, arthritis, certain autoimmune disorders and
pulmonary diseases. The Company believes that there is a need for an imaging
agent that can provide early and accurate identification of both sterile and
infectious inflammatory sites in vivo and that there are no sensitive, specific
products for rapid diagnosis of these disorders currently available. The most
common tools currently available for locating inflammation are time-consuming,
inaccurate and/or expensive. Dyax is evaluating a modified form of EPI-HNE4 in
preclinical studies as a diagnostic imaging agent for sites of inflammation
(including infection) in collaboration with scientists at the University of
Massachusetts Medical Center. Preclinical development of EPI-HNE4 as an agent
for imaging inflammation has been supported by a Phase I Small Business
Innovation Research grant from the National Institutes of Health. The imaging
agent being developed by Dyax consists of EPI-HNE4 as the targeting portion with
technetium-99 as the detectable marker.
 
     Cardiovascular Imaging.  Disease indications that are likely candidates for
cardiovascular imaging include deep vein thrombosis ("DVT") and pulmonary
embolism ("PE"). DVT is caused by the formation of a fibrous blood clot in the
veins of the lower limbs. PE results when a DVT clot breaks loose and travels to
the lungs, where it can block blood flow. The Company believes that there is a
need for a safer and more accurate imaging product for DVT and PE. Dyax is
collaborating with EPIX Medical Inc. ("EPIX") using Phage Display to identify
binding compounds for a molecular component of fibrous blood clots which could
be used in an imaging agent for DVT and PE. Under the collaborative arrangement,
Dyax has identified a group of potential lead binding compounds. The product
under development with EPIX will be based on a novel labeling chemistry that
increases the sensitivity of an image generated using magnetic resonance imaging
("MRI"). EPIX plans to develop the identified binding compounds for use in MRI,
while Dyax has retained the right to develop these compounds for use in nuclear
medicine imaging. See "-- Collaborations."
 
  Biotage Separations Products and Research and Affinity Separations Development
Programs
 
     Purification of a therapeutic product is a complex, multi-step process,
which can account for over 50% of a product's manufacturing costs. A widely used
separations technology, chromatography, is used to purify the desired product or
to remove impurities from the production mixture during the discovery,
development and manufacturing of a therapeutic product. Chromatography is a
technology that separates molecules in a liquid mixture using differential
adsorption of molecules. In this technology, molecules pass through a chamber,
or column, packed with separations media. The migration rates of different
molecules through the column vary due to differences in the strength of binding
interactions with the media in the column. In conventional chromatography,
separations are based on broad physical properties such as size, charge or
hydrophobicity, and the types of available, standard chromatography media has
changed little in recent years. Chromatographic separations are achieved by
selection of the surface chemistry of the media and the solvent composition such
that different molecules exit the column at different times and therefore can be
collected and/or detected in purified form. For a given separation, the
available media generally has unpredictable specificity and there has been no
practical way to modify the existing materials to create specific binding to a
particular target. Thus, the development of useful separation processes relies
on trial and error and is time consuming and labor intensive.
 
     The Company believes that Phage Display is a powerful tool for developing
new affinity separations media that can cost effectively and efficiently purify
increasingly complex therapeutic products. In affinity chromatography, a ligand
that binds with high specificity and high affinity to either the desired
compound or a specific class of impurities to be removed is attached to the
media. When the desired compound is captured on the affinity media, impurities
are washed away. By changing the solvent conditions, the desired compound can be
released from the media resulting in a product that is (in most cases) at higher
concentration than in the
 
                                       32
34
 
original mixture. Alternatively, a specific class of impurities is captured on
the media to allow the desired product to flow through in a purified form. Phage
Display can be used to generate small, stable ligands that have high specificity
and high affinity for the desired compound or impurity. Since affinity
chromatography can purify the desired compound in one column, one such affinity
chromatography column can replace multiple conventional chromatography columns
which otherwise would be required. Dyax has developed compounds that bind and
release in predetermined conditions, such as those conditions that can be used
for process-scale separations. The Company believes that these new affinity
separations products can reduce the time, cost and risk associated with
pharmaceutical purification at the discovery, development and production scale.
Dyax plans to combine its Biotage chromatography systems with any affinity
chromatography media that may be derived through Phage Display to provide system
solutions for the purification of natural products, peptides, proteins, organic
compounds and other molecules. See "Risk Factors -- Limited Revenues to Date
from Separations Products; Need to Develop New Separations Products."
 
     Biotage Separations Products
 
     Dyax develops, manufactures and sells chromatography separations systems
and is a leader in the development, manufacture and sale of cartridge
chromatography products and systems, which it sells under the Biotage trade
name. The Company's prepacked, disposable cartridges can be packed with a wide
range of media from a variety of sources. The Company believes that its
cartridge-based systems provide competitive advantages to its customers compared
to manually packed systems, including greater speed and convenience, lower cost,
improved safety (no exposure of production personnel to media) and reproducible
performance leading to significant cost savings due to reduction of labor and
decreased solvent usage. The Company has sold its current line of Biotage
chromatography products and systems to over 50 leading pharmaceutical and
biotechnology companies worldwide, including Bachem AG, Bayer Corporation,
Genentech, Inc., F. Hoffmann-La Roche, Ltd., Merck & Co., Inc., Novartis,
Pfizer, Inc., Pharmacia & Upjohn Co. and Wyeth-Ayerst Laboratories, Inc. (a
subsidiary of American Home Products Corporation).
 
     The following are the Company's principal chromatography products:
 
          FLASH Chromatography Systems and Cartridges:  FLASH systems are
     designed to efficiently and cost effectively purify a single chemical
     compound from a complex synthetic mixture. The FLASH systems range in price
     from $2,500 for discovery and development scale systems to over $100,000
     for production scale systems. The manufacturing scale systems can replace
     other processes, including chromatography using large glass or steel
     columns or batch adsorption and filtration using larger tanks and filters.
     The FLASH systems include radial compression modules that are designed to
     enhance performance by stabilizing the media and increasing flow rates. The
     Company believes that the FLASH product line, which was introduced by the
     Company in 1994, is the only commercially available line of prepacked
     disposable cartridges for separations from the discovery scale to the
     manufacturing scale.
 
          Parallex Parallel Purification System:  Dyax's automated Parallex
     system is a high throughput, high-resolution chromatography workstation
     designed for the combinatorial chemistry market. The integrated system
     includes four independent high pressure liquid chromatography ("HPLC")
     columns, bar-coded sample input and intelligent fraction collection based
     on analysis of the compounds as they emerge from the columns using a
     proprietary four-channel, dual wavelength UV detector. HPLC technology is
     widely used in the pharmaceutical industry, particularly for purification
     of synthetic organic molecules, synthetic peptides, oligonucleotides and
     natural products. Information is tracked and stored using the Company's
     proprietary software that can interface with commercially available central
     data management systems. Up to 900 samples can be run and purified
     automatically in a 24-hour period. To the Company's knowledge, there is
     currently no similar product available for this emerging market that can
     integrate the data from several hundred samples per day at comparable
     efficiency. The list prices for the Parallex systems, which were introduced
     by the Company in 1997, range from $190,000 to over $240,000.
 
          Kiloprep Systems and Cartridges:  The Company's Kiloprep systems are
     high resolution chromatography systems that use prepacked HPLC cartridges
     and radial compression technology for discovery,
 
                                       33
35
 
     development and manufacturing scale purifications. Kiloprep HPLC systems
     work with a variety of solvents, include advanced automation features and
     provide documentation and validation for current GMP regulatory
     environments. Manufacturing scale Kiloprep systems are built to individual
     customer specifications. By contrast, competing process-scale HPLC systems
     rely on prepacked stainless steel columns or user-packed HPLC columns.
     Kiloprep cartridges are used exclusively in the Kiloprep system for
     purifications from the milligram to the kilogram scale. The list prices for
     the Kiloprep systems, which were introduced by the Company in 1990, range
     from $50,000 for laboratory systems to over $300,000 for custom ordered
     manufacturing scale systems.
 
          ProPrep Chromatography Systems:  The Company's ProPrep systems are
     customized to meet the requirements of development and manufacturing scale
     chromatography applications for cGMP production of biologics. The Company
     believes that, compared to other commercially available systems, the
     ProPrep line provides a superior turn-key, highly engineered system with
     superior gradient performance and an "explosion proof" design that allows
     the system to be used in a hazardous manufacturing plant environment. These
     systems will be used to support the new BioFLASH prepacked chromatography
     cartridges described below. The Company also plans to improve overall
     purification performance of any new affinity separations media that
     incorporate binding compounds discovered through Phage Display by using the
     ProPrep hardware and software technology platforms. The prices for ProPrep
     systems, which were introduced by the Company in 1993, range from $150,000
     to over $500,000.
 
          BioFLASH Prepacked Cartridges and Systems:  The Company's BioFLASH
     cartridges, which are expected to be introduced in the second half of 1998,
     will consist of prepacked, disposable cartridges containing media
     specifically designed for separations of biological materials. Virtually
     any chromatography media for separating biological material can be packed
     in these cartridges. This product line, which is derived from the Company's
     FLASH chromatography systems for traditional chemical separations, is
     designed to allow operation of the BioFLASH cartridges in a stand alone or
     radially compressed format. The Company believes that BioFLASH cartridges
     and systems will have competitive advantages over existing products for
     development and manufacturing scale because they provide reproducible
     performance, higher pressure ratings (i.e., faster, higher resolution
     separations) and reduced cross-contamination and sterilization capability
     for virtually any bioseparation that is currently carried out in a glass or
     stainless steel column. The Company plans to use the BioFLASH product line
     as the platform for its Phage Display-derived affinity separations products
     under development.
 
     Affinity Separations Development Programs
 
     Dyax is using Phage Display to develop new affinity separations products
which it believes will be more effective than conventional separations
technologies. Dyax has several funded discovery projects with different
companies, including Argonex, Inc., Genetics Institute, Inc., Genzyme
Transgenics Corporation, Merck & Co., Inc. and Pall Corporation. These projects
seek to identify one or more potential binding compounds that can be attached to
media for development into affinity separations products for purification of the
collaborative partner's designated therapeutic product. To date, Dyax has
discovered affinity ligands for such products as a viral vaccine, tissue
plasminogen activator, a recombinant blood product and transgenic animal and
plant products. Under certain of these programs, the Company has delivered
affinity separations products containing Phage Display-derived affinity ligands
for testing and evaluation. The Company is continuing to seek collaborative
partners in the discovery and development of affinity separations products.
 
     In addition to its custom-designed affinity separations products program,
Dyax is developing proprietary affinity separations products, including products
under development in a collaborative arrangement with CropTech for broad
commercial applications. The Company believes that these products will have
applications in research as well as in the process and manufacturing markets. To
date, none of the Company's affinity separations products have been used for
commercial scale manufacturing and there can be no assurance that such products
or other products developed in the future, if any, will be used for commercial
scale manufacturing. See "-- Collaborations."
 
                                       34
36
 
DYAX TECHNOLOGY
 
  Phage Display
 
     Phage Display is used to select proteins that bind to a target of interest.
The selection is made from a diverse set of up to hundreds of millions of
proteins displayed on the surface of a bacterial virus, bacteriophage, known
commonly as "phage." The Company's Phage Display process generally consists of:
(i) generating a large collection of phage, known as a "library," that contains
genes encoding up to hundreds of millions of related proteins, or potential
binding compounds, (ii) screening the library by exposing it to a specified
target and isolating those phage whose displayed proteins bind to the target;
and (iii) analyzing the selected binding compounds by sequencing their genes and
by producing and characterizing small quantities for relative specificity and
affinity to the target.
 
     Generating a Phage Display Library.  The generation of a Phage Display
library is based upon a single protein framework and contains up to hundreds of
millions of variations of this protein. The first step in generating a library
is the selection of the protein framework upon which the library will be
created. This selection is based on desired product properties, such as
structure, size, stability, or lack of immunogenicity. Scientists then determine
which amino acids in the framework will be varied. Amino acids that contribute
to the chosen framework properties are not varied. The exact number and type of
different amino acids that are varied is also controlled, so that the resulting
Phage Display library consists of a diverse set of chemical entities, each of
which retains the desired physical and chemical properties of the original
framework.
 
                       GENERATING A PHAGE DISPLAY LIBRARY
 
                    [GENERATION OF A PHAGE DISPLAY LIBRARY]
     The next step is the creation of a collection of genes encoding the
designed variations of the framework protein. Scientists can easily generate
diverse collections of up to hundreds of millions of different synthetic DNA
sequences. Each new DNA sequence, or gene, encodes a single protein sequence
that will be displayed on the surface of the individual phage that contain this
gene. The new DNA sequences are combined with phage genome DNA and certain
enzymes so that the new DNA is inserted into a specific location of the phage
genome, such that the encoded protein will be displayed on the phage surface as
a fusion to one of the existing (naturally occurring) phage proteins. The phage
is a physical link between the displayed protein and its gene.
 
     The new phage genomes are then transferred into laboratory bacteria, where
the phage genome directs the bacterial cells to produce thousands of copies of
each new phage. The resulting collection of phage is the Phage Display library.
Because the Phage Display library can be reproduced by infecting a new culture
of
 
                                       35
37
 
laboratory bacteria to produce thousands more copies of each phage, libraries
can be maintained for a potentially unlimited number of screenings.
 
     In addition to the creation of synthetic DNA sequences for a Phage Display
library, scientists can also use naturally occurring genes, such as genomic DNA
(all genes in an organism) or cDNA (sequences that represent all the expressed
genes in a cell or organism) as sources of the genes for a library. For example,
Phage Display libraries of human antibodies can be used to isolate monoclonal
antibodies in a significantly shorter period of time than required for existing
hybridoma technology.
 
     Screening Phage Display Libraries.  Once a Phage Display library is
generated, scientists can select binding compounds with high specificity and
high affinity by exposing the library to specified targets of interest and
isolating the phage that display compounds that bind to the target. For certain
applications of Phage Display, such as separations, scientists can design the
binding and release conditions into the selection. Each individual phage
contains the gene encoding one potential binding compound, and when its
displayed protein is selected in the screening procedure, it can be retrieved
and amplified by growth in laboratory bacteria.
 
     To screen a Phage Display library, the library is exposed to the target
under desired binding conditions. The target is normally attached to a fixed
surface, such as the bottom of a tube, or a bead, allowing phage whose potential
binding compounds do not bind to the target to be removed. Once these unbound
phage are washed away, the phage containing the selected binding compounds can
be released from the target. Since the phage are still viable, they can be
amplified rapidly by again infecting bacteria. This property of ready
amplification is unique to biological systems. Binding compounds identified
during the first round of selection generally include some that bind to the
target molecule with varying degrees of specificity and affinity. Therefore, the
amplified phage are again exposed to the target molecule in another round of
screening, to enrich for those phage whose displayed binding compounds have the
desired specificity and affinity. The procedure is repeated several times until
a group of related binding compounds with the desired characteristics can be
identified.
 
                       SCREENING A PHAGE DISPLAY LIBRARY
 
                     [SCREENING OF A PHAGE DISPLAY LIBRARY]
     Evaluation of Selected Binding Compounds.  Screening Phage Display
libraries generally results in the identification of one or more groups of
related binding compounds. These groups of compounds are valuable in providing
information about which chemical features are necessary for binding to the
target with specificity and affinity, as well as which features can be altered
without affecting binding. Using DNA sequencing, scientists can determine the
amino acid sequences of the binding compounds and identify the essential
 
                                       36
38
 
components of desired binding properties by comparing similarities and
differences in such sequences. If desired, the binding compounds can be further
optimized by building additional Phage Display libraries based on these key
components and repeating this process. Small amounts of the binding compound can
be produced by growing and purifying the phage. For production of larger
amounts, the gene can be removed from the phage DNA and placed into a standard
recombinant protein expression system. Alternatively, if the identified binding
compound is sufficiently small, it can be chemically synthesized. These binding
compounds can be evaluated for desired properties including affinity,
specificity and stability under conditions that will be encountered in its
intended use. From each group of compounds, a lead compound with the best
properties can be identified and developed and tested as a therapeutic,
diagnostic or affinity separations product.
 
  Other Technologies
 
     Structure Activity Relationship Technology.  The SAR information obtained
from the group of Phage Display-derived binding compounds can be used to
initiate small molecule drug design. The framework selected or designed to
generate a Phage Display library can be structured so that the amino acids that
interact with the target during binding are from a small, structurally
constrained region of the protein framework. Selection of binding compounds from
such Phage Display libraries does not yield a single result, but rather a group
of closely related variants of the framework protein that bind to the target.
Dyax believes that its proprietary SAR technology, including molecular modeling
and computational chemistry capabilities, can be used for the discovery of small
molecules that are potentially orally available drug candidates. Traditionally,
structure-based rational drug design has relied on determination of the three
dimensional structure of the therapeutic target, which requires large quantities
of purified material. In contrast, Dyax's SAR approach does not require
structural information regarding the target molecule. Small molecule drug
candidates are instead designed using information derived from the group of
binding compounds selected through Phage Display, and can be performed with a
part of the target or with impure preparations of the whole target. The
structured peptide and small protein binding compounds discovered through Phage
Display are less complex and substantially more accessible to three-dimensional
structural determination through nuclear magnetic resonance and X-ray
crystallography methods than most therapeutic targets. Dyax has used this
strategy to design small molecule neutrophil elastase binding compounds that
have demonstrated the desired inhibitory activity in in vitro assays. See
"-- Dyax Programs and Products -- Therapeutic and Diagnostic Discovery and
Development Programs -- Therapeutics."
 
     Subtractive Antibody Screening.  Subtractive antibody screening ("SAS") is
a differential screening technology that identifies genes encoding cell surface
or secreted proteins that are expressed in one cell type (target cell type),
such as a diseased tissue type and not in another cell type (subtractive cell
type). Most therapeutic targets for which drugs exist today are either cell
surface or secreted proteins, which are more accessible to drugs. Dyax has
licensed exclusive rights to SAS technology developed by the Whitehead Institute
for Biomedical Research at the Massachusetts Institute of Technology and
Massachusetts General Hospital. Scientists using the SAS technology first
isolate the cell surface or secreted proteins from the target cell type. These
proteins are injected into an animal to generate antibodies. The antibodies that
recognize proteins from a subtractive cell type, such as a normal tissue type,
are removed. The remaining antibodies will bind to proteins that are unique to
the target cell or tissue type. The genes encoding protein products which react
with the remaining antibodies can be cloned using existing cDNA expression
cloning techniques. Dyax scientists plan to use SAS to identify novel accessible
target proteins. Dyax intends to use targets identified through SAS to screen
its Phage Display libraries to discover binding compounds that could be leads
for therapeutic and diagnostic products.
 
COLLABORATIONS
 
     To date, the Company has received a significant portion of its revenue from
its corporate collaborative partnerships and funded discovery projects and the
Company expects that it will continue to rely on several collaborative partners
to fund different product development efforts and new research and development
efforts for the foreseeable future.
 
                                       37
39
 
  Therapeutics and Diagnostics
 
     Dyax is leveraging its Phage Display in therapeutics and diagnostics
through discovery and development collaborative arrangements with biotechnology,
pharmaceutical and diagnostics companies. Currently, the Company has three
corporate collaborative partnerships and three funded discovery projects for
applications of its Phage Display technology. The Company's principal ongoing
therapeutic and diagnostic corporate collaborative partnerships are:
 
     Debiopharm.  In March 1997, Dyax entered into a Research and Development
Agreement with Debiopharm for the clinical development of the Company's
neutrophil elastase inhibitors, including EPI-HNE4. Under the terms of the
agreement, Debiopharm will undertake at its own expense the development and
production of EPI-HNE4 for the treatment of inflammation resulting from cystic
fibrosis and other chronic pulmonary inflammatory disorders, in exchange for an
option to obtain an exclusive commercial license for therapeutic uses of
EPI-HNE4 in the European market. This option is exercisable by Debiopharm until
March 2000, subject to extension. Dyax has the right to use the regulatory
information, including preclinical, clinical and manufacturing data, generated
by Debiopharm and retained all rights to develop and produce EPI-HNE4 in all
other fields and territories. If Debiopharm exercises the option, the Company is
entitled to receive a royalty on revenues received by Debiopharm from the use or
sale in the European market of therapeutic products developed using such
information. In the event the Company chooses to use information owned solely by
Debiopharm for therapeutic uses of EPI-HNE4, the Company will be obligated to
pay to Debiopharm a royalty on revenues received by the Company from the use or
sale of products outside Europe.
 
