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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
       SECURITIES EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-22890

                          SANGSTAT MEDICAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                    94-3076-069
    (STATE OF INCORPORATION)              (I.R.S. EMPLOYER IDENTIFICATION NO.)

                                1505 ADAMS DRIVE
                          MENLO PARK, CALIFORNIA 94025
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, ZIP CODE)

       Registrant's telephone number, including area code: (650) 328-0300

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock ($.001 par value)
                        Preferred Share Purchase Rights

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X  No ___

     Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

     The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of March 18, 1999 was approximately $229,528,000 (based on the
closing price for shares of the Registrant's Common Stock as reported by the
NASDAQ National Market System of $18.25 on that date). Shares of Common
Stock held by each officer, director, and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

On March 18, 1999 approximately 16,307,684 shares of the Registrant's Common
Stock, $.001 par value, were outstanding.
==========================================================================

PART I

ITEM 1. BUSINESS

Overview

SangStat, The Transplant Company(R), is a specialty pharmaceutical 
company applying a disease management approach to improve the outcome of 
organ transplantation. The Company's devices, drugs and services form a 
family of products that address the needs of patients in each stage of 
transplant care from pre-transplant monitoring to lifetime post-
transplant care. SangStat's product pipeline is a combination of 
proprietary and licensed-in products that are in various stages of 
research, development and marketing. The Company plans to capitalize on 
this pipeline by developing relationships with key providers and managed 
care organizations to better integrate the management of transplant 
recipients' care to improve the outcomes and lower costs. 

SangStat has a variety of monitoring and therapeutic products and 
product candidates to address the pre-transplant, acute care and chronic 
phases of transplantation. SangStat received U.S. Food and Drug 
Administration ("FDA") marketing approval for SangCya(TM) (Cyclosporine 
Oral Solution, USP [MODIFIED]) ("SANGCYA") in October 1998 and 
received marketing approval in the United Kingdom in January 1999. 
Cyclosporine, which to date has only been marketed by Novartis AG 
("Novartis"), is the leading immunosuppressive drug used by transplant 
patients, with estimated worldwide sales of over $1.3 billion in 1998.  
SANGCYA is AB rated to Neoral oral solution which signifies that SANGCYA 
is therapeutically equivalent to, and interchangeable with, Neoral oral 
solution.  SANGCYA will be marketed with the CYCLOTECH device, a hand-
held liquid dispensing device once CYCLOTECH is commercially available.  
Thymoglobulin [Anti-thymocyte Globulin, (Rabbit)] ("THYMOGLOBULIN") 
has been marketed in Europe since 1985. THYMOGLOBULIN was approved for 
marketing in the United States by the FDA in December 1998 for acute 
renal rejection and launched by the Company in February 1999.  SangStat 
is also conducting clinical trials for the following products and 
devices:  SANG-2000, a capsule dosage form based on an oil-free 
cyclosporine formulation technology similar to SANGCYA;  a generic 
AZATHIOPRINE product candidate for use as an adjunct therapy in chronic 
immunosuppression; ANTILFA, for prevention of Delayed Graft Function 
(DGF); ALLOTRAP 1258, a proprietary HLA peptide designed to promote 
graft acceptance; CELSIOR, a formulated solution for organ preservation; 
and CYCLOSTAT and CREASTAT for monitoring cyclosporine and serum 
creatinine concentrations, respectively.  To further the Company's goal 
of providing comprehensive disease management, the Company has a 
division, THE TRANSPLANT PHARMACY, which provides mail order 
distribution of drugs and transplant patient management services.

Organ Transplantation

Organ transplantation can save or improve the lives of patients with 
organ failures for whom there are few alternative treatments. 
Transplantation involves surgically replacing the failed organ of a 
transplant recipient with a viable organ from a donor. Because the 
success of a transplant depends on the degree of compatibility between 
the organ donor and the recipient, a typical transplant candidate must 
wait on a national computerized waiting list until a compatible organ 
can be found. Currently, there are approximately 100,000 transplant 
candidates registered on waiting lists in approximately 500 transplant 
centers throughout North America and Europe. At any given time, 
approximately 70% of these patients are waiting for kidney transplants. 
The other patients are waiting for liver, heart, heart-lung, bowel or 
pancreas transplants. Each year approximately 50,000 new patients 
receive donated organs. In order to prevent rejection of implanted 
organs, recipients must begin a life-long regimen of immunosuppressive 
therapy immediately upon receiving a donated organ. There are more than 
240,000 patients in North America and Europe that need daily 
immunosuppressive therapy to prevent graft rejection and graft loss.

In addition to being a life-saving and life-enhancing procedure, 
transplantation can be cost-effective as well. For example, the cost 
over a 10-year period of a kidney transplant is generally less than the 
cost of dialysis. However, transplantation is still very costly, due in 
substantial part to the costs of lifetime immunosuppressive therapy and 
associated side effects as well as the costs of treating rejection and 
infection episodes. Therefore, products that limit the need for 
immunosuppression and reduce the frequency and severity of rejection and 
infection episodes could significantly improve the cost-effectiveness of 
transplantation.

The Transplant Immune Response

The function of the immune system is to protect the body from damage 
caused by invading microorganisms or other foreign matter, including 
donor organs. This defensive function is performed by the humoral (B-
cell) and cell-mediated (T-cell) arms of the immune system. When 
challenged, the humoral and cell-mediated systems interact and generate 
a coordinated immune response to recognize, target and eliminate the 
pathogen or, in the case of transplantation, the donor organ, thereby 
resulting in graft rejection. Specifically, the donor organ antigens 
(HLA molecules) are recognized by the immune system of the graft 
recipient as being "non-self."

The immune response to a transplant depends on the level of 
compatibility between donor and recipient HLA molecules. The HLA system 
consists of a complex array of molecules playing a key role in the 
normal immune response as well as in graft acceptance or rejection. Dr. 
Jean Dausset, a scientific advisor to SangStat, and Nobel Prize laureate 
for this pioneering discovery, originally discovered HLAs.  Molecular 
differences between an organ donor's and a recipient's HLAs lead to the 
recognition of the donor's HLAs as non-self by the recipient's immune 
system. Graft rejection results when the recipient's immune system T-
cell progenitors recognize the donor's HLAs as non-self, activate 
against the graft and proliferate into numerous cytotoxic T-cells. When 
these cytotoxic T-cells invade and attack the graft, rejection and loss 
of the organ often occur. In addition to T-cells, anti-HLA antibodies 
can play an active role in the anti-graft immune response. The presence 
of anti-HLA antibodies in the recipient's blood may indicate a high risk 
of accelerated rejection. Maximizing HLA compatibility by selecting, for 
a given recipient, the donor whose HLAs are as similar as possible to 
the recipient's HLAs and not recognized by antibodies preexisting in the 
recipient's blood, is key to reducing the risk of rejection.

However, because it is extremely difficult to get a perfect HLA match 
except in identical twins, rejection episodes occur frequently. Current 
therapies used to reduce the occurrence of rejection episodes involve 
the chronic use of immunosuppressants, which impair the entire immune 
system of the recipient. Even with the use of immunosuppressants, graft 
rejection remains frequent, and their chronic use can lead to serious 
side effects, including life-threatening infections, kidney or liver 
toxicity and cancers.

The Transplant Process

A typical transplant patient progresses through three clinical phases: 
the pre-transplant phase; the acute phase (surgery and first year post-
transplant); and the chronic phase (lifetime post-transplant).

The Pre-Transplant Phase.  A transplant candidate is registered on a 
national computerized waiting list, which ranks candidates according to 
the urgency of the need for a transplant and maintains the data 
necessary to determine if a compatible organ becomes available. A kidney 
transplant candidate usually waits months or even years for a compatible 
organ and continues to undergo dialysis several times per week to 
substitute for the failed kidneys. Typically, a blood sample is 
collected as frequently as monthly and evaluated to estimate the 
candidate's level of immune sensitization against a panel of HLA 
molecules representative of the population of prospective organ donors. 
This procedure, called Panel Reactive Antibody (PRA) testing utilizes 
microlymphocytotoxicity, a complex and subjective laboratory method 
developed in the 1960s. Traditional HLA compatibility testing lacks 
accuracy and standardization and therefore often results in poor 
matching of donors and recipients.

The Acute Phase (Surgery and First Year Post-Transplant).  Most organs 
are retrieved from trauma victims who are declared brain-dead but 
maintain cardiac function until their organs are removed. The harvested 
organs are stored in a preservation solution to prevent deterioration 
and then tissue typed to determine the level of HLA antigens. Each organ 
is cross-matched with approximately 100 potential recipients on the 
transplant waiting lists. Once the best candidate for each organ has 
been chosen, the organ is shipped in an organ preservation solution to 
the recipient's transplant center. The length of storage time allowed 
before transplant varies among organ types and can severely limit the 
distance an organ can be shipped. The quality of organ preservation is 
therefore an important factor contributing to the viability of the 
transplant.

Transplant surgery has become a relatively safe and standardized 
procedure. After the transplant, the challenge for physicians is to 
prevent graft rejection by suppressing the activity of T-cells. 
Consequently, the success of the transplant is highly dependent on the 
immunosuppressive regimen that is initiated the day of transplantation 
and continued daily for the rest of the patient's life. In addition, 
organ recipients must be regularly monitored to measure the body's 
immune response and blood drug levels and to identify acute rejection 
episodes.

Despite the use of immunosuppressants, during the first year following 
transplantation many transplant patients (estimates range from 15% in 
certain populations to more than 60% in others, depending on risk 
factors and therapy) undergo one or more graft rejection episodes. 
During a rejection episode, the body mounts an immune attack on the 
graft, resulting in impaired function of the transplanted organ. Because 
rejection, infection and drug toxicity produce similar symptoms, 
diagnosis of rejection may be difficult until it reaches an advanced 
stage and is confirmed by an invasive graft biopsy. The only way to stop 
the rejection process is by administering additional immunosuppressive 
therapy, such as high doses of steroids, and/or anti-T-cell monoclonal 
and/or polyclonal antibodies. In many cases, rejection can be arrested 
and organ damage reversed. However, at the end of the first year, about 
20% to 50% of kidney transplant patients (and a higher percentage for 
other organs) have had rejection. This rejection may lead to graft loss 
in about 20% of kidney transplant patients (and a higher percentage for 
other organs).  If the graft loss occurs early post-transplant (within 
the first few months following transplantation), surgery is typically 
required to remove the rejected kidney.  Regardless of whether surgery 
is performed, the patient must return to chronic dialysis and possibly 
receive a second transplant, which has a lower probability of success 
than the first. Failure to reverse rejection of other organs often 
results in the death of the patient.

The Chronic Phase (Lifetime Post-Transplant).  The use of 
immunosuppressants, initiated during the acute phase, is continued daily 
throughout the patient's lifetime to minimize or prevent the loss of the 
graft by acute or chronic rejection. Conventional therapy typically 
combines several drugs, most commonly cyclosporine, azathioprine and 
steroids, or alternative combinations for certain patients using 
tacrolimus and/or mycophenolate mofetil. These drugs act nonspecifically 
and broadly impair the recipient's immune system in order to reduce the 
immune response against the graft. Cyclosporine is the leading 
immunosuppressive drug used in the post-transplant phase. In 1998, 
worldwide sales of Novartis' cyclosporines, Sandimmune and Neoral, were 
estimated at over $1.3 billion. Even with the use of immunosuppressants, 
patients have an approximate 5% to 20% risk of losing grafts per year 
during the first three years following transplantation, and less than 
50% of patients have functioning grafts after approximately ten years.

Products, Product Candidates and Services

SangStat's portfolio of complementary drugs, monitoring products, 
product candidates and services are designed to prevent and treat graft 
rejection and monitor patients throughout the patient's lifetime. The 
following table summarizes SangStat's principal products, product 
candidates and services.

<TABLE>
<CAPTION>
  TRANSPLANT                      POTENTIAL CLINICAL
    PHASE       PRODUCT/SERVICE          USE                  STATUS(1)
-------------- ----------------- -------------------- -------------------------
<S>            <C>               <C>                  <C>
Pre-Transplant PRA-STAT(R)       Detects anti-HLA     Marketed US and Europe
Monitoring                       antibodies in
                                 candidates monthly

Transplant     Thymoglobulin(R)  Treats acute         Marketed worldwide
Acute Care                       kidney rejection     (FDA approval 12/98)
                                 episodes

               Lymphoglobuline   Treats acute         Marketed outside US
                                 kidney rejection
                                 episodes

               Allotrap 1258(2)  Promotes graft       Pre-clinical
                                 acceptance

               Celsior(TM)       Preserves organs     Cardiac clinical trials
                                 prior to             completed. Filing
                                 transplantation      anticipated first half 1999

               Antilfa(TM)       For prevention of    Phase III
                                 Delayed Graft 
                                 Function (DGF)

Lifetime Post- SangCya(TM)       Chronic              Markted in US (US launch
Transplant     Cyclosporine Oral immunosuppression    11/98)
Care           Solution          (prevent organ       UK approval 1/99
                                 rejection)

               Sang-2000         Chronic              Bioequivalance trials
               Cyclosporine      immunosuppression    completed. Filing 
               Capsules          (prevent organ       anticipated first half 1999
                                 rejection)

               CycloTech(R)      Dispensing/Dosing    FDA 510(k) clearance
                                 device               8/98 (3)

               Cyclo-Stat(TM)    Device for measuring Clinical trials
                                 cyclosporine levels
                                 in blood

               CreaStat(TM)      Device for measuring Clinical trials
                                 creatinine levels
                                 in blood

               Azathioprine      Chronic              Bioequivalance trials
                                 immunosuppression    completed. Filing 
                                 (prevent organ       anticipated first half 1999
                                 rejection)

               The Transplant    Mail order and       17 centers participating
               Pharmacy (R)      patient management
                                 program
</TABLE>

(1)   "Phase I, II or III" indicates that the product candidate is in a certain
stage of clinical trials. "Bioequivalence Trials" are clinical studies in 
healthy volunteers which assess pharmacokinetic parameters of the drug 
candidate against the reference drug to support an application for the approval 
of a generic drug without the need for safety and efficacy trials.
"Marketed" means that commercial sales of the product have commenced. 
See "-Government Regulation." 

(2)     ALLOTRAP 1258 is a second generation peptide to Allotrap 2702. 
Allotrap 1258 currently in pre-clinical development was found to be more
potent than 2702 and the Company may decide to develop this peptide in
lieu of Allotrap 2702. The result of the Phase II study in Europe showed
that Allotrap 2702 was safe and well-tolerated in the study.

(3)    Not yet commercially available.


CYCLOSPORINE PRODUCTS

SANGCYA
On October 31, 1998 the FDA granted marketing approval to SANGCYA for 
prevention of rejection in solid organ transplant recipients, and an AB 
rating versus Neoral(R) oral solution (a Novartis cyclosporine 
formulation). SANGCYA includes the same active ingredient, in the same 
concentration, in the same dosage form and is bioequivalent to Neoral 
but in a formulation proprietary to SangStat. The United States Patent 
and Trademark Office has issued two separate patents owned by SangStat, 
Patent No. 5,766,629 (June, 1998) and Patent No. 5,827,822 (October 
1998), covering SangStat's proprietary cyclosporine formulation 
technology for developing multiple formulations and dosage forms of 
cyclosporine including SangCya. The AB rating signifies that SANGCYA is 
therapeutically equivalent to, and interchangeable with, Neoral oral 
solution. SANGCYA was launched in the United States in November 1998.  
It is marketed in the United States by the SangStat direct sales force. 
SANGCYA is the first therapeutically equivalent competitor of Neoral 
oral solution to be introduced in the U.S. cyclosporine marketplace.  