     EPIX.  In June 1997, Dyax entered into a Collaboration Agreement with EPIX
pursuant to which EPIX agreed to fund a research program in which the Company
will use Phage Display to identify peptides for use in thrombi imaging
applications. EPIX and Dyax agreed, following the completion of the research
program, to jointly identify and develop compounds that specifically target
pulmonary embolism and deep vein thrombosis for use in MRI and nuclear medicine
in vivo imaging agents used to diagnose these disorders. EPIX will be
responsible for the development of, and will have exclusive commercial rights
to, imaging agents developed for the MRI field and the Company will be
responsible for the development of, and will have the exclusive commercial
rights to, imaging agents for the nuclear medicine field. If any products are
successfully developed under the agreement, the Company is entitled to receive
royalties from sales of MRI products and EPIX is entitled to receive royalties
from any sales of nuclear medicine products.
 
     Novo Nordisk.  Also in March 1997, the Company and Novo Nordisk A/S
established a two-year collaboration to use the Company's Phage Display
technology to develop new tools for the rapid evaluation of certain of Novo
Nordisk's therapeutic candidates. The Company expects to receive research
funding for two years and, in the event Novo Nordisk utilizes the new
purification tools in its therapeutic development programs, the Company will be
entitled to receive license and product-development milestones in the future.
 
     Discovery Collaborations.  In addition to the three corporate collaborative
partnerships described above, the Company has also entered into funded discovery
projects with SangStat Medical Corporation, Tularik Inc. and Athena
Neurosciences, Inc. Generally, the Company screens its Phage Display libraries
to identify compounds which bind to a collaborative partner's therapeutic or
diagnostic targets of interest. In addition, if the collaborative partner
chooses to continue to develop the binding compound into therapeutic leads, then
the Company will be entitled to receive milestone payments and/or royalties on
product sales based on the collaborative partner's successful development and
marketing of leads as products.
 
  Separations
 
     Dyax is also leveraging its Phage Display in the field of separations to
develop novel affinity separations technologies and products. In this field, the
Company has one corporate collaborative partnership and several funded discovery
projects.
 
     CropTech.  In October 1997, in connection with a $4.3 million Advanced
Technology Program grant from the National Institute of Standards and
Technology, CropTech Development Corporation
 
                                       38
40
 
("CropTech") and Dyax entered into a four-year Joint Collaboration Agreement to
develop novel technologies for the production and separation of large volume
protein products, therapeutic glycoproteins and bioactive peptides. Under the
agreement, CropTech agreed to use its transgenic plant technology to develop
novel expression systems for these therapeutic products and Dyax agreed to use
Phage Display to develop affinity separations systems for use in purifying the
protein and peptide products.
 
     Discovery Projects.  Typically, in the funded discovery projects, the
corporate sponsors have agreed to fund the Company to use Phage Display to
discover affinity ligands for evaluation in the purification and separations
processes of the sponsor's pharmaceutical product candidates. These sponsors,
which include Argonex, Genetics Institute, Genzyme Transgenics, Merck and Pall,
generally fund the Company's costs of identifying and testing a custom affinity
ligand and are obligated to make a milestone payment upon the successful
evaluation of the ligand. Upon completion of the discovery phase, the sponsor
generally has the option to expand the project to a development phase and/or to
negotiate a license agreement for the commercial use of the affinity ligand in
conjunction with a media to purify the sponsor's product, although no product
has yet reached this stage. The Company's discovery phase projects to date have
included discovery of affinity ligands for such products as a viral vaccine,
tissue plasminogen activator, a recombinant blood product and transgenic animal
and plant products.
 
     The Company's collaborative arrangements are generally subject to
termination on prior written notice from the collaborative partner. One
collaborative arrangement was terminated in 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition,
there can be no assurance that the Company will be able to negotiate
collaborative arrangements on acceptable terms in the future, if at all, or that
the Company's current or future collaborative arrangements will be successful
and provide the Company with the anticipated benefits, or that current or future
collaborative partners will not pursue or develop alternative technologies or
products. See "Risk Factors -- Dependence on Collaborations and Licensing."
 
COMPETITION
 
     The industries in which the Company competes are characterized by intense
competition and rapid technological change. New developments occur and are
expected to continue to occur at a rapid pace, and there can be no assurance
that discoveries or commercial developments by the Company's competitors will
not render some or all of the Company's technologies or potential products
obsolete or non-competitive, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The Company's Phage Display technology is one of several technologies
available to generate libraries of compounds which can be used to discover and
develop new products. Other technologies used by the pharmaceutical, diagnostics
and biotechnology industries to identify molecules which bind to a desired
target include high throughput screening of chemical and natural products and
combinatorial chemistry. Further, the Company licenses other parties in the
fields of therapeutic and antibody-based in vitro diagnostic products on a
non-exclusive basis under its Phage Display patent portfolio, and, therefore,
its licensees may compete with the Company in the development of specific
therapeutic and diagnostic products.
 
     The Company's therapeutic and in vivo diagnostic compounds under
development are expected to address one or more indications in the therapeutic
or diagnostic markets. The Company will face significant competition in these
markets. Also, several companies are using conventional antibody technology and
other means to identify products for use as imaging agents, which may compete
with any future imaging products of the Company. Although Dyax's goal is to
focus its development efforts on selected disease markets in which it believes
there is an unmet need, there can be no assurance that others will not have
competing products in development or on the market or that the Company will be
able to successfully develop such products.
 
     Chromatography is only one of several types (e.g.,centrifugation,
filtration, etc.) of separations processes used in the manufacture of
therapeutic products. Dyax will continue to face intense competition from other
suppliers of separations products. The principal competitors in the Company's
target markets include Amersham Pharmacia Biotech, Millipore Corporation, E.
Merck AG, Bio-Rad Laboratories Inc., BioSepra, Inc. and Waters Corporation. In
addition, many pharmaceutical companies have historically
                                       39
41
 
assembled their own chromatography systems. The Company is not aware of any
major competitor in the prepacked disposable cartridge market where its FLASH
cartridges are marketed and for which BioFLASH is targeted. Three former
employees of the Company's Biotage label products group have established their
own chromatography business, which is the subject of a lawsuit initiated by the
Company alleging misappropriation of trade secrets. Although the Company has
been able to launch and sell chromatography products in desired niche markets to
date, the continued success of these products will depend upon customer
acceptance, price and proprietary position, as well as the successful
introduction of new products. The Company's strategy for its custom affinity
separations products is to retain all proprietary rights to its Phage Display
intellectual property for the separations field and to retain all rights to any
affinity ligands it develops. There can be no assurance that others will not be
able to use conventional or combinatorial chemistry approaches, or develop new
technology, to identify binding molecules for use in separating and purifying
products, including molecules which may compete with the Company's affinity
ligands. See "Risk Factors -- Intense Competition; Technological Obsolescence."
 
PATENTS AND PROPRIETARY RIGHTS
 
     The Company's success will be significantly dependent upon its ability to
obtain patent protection for its products and technologies under development, to
defend its issued patents, including patents related to phage display
biotechnology and separations, and to avoid the infringement of patents issued
to others. The Company is aware of certain patents and patent applications for
which it will likely need to obtain licenses to commercialize its products and
technologies. While the Company believes that it will be able to obtain such
licenses, there can be no assurance that such licenses, or licenses to other
patent rights, will be available on reasonable terms, if at all. Further, if
such licenses are not available, the Company may need to halt or modify the
activities which are covered by the other patent rights, which could have a
material adverse effect on the Company's business financial conditions and
result of operations. The Company's policy generally is to file for patent
protection on new methods and technology useful for the display of binding
molecules, new therapeutic, diagnostic and separation product candidates
identified through Phage Display, and new chromatography separation methods and
products.
 
     Dyax's proprietary position in the field of phage display is based upon its
patent rights, technology, proprietary information, trade secrets and know-how.
Dyax's patents and patent applications for its Phage Display include U.S. Patent
Nos. 5,571,698, 5,403,484 and 5,223,409, EPO Patent No. 436,597, two allowed or
pending U.S. patent applications, and 15 allowed or pending foreign patent
applications (the "Phage Display Patent Rights"). These Phage Display Patent
Rights contain claims covering inventions in the field of the surface display of
proteins and certain other peptides, including surface display on bacteriophage.
 
     In addition to the Phage Display Patent Rights, Dyax has filed for patent
protection on certain of the proteins and peptides it has identified using Phage
Display. Dyax recently was issued U.S. Patent No. 5,666,143 covering sequences
of peptides which have neutrophil elastase inhibitory activity, including the
sequence for EPI-HNE4, which is in preclinical testing as a therapeutic and
imaging agent. The Company also has pending applications covering plasmin
kallikrein and plasmin peptide inhibitors, as well as peptide compounds which
can be used in the separation and purification of specific biopharmaceuticals.
 
     Although the Company is not aware of any legal challenges to the Phage
Display Patent Rights to date in the United States, there can be no assurance
that a challenge will not be brought in the future. The Company plans to protect
its patent rights, including the Phage Display Patent Rights, to the maximum
practical extent. There can be no assurance that the Company will have
sufficient resources necessary to defend its patent rights against any such
challenges. However, if the Company commences legal action against an alleged
infringer of any of the Company's patent rights, the alleged infringer can be
expected to claim that the Company's patent rights are invalid for one or more
reasons, thus subjecting the Company's patent rights to a judicial determination
of validity with the attendant risk that an adverse determination could result
in the loss of the patent rights. In addition, in certain situations, an alleged
infringer could seek a declaratory judgment of invalidity of the Company's
patents. Uncertainties resulting from the initiation and continuation of any
patent or related litigation, including those involving the Company's Phage
Display patents, could have a material adverse effect on the Company's ability
to maintain and expand its licensing program and collaborative
                                       40
42
 
arrangements and to compete in the marketplace pending resolution of the
disputed matter. See "Risk Factors -- Uncertainties Related to Patents and
Proprietary Rights."
 
     Two European patent oppositions were filed in late 1997 against the
Company's Phage Display patent issued by the EPO and the Company expects that
these oppositions will not be resolved for several years. The oppositions are
currently being reviewed by the Company's patent counsel, and Dyax intends to
vigorously defend its European patent. However, there can be no assurance that
the Company will prevail in the opposition proceedings or any litigation
contesting the validity or scope of this EPO patent or other foreign patents.
 
     The Phage Display Patent Rights are central to the Company's non-exclusive
patent licensing program. The Company offers non-exclusive licenses under the
Phage Display Patent Rights to companies and non-profit institutes in the field
of therapeutics, antibody-based in vitro diagnostics and Phage Display research
products. To date, Dyax has licensed its Phage Display Patent Rights to more
than 25 companies. Dyax has retained the exclusive rights, and does not intend
to broadly license others, in the fields of in vivo diagnostic products and
separations. In connection with the licensing program, the Company regularly
monitors publications and other sources for information regarding the practice
by others of technology covered by the Phage Display Patent Rights. The Company
believes that there are unlicensed parties whose activities may be covered by
its issued patents. In such circumstances, the Company generally seeks to
negotiate a Phage Display license agreement. There can be no assurance, however,
that the Company will be able to identify all parties practicing the Phage
Display Patent Rights, all products derived by such parties, including its
licensees, or that the Company will be successful in entering into license
agreements with parties that the Company believes require such a license. In
jurisdictions where the Company has not applied for or obtained patent rights,
the Company will be unable to prevent others from developing or selling products
or technologies derived using Phage Display. In addition, in jurisdictions where
the Company has Phage Display Patent Rights, there can be no assurance that the
Company will be able to prevent others from selling or importing products or
technologies derived using Phage Display. The inability of the Company to
protect and enforce its patent rights, whether by licensing or otherwise, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
     The Company is aware that other parties have patents and pending
applications to various phage display inventions. The Company has filed, and in
the future may file, oppositions to European and other patents issued to others.
To date, the Company has filed oppositions against two European patents in the
general field of phage display. The Company does not believe these European
patents cover any of its present activities, but the Company cannot predict
whether the claims in these patents may, in their current or future form, cover
the Company's activities or the activities of its collaborative partners and
licensees. In addition, through its patent licensing program, the Company has
secured a limited freedom to practice some of these patent rights pursuant to
its standard license agreement, which contains a covenant by the licensee that
it will not sue the Company under certain of the licensee's phage display
improvement patents. The Company may from time to time seek affirmative rights
of license or ownership under existing patent rights relating to phage display
technology of others. There can be no assurance, however, that the Company will
be successful in maintaining the existing covenants of nonsuit from its
licensees, or in acquiring similar covenants in the future, or that the Company
will be able to obtain satisfactory licenses. The inability of the Company to
obtain and maintain such licenses and covenants could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
     To protect its existing and future chromatography separations products, the
Company relies primarily upon trade secrets and know-how, as well as the
experience and skill of its technical personnel. The Company also has several
patents and patent applications on its proprietary chromatography technology
which are not based on Phage Display, but it cannot predict the extent to which
any such patents or future patents will provide protection for its existing and
new separations products. See "Risk Factors -- Limited Revenues to Data from
Separations Products; Need to Develop New Separations Products."
 
     In all of its activities, the Company places substantial reliance on
proprietary materials and information, trade secrets and know-how to conduct its
research and development activities and to attract and retain
 
                                       41
43
 
collaborative partners, licensees and customers. Although the Company takes
steps to protect these materials and information, including through the use of
confidentiality and other agreements with its employees, consultants and
academic and commercial relationships, there can be no assurance that these
steps will be adequate, that these agreements will not be violated, that there
will be an available or sufficient remedy for any such violation or that others
will not also develop similar proprietary information. See "Risk Factors --
Uncertainties Related to Patents and Proprietary Rights."
 
GOVERNMENT REGULATION
 
     The production and marketing of any of the Company's future therapeutic or
diagnostic products will be subject to numerous governmental laws and
regulations on safety, effectiveness and quality, both in the United States and
in other countries where the products are intended to be sold. In addition, the
Company's research and development activities in the United States are subject
to various health and safety, employment and other laws and regulations.
Although the Company believes that it is in substantial compliance with all
applicable federal, state, local and foreign legal requirements, there can be no
assurance that government authorities will agree that the Company is in
compliance with all laws, that such requirements will not be changed or that new
requirements will not be adopted, any one of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
  United States FDA Approval
 
     In the United States, products intended for in vitro diagnostic use and in
vivo diagnostic and therapeutic use in humans are subject to rigorous FDA
regulation. In addition, products intended for use in the manufacture of these
products, such as separations equipment, are subject to certain FDA manufacture
and quality standards.
 
     The steps required before a new pharmaceutical or in vivo diagnostic
product can be sold in the United States include: (i) preclinical tests; (ii)
submission of an Investigative New Drug Application to the FDA which must become
effective before initial human clinical testing can begin; (iii) human clinical
trials to establish safety and effectiveness of the product, which normally
occurs in three Phases monitored by the FDA; (iv) submission and approval by the
FDA of a New Drug or Biologics License Application; and (v) compliance with the
FDA's GMP regulations and facility and equipment validation and inspection. The
requirements for testing and approval for in vitro diagnostic products may be
somewhat less onerous than for pharmaceutical products, but similar steps are
required. The Company cannot make any assurances that its therapeutic or
diagnostic product candidates, such as its neutrophil elastase inhibitor
EPI-HNE4, or the products of its partners and licensees, will be able to
successfully complete the FDA-required testing and approvals.
 
     Certain of the Company's separations products are intended for use in the
manufacturing processes of clinical grade and commercial grade therapeutic and
diagnostic products. These separations products, therefore, are required to be
manufactured and delivered in accordance with certain GMP requirements, and
other applicable rules and regulations, and further may require the customer to
comply with certain quality and inspection regulations prior to use. The Company
has not yet produced any separations products under GMP conditions. There can be
no assurance that the Company or its customers will be successful in complying
with FDA and other regulations to permit the full clinical and commercial use of
the Company's separations products.
 
  Foreign Regulatory Approval
 
     Many countries outside the United States require the testing and marketing
of pharmaceutical and diagnostic products to be approved by governmental
authorities similar to the FDA. The approval procedures vary from country to
country. In the European Community (the "EC") for example, two different
approval procedures may apply to the products of the Company and its partners
and licensees: a centralized procedure which is mandatory for certain
biotechnology products and available as an approval option for certain other
products; and a decentralized procedure which requires approval by a regulatory
agency in each EC member state. Additionally, national laws of EC member states
govern clinical trials, manufacturing procedures, advertising and promotion and
pricing and reimbursement. Exporting of unapproved products to foreign
 
                                       42
44
 
countries for testing, approval, or marketing is subject to United States law
and that of the importing country, and may require FDA approval.
 
  Other Regulation
 
     In addition to the laws and regulations which apply to the development,
manufacture and sale of the Company's products, the Company's operations are
subject to numerous federal, state and local laws and regulations. The research
and development activities of the Company involve the controlled use, storage,
handling and disposal of hazardous materials, chemicals and radioactive
compounds and, as a result, the Company is required to comply with regulations
and standards of the Occupational Safety and Health Act, Nuclear Regulatory
Commission, and other safety and environmental laws. Although the Company
believes that its activities currently comply with all applicable laws and
regulations, the risk of accidental contamination or injury cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, which could have a material adverse affect on the
Company's business, financial condition and results of operations.
 
MANUFACTURING
 
     The Company manufactures and sells chromatography systems and cartridges.
Components for chromatography systems are manufactured to the Company's
specifications by subcontractors. For certain prepacked cartridges, the Company
purchases commercial media which it repacks and sells in disposable cartridges.
A small number of components of the Company's chromatography systems are
currently purchased from single sources. However, the Company believes that
alternative sources for these components are readily available, if necessary,
and that it will be able to enter into acceptable agreements to obtain these
components from such alternate sources at similar costs with only a temporary
disruption or delay in production.
 
     For its new affinity separations products, the Company plans to supply
separations media containing Phage Display-derived affinity ligands directly to
customers and collaborative partners, and may from time to time license a third
party to supply its own requirements. For those affinity separations products
which are sold by the Company for use in a customer's or collaborative partner's
clinical or commercial manufacturing processes, the products will need to be
manufactured under GMP conditions. The Company has not yet established a
facility to manufacture affinity separations products under GMP conditions, and
there can be no assurance that the Company will be able to do so by the time
such facility is needed. The Company is currently contracting the production of
affinity ligands from manufacturers who have GMP facilities; however, should
this situation change, the Company's inability to obtain these components could
have a material adverse effect on its business, financial condition or results
of operations.
 
     In addition, the Company currently plans to rely on third party
manufacturers for production of its therapeutic lead candidates under
development. There can be no assurance that such third parties will be able to
successfully complete on behalf of the Company the required preclinical studies,
clinical development, regulatory approval, manufacturing and marketing of any
such therapeutic products. See "-- Government Regulation."
 
SALES AND MARKETING
 
     For the therapeutic, in vivo diagnostic and in vitro diagnostic products
which result from its research and development efforts, Dyax primarily plans to
commercialize such products through licensing, marketing, distribution and other
arrangements with pharmaceutical and diagnostic companies. If the Company
decides to market and sell any such product directly, Dyax does not expect to
establish direct sales capability until such time as one or more therapeutic or
diagnostic products in development obtain regulatory approval and are ready to
be commercialized.
 
     The Biotage separations business has a sales and marketing group of sixteen
people in the United States and Europe. Outside of the United States and certain
European countries, the Company sells these products through distributors. As
new products are introduced and the market for the Biotage label products grows,
the Company anticipates increasing its direct marketing and sales capacity.
 
                                       43
45
 
     For the custom affinity separations products business, Dyax has ongoing
marketing efforts to develop new collaborative arrangements. For other affinity
ligand products that the Company may develop outside of a collaborative
arrangement, the Company plans to market and sell the ligands, either as
stand-alone products or integrated with separations media and equipment, through
a combination of direct sales, distributors and other marketing arrangements.
 
     To the extent that the Company establishes a direct sales capability for
therapeutic or diagnostic products, or undertakes to expand its marketing and
sales capabilities for the separations business, there can be no assurance that
such efforts will be successful. Further, the Company's ability to sustain and
grow the sales of separation products under the Biotage label is dependent upon
its ability to retain and attract qualified marketing and sales staff, which
cannot be assured. See "Risk Factors -- Dependence on Expansion of Operations
and Management of Growth."
 
FACILITIES
 
     The Company currently leases and occupies 22,500 square feet of laboratory
and office space in Cambridge, Massachusetts, as well as 20,000 square feet of
manufacturing and office space in Charlottesville, Virginia. The leases for the
Cambridge facilities expire in December 1999 and the lease for the
Charlottesville facility expires in April 2002. Dyax also leases approximately
4,000 square feet of office space in the United Kingdom to support marketing
efforts for its Biotage label products. The Company believes that its current
space is adequate for its needs through 1999 and that it will be able to obtain
additional space, as needed, on commercially reasonable terms.
 
EMPLOYEES
 
     Dyax had 84 employees on March 1, 1998, including 25 employees with Ph.D's.
Of the Company's employees, 26 were employed in research and development in
Cambridge, Massachusetts and 23 were employed in development and manufacture of
chromatography separations products and systems in Charlottesville, Virginia.
None of the Company's employees is represented by a collective bargaining
agreement and the Company believes that its relations with its employees are
good.
 
LEGAL PROCEEDINGS
 
     The Company is a party to patent oppositions in the European Patent Office.
The Company is not a party in any other material legal proceedings. See
"-- Patents and Proprietary Rights" and "-- Competition."
 
YEAR 2000
 
     The Company is aware of the issues that many computer systems will face as
the millennium ("Year 2000") approaches. The Company has installed Year 2000
compliant software in many of its major systems. The cost of the effort to
complete this activity for the balance of the Company's systems is not expected
to be material. The Company believes that the Year 2000 issue will not pose
significant operational problems. However, Year 2000 issues could have a
significant impact on the Company's business, financial condition and results of
operations if modifications cannot be completed on a timely basis, unforeseen
needs or problems arise, or if the systems operated by suppliers, collaborative
partners or licensees are not Year 2000 compliant.
 
                                       44
46
 
STRATEGIC AND SCIENTIFIC ADVISORS
 
     Dyax has a Strategic Advisory Committee as well as scientific advisory
boards for the therapeutics, diagnostics and separations research programs.
Members of the Strategic Advisory Committee meet with the Company's management
on a quarterly basis and, like the members of the scientific advisory boards,
are available to the Company's management and scientific staff on an as-needed
basis for consultation in their respective areas of expertise. All of the
advisors are employed by and/or have consulting arrangements with other entities
and are expected to devote only a small portion of their time to the Company. No
advisor is employed by the Company. Advisors' other commitments to or consulting
or advisory contracts with their employers or other entities may conflict or
compete with their obligations to the Company.
 
     The Company's advisors are paid an annual retainer for attending meetings,
reimbursed for their expenses and have been granted options to purchase Common
Stock under the Company's Amended and Restated 1995 Equity Incentive Plan. The
Company has entered into consulting agreements with a number of the Scientific
Advisory Board members. The agreements generally are subject to termination by
either party with advance notice.
NAME                                PROFESSIONAL AFFILIATION
              ----                                ------------------------
STRATEGIC ADVISORS
 
Charles L. Cooney, Ph.D.........  Professor, Department of Chemical and Biochemical
                                  Engineering and Executive Officer, Department of Chemical
                                  Engineering, Massachusetts Institute of Technology.
Peter Feinstein.................  Chairman, Feinstein Kean Partners Inc. and Kendall
                                  Strategies Inc.
James W. Fordyce................  General Partner, Prince Ventures LP, and President,
                                  Albert and Mary Lasker Foundation.
Harvey F. Lodish, Ph.D..........  Professor of Biology, Massachusetts Institute of
                                  Technology and Member, Whitehead Institute for Biomedical
                                  Research.
William A. Scott, Ph.D..........  President and Chief Executive Officer, Physiome Sciences,
                                  Inc., and previously Senior Vice President of Exploratory
                                  and Drug Discovery Research, Bristol-Myers Squibb
                                  Pharmaceutical Research Institute.
Thomas P. Stossel, M.D..........  American Cancer Society Professor of Medicine, Harvard
                                  Medical School, and Senior Physician, Hematology-Oncology
                                  Division, Brigham and Women's Hospital.
Henri A. Termeer................  Chairman, President and Chief Executive Officer, Genzyme
                                  Corporation.
Christopher T. Walsh, Ph.D......  Hamilton Kuhn Professor, Department of Biological
                                  Chemistry and Molecular Pharmacology, Harvard Medical
                                  School.
George M. Whitesides, Ph.D......  Mallinckrodt Professor of Chemistry, Harvard University.
Peter Wirth, Esq................  Executive Vice President and Chief Legal Officer, Genzyme
                                  Corporation.
45
47
NAME                                PROFESSIONAL AFFILIATION
              ----                                ------------------------
SCIENTIFIC ADVISORS -- THERAPEUTICS AND DIAGNOSTICS
 
Thomas J. Brady, M.D............  Director, Nuclear MRI Center, Massachusetts General
                                  Hospital; Professor of Radiology, Harvard Medical School.
Leonard Guarente, Ph.D..........  Professor of Biology, Massachusetts Institute of
                                  Technology.
Jordan Gutterman, M.D...........  Virginia Cockrell Professor of Medicine, University of
                                  Texas, M.D. Anderson Cancer Center.
Phillip W. Robbins, Ph.D........  Professor of Biochemistry, Massachusetts Institute of
                                  Technology.
Thomas M. Roberts, Ph.D.........  Chair, Department of Cancer Biology at Dana Farber Cancer
                                  Institute; Chair, Division of Medical Sciences and
                                  Professor of Pathology, Harvard Medical School.
H. William Strauss, M.D.........  Chief, Division of Nuclear Medicine, Stanford University.
Andrew Wright, Ph.D.............  Professor of Microbiology, Tufts University Medical
                                  School.
 
SCIENTIFIC ADVISORS -- SEPARATIONS
 
Stuart E. Builder, Ph.D.........  Consultant, and formerly Staff Scientist, Strategic
                                  Development, Genentech Inc.
Hubert Koster, Ph.D.............  Professor of Chemistry and Biochemistry, University of
                                  Hamburg; President and Chief Executive Officer, Sequenom,
                                  Inc.
Jack Johanssen, Ph.D............  President and CEO, Boston Probes, Inc.
Irving W. Wainer, Ph.D..........  Professor of Pharmacology, Georgetown University Medical
                                  Center; Director, Georgetown University Bioanalytical
                                  Center.
46
48
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
     The executive officers and directors of the Company, as of March 1, 1998,
are as follows:
NAME                        AGE                    POSITION
                      ----                        ---                    --------
Henry E. Blair..................................  54    Chairman of the Board, President and Chief
                                                        Executive Officer
L. Edward Cannon, Ph.D..........................  51    Executive Vice President, President,
                                                        Therapeutic and Diagnostic Division and
                                                        Director
Robert A. Dishman, Ph.D.........................  53    Executive Vice President, President,
                                                        Separations Division and Director
Keith S. Ehrlich................................  47    Senior Vice President, Finance and
                                                        Administration, and Chief Financial Officer
Robert Charles Ladner, Ph.D.....................  53    Senior Vice President and Chief Science
                                                        Officer
Constantine E. Anagnostopoulos, Ph.D.(1)........  75    Director
James W. Fordyce(1)(2)..........................  55    Director
Thomas L. Kempner(2)............................  70    Director
Henry R. Lewis, Ph.D.(1)(2).....................  72    Director
---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
 
     HENRY E. BLAIR.  Mr. Blair has served as the Chairman of the Board and
President of the Company since the merger of PEC with the Company in August 1995
and as acting Chief Executive Officer from August 1995 until his appointment as
Chief Executive Officer in April 1997. He also served as a director and officer
of the Company since its formation in 1989. Mr. Blair is also a director of and
consultant to Genzyme Corporation, a company he co-founded in 1981. Mr. Blair
also co-founded Biocode, Inc. and GelTex Pharmaceuticals, Inc. In addition, he
is a director of Celtrix Pharmaceuticals, Inc. and Genzyme Transgenics
Corporation and a member of the Board of Overseers at each of the Tufts
University School of Medicine and the Lahey Hitchcock Clinic.
 
     L. EDWARD CANNON, PH.D.  Dr. Cannon has served as Executive Vice President
of the Company and President of the Therapeutics and Diagnostics Division. He
was Chief Executive Officer and held other senior management roles at PEC from
October 1992 to August 1995 and has been a director of the Company since the
merger of PEC with the Company. Dr. Cannon founded Hygeia Sciences, Inc. in 1980
and served as Chief Scientific Officer and Senior Vice President from 1986 to
1991.
 
     ROBERT A. DISHMAN, PH.D.  Dr. Dishman has served as Executive Vice
President of the Company and President of the Separations Division since the
merger of PEC with the Company and as a director since April 1994. He was
President and Chief Executive Officer of the Company from April 1994 until
August 1995. Prior to April 1994, Dr. Dishman co-founded and served as Chief
Executive Officer of the predecessor of ArQule Inc. and served as Executive Vice
President and Chief Operating Officer of Sepracor, Inc. Dr. Dishman also served
as President of Millipore's MilliGen (BioScience) Division, which he founded,
and Vice President, Business, Development and Marketing, of Millipore's Waters
Chromatography Division.
 
     KEITH S. EHRLICH.  Mr. Ehrlich joined the Company in January 1998 as Senior
Vice President, Finance and Administration, Chief Financial Officer and
Treasurer. From October 1993 to January 1998, he served as Vice President,
Finance and Administration, and Chief Financial Officer of Oravax, Inc. From May
1991 to October 1993, he served as Treasurer and Director of Finance of Vertex
Pharmaceutics, Inc. Previously, Mr. Ehrlich was a senior audit manager of
Coopers & Lybrand L.L.P.
 
     ROBERT CHARLES LADNER, PH.D.  Dr. Ladner joined the Company as Senior Vice
President and Chief Science Officer in August 1995. He was a co-founder of PEC
where he served as Senior Vice President and
 
                                       47
49
 
Scientific Director from 1987 until its merger with the Company. Previously, Dr.
Ladner served as Senior Scientist of Genex Corp., where he was an inventor of
single chain antibodies.
 
     CONSTANTINE E. ANAGNOSTOPOULOS, PH.D.  Dr. Anagnostopoulos has been a
director of the Company since 1991. He is a Managing General Partner of Gateway
Associates L.P., a venture capital management firm which is the general partner
of Gateway Venture Partners II and Gateway Venture Partners III. Dr.
Anagnostopoulos has been a corporate officer of Monsanto Company. He is a
director of Genzyme Corporation.
 
     JAMES W. FORDYCE.  Mr. Fordyce has been a director of the Company since
August 1995. Since 1981, he has served as a general partner of Prince Ventures
Partners LP, a venture capital management firm, and its affiliated partnerships.
Prince Venture Partners IV is a venture capital limited partnership, managed by
Prince Ventures LP, which specializes in early stage investments in companies
involved in the medical and life science areas. He is also President of the
Albert and Mary Lasker Foundation.
 
     THOMAS L. KEMPNER.  Mr. Kempner has been a director of the Company since
August 1995 and previously was a director of PEC. Mr. Kempner is the Chairman
and Chief Executive Officer of Loeb Partners Corporation, an investment banking,
registered broker/dealer and registered investment advisory firm. He is also
President of Pinpoint Partners Corporation, the general partner of the Loeb
Investment Partnerships. Mr. Kempner is also a director of Alcide Corporation,
CCC Information Services Group, Inc., Energy Research Corporation, IGENE
BioTechnology, Inc., Intermagnetics General Corporation, Northwest Airlines,
Inc. and Roper Starch Worldwide, Inc.
 
     HENRY R. LEWIS, PH.D.  Dr. Lewis has been a director of the Company since
August 1995 and previously was a director of PEC. Mr. Lewis is a consultant to
several companies. From 1986 to February 1991, Mr. Lewis was the Vice Chairman
of the Board of Directors of Dennison Manufacturing Company, a manufacturer and
distributor of products for the stationery, technical paper and industrial and
retail systems markets. From 1982 to 1986, Mr. Lewis was a Senior Vice President
of Dennison Manufacturing Company. Mr. Lewis is a director of Genzyme
Corporation.
 
BOARD OF DIRECTORS
 
     The Company's Restated Certificate of Incorporation provides for a
classified board of directors consisting of three classes, with each class being
as nearly equal in number as possible. The term of one class expires and their
successors are elected for a term of three years at each annual meeting of the
Company's stockholders. The Company has designated three Class I directors (Mr.
Blair and Drs. Cannon and Dishman), two Class II directors (Messrs. Fordyce and
Kempner) and two Class III directors (Drs. Anagnostopoulos and Lewis). These
Class I, Class II and Class III directors will serve until the annual meeting of
stockholders to be held in 1999, 2000 and 2001, respectively, and until their
respective successors are duly elected and qualified, or until their earlier
resignation or removal. The Certificate provides that directors may be removed
only for cause by a majority of stockholders. See "Description of Capital
Stock -- Anti-Takeover Measures." There are no family relationships among any of
the directors or executive officers.
 
BOARD COMMITTEES
 
     The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Messrs. Fordyce and Kempner and Dr.
Lewis. The primary function of the Audit Committee is to assist the Board of
Directors in the discharge of its duties and responsibilities by providing the
Board with an independent review of the financial health of the Company and of
the reliability of the Company's financial controls and financial reporting
systems. The Audit Committee reviews the general scope of the Company's annual
audit, the fee charged by the Company's independent accountants and other
matters relating to internal control systems.
 
     The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The primary function of the
 
                                       48
50
 
Compensation Committee is to administer the Company's Amended and Restated 1995
Equity Incentive Plan. The Compensation Committee consists of Mr. Fordyce and
Drs. Anagnostopoulos and Lewis.
 
DIRECTOR COMPENSATION
 
     Directors who are also employees of the Company do not receive additional
compensation for their services as directors. After the completion of this
Offering, each non-employee director will be paid $12,000 per year as
compensation for services as a director. Non-employee directors who serve as a
chairman of a committee of the Board of Directors will be paid an additional
$3,000 per year.
 
     Any non-employee director is also eligible to receive stock options granted
under the Company's Amended and Restated 1995 Equity Incentive Plan. In January
1998, each non-employee director of the Company was granted an option to
purchase 19,560 shares of Common Stock at an exercise price of $4.60 per share.
Such options vest and become exercisable with respect to 10,000 shares on each
of (i) the date of grant; (ii) the earlier of the next annual meeting of
stockholders or the one-year anniversary of the date of grant; and (iii) the
date one year after the last vesting date.
 
EXECUTIVE COMPENSATION
 
     Summary Compensation Table.  The following table sets forth certain
compensation information for the Chief Executive Officer of the Company and the
three other executive officers of the Company whose salary and bonus for the
fiscal year ended December 31, 1997 exceeded $100,000 (together, the "Named
Executive Officers"):
 
                           SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS
                                                     ------------------------------------------------
                                                         ANNUAL         SECURITIES
                                                      COMPENSATION      UNDERLYING       ALL OTHER
            NAME AND PRINCIPAL POSITION                 SALARY(1)        OPTIONS      COMPENSATION(2)
            ---------------------------              ---------------    ----------    ---------------
Henry E. Blair(3)..................................     $202,500          48,900           $668
  President and Chief Executive Officer
Robert A. Dishman, Ph.D. ..........................      200,000          39,120            668
  Executive Vice President
L. Edward Cannon, Ph.D. ...........................      160,000          39,120            668
  Executive Vice President
Robert Charles Ladner, Ph.D. ......................      160,000          39,120            668
  Senior Vice President and Chief Science Officer
---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
    "Commission"), other compensation in the form of perquisites and other
    personal benefits has been omitted in those instances where the aggregate
    amount of such perquisites and other personal benefits constituted less than
    the lesser of $50,000 or 10% of the total amount of annual salary and bonus
    for the executive officer for the year ended December 31, 1997. No bonuses
    were paid for services rendered during the year ended December 31, 1997.
 
(2) Represents the group term life insurance premiums paid by the Company for
    each of the Named Executive Officers.
 
(3) On March 30, 1997, Mr. Blair was granted a restricted stock award pursuant
    to which he purchased 114,000 shares of Common Stock at a purchase price of
    $0.77 per share. These shares vest over 48 substantially equal monthly
    installments commencing on the first day of the month following the purchase
    date. The value of the restricted stock award is based on the fair market
    value of the Common Stock on the date of grant as determined by the Board of
    Directors ($0.77 per share) less the purchase price paid by Mr. Blair ($0.77
    per share). As of December 31, 1997, Mr. Blair held an aggregate of 95,083
    shares of unvested restricted stock, then valued at $72,917. There was no
    public trading market for the Common Stock as of December 31, 1997. This
    value was determined by multiplying the fair market value of the Common
    Stock most recently determined by the Board of Directors ($1.53 per share)
    before that date by the number of unvested shares held and subtracting the
    aggregate purchase price paid for such shares. No dividends were paid in
    1997 on the outstanding shares of restricted stock.
 
     In January 1998, Mr. Ehrlich joined the Company as Senior Vice President,
Finance and Administration, Chief Financial Officer and Treasurer. Pursuant to
his employment agreement with the Company, Mr. Ehrlich receives an annual salary
of $165,000 and is eligible to receive a bonus of $50,000. Mr. Ehrlich was
granted an
 
                                       49
51
 
option to purchase 91,280 shares of Common Stock, 22,820 of which vest in full
six months after the date of commencement of his employment and 68,460 of which
vest in 48 substantially equal monthly installments commencing on the date of
his employment.
 
     For additional information regarding compensation, see "-- Employment
Agreements."
 
     Option Grants.  The following table sets forth certain information
regarding options granted by the Company to the Named Executive Officers during
the fiscal year ended December 31, 1997:
 
                       OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS                         POTENTIAL REALIZABLE
                               ---------------------------------------------------------       VALUE AT ASSUMED
                                 NUMBER OF     PERCENT OF TOTAL                             ANNUAL RATES OF STOCK
                                  SHARES           OPTIONS                                  PRICE APPRECIATION FOR
                                UNDERLYING        GRANTED TO      EXERCISE                      OPTION TERM(4)
                                  OPTIONS        EMPLOYEES IN     PRICE PER   EXPIRATION    ----------------------
            NAME                GRANTED(1)      FISCAL YEAR(2)    SHARE(3)       DATE         5%             10%
            ----               -------------   ----------------   ---------   ----------    -------        -------
Henry E. Blair...............     48,900              9.9%          $1.53      10/30/07      $              $
Robert A. Dishman, Ph.D......     39,120              8.0            1.53      10/30/07
L. Edward Cannon, Ph.D ......     39,120              8.0            1.53      10/30/07
Robert Charles Ladner,
  Ph.D.......................     39,120              8.0            1.53      10/30/07
---------------
(1) Options were granted under the Amended and Restated 1995 Equity Incentive
    Plan and become exercisable generally in 48 equal monthly installments
    commencing on the first day of each calendar month following the date of
    grant, subject to continued employment with the Company.
 