Cyclosporine, the leading immunosuppressive drug used to prevent graft 
rejection in transplantation, is marketed by Novartis in two different 
formulations, Sandimmune and Neoral. Neoral is the newer formulation of 
cyclosporine marketed by Novartis.  Approximately 70% of the patients in 
the U.S. on Sandimmune(R),  the older formulation of cyclosporine first 
introduced in 1983, have switched to Neoral, the newer, less expensive 
and more bioavailable formulation introduced in 1995.

There are approximately 140,000 transplant recipients in the U.S. and 
250,000 worldwide who require daily immunosuppressive therapy for life 
from the time of transplant surgery, and the majority of these 
individuals take cyclosporine. Global sales of cyclosporine were 
estimated at $1.3 billion in 1998, with oral solution sales representing 
approximately 10% of the total cyclosporine market.

SANGCYA's indications are identical to Neoral's indications and include 
(i) the prophylaxis of organ rejection in kidney, liver and heart 
allogeneic transplants; (ii) the treatment of patients with severe, 
active rheumatoid arthritis where the disease has not adequately 
responded to methotrexate; and (iii) the treatment of adult, non-
immunocompromised patients with severe (i.e. extensive and or 
disabling), recalcitrant, plaque psoriasis who have failed to respond to 
at least one systemic therapy (e.g.; PUVA, retinoids or methotrexate), 
or in patients for whom either systemic therapies are contraindicated, 
or cannot be tolerated. 

SANGCYA was granted marketing approval in the United Kingdom on January 
28, 1999.  SangStat plans to seek marketing approval in other countries 
of the European Union through the mutual recognition procedure.  See -
European Regulation - Approval of Therapeutic Products. SangStat expects 
to launch SANGCYA in the UK during the first half of 1999.  The European 
market is roughly equivalent to the U.S. market in size and scope. There 
are approximately 20,000 new transplant recipients per year concentrated 
in just 250 transplant centers and over 100,000 transplant recipients in 
Europe who require daily lifelong immunosuppressive therapy from the 
time of transplant surgery. Estimated 1998 sales of cyclosporine 
exceeded $450 million in Europe and $70 million in the UK.

CYCLOTECH 
In August 1998, SangStat received marketing clearance (510k) from the 
FDA for the CYCLOTECH device. CYCLOTECH is a hand-held liquid dispensing 
device intended for use by transplant recipients with SANGCYA Oral 
Solution. The CYCLOTECH device contains electronic event monitoring 
capabilities, recording medication dosing patterns that can be viewed by 
physicians via a proprietary software interface.  This software enables 
physicians, via computer, to download recorded information from the 
CYCLOTECH device that includes a patient's detailed daily dosing history 
for up to a full year.  The CYCLOTECH device and software will be 
supplied to transplant centers and utilized as part of a comprehensive 
disease management offering which includes SANGCYA Oral Solution. 
SangStat expects to launch CYCLOTECH in the U.S. in the second quarter 
of 1999 with full commercial availability in the U.S. in the second half 
of 1999.  SangStat expects to launch CYCLOTECH in selected countries 
outside the U.S., including but not limited to, the United Kingdom and 
Australia.

SANG-2000
In January 1999, SangStat announced the positive results of the SANG-
2000 bioequivalence pivotal trial versus Neoral(R) cyclosporine capsules. 
SANG-2000 cyclosporine is a capsule dosage form based on an oil-free 
cyclosporine formulation technology similar to SANGCYA and covered by 
United States Patent No. 5,766,629, which was issued in June, 1998.  
Based on these results, SangStat intends to file for marketing clearance 
in the U.S. and Europe during the first half of 1999.

SangStat's SANG-2000 pivotal pharmacokinetic trial was a single-dose, 
randomized, cross-over bioequivalence trial in 27 healthy human 
volunteers comparing SangStat's cyclosporine capsule with the reference 
drug, Neoral capsule. Subjects had blood samples taken at defined time 
points over a 36-hour period and the cyclosporine blood levels were 
analyzed using a standardized, validated cyclosporine assay.

Under current FDA regulations and policy, SANG-2000 capsule may be 
approved without the need to duplicate the safety and efficacy trials if 
it is shown to be bioequivalent to Neoral capsule. Two different 
formulations of the same drug are considered bioequivalent if the drug's 
absorption rate, blood concentration and persistence in the bloodstream 
are demonstrated to be equivalent according to defined regulatory 
policy. Two key pharmacokinetic parameters, area under the blood 
concentration vs. time curve (AUC) and the maximum drug concentration 
(Cmax) are measured in human bioequivalence trials. These parameters are 
calculated from drug levels measured in the blood over a defined time 
period following dosing. 

Based on this trial, under current FDA policy, and subject to FDA 
review, SANG-2000 and Neoral capsules may be considered bioequivalent: 
the 90% confidence intervals (for the ratio of the log transformed 
parameters of SANG-2000 and Neoral capsules) were contained within the 
range of 80% to 125%, for AUC and Cmax. Statistical comparison of the key 
pharmacokinetic parameters for SANG-2000 and Neoral yield results which 
the Company believes demonstrate bioequivalence; however, the FDA has 
not yet reviewed any of these data.

Successful development and commercialization of SANG-2000 is subject to 
numerous risks, including failure to obtain regulatory approvals and 
potential intellectual property claims of third parties, including those 
of Novartis and its contract manufacturers. In addition, if the Company 
is unable to demonstrate to the FDA that SANG-2000 is bioequivalent to 
the Neoral capsule, a currently approved Novartis formulation, the 
Company would be required to undertake additional development work and 
seek regulatory approval through the potentially longer NDA process if 
it wished to continue to pursue this product candidate.


THYMOGLOBULIN/LYMPHOGLOBULINE

THYMOGLOBULIN was granted approval for marketing by the FDA on December 
30, 1998 for the treatment of acute rejection in kidney transplant 
recipients. THYMOGLOBULIN is a pasteurized anti-thymocyte rabbit 
immunoglobulin that induces immunosuppression as a result of T-cell 
depletion and immune modulation. THYMOGLOBULIN is made up of a variety 
of antibodies that recognize key receptors on T-cells, the cells of a 
transplant recipient's immune system that recognize and ultimately 
reject foreign objects such as a transplant. The exact mechanism is 
unknown, researchers believe THYMOGLOBULIN antibodies may inactivate 
and kill these T-cells, thus reversing the rejection process. 

SangStat launched THYMOGLOBULIN in the United States in February 1999.  
It is marketed by SangStat's direct sales force.  In Europe, SangStat 
markets THYMOGLOBULIN under the trademark THYMOGLOBULINE through its 
wholly owned European affiliate IMTIX-SangStat. Acquired by SangStat in 
1998, and operating now in Europe as IMTIX-SangStat, IMTIX was a 
division of the French pharmaceutical company Pasteur Merieux Connaught 
("PMC"), a world leader in vaccines (Rhone Poulenc group) that had 
previously registered THYMOGLOBULINE in 51 European and other 
countries. THYMOGLOBULINE is a leader in Europe among anti-T cell 
antibodies and is indicated in Europe for prophylaxis and rejection in 
kidney, pancreas and liver transplants; treatment of rejection crises 
and acute Graft Versus Host Disease in allogeneic bone marrow 
transplantation; and aplastic anemia.

In Canada, SangStat has filed a New Drug Submission (NDS) and is 
generating revenues through the distribution of THYMOGLOBULIN under that 
country's Emergency Drug Release (EDR) program, which permits the 
distribution of certain products before final regulatory approval.

The Company announced in January 1998 the preliminary positive results 
of the first U.S. double blinded trial evaluating THYMOGLOBULIN vs. 
Atgam for induction therapy, at the time of transplant, to prevent acute 
graft rejection in kidney transplant patients.  Atgam is an 
anti-thymocyte globulin (equine) marketed by Pharmacia and Upjohn.  
Based on the results of this induction trial, SangStat expects to 
conduct further studies with THYMOGLOBULIN for the prevention of organ 
transplant rejection, as part of its development program for this new 
indication in the United States. The Company is also conducting North 
American clinical trials with THYMOGOLBULIN for use in bone marrow 
transplantation.

SangStat acquired LYMPHOGLOBULINE in 1998 as part of the IMTIX 
acquisition. LYMPHOGLOBULINE is a pasteurized anti-thymocyte equine 
immunoglobulin that induces immunosuppression as a result of T-cell 
depletion and immune modulation. LYMPHOGLOBULINE is marketed 
internationally by IMTIX-SangStat for the prophylaxis and rejection in 
organ transplantation.  It is not available in the United States and the 
Company has no plans to seek approval in the United States for this 
product. 


AZATHIOPRINE

Azathioprine is an immunosuppressant that inhibits the development of T-
cells by interfering with the differentiation and proliferation of 
activated lymphocytes. It is used as an adjunct for the prevention of 
rejection in renal organ transplantation. The patent for azathioprine 
composition of matter has expired. Therapy is usually initiated shortly 
after transplantation and continued daily for the patient's lifetime. It 
is used in conjunction with cyclosporine and steroids in the standard 
"triple therapy" regimen used by the majority of U.S. transplant 
centers. It is currently marketed as Imuran by Glaxo Wellcome Ltd. and 
as generic azathioprine by Roxane Laboratories and Bedford Laboratories. 
United States sales of all azathioprine products in 1998 were estimated 
to be $45 million.

SangStat has developed a generic AZATHIOPRINE for use in transplantation 
as an adjunct therapy in chronic immunosuppression and has completed its 
pharmacokinetic and human bioequivalency trials. The Company intends to 
seek market approval by filing an Abbreviated New Drug Application 
("ANDA") with the FDA and to market the product as a branded 
therapeutic substitute for Imuran.


ANTILFA

ANTILFA (Odulimomab), the monoclonal antibody 25.3, is a mouse lgG1 with 
specificity to the chain of the human leukocyte function-associated 
molecule LFA-1. ANTILFA can be used to block the LFA-1 molecule, thus 
reducing the cell-cell interaction.  An anti-LFA-1 (CD11a) mAb, which 
inhibits adhesion of leukocytes is a potential agent for the prevention 
of acute renal allograft rejection. SangStat is conducting Phase III 
clinical trials with ANTILFA for prevention of Delayed Graft Function.  
SangStat acquired ANTILFA as part of the IMTIX transaction with PMC.


ALLOTRAP PEPTIDES

The ALLOTRAP family of peptides is derived from the Company's 
proprietary sHLA technology and is designed to promote graft acceptance. 
SangStat believes that the ALLOTRAP family of peptides may enable the 
body to accept a graft as self without otherwise limiting the normal 
operation of the immune system, thus possibly reducing the need for 
chronic immunosuppressive therapy. The Company believes that if an 
ALLOTRAP peptide is exposed to the recipient's T-cell progenitors 
simultaneously with the donor's HLAs, the T-cell progenitors are 
deactivated. As a result, the T-cells are not activated against the 
donor's HLA and do not reject the graft.

The results of an initial Phase II safety study in Europe showed that 
ALLOTRAP 2702 was safe and well-tolerated in the study. Toxicology 
studies have been completed in a second generation peptide, ALLOTRAP 
1258. Pre-clinical development has indicated that this second generation 
peptide may be more potent than ALLOTRAP 2702. As a result, the Company 
may decide to pursue the development of ALLOTRAP 1258 rather than 
ALLOTRAP 2702.  The Company is also pursuing licensing opportunities for 
ALLOTRAP 1258 in the autoimmune area.  

Although the Company believes it conducted its clinical trials taking 
into account both European and U.S. regulatory standards, there can be 
no assurance that such data will be accepted by the FDA. The Company 
expects to conduct several additional Phase II clinical studies to 
assess product efficacy and optimize dosage before potentially 
conducting large-scale Phase III trials. The use of ALLOTRAP peptides to 
promote graft acceptance in humans is novel and unproven and there can 
be no assurance that such peptides will prove to be safe or effective in 
humans for any clinical indication for any transplant type or at any 
dosage.


PRA-STAT

PRA-STAT is intended to improve HLA compatibility between organ donors 
and recipients by providing accurate, rapid, efficient and standardized 
testing.  PRA-STAT is designed for Panel Reactive Antibody (PRA) testing 
to track the appearance and disappearance of anti-HLA antibodies in 
transplant candidates, and to analyze such antibodies. This guides the 
selection criteria of the prospective donor for each transplant 
candidate. PRA testing is often performed every month on patients 
waiting for transplants. PRA-STAT was introduced in March 1994.  In July 
1996, the Company completed an agreement with Baxter Healthcare 
Corporation ("Baxter") to reacquire marketing rights to PRA-STAT in 
order to market this monitoring product directly and to better establish 
its own product distribution capabilities. The terms of this 
reacquisition included the obligation to pay Baxter royalties on future 
sales of the reacquired product.


CELSIOR

The quality of organ preservation is an important factor contributing to 
the viability of the transplant. Most organs are retrieved from trauma 
victims who are declared brain-dead but maintain cardiac function until 
their organs are removed. The procured organs are stored in a 
preservation solution to prevent deterioration and tissue typed to 
determine the HLA antigens. Following this, each donor must be 
crossmatched with the patients on the transplant waiting lists, each 
organ being crossmatched with approximately 100 potential recipients. 
Once the best candidate for each organ has been chosen, the organs are 
shipped to the recipient's transplant center. The amount of storage time 
allowed before transplant varies between organ types and can severely 
limit the distance an organ can be shipped. SangStat licensed CELSIOR 
from PMC in 1993 and acquired all rights to CELSIOR in the PMC-IMTIX 
transaction. CELSIOR is a formulated solution to store and extend 
viability of organs between organ recovery and transplantation. CELSIOR 
is sold by IMTIX-SangStat internationally for organ preservation.  In 
the U.S., SangStat intends to assess the effect of CELSIOR on organ 
viability and speed of post-transplant organ function recovery. After 
consultation with the FDA, the Company voluntarily withdrew its 510(k) 
in 1996 for a two-component CELSIOR product in favor of a one component 
product. The Company has completed a multicenter clinical trial for a 
redesigned, one-component, ready-to-use CELSIOR product candidate for 
cardiac transplantation and intends to submit a new 510(k) during the 
first half of 1999 for this indication.  The Company plans to conduct a 
multicenter clinical trial for use of CELSIOR in lung transplantation.


CYCLOSTAT and CREASTAT

The efficacy and safety of a transplant depends on individual 
susceptibility to graft rejection and immunosuppressive therapy.  
Transplant recipients must visit a clinic to provide a blood sample for 
the determination of a cyclosporine level.  Similarly, the monitoring of 
kidney graft function requires the regular determination of serum 
creatinine concentrations.  SangStat is developing several monitoring 
products for at-home use, which will assist the physician in customizing 
drug therapy for each patient: CYCLOSTAT and CREASTAT.

CYCLOSTAT and CREASTAT are at-home blood collection devices for the 
measurement of cyclosporine and creatinine levels in capillary blood 
samples obtained from a fingerstick.  These user-friendly blood 
collection devices will allow more frequent monitoring of cyclosporine 
levels and kidney function and improve out-patient management. They are 
designed to provide a health care provider with a patient's cyclosporine 
blood level without requiring the patient to travel to a health care 
facility. These at-home tests offer convenience to both patient and 
health care providers; patients will not have to arrange to travel to a 
health care facility. Both products are in development. The Company  
plans to seek marketing clearance of these products from the FDA upon
successful completion of clinical trials.  


THE TRANSPLANT PHARMACY

To further the Company's goal to provide comprehensive disease 
management, in September 1996 SangStat established THE TRANSPLANT 
PHARMACY, a program designed to provide mail order distribution of drugs 
and other services for transplant patients. Its first site of operation 
opened in September 1996 at the University of Tennessee Bowld Hospital 
Organ Transplant Center in Memphis, Tennessee. As of December 31, 1998, 
there were seventeen participating transplant center sites actively 
referring patients in the U.S.. The Company has also established a 
central mail order facility in Menlo Park, California.