(2) Based on an aggregate of       options granted by the Company in the year
    ended December 31, 1997 to employees of and consultants to the Company,
    including the Named Executive Officers.
 
(3) The exercise price is equal to the fair market value of the Common Stock on
    the date of grant as determined by the Board of Directors.
 
(4) Amounts represent hypothetical gains for the respective options if exercised
    at the end of the option term. There was no public trading market for the
    Common Stock as of December 31, 1997. Accordingly, these values have been
    calculated based on the assumed initial public offering price of $
    per share. These gains are based on assumed rates of stock price
    appreciation of 5% and 10% compounded annually from the date that the
    respective options were granted until their expiration date. These
    assumptions are not intended to forecast future appreciation of the
    Company's stock price. The potential realizable value computation does not
    take into account federal or state income tax consequences or option
    exercises of appreciated stock.
 
     Option Exercises and Year-End Values.  The following table sets forth
certain information concerning exercisable and unexercisable stock options held
by the Named Executive Officers as of December 31, 1997:
 
              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                         FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
                                                                    UNDERLYING                 VALUE OF UNEXERCISED
                                                              UNEXERCISED OPTIONS AT          IN-THE-MONEY OPTIONS AT
                                                                  FISCAL YEAR-END               FISCAL YEAR-END(1)
                              SHARES ACQUIRED    VALUE     -----------------------------   -----------------------------
            NAME                ON EXERCISE     REALIZED   EXERCISABLE     UNEXERCISABLE   EXERCISABLE     UNEXERCISABLE
            ----              ---------------   --------   -----------     -------------   -----------     -------------
Henry E. Blair..............       9,253        $ 6,386        2,038    /     48,863         $          /     $
Robert A. Dishman, Ph.D. ...      64,056         76,596          397    /     56,167                    /
L. Edward Cannon, Ph.D. ....          --             --       64,453    /     56,167                    /
Robert Charles Ladner,
  Ph.D. ....................      18,677         22,917        9,207    /     45,707                    /
---------------
(1) There was no public trading market for the Common Stock as of December 31,
    1997. Accordingly, pursuant to the rules of the Securities and Exchange
    Commission, these values have been calculated based on an assumed initial
    public offering price of $        per share less the aggregate exercise
    price.
 
                                       50
52
 
EMPLOYMENT AGREEMENTS
 
     The only executive officers of Dyax with employment agreements are Dr.
Dishman, Dr. Ladner and Mr. Ehrlich.
 
     Under the terms of Dr. Dishman's employment agreement dated February 18,
1998, he is entitled to an annual base salary of not less than $200,000. If Dr.
Dishman's employment is terminated without cause, the Company is required to pay
to Dr. Dishman severance payments at his annual base salary rate for six months,
which shall be extended for up to an additional six months if he does not obtain
comparable employment (subject to reduction for any amounts earned during such
period), and all unvested stock options held by Dr. Dishman shall be
accelerated. In addition, the Company granted Dr. Dishman a restricted stock
award to purchase 78,240 shares of Common Stock at a price of $4.60 per share
(the "Restricted Stock Award"). Upon the purchase of the entire Restricted Stock
Award and the exercise in full of an accelerated option granted in 1997 to
purchase 39,120 shares of Common Stock (the "1997 Option"), the Company agreed
to loan to Dr. Dishman an aggregate of $453,600 pursuant to two promissory notes
in the amounts of $360,000 and $93,600 (the "Notes"), respectively. The Notes,
which are each secured by a corresponding pledge of the shares of Common Stock
purchased under the Restricted Stock Award and received upon exercise of the
1997 Option, respectively, are payable in four years, subject to acceleration
and become due (i) immediately if Dr. Dishman's employment is terminated other
than by the Company without cause or (ii) on the second anniversary of the date
of issuance if the Company completes an initial public offering or is sold. As
long as Dr. Dishman remains employed by the Company, the Company shall forgive
all interest accrued on the notes annually or through the date of any earlier
termination of employment.
 
     Under the terms of Dr. Ladner's employment agreement, Dr. Ladner is
entitled to an annual base salary of not less than $125,000. If Dr. Ladner's
employment is terminated without cause, the Company is required to pay to Dr.
Ladner severance payments at his annual base salary rate for 12 months and 50%
of his unvested stock options shall be accelerated. This employment agreement
terminates in August 1998.
 
     Under the terms of Mr. Ehrlich's employment agreement, if Mr. Ehrlich's
employment is terminated without cause or if his position and responsibilities
are adversely affected as a result of a change in control (as defined in the
employment agreement), the Company is required to pay to Mr. Ehrlich six months
severance, all of his unvested stock options shall be accelerated and the
exercise period for all vested options shall be extended for an additional three
years after termination.
 
STOCK PLANS
 
     Amended and Restated 1995 Equity Incentive Plan.  The Company's 1995 Equity
Incentive Plan was adopted in August 1995 and amended and restated in January
1998 (as amended and restated, the "Equity Plan"). The Equity Plan is designed
to provide the Company flexibility in awarding equity incentives by providing
for multiple types of incentives that may be awarded. The purpose of the Equity
Plan is to attract and retain key employees of and consultants to the Company
and to enable them to participate in the long-term growth of the Company. The
Equity Plan provides for the grant of stock options (incentive and
nonstatutory), stock appreciation rights, performance shares, restricted stock
or stock units for the purchase of an aggregate of 2,184,200 shares of Common
Stock, subject to adjustment for stock splits and similar capital changes.
Awards under the Equity Plan can be granted to officers, employees and other
individuals as determined by the Compensation Committee of the Board of
Directors, each of whose members is a "non-employee director" within the meaning
of Rule 16b-3 under the Securities Act. The Compensation Committee selects the
participants and establishes the terms and conditions of each option or other
equity right granted under the Equity Plan, including the exercise price, the
number of shares subject to options or other equity rights and the time at which
such options become exercisable. The exercise price of all "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), granted under the Equity Plan must be at least equal to
100% of the fair market value of the option shares on the date of grant. The
term of any incentive stock option granted under the Equity Plan may not exceed
ten years.
 
                                       51
53
 
     As of December 31, 1997, options to purchase an aggregate of 1,160,768
shares of Common Stock had been granted under the Equity Plan. Options to
purchase 158,644 shares were exercised as of such date and options to purchase
31,385 shares had been cancelled. Of the options to purchase an aggregate of
970,739 shares of Common Stock that were outstanding as of such date, options to
purchase 233,165 shares were exercisable. As of December 31, 1997, one award to
purchase 114,100 shares of Restricted Common Stock had been granted under the
Equity Plan. As of March 17, 1998, one additional award to purchase 78,240
shares of Restricted Common Stock had been granted under the Equity Plan. See
"-- Executive Compensation." Except as set forth above, no other awards have
been granted under the Equity Plan.
 
     1998 Employee Stock Purchase Plan.  In January 1998, the Company adopted
the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 97,800 shares of Common Stock reserved for issuance
under the Purchase Plan. To date, no shares of Common Stock have been issued
under the Purchase Plan. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Rights to
purchase Common Stock under the Purchase Plan are granted at the discretion of
the Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
Common Stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may be
paid through payroll deductions, periodic lump sum payments or a combination of
both. The Purchase Plan terminates on January 30, 2008.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. See "Management -- Stock Plans." The
Compensation Committee currently consists of Drs. Anagnostopoulos and Lewis and
Mr. Fordyce. See "Principal Stockholders" and "Certain Transactions."
 
                                       52
54
 
                              CERTAIN TRANSACTIONS
 
     Pursuant to the voting rights of the holders of the Company's Class A
Convertible Preferred Stock contained in the Company's Restated Certificate of
Incorporation, Mr. Fordyce was elected to the Company's Board of Directors in
August 1995. These voting rights will terminate upon the completion of this
Offering following the automatic conversion of all outstanding shares of Class A
Convertible Preferred Stock into shares of Common Stock.
 
     Since August 1995, the Company has issued and sold 8,944,043 shares of
Class A Convertible Preferred Stock convertible into an aggregate of 5,831,516
shares of Common Stock.
 
     Dr. Anagnostopoulos, a director of the Company, is a general partner of
Gateway Associates, L.P., the general partner of Gateway Venture Partners, a
stockholder of the Company. In August 1995, the Company issued to Gateway
Venture Partners III, L.P. an aggregate of 191,409 shares of Class A Series 1
Convertible Preferred Stock pursuant to a recapitalization of the Company. Also
in August 1995, the Company issued and sold to Gateway Venture Partners III,
L.P. an aggregate of 150,000 shares of Class A Series 3 Convertible Preferred
Stock at a purchase price of $2.00 per share. In October 1996, the Company
issued and sold to Gateway Venture Partners III, L.P. an aggregate of 75,000
shares of Class A Series 4 Convertible Preferred Stock at a purchase price of
$3.13 per share. Pursuant to the Company's Restated Certificate of
Incorporation, all of such shares of Class A Convertible Preferred Stock will
automatically convert into 271,498 shares of Common Stock upon the closing of
this Offering.
 
     Mr. Fordyce, a director of the Company, is a general partner of Prince
Ventures Partners LP, the general partner of Prince Venture Partners IV, a
stockholder of the Company. In August 1995, the Company issued and sold to
Prince Venture Partners IV an aggregate of 375,000 shares of Class A Series 3
Convertible Preferred Stock at a purchase price of $2.00 per share. In October
1996, the Company issued and sold to Prince Venture Partners IV an aggregate of
478,556 shares of Class A Series 4 Convertible Preferred Stock at a purchase
price of $3.13 per share. In September 1997, in an arm's length transaction,
Prince Venture Partners IV purchased from a group of related stockholder of the
Company an aggregate of (i) 119,946 shares of Class A Series 1 Convertible
Preferred Stock at a purchase price of $1.73 per share and (ii) 20,413 shares of
Common Stock at a purchase price of $0.50 per share. Pursuant to the Company's
Restated Certificate of Incorporation, all of such shares of Class A Convertible
Preferred Stock will automatically convert into 634,723 shares of Common Stock
upon the closing of this Offering.
 
     Mr. Kempner, a director of the Company, is the President of Pinpoint
Partners Corporation, the general partner of each of Loeb Investment Co. 106,
Loeb Investment Co. 106A, Loeb Investment Co. 106B and Loeb Investment Co. 106C
(collectively, "Loeb Investment Partnerships"), each of which is a stockholder
of the Company. In August 1995, the Company issued to the Loeb Investment
Partnerships an aggregate of 279,990 shares of Class A Series 2 Convertible
Preferred Stock pursuant to the merger with PEC. Also in August 1995, the
Company issued and sold to certain of the Loeb Investment Partnerships an
aggregate of 150,000 shares of Class A Series 3 Convertible Preferred Stock at a
purchase price of $2.00 per share. In October 1996, the Company issued and sold
to certain of the Loeb Investment Partnerships an aggregate of 286,845 shares of
Class A Series 4 Convertible Preferred Stock at a purchase price of $3.13 per
share. In March 1997, the Company issued and sold to certain of the Loeb
Investment Partnerships an aggregate of 32,644 shares of Class A Series 4
Convertible Preferred Stock at a purchase price of $3.13 per share. Pursuant to
the Company's Restated Certificate of Incorporation, all of such shares of Class
A Convertible Preferred Stock will automatically convert into 488,660 shares of
Common Stock upon the closing of this Offering.
 
     In March 1997, the Company awarded Henry E. Blair a right to purchase
114,100 shares of Restricted Common Stock pursuant to the Equity Plan at a
purchase price of $0.77 per share in connection with becoming the full-time
Chief Executive Officer of the Company. The unvested Restricted Common Stock,
which vests over 48 substantially equal monthly installments, is subject to
repurchase by the Company at the original purchase price if Mr. Blair ceases to
be employed by the Company.
 
     The Company is a party to employment agreements with certain of its
executive officers. For information regarding these agreements and a grant of
restricted stock to Dr. Dishman, see "Management -- Employment Agreements." See
also Note 12 to Notes to Consolidated Financial Statements, which are
incorporated herein by reference.
 
                                       53
55
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 17, 1998, and as adjusted to reflect
the sale of the shares of the Common Stock offered hereby by the Company, by (i)
all those known by the Company to be beneficial owners of more than 5% of its
outstanding Common Stock, (ii) each director of the Company, (iii) each of the
Named Executive Officers of the Company and (iv) all directors and executive
officers of the Company as a group:
PERCENTAGE OF SHARES
                                                                                  BENEFICIALLY OWNED
                                                    NUMBER OF SHARES            BEFORE            AFTER
               BENEFICIAL OWNERS                 BENEFICIALLY OWNED(1)         OFFERING        OFFERING(2)
               -----------------                 ----------------------      ------------      -----------
PRINCIPAL STOCKHOLDERS:
 
New York Life Insurance Company(3).............          681,037                  9.4%             7.0%
Loeb Investment Partnerships(4)................          650,907                  9.0%             6.7%
Prince Venture Partners IV(5)..................          648,033                  8.9%             6.6%
Oak Investment Partnerships(6).................          461,223                  6.4%             4.7%
GMMI SBIC, L.P.(7).............................          458,275                  6.3%             4.7%
BancBoston Ventures, Inc.(8)...................          416,614                  5.7%             4.3%
Gateway Venture Partnerships(9)................          285,811                  3.9%             2.9%
 
DIRECTORS AND EXECUTIVE OFFICERS**
Henry E. Blair(10).............................          657,184                  9.0%             6.8%
L. Edward Cannon, Ph.D.(11)....................           71,108                  1.0%               *
Robert A. Dishman, Ph.D.(12)...................          186,838                  2.6%             1.9%
Robert Charles Ladner, Ph.D.(13)...............          163,223                  2.2%             1.7%
Keith S. Ehrlich(14)...........................            5,705                    *                *
Constantine E. Anagnostopoulos, Ph.D.(15)......          293,213                  4.0%             3.0%
James W. Fordyce(16)...........................          655,775                  9.0%             6.7%
Thomas L. Kempner(17)..........................          657,931                  9.1%             6.7%
Henry R. Lewis, Ph.D.(18)......................           47,423                    *                *
All current executive officers and directors as
  a group (9 persons)(19)......................        2,738,400                 37.1%            27.7%
---------------
 
   * Indicates beneficial ownership of less than one percent.
 
  ** The address of the directors and executive officers is One Kendall Square,
     Cambridge, MA 02139
 
 (1) Reflects the conversion, prior to or contemporaneously with the closing of
     this Offering, of all outstanding shares of Preferred Stock of the Company
     into an aggregate of 5,831,516 shares of Common Stock. The number of shares
     of Common Stock deemed outstanding after this Offering includes the
     2,500,000 shares of Common Stock of the Company being offered for sale in
     this Offering. The persons and entities named in the table have sole voting
     and investment power with respect to the shares beneficially owned by them,
     except as noted below. Share numbers include shares of Common Stock
     issuable pursuant to the outstanding options and warrants that may be
     exercised within the 60-day period following March 17, 1998.
 
 (2) The shares of the named holder which are beneficially owned but are not
     outstanding are the only such beneficially owned shares that are treated as
     outstanding for purposes of computing the percentage ownership of the named
     holder.
 
 (3) The stockholder's address is 51 Madison Avenue, New York, NY 10010.
 
 (4) Includes: (i) 125,813 shares owned by Loeb Investment Co. 106, (ii) 218,988
     shares owned by Loeb Investment Co. 106A, (iii) 97,800 shares owned by Loeb
     Investment Co. 106B, and (iv) 208,307 shares owned by Loeb Investment Co.
     106C (collectively, "Loeb Investment Partnerships"). Pinpoint Partners
     Corporation, the general partner of each of the Loeb Investment
     Partnerships, exercises sole voting and investment control with respect to
     all shares held by each of the Loeb Investment Partnerships. The
     stockholder's address is c/o Irwin Rowe, 61 Broadway, 24th Floor, New York,
     NY 10006.
 
 (5) Prince Ventures Limited Partnership, the general partner of Prince Venture
     Partners IV, exercises sole voting and investment control with respect to
     all shares held by Prince Venture Partners IV. The stockholder's address is
     10 South Wacker Drive, Suite 2575, Chicago, IL 60606.
 
 (6) Includes 442,064 shares held by Oak Investment Partners IV Limited Partners
     and 19,159 shares held by Oak IV Affiliates Fund Limited Partnership
     (collectively, "Oak Investment Partnerships"). Oak Investment Partners IV
     Limited Partners, the general
 
                                       54
56
 
     partner of each of the Oak Investment Partnerships, exercises sole voting
     and investment control with respect to all shares held by each of the Oak
     Investment Partnerships. The stockholder's address is One Gorham Island,
     Westport, CT 06880.
 
 (7) GMM Investors Corp., the general partner of GMMI SBIC, L.P., exercises sole
     voting and investment control with respect to all shares held by GMMI SBIC,
     L.P. The stockholder's address is 70 Walnut Street, Wellesley, MA 02181.
 
 (8) The stockholder's address is 100 Federal Street, Boston, MA 02110.
 
 (9) Includes 226 shares held by Gateway Venture Partners II, L.P. and 285,586
     shares held by Gateway Venture Partners III, L.P. (collectively, "Gateway
     Venture Partnerships"). Gateway Associates, L.P., the general partner of
     each of the Gateway Venture Partnerships, exercises sole voting and
     investment control with respect to all shares held by each of the Gateway
     Venture Partnerships. The stockholder's address is 8000 Maryland Avenue,
     Suite 1190, St. Louis, MO 63150.
 
(10) Includes 6,113 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(11) Includes 60,676 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(12) Includes 3,793 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(13) Includes: (i) 81,021 shares of Common Stock held jointly with Dr. Ladner's
     spouse; (ii) 9,058 shares of Common Stock held by Dr. Ladner's spouse;
     (iii) 27,589 shares of Common Stock held by Dr. Ladner's children as to
     which Dr. Ladner disclaims beneficial ownership; (iv) an aggregate of
     16,630 shares of Common Stock held in trust by Dr. Cannon for Dr. Ladner's
     minor child; and (v) 11,274 shares of Common Stock issuable upon exercise
     of outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(14) Consists of 5,705 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
(15) Includes 285,811 shares held by Gateway Venture Partners. Dr.
     Anagnostopoulos, a director of the Company, is a general partner of Gateway
     Associates, L.P., the general partner of Gateway Venture Partners. Also
     includes 6,520 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(16) Includes 648,033 shares held by Prince Venture Partners IV. Mr. Fordyce, a
     director of the Company, is a general partner of Prince Ventures Limited
     Partnership, the general partner of Prince Venture Partners IV. Also
     includes 7,743 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(17) Includes 650,907 shares of Common Stock held by Loeb Investment
     Partnerships. Mr. Kempner, a director of the Company, is the President of
     Pinpoint Partners Corporation, the general partner of each of the Loeb
     Investment Partnerships. Also includes 7,023 shares of Common Stock
     issuable upon exercise of outstanding options exercisable within the 60-day
     period following March 17, 1998.
 
(18) Includes 7,062 shares of Common Stock issuable upon exercise of outstanding
     options exercisable within the 60-day period following March 17, 1998.
 
(19) Includes 115,908 shares of Common Stock issuable upon exercise of
     outstanding options exercisable within the 60-day period following March
     17, 1998.
 