This service encourages the promotion of medication compliance, measures 
clinical and economic outcomes, and provides feedback directly to 
clinicians. Patients electing to enroll are able to have all of their 
medications filled through the program's central pharmacy. THE 
TRANSPLANT PHARMACY also places a key individual, such as a pharmacist, 
in each transplant center to interact directly with physicians, nurses 
and patients. THE TRANSPLANT PHARMACY's program seeks to provide a 
singular and integrated approach to the management of transplantation, 
in which the Company's drugs, monitoring products, and services can be 
supplied to meet the needs of individual transplant centers and their 
patients.

On November 11, 1998, the Office of the Inspector General ("OIG") of 
the Department of Health & Human Services issued an Advisory Opinion 
which stated that the placement by a pharmacy of a licensed pharmacist 
at a hospital transplant center might constitute prohibited remuneration 
under the anti-kickback statute section 1128B9B) of the Social Security 
Act.  The Company did not request the Advisory Opinion. The OIG 
regulations state that such opinions only apply to the requesting 
parties and the fact pattern set forth in their request for an advisory 
opinion.  The Company believes that the operation of The Transplant 
Pharmacy differs from the fact pattern set out in the Advisory Opinion 
and does not constitute prohibited remuneration.  There can be no 
assurance that the OIG will agree with this analysis, in which case The 
Transplant Pharmacy's program may be modified so that it would no longer 
include an on-site pharmacist at transplant centers.

Sales and Marketing

The Company currently markets through its direct sales force those 
products for which it retains commercial rights and has obtained 
regulatory approval.  The Company hired a new Vice President of Sales on 
February 1, 1999.  As of March 18, 1999, the Company has 21 Transplant 
Account Managers ("TAMs"), supervised by three regional sales 
directors, who detail primarily to the approximately 250 transplant 
centers in the United States.  A number of the TAMs have backgrounds in 
transplantation, either from detailing other transplant products or with 
clinical backgrounds as nurses or as transplant coordinators in 
transplant centers.  There are also two national account directors who 
call on group purchasing organizations and managed care groups. The 
Company also uses a variety of marketing techniques to promote its 
products, including sampling, journal advertising, promotional material, 
specialty publications, rebate coupons, product guarantees, educational 
conferences and exposure of its products on the Internet.  In Europe, 
the products are marketed through IMTIX-SangStat's existing sales force 
and marketing team, which includes approximately 30 people who have been 
selling THYMOGLOBULIN and LYMPHOGLOBULIN, among other products, for the 
past ten years.  There are also approximately 250 transplant centers in 
Europe.

For certain territories, however, the Company may also enter into co-
promotion arrangements or other licensing arrangements with 
pharmaceutical, diagnostic or biotechnology companies.  In 1997, 
SangStat entered into an exclusive agreement with Amgen for the 
registration, marketing and distribution of SANGCYA and SANG-2000 in 
certain Asian Pacific Rim territories.  SangStat retains the exclusive 
commercial rights to SANGCYA and SANG-2000 for all other territories 
including North America and Europe. 

To the extent the Company enters into co-promotion or other licensing 
arrangements, any revenues received by the Company will be dependent on 
the efforts of third parties and there can be no assurance that such 
efforts will be successful. To the extent that the Company itself 
undertakes to market a substantial portion of its products, or is unable 
to enter into co-promotion agreements or to arrange for third party 
distribution of its products, additional expenditures, management 
resources and time will be required to develop a sales force.

Warehousing and Distribution

The Company utilizes an independent warehousing corporation to 
store and distribute SANGCYA and THYMOGLOBULIN from one central 
warehousing location in Kentucky. Upon the receipt of a purchase order 
through electronic data input, phone, mail or facsimile, the order is 
placed to the warehouse for shipment, usually within 24 hours, to the 
customer placing the order.  The warehousing corporation is also 
responsible for invoicing and collections. 

Strategic Relationships/Licensing Arrangements

The Company evaluates on an ongoing basis potential collaborative 
relationships with corporate and other partners where such relationships 
may complement and expand SangStat's research, development, sales and 
marketing capabilities. There can be no assurance that the Company will 
be interested in or able to negotiate any additional collaborative 
arrangements or that, if established, such relationships will be 
successful.

Pasteur Merieux Connaught

On September 30, 1998, the Company completed the acquisition of PMC's 
organ transplant business known as IMTIX. The resulting wholly owned 
subsidiary of the Company, named IMTIX-SangStat, is dedicated to the 
research, development, manufacture and marketing of pharmaceuticals for 
transplantation. The Company will pay PMC royalties on IMTIX-SangStat 
product sales that are variable and contingent upon the sales of such 
IMTIX-SangStat products.  Currently the Company contracts with PMC for 
certain steps in the manufacturing process of THYMOGLOBULIN and 
LYMPHOGLOBULINE.  Additionally, the Company leases from PMC the 
manufacturing facilities for these two products.  These agreements with 
PMC expire on dates ranging from 2008 to 2013.  See "Risk Factors - 
Risks Associated With the Manufacture of SANGCYA, SANG-2000 and 
THYMOGLOBULIN."

Amgen, Inc.

In December 1997, the Company signed an exclusive agreement with 
Amgen, Inc. ("Amgen") for the registration, marketing and distribution 
of SANGCYA and SANG-2000 in select territories in the Asia/Pacific rim. 
SangStat has retained the exclusive commercial rights to SANGCYA and 
SANG-2000 in all other territories including North America and Western 
Europe. Under the terms of the agreement, Amgen will have exclusive 
rights to market SANGCYA and SANG-2000, under SangStat's branded 
trademark, in Australia, New Zealand, China and Taiwan. The licensing 
agreement includes an initial payment to SangStat, other milestone 
payments based on key regulatory submissions and approvals, and 
royalties.  Amgen made four payments to SangStat in 1998 based upon 
milestones set forth in the Agreement. 

Stanford University

SangStat has a worldwide, exclusive license from Stanford University 
to make, sell or otherwise distribute products covered by patents and 
patent applications on certain HLA peptides, including some of the 
ALLOTRAP peptides. Stanford University has no obligation to conduct any 
further research with respect to such ALLOTRAP peptides. The exclusivity 
of SangStat's rights under the license agreement with Stanford 
University expire in October 2007. Additionally, under the terms of this 
agreement, SangStat must pay to Stanford University annual license fees 
and a royalty on products covered by the license agreement.

Competition

The drugs being developed by the Company compete with existing and 
new drugs being created by pharmaceutical, biopharmaceutical, and 
biotechnology companies and universities. Many of these entities have 
significantly greater research and development capabilities, as well as 
substantial marketing, manufacturing, financial and managerial resources 
and represent significant competition for the Company. The principal 
factors upon which the Company's products compete are product utility, 
therapeutic benefits, ease of use, effective marketing, distribution and 
price. The Company believes it competes favorably with respect to all of 
these factors. With respect to SANGCYA, SANG-2000, THYMOGLOBULIN, and 
AZATHIOPRINE, the Company will be competing against large companies that 
have significantly greater financial resources and established marketing 
and distribution channels for equivalent products.  For example, 
Novartis currently controls virtually 100% of the worldwide cyclosporine 
markets and has significantly greater resources than SangStat.  There 
can be no assurance that the Company will be able to compete 
successfully against Novartis. The generic drug industry is 
characterized by intense price competition and the Company anticipates 
that it will face this and other forms of competition. There can be no 
assurance that developments by others will not render the Company's 
products or technologies obsolete or noncompetitive or that the Company 
will be able to keep pace with technological developments. Many of the 
competitors have developed or are in the process of developing 
technologies that are, or in the future may be, the basis for 
competitive products. Some of these products may have an entirely 
different approach or means of accomplishing the desired therapeutic 
effect than products being developed by the Company and may be more 
effective and less costly. In addition, many of these competitors have 
significantly greater experience than the Company in undertaking 
preclinical testing and human clinical trials of pharmaceutical products 
and obtaining regulatory approvals of such products. Accordingly, the 
Company's competitors may succeed in commercializing products more 
rapidly than the Company. The Company believes that other companies are 
developing cyclosporine formulations that may be marketed as generic 
equivalents. Were these competitors to develop their products more 
rapidly and complete the regulatory process sooner, it could have a 
material adverse effect on the Company's business, financial condition, 
cash flows and results of operations.

Treatments for the problems associated with transplantation that the 
Company's products seek to address are currently available. For example, 
Sandimmune and Neoral, marketed by Novartis, compete with SANGCYA and 
SANG-2000.   Orthoclone OKT3, marketed by Johnson & Johnson and ATGAM, 
marketed by Pharmacia & Upjohn Inc., Simulect, marketed by Novartis, and 
Zenapax, marketed by F. Hoffmann La-Roche Ltd., are competitive with 
THYMOGLOBULIN.  Prograf marketed by Fujisawa Pharmaceutical Co. Ltd, 
CellCept, marketed by F. Hoffmann La-Roche Ltd. and Imuran, marketed by 
Glaxo Wellcome Ltd. are or would be competitive with SANGCYA, SANG-2000 
and AZATHIOPRINE.  All of such products are commercially available for 
use as immunosuppressive drugs and are widely prescribed. In addition, 
One Lambda Inc., Pel Freez, Biotest Diagnostics Corp., and Genetic 
Therapy, Inc. market products for pre-transplant HLA monitoring and 
Abbott Laboratories markets a cyclosporine level post-transplant 
monitoring device, all of which are widely used. Additional therapeutics 
and monitoring products are available or are under development by these 
and other parties including, but not limited to: American Home Products 
Corp. (rapamycin), Bristol Myers Squibb (CTLA4), and DuPont Merck 
(ViaSpan), and other companies including, but not limited to Abbott 
(cyclosporine), MedImmune Inc., BioTransplant, Inc., and Ivax Corp. In 
addition, THE TRANSPLANT PHARMACY also competes with other drug 
distribution companies, such as Chronimed Inc., MedCo, and Stadtlander 
Drug Company. To the extent these companies' therapeutics, monitoring 
products and services address the problems associated with 
transplantation on which the Company has focused, they may represent 
significant competition.

Patents and Proprietary Technology

The Company's policy is to seek patent protection and to enforce its 
intellectual property rights. The Company has three issued patents in 
the United States which cover its cyclosporine formulation technology, 
for developing multiple formulations and dosage forms of cyclosporine. 
The Company has ten issued patents which cover several different test 
formats for sHLA-based and allied assays, including PRA-STAT. The 
Company's patents expire on various dates beginning in the year 2008 and 
ending in the year 2017. SangStat has patent applications pending in the 
United States in the pretransplant and post-transplant monitoring, 
cyclosporine, and xenotransplantation areas. The Company has also filed 
patent applications with respect to several product candidates in many 
other countries, including Japan, Canada and the countries regulated by 
the European Patent Office.

There can be no assurance that SangStat can manufacture, or have 
manufactured, formulate or commercialize SANGCYA and SANG-2000 without 
infringing patent or other proprietary rights of Novartis or other third 
parties. The Company has recently been sued by Novartis for patent 
infringement. See "Risk Factors-Litigation with Novartis."

Some of the Company's family of ALLOTRAP peptides are being developed 
under an exclusive, worldwide, license from Stanford University. 
Although Stanford has filed patent applications with respect to such 
technology, no assurance can be given that the patent application or any 
of its claims will be allowed, valid, or enforceable or that the 
Company's products will not infringe on other patents.

Patent applications in the United States are maintained in secrecy 
until patents issue. Since publication of discoveries in the scientific 
or patent literature tends to lag behind actual discoveries by several 
months, SangStat cannot be certain that it was the first to discover 
compositions covered by its pending patent applications or the first to 
file patent applications on such compositions. There can be no assurance 
that the Company's pending patent applications will result in issued 
patents or that any of its issued patents will afford protection against 
a competitor.

There can be no assurance that any patent issued to, or licensed by, 
the Company will provide protection that has commercial significance. 
The Company's patents involve specific claims and thus do not provide 
broad coverage. There can be no assurance that the Company's patent 
applications or any claims of these patent applications will be allowed, 
valid or enforceable, that any patents or any claims of these patents 
will provide the Company with competitive advantages for its products or 
that they will not be successfully challenged or circumvented by the 
Company's competitors.

The Company also relies on trade secrets and proprietary know-how 
which it seeks to protect, in part, by confidentiality agreements with 
its employees and consultants. There can be no assurance that these 
agreements will not be breached, that the Company would have adequate 
remedies for any breach or that the Company's trade secrets will not 
otherwise become known or independently developed by competitors. The 
Company has registered or applied for registration of the names of most 
of its products under development or commercialized for research and 
development use. However, there can be no assurance that any trademark 
registration will be granted or not challenged by competitors.

Manufacturing

In 1998, the Company leased a manufacturing facility in Lyon, France 
as part of the IMTIX transaction for the manufacture of THYMOGLOBULIN. 
The Company's wholly-owned subsidiary, IMTIX-SangStat, manufactures 
THYMOGLOBULIN.  There can be no assurance that IMTIX-SangStat will 
continue to meet FDA, or other regulatory agency's, standards governing 
Good Manufacturing Practices ("GMP").  The Company currently relies on 
PMC to perform certain services for the Company in the manufacturing 
process.  See "Risk Factors-Risks Associated with the Manufacture of 
SANGCYA, SANG-2000 and THYMOGLOBULIN."

The Company lacks facilities to manufacture any of its other drugs or 
drug candidates in accordance with current GMP prescribed by the FDA. 
The Company generally relies on third parties to manufacture compounds 
other than THYMOGLOBULIN for commercial sales and clinical trials, 
including SANGCYA, CYCLOTECH, SANG-2000, ALLOTRAP 1258, AZATHIOPRINE and 
CELSIOR and has contracted for commercial production of these compounds. 
The Company depends on such third parties to perform their obligations 
effectively and on a timely basis. There can be no assurance that such 
parties will perform and any such failure may delay clinical development 
or submission of products for regulatory approval, or otherwise impair 
the Company's competitive position which could have a material adverse 
effect on the Company's business, financial condition, cash flows and 
results of operations. In addition, the manufacturing of drug candidates 
involves a number of technical steps and requires meeting stringent 
quality control specifications imposed by government regulatory bodies 
and by the Company itself. Additionally, such products can only be 
manufactured in facilities approved by the applicable regulatory 
authorities. Because of these and other factors, the Company may not be 
able to quickly and efficiently replace its manufacturing capacity in 
the event that its manufacturers are unable to manufacture their 
products at one or more of their facilities. If these manufacturers were 
affected for any reason, the Company's ability to ship its products 
could be impaired, which could have a material adverse effect on the 
Company's business, financial condition, cash flows and results of 
operations.

For certain of its products and potential products, the Company will 
need to develop further its production technologies for use on a larger 
scale in order to conduct human clinical trials and produce such 
potential products for commercial sale at an acceptable cost. The 
Company intends to rely on its third-party manufacturers to meet FDA 
required GMP. However, the Company is ultimately responsible for any 
failure of such manufacturers to meet such requirements.

The Company has contracted for commercial scale production of 
cyclosporine bulk material for SANGCYA and SANG-2000 with Gensia Sicor 
as well as with a second FDA approved manufacturer. In addition, the 
Company has contracted for the production of its finished formulated 
SANGCYA and SANG-2000 with Eli Lilly and Company. The Company has also 
contracted for manufacture of azathioprine bulk material with an FDA 
approved manufacturer and with a separate FDA approved manufacturer for 
production of its finished formulated AZATHIOPRINE product candidate. 
There can be no assurance that such third parties will perform 
satisfactorily and any such failure may delay clinical trial development 
or the submission of the product for regulatory approval, impair the 
Company's ability to deliver products on a timely basis, or otherwise 
impair the Company's competitive position, which could have a material 
adverse effect on the Company's business, financial condition and 
results of operations.  See "Risks Associated with the Manufacture of 
SANGCYA, SANG-2000 and THYMOGLOBULIN."