                                       55
57
 
                          DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
     The authorized capital stock of the Company currently consists of
20,000,000 shares of Common Stock, $0.01 par value per share, and 9,440,832
shares of Preferred Stock, $0.01 par value per share. Upon the completion of
this Offering, the authorized capital stock of the Company will consist of
30,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock after
giving effect to the amendment and restatement of the Company's Restated
Certificate of Incorporation to delete references to the Class A Series 1,
Series 2, Series 3 and Series 4 Convertible Preferred Stock (collectively the
"Class A Preferred Stock"). On March 17, 1998 there were outstanding an
aggregate of (i) 1,429,837 shares of Common Stock and (ii) 8,944,043 shares of
Preferred Stock, consisting of 1,942,936 shares of Class A Series 1 Convertible
Preferred Stock, 703,970 shares of Class A Series 2 Convertible Preferred Stock,
2,000,000 shares of Class A Series 3 Convertible Preferred Stock, and 4,297,137
shares of Class A Series 4 Convertible Preferred Stock, all of which shares will
automatically convert into an aggregate of 5,831,516 shares of Common Stock upon
the completion of this Offering. As of the date of this Prospectus, the Company
had approximately 260 stockholders. Upon the closing of this Offering, the
Company will have 9,761,353 shares of Common Stock outstanding.
 
     The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by (i) the provisions of the Company's Restated Certificate of
Incorporation and By-laws (each as filed and in effect, respectively, upon or
after the closing of this Offering and included as exhibits to the Registration
Statement) and (ii) the provisions of applicable law.
 
COMMON STOCK
 
     Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends, if declared by the Board of
Directors, out of funds legally available therefor. See "Dividend Policy." Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding shares of Preferred Stock. No shares of Preferred Stock will be
outstanding immediately following the closing of this Offering. The Common Stock
outstanding upon the effective date of the Registration Statement, and the
shares offered by the Company hereby, upon issuance and sale, will be fully paid
and nonassessable.
 
PREFERRED STOCK
 
     The Company is currently authorized to issue 9,440,832 shares of Preferred
Stock. Upon the completion of this Offering, all of the issued and outstanding
shares of Preferred Stock will be converted into an aggregate of 5,831,516
shares of Common Stock. Immediately following such conversion, such shares of
Preferred Stock will be cancelled, retired and eliminated from the Company's
authorized shares of capital stock and the number of authorized shares of
Preferred Stock will be decreased to 1,000,000 shares.
 
     Upon completion of this Offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock in one or
more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Company believes that the power
to issue Preferred Stock will provide flexibility in connection with possible
certain corporate transactions. The issuance of Preferred Stock could adversely
affect the voting power of the holders of Common Stock, restrict their rights to
receive payment upon liquidation and have the effect of delaying, deferring or
preventing a change-in-control of the Company. See "Description of Capital
Stock -- Anti-Takeover Provisions." The Company has no present plans to issue
any shares of Preferred Stock.
 
                                       56
58
 
WARRANTS
 
     In connection with the merger of the Company with PEC, the Company issued
warrants to purchase an aggregate of 27,022 shares of Common Stock at an
exercise price of $3.97 per share in substitution for warrants previously issued
by PEC. The warrants will expire on August 10, 2000. The exercise price of each
warrant is subject to adjustment in the event of a stock split, combination or
dividend by the Company.
 
ANTI-TAKEOVER MEASURES
 
     In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate of Incorporation and the By-laws contain several
other provisions that are commonly considered to discourage unsolicited
acquisition proposals. The Restated Certificate of Incorporation includes a
provision classifying the Board of Directors into three classes with staggered
three-year terms, and the By-laws include a provision prohibiting stockholder
action by written consent except as otherwise provided by law. Under the
Restated Certificate of Incorporation and By-laws, the Board of Directors may
enlarge the size of the Board of Directors and fill any vacancies. The Restated
Certificate of Incorporation requires the approval of the holders of at least
66 2/3% of the outstanding capital stock of the Company prior to (i) the merger
of the Company into another entity, (ii) the sale or disposition of all or
substantially all of the Company's assets and (iii) engaging in any other
business combination transaction, unless such transaction has been approved by a
majority of the Board of Directors. Further, provisions of the Restated
Certificate of Incorporation and the By-laws provide that the stockholders may
amend certain provisions of the Restated Certificate of Incorporation or the
By-laws only with the affirmative vote of the holders of 66 2/3% of the
Company's outstanding capital stock. The By-laws provide that nominations for
directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make such a nomination notifies the Company
of its intention a specified period in advance and furnishes certain
information. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President or the Board of Directors and
require advance notice of business to be brought by a stockholder before the
annual meeting.
 
     Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, a law regulating corporate takeovers (the "Anti-Takeover Law"). In certain
circumstances, the Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market, from
engaging in a "business combination" (which includes a merger or sale of more
than ten percent of the corporation's assets) with an "interested stockholder"
(a stockholder who owns 15% or more of the corporation's outstanding voting
stock) for three years following the date on which such stockholder became an
"interested stockholder" subject to certain exceptions, unless the transaction
is approved by the Board of Directors and the holders of at least 66 2/3% of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). The statutory ban does not apply if, upon consummation
of the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). A Delaware corporation subject to
the Anti-Takeover Law may "opt out" of the Anti-Takeover Law with an express
provision either in its certificate of incorporation or By-laws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares; such an amendment is effective twelve months from adoption. The
Company has not "opted out" of the Anti-Takeover Law.
 
     The foregoing provisions of the Restated Certificate of Incorporation and
By-laws and Delaware law could have the effect of discouraging others from
attempting hostile takeovers of the Company and, as a consequence, they may also
inhibit temporary fluctuations in the market price of the Common Stock that
might result from actual or rumored hostile takeover attempts. Such provisions
may also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Common Stock is Boston EquiServe
LP.
 
                                       57
59
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of this Offering, the Company will have 9,761,353 shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options or warrants. Of these
shares, the 2,500,000 shares sold in this Offering will be freely tradable,
without restriction or further registration under the Securities Act, except for
shares purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act.
 
     The remaining 7,261,353 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144. These
may not be resold, except pursuant to an effective registration statement or an
applicable exemption from registration. Of these remaining shares, approximately
1,266,262 shares of Common Stock will be eligible for sale under Rules 144 and
701 on the ninety-first day after the effectiveness of this Offering.
Stockholders of the Company, holding in the aggregate 5,995,091 shares of Common
Stock, have agreed to enter into the 180-day lock-up agreements described below.
At the end of such 180-day period, an additional 5,928,532 shares of Common
Stock will be eligible for sale under Rules 144 and 701. The remaining
Restricted Shares will become eligible from time to time thereafter upon the
expiration of the minimum one-year holding period prescribed by Rule 144.
 
     In general, under Rule 144, as recently amended, a person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 97,614 shares
immediately after the offering) or the average weekly trading volume in the
public market during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner and notice of
sale and the availability of public information concerning the Company. All
sales of shares of the Company's Common Stock, including Restricted Shares, held
by affiliates of the Company must be sold under Rule 144, subject to the
foregoing volume limitations and other restrictions. In addition, under Rule
144(k), if a period of at least two years has elapsed between the later of the
date restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale is entitled
to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
 
     The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior written consent
of the representatives of the Underwriters, offer to sell, sell, contract to
sell, grant any option to sell or otherwise dispose of or require the Company to
file with the Commission a registration statement under the Securities Act to
register any shares of Common Stock or securities convertible or exchangeable
for shares of Common Stock or warrants or other rights to acquire shares of
Common Stock during the 180-day period following the effective date of the
Registration Statement.
 
     The Company plans to file registration statements under the Securities Act
to register approximately 2,184,200 and 97,800 shares of Common Stock issuable
under the Equity Plan and the Purchase Plan, respectively, 90 days after the
date of this Prospectus. Upon registration, such shares will be eligible for
immediate resale upon exercise, subject, in the case of affiliates, to the
volume, manner of sale and notice requirements of Rule 144.
 
     No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market may have an adverse impact on the
market price for the Common Stock. See "Risk Factors -- Dilution."
 
                                       58
60
 
REGISTRATION RIGHTS
 
     The holders of the 5,831,516 shares of Common Stock to be issued upon
conversion of the Class A Preferred Stock (the "Registrable Shares") are
entitled to certain rights with respect to registration of the Registrable
Shares under the Securities Act commencing on October 31, 1998. If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, such holders are
entitled to notice of such registration and are entitled to include such
Registrable Shares in the registration. The rights are subject to certain
conditions and limitations, among them, the right of the underwriters of a
registered offering to limit the number of shares included in such registration.
Holders of Registrable Shares benefiting from these rights may also require the
Company to file at its expense a registration statement under the Securities Act
with respect to their shares of Common Stock and, subject to certain conditions
and limitations, the Company is required to use its best efforts to effect such
registration. Furthermore, such holders may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3 with respect to such Registrable Shares. Such holders did not have the
right to have shares of Common Stock registered under the Securities Act as part
of this Offering.
 
                                       59
61
 
                                  UNDERWRITING
 
     Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such
Underwriter.
NUMBER OF
UNDERWRITER                                                    SHARES
-----------                                                   ---------
Smith Barney Inc. ..........................................
CIBC Oppenheimer Corp. .....................................
Pacific Growth Equities, Inc. ..............................
 
                                                              ---------
               Total........................................  2,500,000
                                                              =========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
 
     The Underwriters, for whom Smith Barney Inc., CIBC Oppenheimer Corp. and
Pacific Growth Equities, Inc., are acting as the Representatives, propose to
offer part of the shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $          per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $          per share to
certain other dealers. After the initial offering of the shares to the public,
the public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any shares to any
accounts over which they exercise discretionary authority.
 
     The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
 
     The Company and each of its officers and directors have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company.
 
     At the request of the Company, the Underwriters have reserved up to 125,000
shares of Common Stock for sale at the public offering price to directors,
officers and employees of the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters on the same basis as all other shares offered
hereby.
 
     In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may 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. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
 
                                       60
62
 
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby if the
Representatives purchase Common Stock in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
receive from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
 
     Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management, the present state of the Company's development, past and
present revenues and earnings, the current states of the economy in the United
States and the current level of economic activity in the industry in which the
Company competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies which are comparable to the Company.
 
     The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Nathaniel S.
Gardiner, a partner of Palmer & Dodge LLP, is the Secretary of the Company.
Certain legal matters are being passed upon for the Underwriters by Hale and
Dorr LLP, Boston, Massachusetts.
 
                                    EXPERTS
 
     Statements relating to United States patent matters involving the Company's
Phage Display patents in the portions of this Prospectus entitled "Risk
Factors -- Uncertainties Related to Patents and Proprietary Rights" (except for
the last paragraph relating to employee confidentiality) and
"Business -- Patents and Proprietary Rights" (except for the last two
paragraphs), insofar as they constitute summaries of matters of United States
patent law, have been reviewed and approved by special patent counsel to the
Company, Yankwich & Associates, as experts in patent law.
 
     The consolidated balance sheets of the Company at December 31, 1997 and
1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997 appearing in this Prospectus and Registration Statement
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
 
     The consolidated statements of operations and accumulated deficit and cash
flows of PEC for the period from January 1, 1995 to August 11, 1995 appearing in
this Prospectus and Registration Statement have been audited by Coopers &
Lybrand L.L.P., independent accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
 
                                       61
63
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. All statements made in this Prospectus
regarding the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are qualified by reference to the copy of
such document filed as an exhibit to the Registration Statement. A copy of the
Registration Statement may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and at the Commission's regional offices at 500 West Madison Street,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of all or any part thereof may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports and other information can also be reviewed
through the Commission's web site (http://www.sec.gov).
 
     Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
 
     The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements certified by an independent
public accounting firm and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year of
the Company.
 
     The Company has filed for trademark protection for the Dyax mark and the
Dyax logo. The Company has registered the Kiloprep mark in the United States,
Japan, Germany and the United Kingdom. In addition, the Company considers
"Biotage" as a trade name and considers Parallex, ProPrep and BioFLASH to be
trademarks. All other trademarks or service marks appearing in this Prospectus
are the property of their respective holders.
 
                                       62
64
 
                         INDEX TO FINANCIAL STATEMENTS
PAGE
                                                              ----
DYAX CORP.
 
Report of Independent Accountants...........................   F-2
Consolidated Balance Sheets as of December 31, 1996 and
  1997......................................................   F-3
Consolidated Statements of Operations for the years ended
  December 31, 1995, 1996 and 1997..........................   F-4
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 1995, 1996 and 1997......   F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1995, 1996 and 1997..........................   F-6
Notes to Consolidated Financial Statements..................   F-7
 
PROTEIN ENGINEERING CORPORATION
 
Report of Independent Accountants...........................  F-19
Consolidated Statement of Operations and Accumulated Deficit
  for the period from January 1, 1995 to August 11, 1995....  F-20
Consolidated Statement of Cash Flows for the period from
  January 1, 1995 to August 11, 1995........................  F-21
Notes to Consolidated Financial Statements..................  F-22
F-1
65
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders and Board of Directors of Dyax Corp.:
 
     We have audited the accompanying consolidated balance sheets of Dyax Corp.
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of three
years in the period ended December 31, 1997. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dyax Corp. as
of December 31, 1996 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
 
                                               COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 20, 1998
 
                                       F-2
66
 
                                   DYAX CORP.
 
                          CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
                                                              ----------------------------
                                                                  1996            1997
                                                              ------------    ------------
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  8,591,000    $  4,664,000
  Accounts receivable, (net of allowances for doubtful
     accounts of $41,000 and $81,000 at December 31, 1996
     and 1997, respectively)................................     1,363,000       2,273,000
  Inventories...............................................     1,282,000       1,873,000
  Other current assets......................................       150,000         286,000
                                                              ------------    ------------
          Total current assets..............................    11,386,000       9,096,000
Fixed assets, net...........................................       505,000       1,151,000
Other assets, net...........................................       345,000         285,000
                                                              ------------    ------------
          Total assets......................................    12,236,000      10,532,000
                                                              ============    ============
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................     1,633,000       2,145,000
  Deferred revenue..........................................       384,000         891,000
  Current portion of long term debt.........................       121,000          68,000
  Current portion of capital leases.........................         7,000          87,000
                                                              ------------    ------------
          Total current liabilities.........................     2,145,000       3,191,000
Long term debt..............................................       763,000         695,000
Capital leases..............................................         7,000         383,000
                                                              ------------    ------------
          Total liabilities.................................     2,915,000       4,269,000
Commitments
Stockholders' equity:
  Class A convertible preferred stock; 9,440,832 shares
     authorized in series; 8,161,283 and 8,944,043 issued
     and outstanding at December 31, 1996 and 1997,
     respectively; $25,947,000 liquidation preference at
     December 31, 1997......................................    24,821,000      27,258,000
  Common stock, $.01 par value, 20,000,000 shares
     authorized, 1,021,455 and 1,278,114 issued at December
     31, 1996 and 1997, respectively........................        10,000          13,000
Additional paid-in capital..................................     9,629,000      11,519,000
Accumulated deficit.........................................   (25,169,000)    (30,704,000)
Treasury stock (1,378 common shares at cost)................            --              --
Deferred compensation.......................................            --      (1,682,000)
Accumulated foreign currency translation adjustment.........        30,000        (141,000)
                                                              ------------    ------------
          Total stockholders' equity........................     9,321,000       6,263,000
                                                              ------------    ------------
          Total liabilities and stockholders' equity........  $ 12,236,000    $ 10,532,000
                                                              ============    ============
The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-3
67
 
                                   DYAX CORP.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1995           1996            1997
                                                    ------------    -----------    ------------
Revenues:
  Product sales...................................  $  3,592,000    $ 4,478,000    $  7,625,000
  Product development.............................       428,000      1,060,000       1,440,000
  License fees....................................            --      1,499,000         711,000
                                                    ------------    -----------    ------------
Total revenues....................................     4,020,000      7,037,000       9,776,000
Operating expenses:
  Cost of products sold...........................     1,952,000      2,046,000       3,174,000
  Research and development........................     1,343,000      3,140,000       5,575,000
  Selling, general and administrative.............     2,710,000      4,170,000       6,827,000
  Write-off of intangible asset...................       456,000             --              --
  Write-off of incomplete technology..............     4,098,000             --              --
                                                    ------------    -----------    ------------
Total operating expenses..........................    10,559,000      9,356,000      15,576,000
                                                    ------------    -----------    ------------
Loss from operations..............................    (6,539,000)    (2,319,000)     (5,800,000)
                                                    ------------    -----------    ------------
  Interest income.................................       123,000        108,000         339,000
  Interest expense................................      (169,000)      (186,000)        (74,000)
                                                    ------------    -----------    ------------
Net loss..........................................  $ (6,585,000)   $(2,397,000)   $ (5,535,000)
                                                    ============    ===========    ============
Net loss per common share -- Note 2:
  Historical:
     Basic and diluted............................  $     (27.53)   $     (2.38)   $      (5.14)
     Weighted average number of shares -- basic
       and diluted................................       239,212      1,006,730       1,076,469
  Pro forma (unaudited):
     Basic and diluted............................                                 $      (0.83)
     Weighted average number of shares -- basic
       and diluted................................                                    6,706,680
The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-4
68
 
                                   DYAX CORP
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
CONVERTIBLE PREFERRED STOCK
                                      ------------------------------------------------------------------------
                                                         CLASS A                       CLASS C
                                      ---------------------------------------------   ----------
                                      SERIES 1    SERIES 2   SERIES 3     SERIES 4
                                       SHARES      SHARES     SHARES       SHARES       SHARES       AMOUNT
                                      ---------   --------   ---------   ----------   ----------   -----------
Balance at December 31, 1994........         --        --           --                 5,530,569   $ 8,574,000
Conversion of Common Stock per 1995
 Plan of Recapitalization...........
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......  1,942,936                                       (5,530,569)
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........              703,970                                            1,408,000
Issuance of Preferred Stock.........                         2,000,000                               3,900,000
Purchase of 209 Shares of Treasury
 Stock at Cost......................
Foreign Currency Translation
 Adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1995........  1,942,936   703,970... 2,000,000           --           --   $13,882,000
                                      =========   =======    =========   ==========   ==========   ===========
Issuance of Preferred Stock.........                                      3,514,377                 10,939,000
Exercise of Stock Options under the
 1989 plan..........................
Exercise of Stock Options under the
 1995 plan..........................
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................
Foreign currency translation
 adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1996........  1,942,936   703,970    2,000,000    3,514,377           --   $24,821,000
                                      =========   =======    =========   ==========   ==========   ===========
Issuance of Preferred Stock.........                                        782,760                  2,437,000
Exercise of Stock Options under the
 1989 plan..........................
Exercise of Stock Options under the
 1995 plan..........................
Issuance of Restricted Stock under
 the 1995 plan......................
Deferred compensation...............
Compensation expense associated with
 stock options......................
Foreign currency translation
 adjustment.........................
Net Loss............................
                                      ---------   -------    ---------   ----------   ----------   -----------
Balance at December 31, 1997........  1,942,936   703,970    2,000,000    4,297,137           --   $27,258,000
                                      =========   =======    =========   ==========   ==========   ===========
COMMON STOCK
                                      ----------------------                                             ACCUMULATED
                                                                                                           FOREIGN
                                                                            ADDITIONAL                    CURRENCY
                                                                TREASURY      PAID-IN     ACCUMULATED    TRANSLATION     DEFERRED
                                        SHARES     PAR VALUE     STOCK        CAPITAL       DEFICIT      ADJUSTMENT    COMPENSATION
                                      ----------   ---------   ----------   -----------   ------------   -----------   ------------
Balance at December 31, 1994........     742,543      7,000    $       --   $ 9,336,000   $(16,187,000)   $ (65,000)
Conversion of Common Stock per 1995
 Plan of Recapitalization...........    (641,973)    (6,000)                      6,000
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................     899,443      9,000                     275,000
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........
Issuance of Preferred Stock.........
Purchase of 209 Shares of Treasury
 Stock at Cost......................                                   --
Foreign Currency Translation
 Adjustment.........................                                                                         31,000
Net Loss............................                                                        (6,585,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1995........   1,000,013     10,000            --   $ 9,617,000   $(22,772,000)   $ (34,000)   $         --
                                      ==========    =======    ==========   ===========   ============    =========    ============
Issuance of Preferred Stock.........
Exercise of Stock Options under the
 1989 plan..........................       5,264         --                       6,000
Exercise of Stock Options under the
 1995 plan..........................      16,178         --                       6,000
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................                                   --
Foreign currency translation
 adjustment.........................                                                                         64,000
Net Loss............................                                                        (2,397,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1996........   1,021,455    $10,000            --   $ 9,629,000   $(25,169,000)   $  30,000    $         --
                                      ==========    =======    ==========   ===========   ============    =========    ============
Issuance of Preferred Stock.........
Exercise of Stock Options under the
 1989 plan..........................          93         --                          --
Exercise of Stock Options under the
 1995 plan..........................     142,466      2,000                      46,000
Issuance of Restricted Stock under
 the 1995 plan......................     114,100      1,000                      87,000
Deferred compensation...............                                          1,750,000                                  (1,750,000)
Compensation expense associated with
 stock options......................                                              7,000                                      68,000
Foreign currency translation
 adjustment.........................                                                                       (171,000)
Net Loss............................                                                        (5,535,000)
                                      ----------    -------    ----------   -----------   ------------    ---------    ------------
Balance at December 31, 1997........   1,278,114    $13,000    $       --   $11,519,000   $(30,704,000)   $(141,000)   $ (1,682,000)
                                      ==========    =======    ==========   ===========   ============    =========    ============
TOTAL
                                      -----------
Balance at December 31, 1994........  $ 1,665,000
Conversion of Common Stock per 1995
 Plan of Recapitalization...........           --
Conversion of Preferred Stock per
 1995 Plan of Recapitalization......           --
Issuance of Common Stock in exchange
 for Protein Engineering Corporation
 Common Stock.......................      284,000
Issuance of Preferred Stock in
 exchange for Protein Engineering
 Corporation Preferred Stock........    1,408,000
Issuance of Preferred Stock.........    3,900,000
Purchase of 209 Shares of Treasury
 Stock at Cost......................           --
Foreign Currency Translation
 Adjustment.........................       31,000
Net Loss............................   (6,585,000)
                                      -----------
Balance at December 31, 1995........  $   703,000
                                      ===========
Issuance of Preferred Stock.........   10,939,000
Exercise of Stock Options under the
 1989 plan..........................        6,000
Exercise of Stock Options under the
 1995 plan..........................        6,000
Purchase of 1,169 Shares of Treasury
 Stock at Cost......................           --
Foreign currency translation
 adjustment.........................       64,000
Net Loss............................   (2,397,000)
                                      -----------
Balance at December 31, 1996........  $ 9,321,000
                                      ===========
Issuance of Preferred Stock.........    2,437,000
Exercise of Stock Options under the
 1989 plan..........................           --
Exercise of Stock Options under the
 1995 plan..........................       48,000
Issuance of Restricted Stock under
 the 1995 plan......................       88,000
Deferred compensation...............
Compensation expense associated with
 stock options......................       75,000
Foreign currency translation
 adjustment.........................     (171,000)
Net Loss............................   (5,535,000)
                                      -----------
Balance at December 31, 1997........  $ 6,263,000
                                      ===========
The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                       F-5
69
 
                                   DYAX CORP.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1995           1996           1997
                                                      -----------    -----------    -----------
Cash flows from operating activities:
  Net loss..........................................  $(6,585,000)   $(2,397,000)   $(5,535,000)
  Adjustments to reconcile net loss to net cash used
     in operating activities:
     Depreciation and amortization..................      411,000        310,000        333,000
     Loss on disposal of fixed assets...............           --         17,000         39,000
     Compensation expense associated with stock
       options......................................           --             --         75,000
     Write-off of intangible asset..................      456,000             --             --
     Purchase of incomplete technology..............    3,942,000             --             --
  Changes in operating assets and liabilities:
     Accounts receivable, net.......................     (426,000)      (183,000)      (939,000)
     Inventories....................................       82,000       (708,000)      (591,000)
     Other assets...................................        1,000        (95,000)      (128,000)
     Accounts payable and accrued expenses..........      123,000        571,000        518,000
     Deferred revenue...............................     (295,000)      (402,000)       508,000
                                                      -----------    -----------    -----------
Net cash used in operating activities...............   (2,291,000)    (2,887,000)    (5,720,000)
                                                      -----------    -----------    -----------
Cash flows from investing activities:
  Purchase of fixed assets..........................     (116,000)      (220,000)      (961,000)
                                                      -----------    -----------    -----------
Cash flows from financing activities:
  Net proceeds from issuance of preferred stock.....    2,712,000     10,343,000      2,437,000
  Cash acquired with PEC acquisition................      928,000             --             --
  Proceeds from the exercise of stock options.......           --         11,000        136,000
  Proceeds from sale-leaseback of equipment.........           --             --        445,000
  Purchase of treasury stock........................           --             --             --
  Increase in debt..................................      470,000        103,000             --
  Repayment of debt.................................           --       (759,000)      (121,000)
                                                      -----------    -----------    -----------
Net cash provided by financing activities...........    4,110,000      9,698,000      2,897,000
Effect of foreign currency translation on cash
  balances..........................................       29,000         41,000       (143,000)
                                                      -----------    -----------    -----------
Net increase (decrease) in cash and cash
  equivalents.......................................    1,732,000      6,632,000     (3,927,000)
Cash and cash equivalents at beginning of the
  year..............................................      227,000      1,959,000      8,591,000
                                                      -----------    -----------    -----------
Cash and cash equivalents at end of the year........  $ 1,959,000    $ 8,591,000    $ 4,664,000
                                                      ===========    ===========    ===========
The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-6
70
 
                                   DYAX CORP.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  NATURE OF BUSINESS:
 
     Dyax's phage display technology has broad potential commercial applications
in the fields of therapeutic, diagnostic and separations products. Dyax's
patented and proprietary phage display technology is a versatile, high
throughput technology platform which the Company believes can reduce costs,
shorten development times and lead to the commercialization of more effective
products in these fields. The Company also develops, manufactures and sells
fully-integrated chromatography separations systems under the Biotage trade
name.
 
     The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, dependence on collaborative
arrangements, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology,
and compliance with FDA government regulations and approval requirements.
 
2.  ACCOUNTING POLICIES:
 
  Basis of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Protein Engineering Corporation,
P.E.C. Technology Corp. and Biotage, Ltd., a United Kingdom sales subsidiary.
All intercompany accounts and transactions have been eliminated. Protein
Engineering Corporation was not active during 1997 and was merged into the
Company on December 31, 1997. P.E.C. Technology was not active during 1995 or
1996 and was merged into Protein Engineering Corporation in May 1996.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts of assets and liabilities reported and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. The significant estimates and assumptions in these financial statements
include contract revenue recognition, receivable collectibility, inventory
valuation and tax valuation reserves. Actual results could differ from those
estimates.
 
  Concentration of Credit Risk
 
     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade accounts receivable. At December 31, 1997, approximately 71% of the
Company's cash and cash equivalents were invested in a single money market
account held by one financial institution.
 
     The Company provides most of its products and services to pharmaceutical
and biomedical companies worldwide. Concentrations of credit risk with respect
to trade receivable balances are limited due to the diverse number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers' financial conditions and maintains reserves for
potential credit loss. Activity for fiscal 1995, 1996 and 1997 included
provisions of $90,000, $9,000 and $40,000, respectively.
 
  Cash and Cash Equivalents
 
     Cash and cash equivalents consist principally of cash and a money market
account. The Company currently invests its excess cash in a single money market
account held by a financial institution.
 
                                       F-7
71
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Inventories
 
     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
 
  Fixed Assets
 
     Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the related assets using the straight-line method.
Laboratory and production equipment and furniture and office equipment are
depreciated over a three to seven year period. Leasehold improvements are stated
at cost and are amortized over the lesser of the noncancelable term of the
related lease or their estimated useful lives. Leased equipment is depreciated
over the life of the lease. Maintenance and repairs are charged to expense as
incurred. When assets are retired or otherwise disposed of, the assets and
related accumulated depreciation and amortization are eliminated from the
accounts and any resulting gains and losses are included in operations in the
period of disposal.
 
  Long-Lived Assets
 
     The Company regularly reviews long-lived assets for impairment by comparing
the cumulative undiscounted cash flow from the assets with their carrying
amount. Any write-downs are treated as permanent reductions in the carrying
amount of the assets. Management's policy regarding long-lived assets is to
evaluate the recoverability of its assets when the facts and circumstances
suggest that these assets may be impaired. This analysis relies on a number of
factors, including operating results, business plans, budgets, economic
projections and changes in management's strategic direction or market emphasis.
The test of recoverability is a comparison of the asset value to its expected
cumulative net operating cash flow over the remaining life of the asset. During
1995, the Company determined certain acquired technology had no future value to
the Company and, accordingly, recorded a charge to operations of $456,000 to
write off these intangible assets.
 
  Revenue Recognition
 
     Product revenue, which is derived from sales of Biotage chromatography
separations systems and products, is recognized upon shipment to the customer.
Significant future obligations such as satisfaction of more than perfunctory
customer-mandated performance criteria may defer revenue recognition until the
obligation is satisfied. Costs of insignificant obligations are accrued when
revenue is recognized. One customer accounted for approximately 13%, 5% and 12%
of product revenue in 1995, 1996 and 1997, respectively, although the largest
customer was different in each of the three years.
 
     The Company enters into product development agreements with collaborative
partners for the development of therapeutic, diagnostic and separations
products. The terms of the agreements may include non-refundable signing fees
and may provide funding for research and development, payments based on the
achievement of certain milestones and royalties on any product sales derived
from the collaboration. Signing fees are recognized at the inception of the
agreements and collaborative research, product development and government grant
revenues are recorded as the related expenses are incurred. Milestones are
recognized when achieved and sales royalties will be recognized when earned.
Substantially all of the product development revenues during 1995 and 1996 were
earned under an agreement with one collaborator.
 
     The Company licenses its patent rights covering Phage Display on a
non-exclusive basis in the fields of therapeutics, antibody-based in vitro
diagnostics and research products. Standard terms of the license agreements,
which require no further active performance by the Company, generally include
non-refundable signing fees, non-refundable annual maintenance fees, milestone
payments and royalties on product sales. Signing fees are recorded as revenue at
the signing date, annual maintenance fees are recorded at the due date and
milestones payments are recognized at the time the milestone is achieved. Sales
royalties will be
 
                                       F-8
72
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
recognized when earned. Under one license agreement, a licensee received a
license to the Company's phage display patent rights in a defined field of use,
for a one time non-refundable payment of $1,000,000, which is included in
license revenue for the year ended December 31, 1996.
 
     Payments received which have not met the appropriate criteria for revenue
recognition are recorded as deferred revenue.
 
  Product Warranty
 
     The Company provides customers with up to a twelve-month warranty on its
chromatography products from the date of customer startup or up to a fourteen
month warranty from the date of shipment, whichever is less. Estimated warranty
obligations, which are included in the results of operations, are evaluated and
provided for at the time of sale. Product warranty costs were not significant in
1995, 1996 or 1997.
 
  Research and Development
 
     Research and development costs are expensed as incurred.
 
  Patents
 
     The Company owns or is in the process of applying for patents in the United
States and other countries. All costs associated with these filings are expensed
as incurred.
 
  Income Taxes
 
     The Company utilizes the asset and liability method of accounting for
income taxes as set forth in Statement of Financial Accounting Standards No.
109, ("SFAS 109"), "Accounting for Income Taxes". Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities using the current statutory tax rates.
 
  Translation of Foreign Currencies
 
     Assets and liabilities of the Company's foreign subsidiary are translated
at year end exchange rates. Amounts included in the statements of operations are
translated at the average exchange rate for the year. The resulting currency
translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses that result from transactions in foreign
currencies, which are included in the statement of operations, have not been
material.
 
  Reclassifications
 
     Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with 1997 presentation.
 
  New Accounting Standards
 
     In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 130 and SFAS No. 131,
which require the Company to report and display certain information related to
comprehensive income and operating segments, respectively, as required in fiscal
year 1998. Adoption of SFAS No. 130 and SFAS No. 131 will not impact the
Company's financial position or results of operations.
 
                                       F-9
73
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Historical Net Loss per Share
 
     Effective December 31, 1997, the Company adopted Statement of Financial
Accounting No. 128 (SFAS 128) "Earnings per Share". This statement specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS") to simplify the existing computational guidelines and increase
comparability on an international basis. This statement replaces primary EPS
with basic EPS, the principal difference being the exclusion of common stock
equivalents in the computation of basic EPS. In addition, this statement
requires the dual presentation of basic and diluted EPS on the face of statement
of operations.
 
     Under SFAS 128, the Company is required to present two EPS amounts, basic
and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reporting period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt.
 
     For the years ended December 31, 1995, 1996 and 1997 the Company had
convertible preferred stock, convertible debt, stock options and stock warrants
outstanding (see note 9). These securities could potentially dilute basic EPS in
the future and were not included in the computation of diluted EPS because to do
so would have been anti-dilutive for the periods presented. Consequently there
were no differences between basic and diluted EPS for these periods.
 
     Basic and diluted net loss per common share on a historical basis is
computed in the same manner as pro forma basic and diluted net loss per common
share, except that preferred stock is not assumed to be converted.
 
Pro Forma Net Loss per Share (unaudited)
 
     The pro forma basic and diluted net loss per common share is computed based
upon the weighted average number of common shares outstanding in accordance with
SFAS 128. In addition, all outstanding shares of convertible preferred stock,
which convert to common stock upon the closing of an initial public offering on
or before August 31, 1998 where the price per share is at least $8.00 and net
proceeds are at least $10,000,000, are treated as if converted to common stock.
 
3.  INVENTORIES:
 
     Inventories consist of the following:
DECEMBER 31,
                                                      ------------------------
                                                         1996          1997
                                                      ----------    ----------
Raw materials.......................................     707,000     1,162,000
Work in process.....................................     518,000       281,000
Finished products...................................      57,000       430,000
                                                      ----------    ----------
                                                      $1,282,000    $1,873,000
                                                      ==========    ==========
F-10
74
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  FIXED ASSETS:
 
     Fixed assets consist of the following:
DECEMBER 31,
                                                    --------------------------
                                                       1996           1997
                                                    -----------    -----------
Laboratory and production equipment...............  $ 1,048,000    $ 1,470,000
Furniture and office equipment....................      705,000        873,000
Leasehold improvements............................      334,000        664,000
                                                    -----------    -----------
Total.............................................    2,087,000      3,007,000
Less: accumulated depreciation....................   (1,582,000)    (1,856,000)
                                                    -----------    -----------
                                                    $   505,000    $ 1,151,000
                                                    ===========    ===========
Depreciation expense and amortization of leasehold improvements was
$279,000, $260,000 and $283,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Assets held under capital leases at December 31, 1997
consisted of $304,000 of laboratory and production equipment and $141,000 of
furniture and office equipment. The net book value of leased equipment was
$445,000 at December 31,1997. There was no accumulated amortization of leased
assets at December 31, 1997.
 
5.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
 
     Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
                                                      ------------------------
                                                         1996          1997
                                                      ----------    ----------
Accounts payable....................................  $  929,000    $1,193,000
Accrued wages and related taxes.....................     310,000       372,000
Accrued warranty and installation costs.............      67,000       234,000
Other accrued liabilities...........................     327,000       346,000
                                                      ----------    ----------
Total...............................................  $1,633,000    $2,145,000
                                                      ==========    ==========
6.  LONG-TERM DEBT:
 
     Long-term debt consists of the following:
DECEMBER 31,
                                                        ---------------------
                                                          1996         1997
                                                        ---------    --------
Shareholder collateralized convertible term note......  $ 500,000    $500,000
Shareholder convertible term note.....................    195,000     195,000
Shareholder installment note..........................    189,000      68,000
                                                        ---------    --------
                                                          884,000     763,000
Less current portion of long-term obligations.........   (121,000)    (68,000)
                                                        ---------    --------
                                                        $ 763,000    $695,000
                                                        =========    ========
On August 11, 1995, in exchange for extinguishing an equal amount of its
bank debt, for which there was no gain or loss, the Company issued an interest
bearing collateralized convertible term note to a shareholder, in a non-cash
transaction, in the amount of $500,000, payable at the earlier of five years or
upon the Company's closing of an initial public offering resulting in net
proceeds of not less than $10,000,000 and a per share of common stock sales
price of not less than $9.20 per share or an event of default. The note is
collateralized with certain assets of the Company, including certain
intellectual property and is convertible in
 
                                      F-11
75
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
whole or in part into equity, during any Company financing. Since August 1995,
the Company has paid the interest on the note monthly at a rate equal to prime
plus one percent, as established by the lending institution (approximately 8% at
December 31, 1997). The principal balance of $500,000 was outstanding at
December 31, 1996 and 1997.
 
     On August 11, 1995 the Company issued a convertible term note to the same
shareholder, in the amount of $195,000, in exchange for a previously issued note
and other amounts owed to the shareholder, in a non-cash transaction. The
convertible term note is payable and convertible under the same conditions as is
the collateralized convertible term note described above. The annual interest
rate of 8% has been paid quarterly since August 1995. The principal balance of
$195,000 was outstanding at December 31, 1996 and 1997.
 
     On August 11, 1995, the Company issued an installment note to a shareholder
and previous officer of Protein Engineering Corporation in the amount of
$170,000 at 8% per annum, payable monthly for twenty months, commencing January
1, 1997. Principal and accrued interest of $189,000 was outstanding at December
31, 1996. The principal balance outstanding at December 31, 1997 was $68,000.
 
     Interest paid on long-term debt was $223,000, $115,000 and $93,000 in 1995,
1996 and 1997, respectively.
 
7.  CAPITAL LEASES:
 
     During 1997, the Company entered into a capital lease agreement providing
the Company with a $3,000,000 lease facility for furniture and equipment. In
1997, the Company sold to the lessor $445,000 of laboratory and production
equipment and furniture and office equipment under this lease facility and
leased $456,000 of laboratory and production equipment and furniture and office
equipment under this and other lease agreements, in non-cash transactions. At
December 31, 1997, $2,555,000 of the lease facility remained available.
 
     Minimum future payments under the Company's capital leases as of December
31,1997 were as follows:
1998........................................................  $ 129,000
1999........................................................    121,000
2000........................................................    121,000
2001........................................................    112,000
2002........................................................    111,000
                                                              ---------
Total future minimum lease payments.........................    594,000
Less: amount representing interest..........................   (124,000)
                                                              ---------
Present value of future minimum lease payments..............    470,000
Less: current portion.......................................    (87,000)
                                                              ---------
Capital leases-long term....................................  $ 383,000
                                                              =========
8.  COMMITMENTS:
 
     The Company has an operating lease for laboratory and office facilities in
Cambridge, Massachusetts through December 1999 and an operating lease for
production, laboratory and office facilities in Charlottesville, Virginia
through April 2002. The Charlottesville lease has a renewal option with an
escalation clause. The Company also leases office space in the United Kingdom
under an operating lease which permits the Company to renew after each five-year
period; however, should the Company elect not to renew, there is a termination
fee equal to one year's rent, which has been included in the following
commitment schedule. In addition, the Company leases various laboratory and
office equipment under operating leases with one to five year terms.
 