Cyclosporine is particularly difficult to manufacture since it must 
be extracted from whole cells and carefully purified. There can be no 
assurance that SANGCYA and SANG-2000 can be manufactured in commercial 
quantities at an economical cost. There can be no assurance that 
SangStat can manufacture, or have manufactured, formulate or 
commercialize SANGCYA or SANG-2000 without infringing patent or other 
proprietary rights of Novartis or other third parties, due in part to 
the large number and scope of these patents and the difficulty of 
solubilizing cyclosporine into a formulated drug product. Although 
Novartis' composition of matter patent for cyclosporine expired in 
September 1995 in the United States, Novartis' patents relating to 
formulations are expected to continue to present significant barriers to 
entry to potential competitors.  See "Risk Factors-Litigation with 
Novartis."

The Company is currently purchasing ALLOTRAP peptides for its 
clinical trials under a supply agreement with UCB, S.A. ("UCB"). The 
Company believes that UCB adheres to established GMP production methods 
and complies with the Company's quality control and quality assurance 
standards. More than 10 lots of clinical amounts of ALLOTRAP peptides 
have been manufactured by UCB to date. The Company expects to purchase 
ALLOTRAP peptides from UCB for commercial sale. However, there can be no 
assurance that UCB will be able to scale up its manufacturing to support 
the commercial sale of ALLOTRAP peptides or that supply of ALLOTRAP 
peptides to the Company will be uninterrupted.

With respect to its monitoring products including PRA-STAT, the 
Company has contracted for third party manufacturing and which the 
Company believes operates in compliance with GMP. However, there can be 
no assurance that this third party would pass a regulatory inspection 
from the FDA or other agencies. The raw materials required for the 
majority of the Company's products and product candidates are currently 
available from several suppliers in quantities sufficient to conduct the 
Company's research, development and clinical development activities. 
However, there can be no assurance that the raw materials necessary for 
the manufacture of the Company's products and product candidates will be 
available in sufficient quantities or at a reasonable cost. 
Complications or delays in obtaining raw materials or in product 
manufacturing could delay the submission of products for regulatory 
approval, product launch and the initiation of new development programs, 
which could materially impair the Company's business, financial 
condition, cash flows and results of operations. See "Risk Factors-
Limited Manufacturing Capability."

Government Regulation

SangStat's research and development activities, preclinical studies 
and clinical trials, and ultimately the manufacturing, marketing and 
labeling of its products, are subject to extensive regulation by the FDA 
and other regulatory authorities in the United States and other 
countries. The United States Federal Food, Drug, and Cosmetic Act (the 
"Act") and the regulations promulgated thereunder and other federal and 
state statutes and regulations govern, among other things, the testing, 
manufacture, safety, efficacy, labeling, storage, record keeping, 
approval, advertising, promotion, import and export of the Company's 
products. Preclinical study and clinical trial requirements and the 
regulatory approval process typically take years and require the 
expenditure of substantial resources. Additional government regulation 
may be established that could prevent or delay regulatory approval of 
the Company's product candidates. Delays or rejections in obtaining 
regulatory approvals would adversely affect the Company's ability to 
commercialize any product candidates the Company develops and the 
Company's ability to receive product revenues or royalties. If 
regulatory approval of a product candidate is granted, the approval may 
include significant limitations on the indicated uses for which the 
product may be marketed.

The FDA and other regulatory authorities require that the safety and 
efficacy of certain of the Company's product candidates be supported 
through adequate and well-controlled clinical trials. If the results of 
pivotal clinical trials submitted by the Company in applications for 
approval do not establish the safety and efficacy of the Company's 
product candidates to the satisfaction of the FDA and other regulatory 
authorities, the Company will not receive the approvals necessary to 
market its product candidates, which would have a material adverse 
effect on the Company's business, financial condition, cash flows and 
results of operations.

FDA Regulation-Approval of Therapeutic Products

The Company's therapeutic products are regulated as drugs and, in the 
case of THYMOGLOBULIN, as biological products. The steps ordinarily 
required before a drug or biological product may be marketed in the 
United States include (a) preclinical and clinical studies, (b) the 
submission to the FDA of an Investigational New Drug application 
("IND"), which must become effective before human clinical trials may 
commence, (c) adequate and well-controlled human clinical trials to 
establish the safety and efficacy of the drug, (d) the submission to the 
FDA of New Drug Application ("NDA"), or Biological License Application 
("BLA"), if applicable, and (e) FDA approval of the application, 
including approval of all product labeling.

Preclinical tests include laboratory evaluation of product chemistry, 
formulation and stability, as well as animal studies to assess the 
potential safety and efficacy of each product. Preclinical safety tests 
must be conducted by laboratories that comply with FDA regulations 
regarding Good Laboratory Practice. The results of the preclinical tests 
are submitted to the FDA as part of an IND and are reviewed by the FDA 
before the commencement of human clinical trials. Unless the FDA objects 
to an IND, the IND will become effective 30 days following its receipt 
by the FDA. There can be no assurance that submission of an IND will 
result in FDA authorization to commence clinical trials or that the lack 
of an objection means that the FDA will ultimately approve an 
application for marketing approval.

Clinical trials involve the administration of the investigational 
product to humans under the supervision of a qualified principal 
investigator. Clinical trials must be conducted in accordance with Good 
Clinical Practices ("GCP") under protocols submitted to the FDA as part 
of the IND. Also, each clinical trial must be approved and conducted 
under the auspices of an Institutional Review Board ("IRB") and with 
patient informed consent. The IRB will consider, among other things, 
ethical factors, the safety of human subjects and the possible liability 
of the institution conducting the clinical trials.

Clinical trials are typically conducted in three sequential phases, 
but the phases may overlap. Phase I clinical trials involve the initial 
introduction of the drug into healthy human volunteers. In Phase I 
clinical trials, the drug is tested for safety (adverse effects), dosage 
tolerance, metabolism, distribution, excretion and pharmacodynamics 
(clinical Pharmacology). Phase II clinical trials are conducted in a 
target patient population to gather evidence about the pharmacokinetics, 
safety and biological or clinical efficacy of the drug for specific 
indications; to determine dosage tolerance and optimal dosage; and to 
identify possible adverse effects and safety risks. When a compound has 
shown evidence of efficacy and an acceptable safety profile in Phase II 
evaluations, Phase III clinical trials are undertaken to evaluate 
clinical efficacy and to test for safety in an expanded patient 
population. There can be no assurance that any of the Company's clinical 
trials will be completed successfully or within any specified time 
period. The Company or the FDA may suspend clinical trials at any time, 
if either entity concludes that clinical subjects are being exposed to 
an unacceptable health risk, or for other reasons.

There can be no assurance that, after the results of the Phase III 
clinical trials have been announced, the FDA will not disagree with the 
design of the Phase III clinical trial protocols. In addition, the FDA 
inspects and reviews clinical trial sites, informed consent forms, data 
from the clinical trial sites, including case report forms and record 
keeping procedures, and the performance of the protocols by clinical 
trial personnel to determine compliance with good clinical practice. The 
FDA also examines whether there was bias in the conduct of clinical 
trials. The conduct of clinical trials is complex and difficult, 
especially in Phase III. There can be no assurance that the design or 
the performance of the Phase III clinical trial protocols will be 
successful.

The results of preclinical studies and clinical trials, if 
successful, are submitted in an application to seek the FDA approval to 
market the drug or biological product for a specified use. The testing 
and approval process requires substantial time and effort, and there can 
be no assurance that any approval will be granted for any product or 
that approval will be granted according to any schedule. The FDA may 
refuse to approve an application if it believes that applicable 
regulatory criteria are not satisfied. The FDA may also require 
additional testing for safety and efficacy of the drug. Moreover, if 
regulatory approval of a drug product is granted, the approval will be 
limited to specific indications. There can be no assurance that any of 
the Company's product candidates will receive regulatory approvals for 
marketing, or if approved, that approval will be for the indications 
requested by the Company.

The FDA has implemented an accelerated review process for drugs that 
treat serious or life threatening diseases and conditions. Such approval 
is subject to the additional requirement that, following product launch, 
a Company continues to study the drug to verify and describe its 
clinical benefit. Under these FDA Accelerated Approval Procedures, the 
FDA may withdraw approval if the Company fails to show due diligence in 
conducting post-marketing clinical trials or if these clinical trials 
fail to demonstrate clinical benefit to the FDA's satisfaction. When 
appropriate, the Company intends to pursue opportunities for accelerated 
review of its products. The Company cannot predict the ultimate 
opportunities for accelerated review of its products. The Company cannot 
predict the ultimate effect of the accelerated review process on the 
timing or likelihood of FDA review of any of its product candidates.

For certain drugs that are generic versions of previously approved 
products, there is an abbreviated FDA approval process. A sponsor may 
submit an Abbreviated Application for: (1) a drug product that is the 
"same" as the drug product listed in the approved drug product list 
published by the FDA (the "listed drug") with respect to active 
ingredient(s), route of administration, dosage form, strength and 
conditions of use recommended in the labeling; (2) a drug product that 
differs with regard to certain changes from a listed drug if the FDA has 
approved a petition from a prospective applicant permitting the 
submission of an Abbreviated Application for the changed product; and 
(3) a drug that is a duplicate of, or meets the monograph for, an 
approved antibiotic drug. While the Company believes that SANG-2000 and 
AZATHIOPRINE will qualify for this abbreviated format, there can be no 
assurance that the FDA will not require additional information or that 
these products will be approved for marketing.

An Abbreviated Application need not contain the clinical and 
preclinical data supporting the safety and effectiveness of the product. 
The applicant must instead demonstrate that the product is bioequivalent 
to the listed drug. FDA regulations define bioequivalence as the absence 
of a significant difference in the rate and the extent to which the 
active ingredient moiety becomes available at the site of drug action 
when administered at the same molar dose under similar conditions in an 
appropriately designed study. If the approved generic drug is both 
bioequivalent and pharmaceutically equivalent to the listed drug, the 
agency may assign a code to the product in an FDA publication that will 
represent a determination by the agency that the product is 
therapeutically equivalent to the listed drug. This designation will be 
considered by third parties in determining whether the generic drug will 
be utilized as an alternative to the listed drug. There can be no 
assurance that the Company will receive an "AB" rating on SANG-2000 or 
AZATHIOPRINE, which would permit automatic substitution of SANG-2000 for 
Neoral Capsules and AZATHIOPRINE for Imuran.

FDA Regulation-Approval of Monitoring Products

The Company's monitoring products are regulated as medical devices by 
the FDA and as such require regulatory clearance prior to commercial 
distribution. New medical devices are generally introduced to the market 
based on a premarket notification or "510(k)" submission to the FDA in 
which the sponsor establishes that the proposed device is "substantially 
equivalent" to a legally marketed Class I or Class II medical device or 
to a Class III medical device for which the FDA has not required 
premarket approval. The claim of substantial equivalence will generally 
have to be supported by various types of data and materials including, 
in some instances, preclinical and/or clinical test results.

Following submission of the 510(k), the sponsor may not place the 
device into U.S. commercial distribution until a substantial equivalence 
order is issued by the FDA. The order may be sent within 90 days of 
submission but could take significantly longer. The order may declare 
the FDA's determination that the device is "substantially equivalent" to 
another legally marketed device and allow the proposed device to be 
marketed in the United States. The FDA may, however, determine that the 
proposed device is not substantially equivalent, or may require further 
information, such as additional test data, before the FDA is able to 
make a determination regarding substantial equivalence. Such 
determination or request for additional information could delay the 
Company's market introduction of its products by several quarters or 
more and could have a material adverse effect on the Company's business, 
financial condition and results of operations. There is no assurance 
that a 510(k) marketing clearance will be granted for these products. 
Additional regulatory barriers may be encountered by not meeting 
performance requirements of American Society of Histocompatability and 
Immunogenetics ("ASHI") and the labeling requirements of Clinical 
Laboratory Improvements Amendment ("CLIA").

If the sponsor of a 510(k) cannot obtain an FDA order declaring 
substantial equivalence, the sponsor will have to submit a premarket 
approval application ("PMA"). A PMA will generally have to be supported 
by extensive data, including preclinical and clinical trial data, to 
prove the safety and efficacy of the device. Although, by statute, the 
FDA has 180 days to review a PMA once it has been accepted for filing. 
PMA reviews more often involve a significantly longer time period, 
usually 12 to 24 months or longer from the date of filing. There also 
can be no assurance that the data collected by the sponsor would support 
a PMA marketing approval.

The sponsor may be required to obtain an Investigational Device 
Exemption ("IDE") before it commences clinical testing to support a 
510(k) submission or PMA. Each clinical trial must be approved and 
conducted under the auspices of an IRB and with patient informed 
consent. The IRB will consider, among other things, ethical factors, the 
safety of human subjects, and the possible liability of the institution 
conducting the clinical trials. For some products, the sponsor must also 
submit the protocol to the FDA. The sponsor of the IDE may be able to 
distribute limited amounts of these products for research use only if 
certain FDA requirements are met. Some of these requirements may also 
apply to distribution for clinical investigational use only. The FDA 
monitors and oversees the use and distribution of all "research use 
only" and "investigational use only" devices. There can be no assurances 
that the FDA will determine that the Company's product candidates are 
substantially equivalent to other legally marketed devices. The FDA may 
require the submission of a PMA, which would delay the Company's market 
introduction of its products and could have a material adverse effect on 
the Company's business, financial condition and results of operations. 
The testing and approval process will require substantial time and 
effort, and there can be no assurance that any approval will be granted 
for any product or that approval will be granted according to any 
schedule. The FDA may refuse to approve a PMA if it believes that 
applicable regulatory criteria are not satisfied. The FDA may also 
require additional testing for safety and efficacy of the device. 
Moreover, if the PMA is approved, the approval will be limited to 
specific indications or uses. There can be no assurance that any of the 
Company's product candidates will receive regulatory approvals for 
commercial distribution, or if approved that approval will be for the 
indications requested by the Company.

Prior to any approval of the Company's products for marketing, all 
manufacturing facilities must pass the FDA preapproval inspections.

FDA Regulation-Post-Approval Requirements

Even if regulatory approvals for the Company's product candidates are 
obtained, the Company, its products and the facilities manufacturing the 
Company's products are subject to continual review and periodic 
inspection. Each U.S. drug and device manufacturing establishment must 
be registered with the FDA. Domestic manufacturing establishments are 
subject to biennial inspections by the FDA and must comply with the 
FDA's GMP regulations. To supply device products for use in the United 
States, foreign manufacturing establishments must comply with the FDA's 
GMP regulations and are subject to periodic inspection by the FDA or by 
regulatory authorities in those countries under reciprocal agreements 
with the FDA. In complying with GMP regulations, manufacturers must 
expend funds, time and effort in the area of production and quality 
control to ensure full technical compliance. The FDA stringently applies 
regulatory standards for manufacturing.

Labeling and promotional activities are regulated by the FDA and, in 
certain instances, by the Federal Trade Commission. The Company must 
also report certain adverse events involving its drugs and devices to 
the agency under regulations issued by the FDA. The FDA can impose other 
post-marketing controls on the Company and its products, and has 
expanded authority in this regard for certain products, such as devices 
approved under PMAs.