                                      F-12
76
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The future minimum lease payments under non-cancelable operating leases as
of December 31, 1997 are as follows:
1998......................................  $1,089,000
1999......................................  $1,054,000
2000......................................    $396,000
2001......................................    $199,000
2002......................................     $56,000
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $290,000, $588,000 and $925,000, respectively.
 
9.  STOCKHOLDERS' EQUITY:
 
  Common Stock
 
     Effective as of March 23, 1998, the Company implemented a reverse stock
split for all common stock outstanding whereby each stockholder received 0.652
share for each share of common stock, $0.01 par value. All periods presented
have been retroactively restated to reflect the reverse stock split.
 
     On August 11, 1995, subsequent to the effect of the Company's 1995 Plan of
Recapitalization (which included a 0.1352-for-1 reverse stock split), the
Company issued 899,443 shares, valued at $284,000 in a non-cash transaction, and
reserved for issuance upon exercise of certain warrants 27,022 shares of common
stock, $0.01 par value, in exchange for 100% of the common shares outstanding of
Protein Engineering Corporation.
 
  Preferred Stock
 
     On August 11, 1995, the Company implemented the 1995 Plan of
Recapitalization which included a reverse stock split for all Class C Preferred
Stock outstanding where each of the outstanding shares of Class C Series 1
Preferred Stock, par value $0.01 per share, of the company was converted into
0.216064 of a share of Class A Series 1 Preferred Stock; $0.01 par value per
share, of the Company; each of the outstanding shares of Class C Series 2
Preferred Stock, par value $0.01 per share, of the Company was converted into
0.549613 of a share of Class A Series 1 Preferred Stock; and each of the
outstanding shares of Class C Series 3 Preferred Stock, par value $0.01 per
share, of the Company was converted into 0.356744 of a share of Class A Series 1
Preferred Stock of the Company. There were 1,944,500 shares of Class A Series 1
Preferred Stock authorized as of December 31, 1996 and 1997.
 
     On August 11, 1995, subsequent to the effect of the Company's 1995 Plan of
Recapitalization, the Company authorized 704,000 shares and issued 703,970
shares of Class A, Series 2 Preferred Stock, $0.01 par value per share, valued
at $1,408,000, in exchange for 100% of the preferred stock outstanding of
Protein Engineering Corporation in a non-cash transaction. (see note 13)
 
     On August 11, 1995, subsequent to the 1995 Plan of Recapitalization and the
merger with Protein Engineering Corporation, the Company issued 992,132 shares
of Class A Series 3 Preferred Stock and on October 27, 1995 the Company issued
1,007,868 shares of Class A Series 3 Preferred Stock, $0.01 par value per share,
at $2.00 per share. Net proceeds from the sale of Class A Series 3 Preferred
Stock were $3,900,000 after deducting related expenses of $100,000 and including
$1,188,000 of non-cash debt conversion. There were 2,000,000 shares of Class A
Series 3 Preferred Stock authorized at December 31, 1996 and 1997.
 
     On October 30, 1996, the Company issued 3,514,377 shares of Class A Series
4 Preferred Stock, $0.01 par value per share, at $3.13 per share. Net proceeds
were $10,939,000 after deducting associated expenses of $61,000 and including
$596,000 of non-cash debt conversion.
 
     On March 20, 1997 and March 27, 1997, the Company issued 472,825 and
309,935 shares, respectively, of Class A Series 4 Preferred Stock, $0.01 par
value per share, at $3.13 per share. Net proceeds were approximately $2,437,000
after deducting related expenses of $13,000. There were 4,792,332 shares of
Class A Series 4 Preferred Stock authorized at December 31, 1996 and 1997.
 
                                      F-13
77
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     All Class A preferred shares are convertible at the option of the holder,
at any time, into an equal number of common shares. The conversion ratio may be
adjusted to provide protection against future dilution. Also, Class A preferred
shares are automatically convertible into common shares, on a 0.652 share of
common stock for one share basis of Preferred Stock, upon the closing of a
public offering of common stock by the Company on or before August 31, 1998,
where the price per share is at least $8.00 with net proceeds to the Company of
at least $10,000,000. Holders of Class A Preferred Stock are entitled to receive
non-cumulative dividends at the same rate as common stock holders. Holders of
Class A Preferred Stock are entitled to one vote per share and, for certain
events such as certain preferred stock transactions, modifying rights,
preferences, privileges or limitations of Class A Preferred Stock, amending the
Certificate of Incorporation or certain significant corporate transactions, a
majority vote of Class A Preferred Stock holders is required. In addition, Class
A Series 3 and Series 4 Preferred Stock holders are each entitled to vote as a
separate class for the election of one Director by Series 3 and one Director by
Series 4. Holders of Class A Series 1, Series 2, Series 3 and Series 4 Preferred
Stock have liquidation preferences in the aggregate amounts of $4,247,000,
$4,250,000, $4,000,000 and $13,450,000, respectively. At December 31, 1997 the
Company had reserved 5,831,516 shares of common stock for conversion of
outstanding shares of all series of Class A Preferred Stock.
 
  Stock Options
 
     The Company's 1995 Equity Incentive Plan (the "Plan") is an equity plan
under which equity awards, including awards of incentive and nonqualified stock
options to purchase shares of common stock and restricted shares to employees
and consultants of the Company may be granted by action of the Board of
Directors. Options are granted at fair market value on the date of grant,
generally vest ratably over a 48 month period, and expire within ten years from
date of grant. During 1997, the Board increased the common stock options
available for grant under the Plan to 2,184,200. At December 31, 1997, there
were 1,911,456 shares of common stock reserved for issuance under outstanding
and future grants under the Plan of which 940,717 shares remained available for
future grant. In 1996 and 1995, the Company granted options for 32,600 and
89,368 shares respectively, (net of cancellations) to consultants; no
compensation charge for these options was recorded since management deemed their
value to be immaterial to the financial statements.
 
     All employees, directors, officers and consultants of the Company with
outstanding options granted under the Biotage, Inc. 1989 Stock Option Plan or
the Protein Engineering Corporation Stock Option Plan, were granted options
under the 1995 Equity Incentive Plan subject to the surrender of all options
granted prior to August 11, 1995, under the predecessor plan.
 
                                      F-14
78
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Stock option activity for the 1995 Equity Incentive Plan is summarized as
follows:
WEIGHTED
                                                                              AVG. EXERCISE
                                                            OPTION SHARES         PRICE
                                                            --------------    -------------
Granted during 1995.......................................      395,531           $0.31
Canceled during 1995......................................       (9,780)           0.31
                                                               --------
Outstanding at December 31, 1995..........................      385,751            0.31
Granted during 1996.......................................      136,170            0.31
Exercised during 1996.....................................      (16,178)           0.31
Canceled during 1996......................................       (4,981)           0.31
                                                               --------
Outstanding at December 31, 1996..........................      500,762            0.31
Granted during 1997.......................................      629,067            1.29
Exercised during 1997.....................................     (142,466)           0.34
Canceled during 1997......................................      (16,624)           0.35
                                                               --------
Outstanding at December 31, 1997..........................      970,739            0.94
                                                               ========
Summarized information about stock options outstanding at December 31, 1997
is as follows:
OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                             -------------------------------------   -----------------------
                                                                         WEIGHTED-                 WEIGHTED-
                                                            REMAINING     AVERAGE                   AVERAGE
                                               NUMBER      CONTRACTUAL   EXERCISE      NUMBER      EXERCISE
         RANGE OF EXERCISE PRICES            OUTSTANDING      LIFE         PRICE     EXERCISABLE     PRICE
         ------------------------            -----------   -----------   ---------   -----------   ---------
$.31 to $.49...............................    394,525         8.1         $ .32       194,561       $ .31
 .77 to 1.00................................    143,106         9.4         $ .81        23,582       $ .80
1.53.......................................    433,108         9.8         $1.53        15,022       $1.53
The weighted average fair value of options granted under the Plan during
1995, 1996 and 1997, as determined under the minimum value method, was $0.09,
$0.09 and $0.40. Total options exercisable at December 31, 1995, 1996 and 1997
were 185,585, 250,347 and 233,165, respectively.
 
     During 1996 and 1997, the Company issued 5,264 and 93 shares, respectively,
of $.01 par value common stock upon the exercise of employee stock options
granted under the Biotage, Inc. 1989 Stock Option Plan as extended by the Board
of Directors during 1995. The shares were purchased at $1.13 and $2.84 per share
in 1996 and 1997, respectively.
 
     SFAS 123, "Accounting for Stock-Based Compensation" requires that companies
either recognize compensation expense for grants of stock, stock options, and
other equity instruments based on fair value, or provide pro forma disclosure of
net income in the notes to the financial statements. The Company adopted the
disclosure provisions of SFAS 123 in 1996 and applied APB Opinion 25 and related
interpretations in accounting for its plan. Had compensation costs for the
Company's employee and director stock-based compensation plan been determined
based on the fair value at the grant dates as calculated in accordance with SFAS
123, the Company's net loss for the years ended December 31, 1995, 1996 and 1997
the Company's net loss and net loss per share would have increased to the pro
forma amounts shown below.
 
                                      F-15
79
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 1995           1996           1997
                                              -----------    -----------    -----------
Net loss as reported........................  $(6,585,000)   $(2,397,000)   $(5,535,000)
Pro forma...................................  $(6,601,000)   $(2,403,000)   $(5,555,000)
Historical net loss per share -- basic and
  diluted as reported.......................  $    (27.53)   $     (2.38)   $     (5.14)
Pro forma...................................  $    (27.59)   $     (2.39)   $     (5.16)
The fair value of each stock option granted is estimated on the grant date
using the minimum value method with the following weighted average assumptions
YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                                        1995     1996     1997
                                                        -----    -----    -----
Expected option term..................................   6.0      6.0      6.0
Risk-free interest rate...............................  5.72%    6.55%    6.31%
Expected dividend yield...............................  none     none     none
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years.
 
     In connection with certain stock option grants in 1997, the Company
recorded $1,750,000 of deferred compensation expense which is being amortized
and charged to operations over the 48-month vesting period of the related
options. Total option-related compensation expense for 1997 was $75,000.
 
  Restricted Stock Purchase Agreement
 
     In March 1997, the Company granted a right to purchase 114,100 shares of
common stock at a purchase price of $0.77 per share to an officer under its 1995
Equity Incentive Plan, subject to a stock restriction agreement whereby the
Company has the right, but not the obligation, to repurchase the unvested
portion of the shares of common stock at the original purchase price per share
in the event of termination of the officer's employment with the Company. Shares
subject to this agreement vest monthly over a 48 month period. At December 31,
1997, there were 92,706 unvested common shares at a weighted average fair value,
as determined under the minimum value method, of $0.24 per share. The
restriction agreement may be terminated at any time at the Company's election.
 
  Warrants
 
     At December 31, 1995, 1996 and 1997, the Company had outstanding warrants
for the purchase of 45,932, 45,932 and 27,022 shares of common stock at prices
ranging from $3.97 to $165.58 per share for warrants in 1995 and 1996 and at
$3.97 per share in 1997. In 1997, warrants for 18,910 shares expired and the
remaining warrants expire on August 10, 2000. An equal number of shares of
common stock have been reserved for the exercise of outstanding warrants at
December 31, 1997.
 
     1998 Employee Stock Purchase Plan.  In January 1998, the Company adopted
the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") under
which employees may purchase shares of Common Stock at a discount from fair
market value. There are 97,800 shares of Common Stock reserved for issuance
under the Purchase Plan. To date, no shares of Common Stock have been issued
under the Purchase Plan. Rights to purchase Common Stock under the Purchase Plan
are granted at the discretion of the Compensation Committee, which determines
the frequency and duration of individual offerings under the Purchase Plan and
the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. The purchase price per share of Common Stock in an offering is 85% of
the lesser of its fair market value at the beginning of the offering period or
on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both.
 
                                      F-16
80
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  EMPLOYEE SAVINGS AND RETIREMENT PLAN:
 
     The Company has an employee savings and retirement plan (the "Plan"),
qualified under section 401(k) of the Internal Revenue Code, covering
substantially all of the Company's employees. Employees may elect to contribute
a portion of their pretax compensation to the Plan up to the annual maximum
allowed under the Plan. The Plan does not provide for a fixed matching
contribution by the Company, however, for each plan year the Company may
contribute to the Plan at its discretion. No contributions to the Plan were made
by the Company in 1995, 1996 or 1997.
 
11.  INCOME TAXES:
 
     For the years ended December 31, 1995, 1996 and 1997, the Company had no
income tax provisions.
 
     Temporary differences that give rise to significant deferred tax assets as
of December 31, 1995, 1996 and 1997 are as follows:
1995            1996            1997
                                           ------------    ------------    ------------
Deferred Tax asset:
Inventory costs..........................  $     84,000    $    126,000    $     86,000
Accelerated book depreciation............       124,000         126,000          84,000
Accelerated book amortization............        14,000          16,000          13,000
Allowance for doubtful accounts..........        16,000          18,000          32,000
Accrued expenses.........................        48,000          60,000         116,000
Net operating loss carryforwards.........    10,902,000       9,722,000      12,890,000
Research credit carryforwards............       665,000         635,000         742,000
Valuation allowance......................   (11,853,000)    (10,703,000)    (13,963,000)
                                           ------------    ------------    ------------
Net deferred tax asset...................            --              --              --
                                           ============    ============    ============
The Company has net operating loss carryforwards available to offset future
federal and state taxable income of approximately $31,376,000 as of December 31,
1997 and research credits of approximately $740,000, available to offset future
federal tax. These net operating loss and credit carryforwards expire in years
2005 through 2012. As a result of the acquisition of PEC and P.E.C. Technologies
Corp. (Note 13) and stock issued over the past five years, utilization of the
net operating loss and credit carryforwards will be subject to limitation under
section 382 of the Internal Revenue Code. In addition, at December 31, 1997, the
Company also had United Kingdom operating loss carryforwards for income tax
purposes of approximately $1,306,000 which are indefinitely available to offset
future taxable income in the United Kingdom.
 
12.  RELATED PARTY TRANSACTIONS:
 
     The President, Chief Executive Officer and Chairman of the Board of the
Company also serves as an outside director of and consultant to Genzyme
Corporation ("Genzyme") and outside director of Genzyme Transgenics Corporation.
In 1996, the Company entered into a sublease agreement with Genzyme for
laboratory and office facilities in Cambridge, Massachusetts which extends to
December 1999. The total commitment for the sublease is $1,230,000 at December
31, 1997 and $143,000 and $590,000 and was recorded as rent expense during 1996
and 1997, respectively. During 1996, the Company signed two patent license
agreements with Genzyme under the Company's standard license terms. The Company
recorded license revenues of $54,000 and $50,000 in 1996 and 1997, respectively,
in connection with the signing and maintenance fees on these two agreements. The
Company has entered into two funded discovery projects with Genzyme Transgenic
Corporation resulting in recorded revenues of $45,000 and $145,000 in 1996 and
1997.
 
                                      F-17
81
                                   DYAX CORP.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
13.  MERGER WITH PROTEIN ENGINEERING CORPORATION:
 
     On August 11, 1995, the Company completed a reverse merger of its newly
created wholly-owned subsidiary, Rational Separations, Inc., with Protein
Engineering Corporation ("PEC")(see Note 9). PEC was formed in 1987 with an
emphasis in the field of phage display technology. The financial results of PEC
are included in the Company's consolidated financial results of operations with
effect from the date of the merger. Each outstanding common share of PEC stock
was converted into 25.16 shares of the Company's common stock and each preferred
share of PEC stock was converted into 48.24 shares of the Company's Class A
Series 2 Preferred Stock. The merger was accounted for using the purchase method
of accounting. The excess of the purchase price over the fair value of the net
assets acquired was written off and recorded as a purchase of incomplete
technology, resulting in a non-cash charge to results of operations of
$3,942,000, which represents the value of acquired technologies which had not
reached commercialization at the time of acquisition.
Details of the merger are as follows:
  Total non-cash consideration:
     Common stock...........................................  $  284,000
     Preferred stock........................................   1,408,000
     Convertible term notes assumed.........................   1,764,000
     Installment notes assumed..............................     170,000
     Liabilities assumed....................................   1,309,000
                                                              ----------
                                                               4,935,000
     Less: Fair value of assets acquired including cash.....     993,000
                                                              ----------
     Write off of incomplete technology before acquisition
      costs.................................................   3,942,000
     Costs directly associated with the merger
      transaction...........................................     156,000
                                                              ----------
Write off of incomplete technology..........................  $4,098,000
                                                              ==========
The following unaudited pro forma data reflects the Company's results of
operations as if the Protein Engineering acquisition occurred on January 1,
1995.
YEAR ENDED
                                                       DECEMBER 31, 1995
                                                       -----------------
Revenues.............................................     $ 4,280,000
Net loss.............................................      (6,924,000)
During the period ended August 11, 1995, Protein Engineering Corporation
earned approximately $210,000 of product development revenues under its
agreement with Dyax Corp. Intercompany revenue and related expenses have been
eliminated in the above pro forma data.
 
14. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
 
     The Company operates in one business segment and in the geographic segments
of the United States ("U.S.") and the United Kingdom ("U.K.") as indicated in
the table below.
1995                1996                 1997
                                     ---------------    -----------------    -----------------
                                      U.S.      U.K.     U.S.       U.K.      U.S.       U.K.
                                     -------    ----    -------    ------    -------    ------
Revenues...........................  $ 3,026    $994    $ 5,914    $1,123    $ 7,610    $2,166
Net income (loss)..................   (6,705)    120     (2,656)      259     (5,620)       85
Total assets.......................    4,288     404     11,612       624      9,136     1,396
F-18
82
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Stockholders and Board of Directors of
Dyax Corp.:
 
     We have audited the accompanying consolidated statements of operations and
accumulated deficit and cash flows of Protein Engineering Corporation for the
period from January 1, 1995 to August 11, 1995. 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 audit.
 
     We conducted our audit 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 audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
for Protein Engineering Corporation for the period from January 1, 1995 to
August 11, 1995 in conformity with generally accepted accounting principles.
 
                                               COOPERS & LYBRAND L.L.P.
 
Boston, Massachusetts
February 17, 1998
 
                                      F-19
83
 
                        PROTEIN ENGINEERING CORPORATION
 
          CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
             FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 11, 1995
1995
                                                              ------------
Revenues:
  Product development.......................................  $    470,000
                                                              ------------
Operating expenses:
  Research and development..................................       395,000
  General and administrative................................       338,000
                                                              ------------
Total operating expenses....................................       733,000
                                                              ------------
Loss from operations........................................      (263,000)
                                                              ------------
  Interest income...........................................         3,000
  Interest expense..........................................       (79,000)
                                                              ------------
Net loss....................................................  $   (339,000)
Accumulated deficit at January 1, 1995......................   (10,157,000)
                                                              ------------
Accumulated deficit at August 11, 1995......................   (10,496,000)
                                                              ============
 
Basic and diluted net loss per common share.................  $     (24.70)
 
Weighted average number of basic and diluted common
  shares....................................................        13,722
The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                      F-20
84
 
                        PROTEIN ENGINEERING CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
             FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 11, 1995
Cash flows from operating activities:
  Net loss..................................................  $ (339,000)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................      10,000
  Changes in operating assets and liabilities:
     Other current assets...................................      (5,000)
     Accounts payable and accrued expenses..................     111,000
     Deferred revenue.......................................   1,043,000
                                                              ----------
Net cash provided by operating activities...................     820,000
                                                              ----------
Cash flows from financing activities:
  Proceeds from convertible notes...........................      78,000
  Repayment of capital leases...............................      (3,000)
                                                              ----------
Net cash provided by financing activities...................      75,000
                                                              ----------
Net increase in cash and cash equivalents...................     895,000
Cash and cash equivalents at December 31, 1994..............      33,000
                                                              ----------
Cash and cash equivalents at August 11, 1995................  $  928,000
                                                              ==========
The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                      F-21
85
 
                        PROTEIN ENGINEERING CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  NATURE OF BUSINESS:
 
     Protein Engineering Corporation, (the "Company") commenced operations in
March 1987 to perform scientific research in Phage Display for human therapeutic
applications. Since its formation, it devoted substantially all of its efforts
to establishing the business, conducting research and development and obtaining
financing. The Company was acquired by Dyax Corp. on August 11, 1995. See Note
6.
 