Failure to comply with applicable regulatory requirements, can result 
in, among other things, warning letters, fines, injunctions, civil 
penalties recall or seizure of products, total or partial suspension of 
production, refusal of the government to grant approvals, premarket 
clearance or pre-market approval, withdrawal of approvals and criminal 
prosecution of the Company and employees.

European Regulations

The Company's activities in Europe are regulated by both the law of 
the European Union ("EU") and by the national law of the EU Member 
States. There are a number of EU Regulations and Directives in force 
governing the authorization and the marketing of medicinal products. The 
purpose of such Regulations and Directives is to harmonize the legal 
framework regulating medicinal products in the EU. In the event of a 
conflict between EU legislation and national law, EU legislation takes 
precedence over national law. Once adopted, Regulations apply 
immediately in Member States, Directives must be implemented into 
national law by Member States. Failure to implement Directives by 
national governments either properly or in a timely fashion still leaves 
significant areas of regulation to national law. Efforts to harmonize 
regulation of medicines within the EU began in 1965 with the adoption of 
Directive 65/65 which required Member States to establish premarket 
approval requirements and prescribed the criteria for approval. Since 
then, the EU has issued a series of measures aimed at making regulation 
of medicinal products more uniform.

European Regulations-Approval of Therapeutic Products

In addition to Regulations and Directives, the EU has formulated non-
binding guidelines (the "Guidelines") which set out detailed EU 
requirements relating to the quality, safety and efficacy of medicinal 
products. Such Guidelines have been formulated by the European 
Commission in consultation with the Committee for Proprietary Medicinal 
Products ("CPMP"). Although these Guidelines are not legally binding, 
failure to comply with them makes it less likely that product research 
work submitted in support of an application for marketing authorizations 
will be acceptable to the competent authorities throughout the EU. In 
European countries which are not EU Member States, national laws apply 
which are frequently divergent from the EU framework. The following 
paragraphs relate only to regulation in EU Member States.

When adequate preclinical data are available, an application normally 
will be made either to the relevant national regulatory authority and/or 
to an ethics committee for approval to carry out a clinical trial with 
the unlicensed medicinal product. While marketing authorizations must be 
supported by clinical trials of a type and extent set out in the 
Directives and Guidelines, the actual approval process for commencement 
of clinical trials is not currently harmonized by EU law and varies from 
state to state.

Clinical trials are typically conducted in three sequential phases 
which may overlap. In Phase I, the product is tested in humans to 
determine certain parameters relating to safety, potential adverse 
effects and/or pharmacokinetics. Phase II involves studies in a target 
patient population to collect additional pharmacokinetic clinical data 
demonstrating safety and, subsequently, to determine the preliminary 
biological or clinical efficacy and optional dosage of the product. 
Phase III trials are then undertaken to collect further data to 
demonstrate quality, safety and efficacy within an expanded target 
patient population. The various European regulatory authorities may 
require multiple Phase III trials to support the quality, safety and 
efficacy of the product. This process may take three to six or more 
years to complete.

When appropriate clinical trial data supporting quality, safety and 
efficacy are available, an application for a marketing authorization may 
be submitted. In 1993, legislation was adopted which established a very 
new and amended system for the registration of medicinal products in the 
EU. The main purpose of this system is to prevent the existence of 
essentially separate national approval systems which have been a major 
obstacle to harmonization. One of the most significant features of this 
new system is the establishment of a new European Agency for the 
Evaluation of Medicinal Products ("EMEA"). Under the new system, 
marketing authorizations, broadly speaking, may be submitted at either a 
centralized, a decentralized or a national level.

The centralized procedure is administered by the EMEA; this procedure 
is mandatory for the approval of biotechnology and high technology 
products and available at the applicant's option for other products. The 
centralized procedure provides for the first time in the EU for the 
grant of a single marketing authorization which is valid in all EU 
Member States.

As of January 1995, a mutual recognition procedure is available at 
the request of the applicant for all medicinal products which are not 
subject to the centralized procedure under the so-called "decentralized 
procedure". The decentralized procedure became mandatory as of January 
1, 1998. The decentralized procedure creates a new system for mutual 
recognition of national approval decisions, makes changes in existing 
procedures for national approvals and establishes procedures for co-
ordinated EU action on product suspensions and withdrawals. Under this 
procedure, the holder of a national marketing authorization for which 
mutual recognition is sought may submit an application to one or more 
Member States, certify that the dossier is identical to that on which 
the first approval was based or explain any differences and certify that 
identical dossiers are being submitted to all Member States from which 
recognition is sought. Within 90 days of receiving the application and 
assessment report, each Member State must decide whether to recognize 
the approval. The procedure encourages Member States to work with 
applicants and other regulatory authorities to resolve disputes 
concerning mutual recognition. If such disputes cannot be resolved 
within the 90-day period provided for review, the application will be 
subject to a binding arbitration procedure.

The Company will choose the appropriate route of European regulatory 
filing to accomplish the most rapid regulatory approvals. However, there 
can be no assurance that the chosen regulatory strategy will secure 
regulatory approvals or approvals of the Company's chosen products 
indications.

Under all procedures approval of an application must be refused if, 
after review, it appears that the quality, safety or efficacy of a 
medicinal product has not been adequately demonstrated by the applicant. 
In practice, requirements for specific post-marketing surveillance, or 
Phase IV studies, are increasingly imposed as de facto conditions of the 
grant of a marketing authorization.

In some Member States, before a product is marketed, it is also 
necessary to obtain approval for the price to be charged for the 
product. However, this is not the position in the United Kingdom, for 
example, where the initial price is set by the Company (subject to the 
constraints of the Pharmaceutical Price Regulation System, which 
controls the profitability of a Company's business with the National 
Health Service). The European Commission is presently reviewing various 
matters relating to the pricing of medicinal products within the EU. 
Currently EU regulation does not harmonize the pricing measures Member 
States may enact, but only seeks to guarantee the transparency of these 
measures. The Company believes it is unlikely the EU will regulate in 
the area of health care financing. The Company believes that 
determination of prices and reimbursement of health care products is 
therefore likely to remain a prerogative to the Member States for the 
foreseeable future. There can be no assurance that Member States will 
not adopt new cost containment policies that will limit marketing 
opportunities in the EU.

The passage of a product through the approval system is likely to 
take a considerable period of time. However, it is hoped that the new 
authorization system will limit the length of time the review process 
will take. Generally under the scheme the review process is intended to 
take a maximum of 210 days after the receipt of a valid application.

It should also be noted that each national regulatory authority has 
the power to suspend or revoke a marketing authorization any time if it 
is no longer satisfied as to the product's safety, quality and efficacy. 
Increasing harmonization of decision-making by national authorities 
through the CPMP and/or a new European agency, and the existence of a 
mechanism by which any EU distribution could compel a Member State to 
act in accordance with a CPMP opinion, should result in more efficiency 
and future market authorization process.

EU law requires that companies manufacturing products must hold a 
manufacturer's authorization and must comply with EU requirements as to 
GMP. These standards are enforced by inspection. Primary responsibility 
for ensuring that manufacturing procedures conform to marketing 
authorizations and good manufacturing practice requirements will rest 
with the authorities in the Member States where the product is 
manufactured or first imported into the EU.

A procedure for abridged applications for generic products also 
exists in the EU. The general effect of the abridged application 
procedure is to give scope for the emergence of generic competition once 
patent protection has expired and the original product has been on the 
market for at least six years or ten years. Independent of any patent 
protection, under the abridged procedure, new products benefit in 
principle from a basic six-year period of protection (commencing with 
the data of first authorization in the EU) from abridged applications 
for a marketing authorization. Abridged applications can be made 
principally for medicinal products which are essentially similar to 
medicinal products which have been authorized for either six or ten 
years. Under the abridged application procedure, the applicant is not 
required to provide the results of pharmacological and toxicological 
tests or the results of clinical trials. For such abridged applications, 
all data concerning manufacturing, quality and bioavailability are 
required. The applicant submitting the abridged application generally 
must provide evidence or information that the drug product subject to 
this application is essentially similar to that of the listed drug 
product: (1) it has the same qualitative and quantitative composition 
with respect to the active ingredient; (2) the dosage form; and (3) 
similarity in bioavailability between the new drug product and the 
reference listed drug. This period of protection is extended to ten 
years in respect of products derived from certain biotechnological 
processes or other high-technology medicinal products viewed by the 
competent authorities as representing a significant innovation. Further, 
each Member State may have a discretion to extend the basic six-year 
period of protection to a ten-year period, to all products marketed in 
its territory. Most Member States have exercised such discretion. This 
protection does not prevent another Company from making a full 
application supported by all necessary pharmacological, toxicological 
and clinical data within the period of protection. The application of 
the rules of marketing exclusivity to various product situations remains 
uncertain, and divergent views are taken by some of the EU regulatory 
authorities on the availability of the period of protection where new 
products are different from existing products only in terms of, for 
instance, strength or dosage form.

European Regulations-Monitoring Products

The Commission of the European Communities proposed a draft of new 
directives to govern approvals of in vitro diagnostic medical devices in 
late 1995, amending the existing Directive.  Future approvals of the 
Company's monitoring products may therefore be dependent on meeting the 
conditions of the proposed Directive.  When the Company's monitoring 
products meet the essential requirements of the Directive, such 
monitoring products will have CE markings of conformity.

Environmental Regulation

In connection with its research and development activities and its 
manufacturing materials and products, the Company is subject to federal, 
state and local laws, rules, regulations and policies governing the use, 
generation, manufacture, storage, air emission, effluent discharge, 
handling and disposal of certain materials, biological specimens, and 
wastes. Although the Company believes that it has complied with these 
laws, regulations and policies in all material respects and has not been 
required to take any action to correct any noncompliance, there can be 
no assurance that the Company will not be required to incur significant 
costs to comply with environmental and health and safety regulations in 
the future. The Company's research and development involves the 
controlled use of hazardous materials, including but not limited to 
certain hazardous chemicals and infectious biological specimens. 
Although the Company believes that its safety procedures for handling 
and disposing of such materials comply with the standards prescribed by 
state and federal regulations, the risk of accidental contamination or 
injury from these materials cannot be eliminated. In the event of such 
an accident, the Company could be held liable for any damages that 
result and any such liability could exceed the resources of the Company.

Third Party Reimbursement

The operating results of the Company will depend in part on the 
availability of adequate reimbursement for the Company's products from 
third-party payors, such as government entities, private health insurers 
and managed care organizations. Third-party payors increasingly are 
seeking to negotiate the pricing of medical services and products. In 
some cases, third-party payors will pay or reimburse a user or supplier 
of a prescription drug product only a portion of the purchase price of 
the product. In the case of the Company's prescription products, payment 
or reimbursement by third-party payors of only a portion of the cost of 
such products could make such products less attractive, from a cost 
perspective, to users, suppliers and prescribing physicians. There can 
be no assurance that reimbursement, if available, will be adequate. If 
adequate reimbursement levels are not provided by government entities or 
other third-party payors for the Company's products, the Company's 
business, financial condition and results of operations would be 
materially adversely affected. 

A number of legislative and regulatory proposals aimed at changing the 
United States' health care system have been proposed in recent years. 
While the Company cannot predict whether any such proposals will be 
adopted, or the effect that any such proposal may have on its business, 
such proposals, if enacted, could have a material adverse effect on the 
Company's business, financial condition and results of operations.

Product Liability Insurance

The Company faces an inherent risk of exposure to product liability 
claims in the event that the use of its products is alleged to have 
resulted in adverse effects. Such risk exists even with respect to those 
products that are manufactured in licensed and regulated facilities or 
that otherwise received regulatory approval for commercial sale. There 
can be no assurance that the Company will not be subject to significant 
product liability claims. The Company currently has product liability 
insurance in the amount of $10.0 million per claim and $10.0 million in 
the aggregate on a claims-made basis. Many of the Company's customers 
require the Company to maintain product liability insurance coverage as 
a condition to their conducting business with the Company. As the loss 
of such insurance coverage could result in a loss of such customers, the 
Company intends to take all reasonable steps necessary to maintain such 
insurance coverage. There can be no assurance that insurance coverage 
will be available in the future on commercially reasonable terms, or at 
all, or that such insurance will be adequate to cover potential product 
liability claims, or that the loss of insurance coverage or the 
assertion of a product liability claim or claims would not materially 
adversely affect the Company's business, financial condition and results 
of operations.

Scientific, Medical, Pharmacy, Regulatory and Business and Medical 
Ethics Advisory Boards

The Company's Scientific, Medical, Pharmacy, Regulatory, Business and 
Medical Ethics Advisory Boards consist of individuals with recognized 
expertise in immunology, transplantation or regulatory affairs. The 
Scientific, Medical, Pharmacy, Regulatory, and Business and Medical 
Ethics Advisory Boards' members advise the Company about present and 
long-term scientific planning, research and development. Members meet 
individually or as a group with the management of the Company from time 
to time. Each member of the Scientific, Medical, Pharmacy and Regulatory 
Advisory Boards has entered into a consulting agreement with the 
Company.

The following persons are members of one or more of the Company's 
Scientific, Medical, Pharmacy. Regulatory, Business and Medical Ethics 
Advisory Boards:

Rita Alloway, Pharm.D., is an Associate Professor in the Department 
of Clinical Pharmacy at the University of Tennessee, Memphis, Tennessee. 
Dr. Alloway is a Board Certified Pharmacotherapy Specialist practicing 
at the UT William F. Bowld Hospital. Her current research is focused on 
individualizing and optimizing immune suppressive regimes for the 
transplant recipient. Dr. Alloway is the Past President of the Mid South 
College of Clinical Pharmacy.

Gilbert J. Burckart, Pharm. D., is a member of the Pharmacy faculty 
at the University of Pittsburgh and established the Clinical 
Pharmacokinetics Laboratory with Dr. Raman Venkataramanan.  In 
conjunction with Dr. Thomas Starzl and other members of the Pittsburgh 
Transplantation Institute, Dr. Burckart has studied drug disposition in 
organ transplant patients since that time, and he is the Principal 
Investigator of an NIH grant in this area that is now entering its ninth 
year.  Dr. Burckart also has a joint appointment as a Professor of 
Pediatrics in the School of Medicine.

Dean S. Collier, Pharm.D., is Assistant Professor, Department of 
Pharmacy Practice, University of Nebraska Medical Center.  He conducts 
research with various immunotherapeutics and has published several 
articles on this subject.  He received his Pharm.D. from the University 
of Iowa and completed an Immunotherapy Fellowship at the University of 
Nebraska.

Jean Dausset, M.D., received a Nobel Prize in Medicine in 1980 for 
work that led to the discovery of HLA. In 1984, he founded and is 
currently serving as President of the Human Polymorphism Study Center 
(CEPH) which is currently engaged in research directed toward mapping 
the human genome. Professor Dausset is a member of the French Academy of 
Sciences, a foreign member of the American Academy of Arts and Sciences 
and of the National Academy of Sciences.

Robert E. Dupuis, Pharm.D., BCPS, is a Clinical Associate Professor 
at the School of Pharmacy, and Assistant Director of Toxicology in the 
Department of Laboratory Medicine, University of North Carolina at 
Chapel Hill. He is a board-certified Pharmacology Specialist and 
received his Pharm.D. from State University of New York at Buffalo.

Roy First, M.D., is a Professor of Internal Medicine at the 
University of Cincinnati Medical Center, and Director of the Section of 
Transplantation in the Division of Nephrology and Hypertension. He is a 
Past President of the American Society of Transplant Physicians (ASTP), 
and is current Chairman of the Ad Hoc Committee for Organ Donation of 
the United Network for Organ Sharing (UNOS). Dr. First obtained his 
medical degree at the University of Witwatersrand in Johannesburg, South 
Africa in 1966.

A. Osama Gaber, M.D., is Associate Professor, Department of Surgery, 
University of Tennessee and President of the Medical Staff at UT William 
F. Bowld Hospital. He was President of the Tennessee Transplant Society 
and is Co-Chair SEOPF Pancreas Transplant Committee.

Ronald D. Guttmann, M.D., FRCPC, is Director of the McGill Center for 
Clinical Immunobiology and Transplantation, and a Professor of Medicine 
at the McGill University Faculty of Medicine, Montreal, Quebec, Canada. 
Dr. Guttmann was previously affiliated with the Peter Bent Brigham 
Hospital and Harvard Medical School.

Amy M. Haddad, Ph.D., is a Professor at the  Center for Health Policy 
& Ethics and School of Pharmacy & Allied Health Professions, Creighton 
University, Omaha Nebraska. 

Dennis F. Heinrichs, B.S.N., M.B.A., is the President/Chief Operating 
Officer, LifeLink Foundation, Inc.

Curtis D. Holt, Pharm.D., is the Transplant Pharmacist Specialist, 
UCLA-Cedars Medical Centers and Assistant Clinical Professor or Surgery, 
UCLA School of Medicine, Division of Liver and Pancreas Transplantation.  
He is also the Director of Clinical Research, Dumont-UCLA Liver 
Transplant Program.  

Cheryl Jacobs, LICSW, is the clinical transplant social worker at the 
University of Minnesota (Fairview University Medical Center) since 1991.  
Her primary focus is on kidney transplant recipients and living organ 
donors. 

N. David Kennedy, Pharm.D., MPA, FASCP, is Manager of Medical 
Affairs, Plasma Operations for the American Red Cross.   He is 
recognized as an expert on plasma derivatives and many topics associated 
with blood products, including being a nationally known speaker on 
Creutzfeldt-Jakob Disease.

Sherry LaForest, Pharm.D., is a clinical pharmacist at Methodist 
Hospital in Indianapolis. She was previously Assistant Professor of 
Pharmacy Practice at Temple University, as well as Clinical Pharmacy 
Specialist for the Heart Failure and Transplant teams at Temple 
University Hospital.  She is active in the American College of Clinical 
Pharmacy and a member of the International Society of Heart and Lung 
Transplantation.  

Kathleen D. Lake, Pharm.D., BCPS, is the Director of Clinical 
Research and Transplant Therapeutics, Divisions of Nephrology & Surgery 
and Senior Associate Research Scientist at the University of Michigan 
Medical School in Ann Arbor.  She received her B.S. and Pharm.D. degrees 
from the University of Minnesota and is a Board Certified 
Pharmacotherapy Specialist.  Dr. Lake has been involved in the area of 
transplantation since 1985 and specializes in the pharmacotherapy of 
transplant patients.  Dr. Lake has been a member of the Board of Regents 
of the American College of Pharmacy for the past eight years, is Editor 
of the Transplant Pharmacy Newsletter, is a member of the Working Group 
of Transplant Cardiologists, and has recently been appointed to the 
Scientific Studies Committee of the American Society of Transplant 
Physicians.

Richard M. Lewis, M.D., is currently Professor of Urology and 
director of Renal Transplantation at Loyola University Medical Center.  
He is a member of American Society of Transplant Physicians, the 
American Urological Association (AUA), the Society for Renovascular 
Surgery and Renal Transplantation (AUA).

Suzanne Valerie McDiarmid, M.B., Ch. B., is an Associate Professor of 
Pediatrics and Surgery, University of California Los Angeles and 
Director, Pediatric Liver Transplant Program, UCLA-Cedars-Sinai Medical 
Center.  She is a member of several professional organizations including 
the American Society of Transplant Physicians, the International Liver 
Transplant Society and the American Association for the Study of Liver 
Disease as well as being named a Fellow of the American Academy of 
Pediatrics.

Marsha Morien, serves as Director, Transplantation Services, Nebraska 
Health System.  She is a member of the Board of Directors for Hickman-
Kenyon Systems, Inc., a software firm that develops and markets 
databases for transplantation and other protocol driven clinical care.

Barbara Oliver, is a transplant recipient (renal) and a member of 
Board of Directors, Transplant Recipients International Organization, 
Inc. (TRIO), chairing their Commications Committee and is the president 
of the Kentuckiana/Louisville Chapter.

Douglas James Norman, M.D., is a Professor of Medicine and the 
Director if The Medical Transplantation Program, Oregon Health Sciences 
University.  He is a member of the American Society of Transplant 
Physicians, the Pacific Northwest Transplant Society, the National 
Kidney Foundation, and the Western Association of Physicians.

Shi-Hui Pan, Pharm.D., a Transplant Pharmacy Specialist at the 
Comprehensive Liver Disease and Treatment Center, St. Vincent Medical 
Center, Los Angeles, California.  Prior to this, she was a Transplant 
Pharmacy Specialist for kidney, heart, lung and liver transplant 
programs at Cedars-Sinai Medical Center, Los Angeles, California, for 
six years.  She received her transplant fellowship training, Pharm.D. 
and M.S. from the University of Minnesota, College of Pharmacy.

Roger Ratouis, Ph.D., is a consultant for regulatory affairs. From 
1959 to 1990, Dr. Ratouis was employed by Roussel Uclaf where he held 
various positions, first in research, then in pharmaceutical 
development, before heading the Regulatory Affairs and Planning 
Department in the Health Care Division.

William G. Reiss, Pharm.D., BCPS, is an Assistant Professor of 
Pharmacy, University of Maryland at Baltimore.  He is primarily involved 
in the clinical management of solid organ transplant and conducts 
research in the area clinical pharmacokinetics.  He is a board-certified 
Pharmacology Specialist and received his Pharm.D. from State University 
of New York at Buffalo.


Employees

As of December 31, 1998, the Company employed 241 people worldwide. 
None of the Company's current employees is represented by a labor union 
or is the subject of a collective bargaining agreement. The Company 
believes that it maintains good relations with its employees.

ITEM 2. PROPERTIES

The Company headquarters are located in Menlo Park, California. Floor 
space in Menlo Park is approximately 27,600 square feet, including 
offices, laboratory space, manufacturing space, storage area and 
specialized areas for pilot production and preclinical testing. The 
Menlo Park facilities serve as the principal sites for preclinical 
research, clinical trial management, process development, monitoring 
product manufacturing, quality assurance and quality control, and 
regulatory affairs. The leases for these building spaces expire in June 
1999 and may be renewed for subsequent years.  The Company currently has 
no plans to renew such leases.  In addition, the Company leases 
approximately 4,500 square feet in Menlo Park for its central mail order 
pharmacy.

The Company has entered into a sublease commencing June 1999 for 
approximately 44,000 square feet in Fremont, California, including 
offices, laboratory space, storage area and specialized areas for pilot 
production and preclinical testing. The Company intends to relocate its 
headquarters from Menlo Park, California to Fremont, California in 
approximately June 1999. The lease for the Fremont building space will 
expire in 2005 and may be renewed for subsequent years. 

The Company also leases approximately 23,000 square feet from PMC in 
Lyon, France for marketing, sales, adminstration and manufacturing of 
THYMOGLOBULIN.  These leases expire in 2013.

The Company leases approximately 2,000 square feet in Missassauga, 
Ontario, Canada. The lease for this facility expires in August 1999, and 
the Company has the option to renew its lease for subsequent five-year 
periods. This site is used as headquarters for marketing and sales 
activities of SangStat Canada, Ltd.

The Company believes that its current facilities are suitable and 
adequate to meet its needs for the foreseeable future and anticipates 
that it will be able to expand its facilities to nearby locations as the 
need develops.


ITEM 3. LEGAL PROCEEDINGS


Novartis vs. SangStat
On February 11, 1999, Novartis Pharmaceuticals Corporation filed a 
lawsuit (case number 99-065) in Federal District Court for the District 
of Delaware against the Company alleging infringement of United States 
patent #5,389,382, a cyclosporine technology patented by Novartis A.G.  
The Novartis patent does not cover Neoral but rather a separate delivery 
system not used in the Neoral formulation.  Novartis seeks the following 
relief:  (i) a finding that SangStat willfully infringed the patent; 
(ii) to permanently enjoin SangStat from infringing the Novartis patent; 
(iii) treble damages; and (iv) reasonably attorneys' fees , costs and 
expenses.  SangStat's answer is due April 5, 1999 and discovery will not 
begin until after the answer is filed.  SangStat believes that the 
lawsuit is without merit and that it does not infringe the Novartis 
patent.  SangStat intends to defend itself vigorously against this 
claim.  

Although the Company is optimistic that this dispute will ultimately be 
resolved favorably to the Company, the course of litigation is 
inherently uncertain and there can be no assurance of a favorable 
outcome.  As a result of the Novartis suit, SangStat could be enjoined 
from selling SANGCYA for a significant period of time or ultimately be 
prevented from selling SANGCYA. Should this happen, the Company does not 
believe it would be able to obtain a license from Novartis on acceptable 
terms because the Company believes cyclosporine is an important product 
for Novartis and that Novartis would not want to diminish its profits 
from this product by licensing it on acceptable terms to the Company. 
Failure to obtain any such required license could prevent the Company 
from selling SANGCYA entirely, which would have a material adverse 
effect on the Company's future results of operations. The litigation, 
whether or not resolved favorably to the Company, is likely to be 
expensive, lengthy and time consuming, will divert management's 
attention and could have a material adverse effect on the Company's 
business, financial condition, cash flows and results of operations.  
SANG-2000 is not covered by this lawsuit and the Company does not 
believe that this lawsuit will have an impact on the regulatory approval 
of Sang-2000. See "Risk Factors-Litigation with Novartis."

Novartis vs. FDA
Novartis Pharmaceuticals Corporation sued the FDA on February 11, 1999 
in the United States District Court for the District of Columbia (case 
number 1:99CV-00323) alleging that the FDA did not follow its own 
regulations in approving SANGCYA in October 1998.  The lawsuit against 
the FDA appears to be based on arguments similar to those used in the 
failed citizen' petition in which Novartis alleged that because Neoral 
and SANGCYA, both oral solutions, are based on different formulation 
technologies, they should be classified as different dosage forms.  
Novartis asks that the court rescind the AB rating that was given to 
SANGCYA.  Loss of the "AB" rating would prevent SANGCYA from being 
automatically substitutable for Neoral oral solution, which would impede 
the marketing of SANGCYA.  The Company believes that the lawsuit is 
without merit and that the FDA will prevail in this matter.  Although 
the Company is optimistic that this dispute will ultimately be resolved 
favorably to the Company, the course of litigation is inherently 
uncertain and there can be no assurance of a favorable outcome.  
Novartis' requested relief, if granted, could have a significant 
negative economic impact on SangStat. In order to defend its interests 
vigorously, SangStat filed a Motion for Leave to Intervene in this 
lawsuit on February 23, 1999.  The Court has not yet ruled on this 
motion. See "Risk Factors-Litigation with Novartis."



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

      None.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock commenced trading publicly on the Nasdaq
National Market on December 14, 1993 and is traded under the symbol SANG. The
following table sets forth for the periods indicated the high and low daily
closing prices for the Common Stock:

                                              HIGH      LOW
                                            --------  --------

  FISCAL YEAR ENDED DECEMBER 31, 1997
    First Quarter........................... 30.250    26.500
    Second Quarter.......................... 27.375    13.750
    Third Quarter........................... 30.625    21.500
    Fourth Quarter.......................... 40.500    28.000

  FISCAL YEAR ENDED DECEMBER 31, 1998
    First Quarter........................... 38.719    23.562
    Second Quarter.......................... 34.812    24.312
    Third Quarter........................... 31.969    16.566
    Fourth Quarter.......................... 30.532    16.500


     On March 18, 1999 the closing sale price of the Common Stock as reported
on the Nasdaq National Market was $18.25 per share. As of March 18, 1999
there were approximately 130 holders of record of the Common Stock.


                                DIVIDEND POLICY

     The Company has not declared or paid any cash dividends since its
inception. The Company currently intends to retain all earnings, if any, for use
in the expansion of its business and therefore does not anticipate paying any
dividends in the foreseeable future.
The Company has not declared or paid any cash dividends since its 
inception. The Company currently intends to retain all earnings, if any, 
for use in the expansion of its business and therefore does not 
anticipate paying any dividends in the foreseeable future.


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to the 
Company's statements of operations for each of the three years in the period 
ended December 31, 1998, and with respect to the balance sheets as of December 
31, 1998 and 1997, are derived from the Consolidated Financial Statements of 
the Company which are included elsewhere in this Annual Report on Form 10-K. 
The statement of operations data for the years ended December 31, 1995 and 1994 
and the balance sheet data as of December 31, 1996, 1995 and 1994, are derived 
from audited consolidated financial statements not included herein. The data 
set forth below should be read in conjunction with "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and the Consolidated 
Financial Statements of the Company and the Notes thereto included elsewhere in 
this Annual Report on Form 10-K.


<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------
                                             1998       1997       1996       1995       1994
                                           ---------  ---------  ---------  ---------  ---------
                                                     (in thousands, except per share data)
<S>                                        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
     Revenues:
          Net product sales................ $18,586     $3,777     $2,399     $2,698       $674
          Collaborative agreement..........   1,092        750         --      1,125      3,000
                                           ---------  ---------  ---------  ---------  ---------
               Total revenues..............  19,678      4,527      2,399      3,823      3,674
                                           ---------  ---------  ---------  ---------  ---------
     Operating expenses:
          Cost of sales and manufacturing..  12,532      3,736      2,846      2,753      1,503
          Research and development.........  17,688     16,210      8,330      6,647      4,845
          Selling, general and
            administrative.................  27,149     11,067      6,120      3,773      3,157
          Acquired in-process research 
            and development................   3,218         --         --         --         --
          Amortization of intangible assets     351         --         --         --         --
                                           ---------  ---------  ---------  ---------  ---------
               Total operating expenses....  60,938     31,013     17,296     13,173      9,505
                                           ---------  ---------  ---------  ---------  ---------
     Loss from operations.................. (41,260)   (26,486)   (14,897)    (9,350)    (5,831)
     Other income (expense) - net..........   3,053      5,506      2,123        672        284
                                           ---------  ---------  ---------  ---------  ---------
               Net loss before income taxes($38,207)  ($20,980)  ($12,774)   ($8,678)   ($5,547)
     Income taxes..........................     257         --         --         --         --
                                           ---------  ---------  ---------  ---------  ---------
               Net loss....................($38,464)  ($20,980)  ($12,774)   ($8,678)   ($5,547)

     Net loss per common share(1)..........  ($2.39)    ($1.36)    ($1.03)    ($0.92)    ($0.79)
                                           =========  =========  =========  =========  =========
     Shares used in per share
       computations(1).....................  16,080     15,376     12,405      9,385      7,049
</TABLE>

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------
                                             1998       1997       1996       1995       1994
                                           ---------  ---------  ---------  ---------  ---------
                                                               (in thousands)
<S>                                        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
     Cash, cash equivalents and short-term
       investments......................... $29,660    $92,036    $41,321     $9,222    $12,378
     Working capital....................... $46,828     93,812     40,724      8,451     11,367
     Total assets.......................... 107,327    104,354     44,750     11,560     14,450
     Long-term obligations, excluding
       current portion.....................  16,402      1,557      1,100      1,091      1,153
     Accumulated deficit...................(100,270)   (61,806)   (40,826)   (28,052)   (19,374)
     Total stockholders' equity............  59,587     97,470     40,955      8,281     11,328

</TABLE>

-------------------------------
(1)     For a description of the computation of net loss per share see 
Note 1 of Notes to Consolidated Financial Statements. 