     The Company was subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and compliance with FDA government
regulations and approval requirements.
 
2.  ACCOUNTING POLICIES:
 
  Basis of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, P.E.C. Technology Corp. All
intercompany accounts and transactions have been eliminated.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the reported amounts of revenue and expenses during the
reporting period. The significant estimates and assumptions in these financial
statements include contract revenue recognition. Actual results could differ
from those estimates.
 
  Cash and cash equivalents
 
     Cash and cash equivalents consist principally of cash and money market
accounts. The Company invests its excess cash in U.S. treasury funds and a money
market account held by a financial institution.
 
  Fixed Assets
 
     Property and equipment are depreciated over the estimated useful lives of
the related assets using the straight-line method. Laboratory equipment and
office equipment are depreciated over five-to-seven year periods. Leasehold
improvements are amortized over the lesser of the noncancelable term of the
related lease or their estimated useful lives. Maintenance and repairs are
charged to expense as incurred.
 
  Revenue Recognition
 
     The Company entered into research agreements with various biotechnology
companies. During the period from January 1, 1995 to August 11, 1995, the terms
of these agreements included non-refundable fees, which were recognized when the
agreement was signed, and research revenues, which were deferred and recognized
as expenses were incurred. During the period from January 1, 1995 to August 11,
1995, three customers accounted for substantially all of the revenues.
 
  Research and Development
 
     Research and development costs are expensed as incurred.
 
                                      F-22
86
                        PROTEIN ENGINEERING CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Patents
 
     The Company owns or was in the process of applying for patents in the
United States and other countries. All costs associated with these filings are
expensed as incurred
 
  Income Taxes
 
     The Company utilizes the asset and liability method of accounting for
income taxes as set forth in Statement of Financial Accounting Standards No.
109, ("SFAS 109"), Accounting for Income Taxes. For the period from January 1,
1995 to August 11, 1995, the Company had no income tax provision.
 
  Earnings per share
 
     The Company adopted Statement of Financial Accounting No. 128 (SFAS 128)
"Earnings per Share" retroactive to the period from January 1, 1995 to August
11, 1995. This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") to simplify the existing
computational guidelines and increase comparability on an international basis.
This statement replaces primary EPS with basic EPS, the principal difference
being the exclusion of common stock equivalents in the computation of basic EPS.
In addition, this statement requires the dual presentation of basic and diluted
EPS on the face of statement of operations.
 
     Under SFAS 128, the Company is required to present two EPS amounts, basic
and diluted. Basic EPS is calculated based on income available to common
stockholders and the weighted-average number of shares outstanding during the
reported period. Diluted EPS may include additional dilution from potential
common stock, such as stock issuable pursuant to the exercise of stock options
and warrants outstanding, the conversion of preferred stock and conversion of
debt.
 
     For the period from January 1, 1995 to August 11, 1995 the Company had
convertible preferred stock, convertible debt, stock options and stock warrants
outstanding. These securities were not included in the computation of diluted
EPS because to do so would have been anti-dilutive for the periods presented.
Consequently there were no differences between basic and diluted EPS.
 
3.  FIXED ASSETS:
 
     Depreciation expense and amortization of leasehold improvements was $10,000
for the period from January 1, 1995 to August 11, 1995.
 
4.  LONG-TERM DEBT:
 
     At August 11, 1995, the Company had convertible term notes in the amount of
$1,764,000, with interest at 8% payable to stockholders and their affiliates.
 
     At August 11, 1995, the Company had an installment note outstanding in the
amount of $170,000, with interest at 8%, payable to an officer who is a
stockholder, which was issued in a non-cash transaction in exchange for $94,000
of accrued compensation and $76,000 of accrued lease payments, of which $44,000
and $22,000, respectively, related to the period from January 1, 1995 to August
11, 1995.
 
     There was no interest paid on long-term debt in the period from January 1,
1995 to August 11, 1995.
 
5.  COMMITMENTS:
 
     The Company rented its facilities in Cambridge, Massachusetts under a
tenant-at-will arrangement. In addition, the Company leased certain laboratory
and office equipment under operating leases. Rent expense for the period from
January 1, 1995 to August 11, 1995 was $80,000.
 
                                      F-23
87
                        PROTEIN ENGINEERING CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6.  MERGER WITH DYAX CORP.:
 
     On August 11, 1995, the Company completed a reverse merger with Dyax Corp.
Each outstanding common share of Protein Engineering Corporation stock was
converted into 25.16 shares of Dyax Corp. common stock and each preferred share
of Protein Engineering Corporation stock was converted into 48.24 shares of Dyax
Corp. Class A, Series 2 preferred stock. All assets and liabilities of Protein
Engineering Corporation were assumed by Dyax Corp. upon the acquisition.
 
     Details of the merger are as follows:
Total consideration:
     Common stock...........................................     284,000
     Preferred stock........................................   1,408,000
     Convertible term notes assumed.........................   1,764,000
     Installment note assumed...............................     170,000
     Liabilities assumed....................................   1,309,000
                                                              ----------
                                                              $4,935,000
                                                              ==========
During the period from January 1, 1995 to August 11, 1995, Protein
Engineering Corporation earned approximately $210,000 of product development
revenues under its agreement with Dyax Corp.
 
                                      F-24
88
 
======================================================
 
     NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
 
                               ------------------
 
                               TABLE OF CONTENTS
PAGE
                                        ----
Prospectus Summary....................    3
Risk Factors..........................    6
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..............................   25
Management............................   47
Certain Transactions..................   53
Principal Stockholders................   54
Description of Capital Stock..........   56
Shares Eligible for Future Sale.......   58
Underwriting..........................   60
Legal Matters.........................   61
Experts...............................   61
Additional Information................   62
Index to Financial Statements.........  F-1
Until             , 1998 (25 days after the commencement of the Offering), 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 obligations of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
 
======================================================
======================================================
                                2,500,000 SHARES
 
                                   DYAX CORP.
 
                                  COMMON STOCK
 
                                    [ Logo ]
 
                                  ------------
 
                                   PROSPECTUS
 
                                           , 1998
 
                                  ------------
 
                              SALOMON SMITH BARNEY
                                CIBC OPPENHEIMER
                         PACIFIC GROWTH EQUITIES, INC.
======================================================
89
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The estimated expenses to be paid by the Registrant in connection with this
Offering are as follows:
SEC registration fee........................................  $ 10,178
Nasdaq National Market fee..................................    48,614
NASD filing fee and expenses................................     3,950
Blue Sky fees and expenses..................................    15,000
Printing and engraving expenses.............................   100,000
Legal fees and expenses.....................................   250,000
Accounting fees and expenses................................   300,000
Transfer Agent and Registrar fees...........................    10,000
Miscellaneous expenses......................................   162,258
                                                              --------
Total.......................................................  $900,000
                                                              ========
All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
 
ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors, officers, employees and agents of the Registrant against
actual and reasonable expenses (including attorneys' fees) incurred by them in
connection with any action, suit or proceeding brought against them by reason of
their status or service as a director, officer, employee or agent by or on
behalf of the Registrant, and against expenses (including attorneys' fees),
judgments, fines and settlements actually and reasonably incurred by him in
connection with any such action, suit or proceeding, if (i) he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant, and (ii) in the case of a criminal proceeding, he
had no reasonable cause to believe his conduct was unlawful. Except as ordered
by a court, no indemnification shall be made in connection with any proceeding
brought by or in the right of the corporation where the person involved is
adjudged to be liable to the Registrant.
 
     Article Eighth of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as that section may be amended and
supplemented from time to time, indemnify any and all persons whom it shall have
power under that section to indemnify against any expenses, liabilities or other
matters referred to in or covered by that section. The indemnification proved
for in Article Eighth is expressly not exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of heirs, executors
and administrators of such a person.
 
     Article Ninth of the Registrant's Restated Certificate of Incorporation
provides that no director shall be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding that provision, Article Ninth provides
that a director shall be liable to the extent provided by applicable law (i) for
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived improper personal benefit. Article Ninth further states that if
the Delaware General Corporation Law is hereafter amended to authorize a further
limitation or elimination of the liability of directors or officers, then the
liability of a director or officer of the Registrant shall, in addition to the
limitation on personal liability provided in Article Ninth, be limited or
eliminated to the fullest extent permitted by the Delaware General Corporation
Law, as from time to time amended. Article Ninth
                                      II-1
90
 
also stipulates that no amendment to or repeal of Article Ninth shall apply to
or have any effect on the liability or alleged liability of any director or
officer of the Registrant for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
 
     The Registrant expects to obtain Directors' and Officers' insurance to
cover its directors and officers against certain liabilities they may incur when
acting in their capacity as directors or officers of the Registrant.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES
 
     Since March 1, 1995, the Registrant has issued and sold the following
unregistered securities:
 
     (a) Issuances of Stock
 
     On August 11, 1995 the Registrant issued an aggregate of 703,970 shares of
Class A Series 2 Preferred Stock and 899,443 shares of Common Stock (after
giving effect to the 0.652-for-1 reverse stock split) to certain former
stockholders of Protein Engineering Corporation in exchange for their
outstanding shares of Protein Engineering Corporation stock in connection with
the Registrant's acquisition of Protein Engineering Corporation.
 
     On August 11, 1995 the Registrant issued an aggregate of (i) 1,847,936
shares of Class A Series 1 Preferred Stock and 100,778 shares of Common Stock
(after giving effect to the 0.652-for-1 reverse stock split) to existing
stockholders of the Registrant in exchange for 5,381,383 shares of all series of
Class C Preferred Stock and 1,141,120 shares of Common Stock then outstanding in
a recapitalization; and (ii) 95,000 shares of Class A Series 1 Preferred Stock
in exchange for the release of a lien on the Registrant's license of Protein
Engineering Corporation technology in the field of separations.
 
     On August 11 and October 27, 1995 the Registrant sold an aggregate of
2,000,000 shares of Class A Series 3 Preferred Stock to certain stockholders at
a purchase price of $2.00 per share for an aggregate purchase price of
$4,000,000.
 
     On October 30, 1996, March 20, 1997 and March 27, 1997, the Registrant sold
an aggregate of 4,297,137 shares of Class A Series 4 Preferred Stock to certain
stockholders at a purchase price of $3.13 per share for an aggregate purchase
price of $13,450,038.
 
     From August 11, 1995 to March 17, 1998, the Registrant sold an aggregate of
192,340 shares of Common Stock to certain of the Registrant's employees at
prices ranging from $0.77 to $4.60 per share for an aggregate purchase price of
$447,500. These shares were issued pursuant to Awards of Restricted Stock under
the 1995 Equity Plan.
 
     (b) Grants and Exercises of Stock Options and Warrants.
 
     As of March 17, 1998, 1,378,645 options to purchase shares of the
Registrant's Common Stock had been granted under the Registrant's 1995 Equity
Plan, 1,111,217 of which are outstanding, 232,281 of which have been exercised
and 35,147 of which have been cancelled, and options to purchase 648,361 shares
of Common Stock remain available for future grant under the 1995 Equity Plan.
 
     On August 11, 1995, the Company issued warrants to purchase an aggregate of
27,022 shares of Common Stock at a purchase price of $3.97 per share to a former
stockholder at Protein Engineering Corporation. The warrants expire on August
10, 2000.
 
     No underwriter was engaged in connection with the foregoing sales of
securities. Sales of Common Stock to employees have been made in reliance upon
the exemption for the registration requirements afforded by Section 4(2) of the
Securities Act and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written contract relating to the compensation of such individuals.
The Registrant has reason to believe that all of the foregoing purchasers were
familiar with or had access to information concerning the operations and
financial condition of the Registrant, and all of those individuals acquired
shares for investment and not with a view to the distribution thereof. At the
time of issuance, all of the foregoing shares of Common Stock were deemed to be
restricted securities for the purposes of the Securities Act, and the
certificates representing such securities bore legends to that effect.

                                      II-2
91
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (a) List of Exhibits
 
     The following Exhibits are filed herewith:
EXHIBIT
NUMBER                              EXHIBIT
-------                             -------
1.1      Form of Underwriting Agreement.
 3.1      Certificate of Incorporation of the Registrant as amended
          and reinstated through March 23, 1998.
 3.2      Form of Restated Certificate of Incorporation of Registrant,
          as proposed to be amended and restated.
 3.3      By-laws of the Registrant.
 3.4      Form of Restated By-laws of Registrant, as proposed to be
          amended and restated.
   4.1*   Specimen Common Stock Certificate.
 5.1      Opinion of Palmer & Dodge LLP with respect to the legality
          of the securities being registered.
10.1      Amended and Restated 1995 Equity Incentive Plan.
10.2      1998 Employee Stock Purchase Plan.
10.3      Executive Employment Agreement, dated February 18, 1998,
          between Robert Dishman and the Registrant.
10.4      Executive Employment, Non-Compete and Confidentiality
          Agreement, dated August 1995, between Robert Ladner and the
          Registrant.
10.5      Consulting Agreement, dated October 15, 1997, between James
          W. Fordyce and the Registrant.
10.6      Employment Letter and Employee Confidentiality Agreement,
          dated January 6, 1998, between Keith S. Ehrlich and the
          Registrant.
10.7      Restricted Stockholder Agreement, dated March 30, 1997,
          between Henry E. Blair and the Registrant.
10.8      Secured Convertible Term Note, dated August 11, 1995,
          between Sheridan G. Snyder and the Registrant; Security
          Agreement, dated May 11, 1993, between Sheridan G. Snyder
          and the Registrant; and Assignment Agreement, dated May 11,
          1993, between Sheridan G. Snyder and Crestar Bank, N.A. as
          amended by the Amendment to Security Agreement and to
          Assignment Agreement, dated August 10, 1995, between
          Sheridan G. Snyder, Crestar Bank, N.A. and the Registrant.
10.9      Sublease Agreement, dated September 21, 1996, as amended on
          December 31, 1997 between Genzyme Corporation and the
          Registrant.
10.10     Lease Agreement, dated as of February 12, 1998, between
          AStec Partnership and the Registrant.
10.11     Lease Agreement, dated as of February 11, 1997, between
          AStec Partnership and the Registrant.
10.12     Lease Agreement, dated April 8, 1991, between Bridge Gate
          Real Estates Limited, Harforde Court Management Limited and
          the Registrant.
10.13     Lease Agreement, dated February 20, 1998, between Old
          Kendall Property LLC and the Registrant.
10.14     Master Lease Agreement, dated December 30, 1997, between
          Transamerica Business Credit Corporation and the Registrant.
10.15     Form of Sale and Leaseback Agreement, dated December 30,
          1997, between Transamerica Business Credit Corporation and
          the Registrant.
10.16     Form of License Agreement (Therapeutic Field) between the
          Licensee and the Registrant.
10.17     Form of License Agreement (Antibody Diagnostic Field)
          between the Licensee and the Registrant.
10.18     Collaboration Agreement, dated June 20, 1997, between EPIX
          Medical, Inc. and the Registrant.
10.19 +   Patent License Agreement, dated June 19, 1997, between
          Massachusetts Institute of Technology ("M.I.T."), Whitehead
          Institute for Biomedical Research ("Whitehead") and the
          Registrant as amended by the First Amendment thereto dated
          November 10, 1997, by and among M.I.T., Whitehead, The
          Massachusetts General Hospital and the Registrant.
II-3
92
EXHIBIT
NUMBER                              EXHIBIT
-------                             -------
10.20 +   Research and Development Agreement, dated March 10, 1997,
          between Debiopharm S.A. and the Registrant.
10.21 +   Joint Collaboration Agreement, dated October 1, 1997,
          between CropTech Development Corporation and the Registrant.
10.22 +   Cooperation Agreement, dated January 16, 1997, between Novo
          Nordisk A/S and the Registrant.
10.23     Form of Indemnification Agreement by and between certain
          directors and executive officers of the Registrant and the
          Registrant.
23.1      Consent of Coopers & Lybrand L.L.P., independent auditors.
23.2      Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
23.3      Consent of Yankwich & Associates, special patent counsel to
          the Company.
24.1      Powers of Attorney (included on the signature pages attached
          hereto).
27.1      Financial Data Schedule.
---------------
*   To be filed by amendment.
 
+   Certain confidential material contained in the document has been omitted and
    filed separately with the Securities and Exchange Commission pursuant to
    Rule 406 of the Securities Act of 1933, as amended.
 
     (b) Financial Statement Schedules
 
     None.
 
ITEM 17.  UNDERTAKINGS
 
     (a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the 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.
 
     (b) The undersigned Registrant hereby undertakes:
 
          (1) to provide to the underwriters at the closing specified in the
     underwriting agreement, certificates in such denominations and registered
     in such names as required by the underwriter to permit prompt delivery to
     each purchaser;
 
          (2) that, for purposes of determining any liability under the
     Securities Act, 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; and
 
          (3) that, for purposes of determining any liability under the
     Securities Act, 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-4
93
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the city of Cambridge,
Commonwealth of Massachusetts, on the 23rd day of March, 1998.
 
                                          DYAX CORP.
 
                                          By:      /s/ HENRY E. BLAIR
                                            ------------------------------------
                                            Henry E. Blair
                                            Chief Executive Officer
 
                               POWER OF ATTORNEY
 
     Each undersigned person hereby constitutes and appoints Henry E. Blair,
Pamela Hay and Nathaniel S. Gardiner and each of them with full power of
substitution and full power to act without the other, as his true and lawful
attorney-in-fact and agent, with full power to sign any and all amendments to
this Registration Statement on Form S-1 of Dyax Corp., and to file the same with
the Securities and Exchange Commission, including any and all post-effective
amendments and any subsequent Registration Statement for the same offering which
may be filed under Rule 462(b) and to execute all other documents and take all
other actions on behalf of such undersigned person as may be necessary or
advisable in connection with the registration of the shares covered by this
Registration Statement under the Securities Act of 1933, as amended, hereby
ratifying and confirming all that said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated.
SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
/s/ HENRY E. BLAIR                   President, Chief Executive         March 23, 1998
---------------------------------------------------    Officer and Chairman of the
                  Henry E. Blair                       Board of Directors (Principal
                                                       Executive Officer)
 
               /s/ KEITH S. EHRLICH                  Vice President, Finance and        March 23, 1998
---------------------------------------------------    Administration and Chief
                 Keith S. Ehrlich                      Financial Officer (Principal
                                                       Financial and Accounting
                                                       Officer)
 
               /s/ L. EDWARD CANNON                  Executive Vice President,          March 23, 1998
---------------------------------------------------    President, Therapeutic and
                 L. Edward Cannon                      Diagnostic Division, and
                                                       Director
 
               /s/ ROBERT A. DISHMAN                 Executive Vice President,          March 23, 1998
---------------------------------------------------    President, Separations
                 Robert A. Dishman                     Division, and Director
 
        /s/ CONSTANTINE E. ANAGNOSTOPOULOS           Director                           March 23, 1998
---------------------------------------------------
          Constantine E. Anagnostopoulos
 
               /s/ JAMES W. FORDYCE                  Director                           March 23, 1998
---------------------------------------------------
                 James W. Fordyce
 
               /s/ THOMAS L. KEMPNER                 Director                           March 23, 1998
---------------------------------------------------
                 Thomas L. Kempner
 
                /s/ HENRY R. LEWIS                   Director                           March 23, 1998
---------------------------------------------------
                  Henry R. Lewis
II-5