ITEM 7. 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 Annual Report on Form 10-K. Except for the historical 
information contained herein, the discussion in this Annual Report on 
Form 10-K 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 Annual Report on Form 10-K should be read as being applicable to 
all related forward-looking statements wherever they appear in this 
Annual Report on Form 10-K. The Company's actual results could differ 
materially from those discussed here. Factors that could cause or 
contribute to such differences include those discussed in "Risk 
Factors," as well as those discussed elsewhere herein.

SangStat is a specialty pharmaceutical company, applying a disease 
management approach to improve the outcome of organ transplantation.  
The Company has a total of 12 monitoring and therapeutic product and 
product candidates to address the pre-transplant, acute care and chronic 
phases of transplantation.  During 1998, the Company launched one of its 
lead products, prepared for the launch of its second lead product, 
conducted additional clinical studies, built a sales and marketing sales 
team and developed THE TRANSPLANT PHARMACY(TM).

The Company's accumulated deficit from inception through December 31, 
1998 was $100,270,000. The Company's operating loss has increased each 
year since inception and losses are expected to continue in the near 
future as a result of a number of factors including the uncertainty in 
the timing and the amount of revenue to be earned upon product sales, 
expenses required for product development, clinical trials and marketing 
and sales activities. In addition, the Company's business is subject to 
significant risks, including but not limited to, the success of its 
research and development efforts, litigation by third parties regarding 
intellectual property, in particular, litigation with Novartis regarding 
SANGCYA, obtaining and enforcing patents important to the Company's 
business, the lengthy and expensive regulatory approval process, 
reliance on third parties to manufacture products or product candidates, 
competition from other products and uncertainties associated with health 
care reform measures. Even if the Company's products appear promising at 
various stages of development, they may not reach the market for a 
number of reasons. Such reasons include, but are not limited to, the 
possibilities that the product candidates will be found to be 
ineffective or unsafe, be difficult to manufacture on a large scale, be 
uneconomical to market, be precluded from commercialization by 
proprietary rights of third parties or be unacceptable to providers, 
payors or patients. Additional expenses, delays and losses of 
opportunities that may arise out of these and other risks could have a 
material adverse impact on the Company's business, financial condition, 
cash flows and results of operations.

Results of Operations

Acquisition. On September 30, 1998, the Company completed the acquisition
of Pasteur Merieux Connaught's (PMC) organ transplant business known as 
IMTIX.  The acquisition was accounted for using the purchase method of 
accounting.  The resulting wholly owned subsidiary of the Company, named 
IMTIX-SangStat, is dedicated to the research, development, manufacture 
and marketing of pharmaceuticals for transplantation.  The aggregate 
purchase price of approximately $31 million consisted of $10 million 
paid upon closing and a non-interest bearing note of $21 million payable 
over five years as follows: $3 million in 1999, $3 million in 2000, $6 
million in 2001, $5 million in 2002 and $4 million in 2003.  The note 
payable is discounted at a rate of 9.25% and is included in Notes 
payable.  In addition, the Company will pay PMC certain royalties on 
IMTIX-SangStat product sales.  The aggregate purchase price and 
approximately $2.5 million of acquisition costs were allocated to the 
net tangible assets acquired based on their fair value on the date of 
acquisition, identifiable intangible assets and purchased in-process 
research and development.  The purchased in-process research and 
development of approximately $3.2 million was charged to the Company's 
operations in the third quarter of 1998 and represents the value of 
products that had not yet reached technological feasibility and no 
alternative future use. The estimated value for the in-process 
technology was determined using the income approach which discounted to 
present value the cash flows expected to be derived from the in-process 
products. The projections were based on historical trends and future 
expectations of the acquired company's revenue and expenses to be 
generated from the in-process products.  The discount rate used 
reflected the risk associated with development of the in-process 
products.  The Company currently intends to continue the development of 
the acquired in-process products and has not yet determined if it will 
be successful in its efforts to complete as the safety and efficacy of 
these products has not yet been determined.  The determination of the 
products' safety and efficacy is expected to be completed in 1999 with 
estimated costs to complete the clinical studies less than $500,000.  
Depending on the outcome of the ongoing clinical studies, further 
studies may be required to fully assess the feasibility of the acquired 
in-process products.  Approximately $14.2 million of the purchase price 
was allocated to various specified intangible assets and is being 
amortized over their estimated useful lives ranging from five to 
fourteen years.  Amortization for the year -ended December 31, 1998 was 
$351,000. 

Total revenues. Net product sales for the year ended December 31, 
1998 were $18,586,000, representing an increase of $14,809,000 or 392% 
from 1997. The increase was due primarily to an increase in sales of THE 
TRANSPLANT PHARMACY and sales of therapeutic products in Europe as a 
result of the acquisition of IMTIX.  Net product sales for the year 
ended December 31, 1997 were $3,777,000, an increase of $1,378,000 or 
57% from 1996.  The increase primarily reflected a 36% increase in sales 
of Monitoring Products and an 894% increase in sales of THE TRANSPLANT 
PHARMACY. 

Revenue from collaborative agreements was $1,093,000 in 1998, an 
increase of $343,000 or 46% from 1997. The Company received milestone 
payments of $1,000,000 in 1998 from Amgen under the collaborative 
distribution agreement for SANGCYA and SANG-2000 in certain territories 
outside the United States; in 1997, the Company received an initial 
payment of $750,000 from Amgen under that same collaborative 
distribution agreement

Cost of sales and manufacturing.  Cost of sales and manufacturing 
expenses were $12,532,000 for the year ended December 31, 1998, an 
increase of $8,796,000 or 235% from 1997. The increase was substantially 
due to additional costs associated with increased sales of Therapeutic 
Products and THE TRANSPLANT PHARMACY. For the year ended December 31, 
1997, cost of sales and manufacturing expenses were $3,736,000, an 
increase of $890,000 or 31% over the prior year. The increase reflected 
declines of 4% and 1% in costs of sales for Monitoring Products and 
THYMOGLOBULIN, respectively, offset by the increased sales volume of THE 
TRANSPLANT PHARMACY. 

Research and development.  Research and development expenses were 
$17,688,000 for the year ended December 31, 1998, representing an 
increase of $1,478,000 or 9% over 1997.  The increase is primarily due 
to spending for THYMOGLOBULIN, AZATHIOPRINE and XENOJECT(TM) and the 
addition of IMTIX research & development spending in the fourth quarter 
of 1998.   For the year ended December 31, 1997, research and 
development expenses were $16,210,000 reflecting an increase of 
$7,880,000 or 95% from the prior year. The increase primarily reflected 
continued expansion of clinical and regulatory activities for SANGCYA , 
SANG-2000 and THYMOGLOBULIN. 

SangCya(TM), oral solution, the Company's first cyclosporine product 
candidate, was approved by the U.S. Food and Drug Administration (FDA) 
on October 31, 1998, as a bioequivalent formulation to Neoral(R) for the 
prevention of rejection in organ transplant recipients.  SangCya was 
launched in the U.S. in the fourth quarter of 1998 and has also been 
filed in Europe under the mutual recognition process.

Selling, general and administrative. Selling, general and 
administrative expenses were $27,149,000 for the year ended December 31, 
1998, reflecting an increase of $16,081,000 or 145% over 1997. The 
increase is principally due to the Company's expansion of its commercial 
infrastructure and launch and pre-launch activities to help support the 
U.S. launches of the Company's first two therapeutic products, SANGCYA 
and THYMOGLOBULIN, the growth of The Transplant Pharmacy and the 
addition of IMTIX expenses in the fourth quarter of 1998.  For the year 
ended December 31, 1997, selling, general and administrative expenses 
were $11,068,000, an increase of $4,948,000 or 81% over the prior year. 
The increase reflected the Company's expansion of its marketing and 
sales staff for its therapeutic products, SANGCYA and THYMOGLOBULIN and 
continued growth of THE TRANSPLANT PHARMACY. 

Interest income - net.  Interest income was $3,611,000 for the year 
ended December 31, 1998, which represented a decrease of $2,106,000 from 
the prior year.  The decrease reflects the decrease in the average cash 
balance available for investment as a result of the Company's use of 
cash for operating activities.  For the year ended December 31, 1997, 
interest income was $5,717,000, an increase of $3,456,000 over 1996, 
which was primarily due to the increase in average cash balances 
available for investment as a result of the sale of equity securities 
during 1996 and 1997.  

Interest expense for the year ended December 31, 1998 was $558,000, 
an increase of $348,000 over the same period in 1997.  Interest expense 
for the year ended December 31, 1997 was $210,000, an increase of 
$72,000 over the same period in 1996.

Income taxes. For the year ended December 31, 1998, the Company 
recorded a provision of $257,000 for European income taxes based upon 
income earned from IMTIX in the fourth quarter.  A tax provision was not 
recorded in 1997 or 1996.

Net loss. Net loss for the year ended December 31, 1998 was 
$38,464,000 compared to a loss of $20,980,000 in 1997 and a loss of 
$12,774,000 in 1996.  These increases primarily reflect increases in 
research and development, including clinical trials and regulatory 
affairs, and selling, general and administrative expenses.

Liquidity and Capital Resources

From inception through December 31, 1998, the Company has financed 
its operations substantially from proceeds of approximately $137,977,000 
from public offerings of its Common Stock and $21,236,000 from private 
placements of equity securities.

During the years ended December 31, 1998, 1997 and 1996, the 
Company's net cash used in operating activities was approximately 
$40,952,000, $22,352,000 and $12,526,000 respectively. The increase in 
net cash used in operating activities in each year above is 
substantially due to the increased amount of net loss incurred in each 
year. As of December 31, 1998, the Company had cash, cash equivalents 
and short-term investments of $29,660,000 and total assets of 
$107,327,000.

Net cash used in investing activities totaled $23,416,000 and 
$17,048,000 during the years ended December 31, 1997 and 1996, respectively,
and resulted substantially from the Company's net purchases of short-term 
investments.  For the year ended December 31, 1998, net cash provided by 
investing activities was $6,489,000, which was primarily the result of 
the maturity of short-term investments, offset by cash used for the 
purchase of IMTIX. 

Net cash provided by financing activities totaled $29,000, 
$76,615,000 and $44,811,000 during the years ended December 31, 1998, 
1997 and 1996, respectively.  Such amounts were substantially comprised of
proceeds received from the sale of Common Stock during the respective periods 
offset in part by net repayments of notes payable and capital lease 
obligations.

Although the Company has no current contractual obligations relating 
to capital expenditures, it anticipates that capital expenditures, 
primarily for its United States operations, will aggregate approximately 
$2.6 million during 1999.

The Company utilizes various computer software packages in the 
conduct of its business activities. The Company has conducted a 
preliminary assessment of its internal information technology systems to 
identify the systems that could be affected by the Year 2000 issue. 
Based on this preliminary assessment, the Company currently has no 
reason to believe that its internal information technology systems are 
not Year 2000 compliant. The Company intends to continue to assess the 
Year 2000 compliance of its internal information technology systems. To 
date, the Company has not made any material expenditures related to the 
Year 2000 compliance of its internal information technology systems and 
the Company does not currently anticipate spending any material amounts 
for Year 2000 remediation. There can be no assurance that Year 2000 
errors or defects will not be discovered in the Company's internal 
information technology systems. In the event Year 2000 errors or defects 
are discovered in the Company's internal information technology systems 
and the Company is not able to remedy such errors or defect in a timely 
manner or the cost to remedy such errors or defects is significant, 
there would be a material adverse effect on the Company's business, 
results of operations or financial condition. The Company has not yet 
fully assessed the extent of its exposure, or investigated the plans of 
its suppliers and vendors to address their exposures to these year 2000 
problems, and thus the Company may be adversely impacted should these 
organizations not successfully address this issue.

At December 31, 1998, the Company had Federal, state and foreign net 
operating loss ("NOL") carryforwards of approximately $93,699,000, 
$24,821,000 and $1,502,000, respectively, available to reduce future 
taxable income. In addition, the Company had available research and 
experimentation credit carryforwards of approximately $1,490,000 and 
$803,000 for federal and state tax purposes. The Company's ability to 
realize the benefits of the NOL and credit carryforwards is dependent 
upon the generation of sufficient taxable income in the respective 
taxing jurisdiction prior to their expiration. There can be no assurance 
that the Company will be able to generate sufficient taxable income to 
avail itself of such benefits. Furthermore, utilization of the net 
operating loses and credits may be subject to an annual limitation due 
to ownership change limitations provided by the Internal Revenue Code of 
1986 and similar state provisions. The annual limitation may result in 
the expiration of net operating loses and credits before utilization.

The Company anticipates the need, within the next twelve months, to 
raise additional funds through additional financings, including private 
or public equity and/or debt offerings and collaborative research and 
development arrangements with corporate partners. There can be no 
assurance that adequate funds will be raised on favorable terms, if at 
all, or that discussions with potential collaborative partners will 
result in any agreements.  The Company's future capital requirements 
will depend on many factors, including its research and development 
programs, the scope and results of clinical trials, the time and costs 
involved in obtaining regulatory approvals, the costs involved in 
obtaining and enforcing patents or any litigation by third parties 
regarding intellectual property, the status of competitive products, the 
establishment of manufacturing capacity or third-party manufacturing 
arrangements, the establishment of sales and marketing capabilities, the 
establishment of collaborative relationships with other parties, and the 
costs of manufacturing scale-up and working capital requirements for 
inventory and financing of accounts receivable. If adequate funds are 
not available, the Company may be required to delay, scale back or 
eliminate one or more of its development programs or obtain funds 
through arrangements with collaborative partners or others that may 
require the Company to relinquish rights to certain technologies, 
product candidates or products that the Company would not otherwise 
relinquish.

SangCya Approved in UK

On February 4, 1999, the Company announced that the United Kingdom 
granted, under their national regulatory procedure, marketing approval 
to SangCya(TM) Oral Solution (cyclosporine) for prevention of rejection in 
solid organ transplant recipients as well as other immunosuppressant 
indications. Based on this approval, SangStat intends to seek additional 
European Member State approvals through the Mutual Recognition 
Procedure. This application was submitted to the UK Medicines Control 
Agency on February 12, 1998 with the aim of benefiting from the European 
Community Mutual Recognition Procedure for obtaining regulatory approval 
in multiple Member States. This procedure involves the filing of the 
submission in only one Member State (e.g. UK), which upon grant of 
marketing authorization, then serves as the Reference Member State for 
the other Concerned Member States. In accordance with the EC 
legislation, once this procedure is initiated, these Concerned Member 
States are required to mutually recognize the initial authorization and 
summary of Product Characteristics within 90 days. This is expected to 
result in SangCya approval in most European countries during the second 
half of 1999.  The European market is roughly equivalent to the U.S. 
market in size and scope. There are approximately 20,000 new transplant 
recipients per year concentrated in just 250 transplant centers and over 
100,000 transplant recipients in Europe who require daily lifelong 
immunosuppressive therapy from the time of transplant surgery. Estimated 
1998 sales of cyclosporine exceeded $450 million in Europe and $70 
million in the UK.

Recently Issued Accounting Pronouncements

In the first quarter of 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130, Reporting Comprehensive Income, which 
requires an enterprise to report, by major components and as a single 
total, the change in its net assets during the period from non-owner 
sources.

In June 1997, the Financial Accounting Standards Board (FASB) issued 
SFAS No. 131, Disclosures About Segments of an Enterprise and Related 
Information, which establishes annual and interim reporting standards 
for an enterprise's business segments and related disclosures about its 
products, services, geographic areas and major customers.  The adoption of 
this statement in 1998 did not impact the Company's consolidated financial 
position, results of operations or cash flows.

In June 1998, the Financial Accounting Standards Board issued SFAS 
No. 133, Accounting for Derivative Instruments and Hedging Activities.  
This Statement requires companies to record derivatives on the balance 
sheet as assets or liabilities, measured at fair value.  Gains or losses 
resulting from changes in the values of those derivatives would be 
accounted for depending on the use of the derivative and whether it 
qualifies for hedge accounting.  SFAS 133 will be effective for the 
Company's year ending December 31, 2000.  Management believes 
that this Statement will not have a significant impact on the Company.

Risk Factors

History of Operating Losses; Future Profitability Uncertain.  
SangStat was incorporated in 1988 and has experienced significant 
operating losses since that date. As of December 31, 1998, the Company's 
accumulated deficit was $100,270,000. The Company's operating expenses 
have increased from approximately $17.3 million to $31.0 million to 
$60.9 million over the last three fiscal years. Total revenues increased 
from approximately $2.4 million to $4.5 million to $19.7 million while 
net losses from operations increased from approximately $14.9 million to 
$26.5 million to $41.3 million over the last three fiscal years. There 
can be no assurance that the Company will ever achieve significant 
revenues from product sales or profitable operations. To date, the 
Company's product revenues have been substantially dependent on sales of 
certain organ transplantation products, including a limited number of 
monitoring products, international sales of THYMOGLOBULIN and 
LYMPHOGLOBULINE, and limited initial sales in North America of 
THYMOGLOBULIN and SANGCYA.

Future Growth Dependent on Sales of Key Products.  The Company 
expects to derive a majority of its future revenues from sales of 
SANGCYA, SANG-2000 and THYMOGLOBULIN. SANGCYA and THYMOGLOBLIN were 
launched in November 1998 and February 1999, respectively and the 
Company expects to file for regulatory approval for SANG-2000 in the 
first half.  Accordingly, any factor adversely affecting the sale of 
these key products, individually or collectively, would have a material 
adverse effect on the Company's business, financial condition and 
results of operations.  Sales of these key products could be adversely 
affected by competitive changes, regulatory matters, manufacturing or 
supply interruptions, number of contracts with managed care providers 
and group purchasing organization, factors affecting production, 
marketing or pricing actions, changes in the prescribing practices of 
transplant physicians, reimbursement practices of third party payors, 
product liability claims or other factors.  In particular, with respect 
to SANGCYA and SANG-2000, sales may be affected by perceptions of both 
patients and physicians regarding use of a generic version of a 
critical, life-saving therapeutic, the availability and acceptance of 
the CYCLOTECH device to be used in connection with SANGCYA, and intense 
competitive pressure from Novartis as well as the Novartis litigation.  
See "-Uncertainty of Market Acceptance; "-Substantial 
Competition;" and "-Litigation with Novartis."

Litigation with Novartis.  On February 11, 1999, Novartis 
Pharmaceuticals Corporation filed a lawsuit (case number 99-065) in 
Federal District Court for the District of Delaware against the Company 
alleging infringement of United States patent #5,389,382, a cyclosporine 
technology patented by Novartis A.G.  The Novartis patent does not cover 
Neoral but rather a separate delivery system not used in the Neoral 
formulation.  Novartis seeks the following relief:  (i) a finding that 
SangStat willfully infringed the patent; (ii) to permanently enjoin 
SangStat from infringing the Novartis patent; (iii) treble damages; and 
(iv) reasonably attorneys' fees , costs and expenses.  SangStat's answer 
is due April 5, 1999 and discovery will not begin until after the answer 
is filed.  SangStat believes that the lawsuit is without merit and that 
it does not infringe the Novartis patent.  SangStat intends to defend 
itself vigorously against this claim.  

Although the Company is optimistic that this dispute will ultimately 
be resolved favorably to the Company, the course of litigation is 
inherently uncertain and there can be no assurance of a favorable 
outcome.  As a result of the Novartis suit, SangStat could be enjoined 
from selling SANGCYA for a significant period of time or ultimately be 
prevented from selling SANGCYA. Should this happen, the Company does not 
believe it would be able to obtain a license from Novartis on acceptable 
terms because the Company believes cyclosporine is an important product 
for Novartis and that Novartis would not want to diminish its profits 
from this product by licensing it on acceptable terms to the Company. 
Failure to obtain any such required license could prevent the Company 
from selling SANGCYA entirely, which would have a material adverse 
effect on the Company's future results of operations. The litigation, 
whether or not resolved favorably to the Company, is likely to be 
expensive, lengthy and time consuming, will divert management's 
attention and could have a material adverse effect on the Company's 
business, financial condition, cash flows and results of operations.  
SANG-2000 is not covered by this lawsuit and the Company does not 
believe that this lawsuit will have an impact on the regulatory approval 
of Sang-2000. 

Novartis Pharmaceuticals Corporation sued the FDA on February 11, 
1999 in the United States District Court for the District of Columbia 
(case number 1:99CV-00323) alleging that the FDA did not follow its own 
regulations in approving SANGCYA in October 1998.  The lawsuit against 
the FDA appears to be based on arguments similar to those used in the 
failed citizen's petition in which Novartis alleged that because Neoral 
and SANGCYA, both oral solutions, are based on different formulation 
technologies, they should be classified as different dosage forms.  
Novartis asks that the court rescind the AB rating that was given to 
SANGCYA.  Loss of the "AB" rating would prevent SANGCYA from being 
automatically substitutable for Neoral oral solution, which would impede 
the marketing of SANGCYA.  The Company believes that the lawsuit is 
without merit and that the FDA will prevail in this matter.  Although 
the Company is optimistic that this dispute will ultimately be resolved 
favorably to the Company, the course of litigation is inherently 
uncertain and there can be no assurance of a favorable outcome.  
Novartis' requested relief, if granted, could have a significant 
negative economic impact on SangStat. In order to defend its interests 
vigorously, SangStat filed a Motion for Leave to Intervene in this 
lawsuit on February 23, 1999.  The Court has not yet ruled on this 
motion. 

Fluctuations in Operating Results.  The Company's operating losses 
have increased each year since inception and losses may be expected to 
continue in the near future as a result of a number of factors including 
the uncertainty in the timing and the amount of revenue earned upon 
product sales and achievement of research and development milestones, 
funding under collaborative research agreements and expenses required 
for product development, clinical trials and marketing and sales 
activities. The Company's operating results may fluctuate significantly 
depending on other factors, including the introduction of new products 
by the Company's competition, regulatory actions, market acceptance of 
the Company's products, adoption of new technologies, manufacturing 
capabilities, legal actions and third-party reimbursement policies.

No Assurance of Successful Product Development.  To achieve 
profitable operations, the Company, alone or with others, must 
successfully develop, obtain regulatory approval for, manufacture, 
introduce and market its products and product candidates. There can be 
no assurance that the Company's product development efforts will be 
successfully completed, that required regulatory approvals will be 
obtained, or that any products if developed and introduced will be 
successfully marketed.

The Company's product candidates will require extensive development, 
testing and investment, as well as regulatory approval prior to 
commercialization. Cost overruns due to unanticipated regulatory delays 
or demands, unexpected adverse side effects or insufficient therapeutic 
efficacy would prevent or substantially slow down the development effort 
and ultimately would have a material adverse effect on the Company. 
Furthermore, there can be no assurance that the Company's research and 
development efforts will be successful and that any given product will 
be approved by appropriate regulatory authorities or that any product 
candidate under development will be safe, effective or capable of being 
manufactured in commercial quantities at an economical cost, will not 
infringe the proprietary rights of others or will achieve market 
acceptance.  

THYMOGLOBULIN was approved for sale in the U.S. in December 1998.  
SANGCYA was approved for sale in the U.S. in October 1998 and in the 
U.K. in January 1999. The Company has also filed an NDS for marketing 
approval of THYMOGLOBULIN in Canada.  The Company's other principal 
pharmaceutical product candidates, including the Company's capsule 
formulation of cyclosporine (SANG-2000), the Company's formulation of 
AZATHIOPRINE, ANTILFA, and ALLOTRAP 1258, have not been approved for 
commercial sale in any country. SangStat has developed a generic 
AZATHIOPRINE for use in transplantation as an adjunct therapy in chronic 
immunosuppression and has completed its pharmacokinetic and human 
bioequivalency trials. The Company intends to seek market approval by 
filing an ANDA with the FDA.  In 1996, the Company voluntarily withdrew 
its 510(k) for a two-component CELSIOR product and has completed a 
multi-center clinical trial for a redesigned one-component, ready-to-use 
CELSIOR product candidate. The results of an initial Phase II safety 
study in Europe showed that ALLOTRAP 2702 was safe and well-tolerated in 
the study. Toxicology studies have been completed in a second generation 
peptide, ALLOTRAP 1258. Pre-clinical development has indicated that this 
second generation peptide may be more potent than ALLOTRAP 2702. As a 
result, the Company may decide to pursue the development of ALLOTRAP 
1258 rather than ALLOTRAP 2702. The Company has designed the ALLOTRAP 
clinical trials to comply with regulatory standards in France as well as 
in the United States, so that it may use the data to support its NDA to 
the FDA. There can be no assurance that such data will be accepted by 
the FDA. The use of ALLOTRAP peptides to promote graft acceptance in 
humans is novel and unproven and there can be no assurance that such 
peptides will prove to be safe or effective in humans for any clinical 
indication, including for any transplant type or at any dosage. The 
Company has no clinical evidence in humans that ALLOTRAP peptides will 
be effective in promoting graft acceptance or safety in transplant 
patients and there can be no assurance that ALLOTRAP or any other 
product candidates based on ALLOTRAP peptides will receive marketing 
approval or become viable commercial products. Certain of the Company's 
monitoring product candidates are in development and have not been 
approved for commercial sale. There can be no assurance that these 
product candidates will be successfully developed, receive regulatory 
approval or be marketed on a profitable basis. See "Business-Products 
and Product Candidates."

Risks Associated With the Manufacture of SANGCYA, SANG-2000 and 
THYMOGLOBULIN.  Cyclosporine is particularly difficult to manufacture 
and there can be no assurance that SANGCYA or SANG-2000 can be 
manufactured in commercial quantities at an economical cost. The Company 
has contracted for commercial scale production of cyclosporine bulk 
material (i.e. the active ingredient of cyclosporine) for SANGCYA and 
SANG-2000 from both Gensia Sicor and a second FDA approved supplier. 
Gensia Sicor received approval in July 1997 of an ANDA from the FDA for 
the manufacture of bulk cyclosporine drug substance. SangStat's second 
supplier of bulk cyclosporine drug substance has also been approved by 
the FDA. The Company has also separately subcontracted the manufacture 
of SANGCYA and SANG-2000 product with Eli Lilly. There can be no 
assurance that such third parties will perform satisfactorily and any 
such failure may delay regulatory approval, product launch, impair the 
Company's ability to deliver products on a timely basis, or otherwise 
impair the Company's competitive position, which would have a material 
adverse effect on the Company's business, financial condition, cash 
flows and results of operations.

THYMOGLOBULIN is also difficult to manufacture and there can be no 
assurance that SangStat will be able to manufacture commercial 
quantities at an economical cost.  The Company recently acquired the 
IMTIX division of PMC, including certain manufacturing capabilities with 
respect to THYMOGLOBULIN. From time to time, prior to the acquisition, 
certain batches of THYMOGLOBULIN did not meet manufacturing 
specifications, resulting in a shortage of THYMOGLOBULIN product for 
commercial sale.  Since the acquisition, all batches of THYMOGLOBULIN 
have met manufacturing specifications.  Even after the acquisition, the 
Company still relies on PMC for certain important manufacturing 
services, including, but not limited to, quality assurance and quality 
control, as well as lyophilization.  There can be no assurance that PMC 
will continue to provide these critical manufacturing services to the 
Company in an effective manner or without interruption.  There can be no 
assurance that the Company will not experience manufacturing 
difficulties with respect to THYMOGLOBULIN in the future.

Uncertainty of Market Acceptance.  Whether or not regulatory 
approvals are obtained, uncertainty exists as to whether the Company's 
products will be accepted by the market. In particular, there can be no 
assurance that the Company's product candidates would obtain significant 
market share. Factors that may affect the willingness of patients, 
physicians, pharmacists and third-party payors to convert to SangStat 
products, if approved, include price, perception of bioequivalence, 
perceived clinical benefits and risks, ease of use, other product 
features and brand loyalty. In addition, other factors may limit the 
market acceptance of products developed by the Company, including the 
timing of regulatory approval and market entry relative to competitive 
products, the availability of alternative therapies, the price of the 
Company's products relative to alternative therapies, the availability 
of third-party reimbursement and the extent of marketing efforts by the 
Company or third-party distributors or agents retained by the Company. 
There can be no assurance that patients, physicians, pharmacists, or 
third-party payors will accept the Company's products. In particular, 
with respect to SANGCYA and SANG-2000, if product approval is obtained, 
there can be no assurance that the Company will be successful in taking 
significant market share away from Novartis.

Volatility of Common Stock Price.  The market prices for securities 
of pharmaceutical and biotechnology companies, including the Company, 
have historically been highly volatile.  The market has from time to 
time experienced significant price and volume fluctuations that are 
unrelated to the operating performance of particular companies.  Factors 
such as fluctuations in the Company's operating results, announcements 
of new therapeutic products by the Company or its competitors, 
announcements regarding collaborative agreements, governmental 
regulation, clinical trial results, developments in patent or other 
proprietary rights, litigation, public concern as to the safety of drugs 
developed by the Company or others, comments made by securities analysts 
and general market conditions may have a significant effect on the 
market price of the Company's Common Stock.  In particular, the 
realization of any of the risks described on this 10-K could have a 
significant and adverse impact on the market price.

Ability to Manage Growth.  The Company has recently experienced a 
period of expansion of its operations that has placed a strain upon its 
management system and resources.  The Company's ability to compete 
effectively and to manage future growth, if any, will require the 
Company to continue to improve its financial and management controls, 
reporting systems and procedures on a timely basis and expand, train and 
manage an increasing number of employees.  The Company's failure to do 
so would have a material adverse effect on the Company's business, 
financial condition and results of operations.

Uncertainty Regarding Patents and Proprietary Rights.  The Company's 
success depends in part on its ability to obtain and enforce patent 
protection for its products and to preserve its trade secrets. The 
Company holds patents and pending patent applications in the United 
States and abroad. The Company's patents involve specific claims and 
thus do not provide broad coverage. There can be no assurance that the 
Company's patent applications or any claims of these patent applications 
will be allowed, or found to be valid or enforceable, that any patents 
or any claims of these patents will provide the Company with competitive 
advantages for its products or that such issued patents and any patents 
issued under pending patent applications will not be successfully 
challenged or circumvented by the Company's competitors. The Company has 
not conducted extensive patent and prior art searches with respect to 
many of its product candidates and technologies, and there can be no 
assurance that third-party patents or patent applications do not exist 
or could not be filed in the United States, Europe or other countries 
which would have an adverse effect on the Company's ability to market 
its products. There can be no assurance that any claims in the Company's 
patent applications would be allowed, or found to be valid or 
enforceable, or that any of the Company's products would not infringe on 
others' patents or proprietary rights in the United States or abroad. 
The ALLOTRAP peptide family is being developed under an exclusive, 
worldwide license from Stanford University. Although Stanford has filed 
patent applications with respect to such technology, there can be no 
assurance that, other than the patent application that has issued, any 
of the claims of such patent applications will be allowed, or found to 
be valid or enforceable and as to the issued patent, that the claims 
will be found to be valid or enforceable.

There can be no assurance that SangStat can manufacture, or have 
manufactured, formulate or commercialize SANGCYA and SANG-2000 without 
infringing patent or other proprietary rights of Novartis or other third 
parties. The Company has recently been sued by Novartis for patent 
infringement. See "-Litigation with Novartis."

Patent applications in the United States are maintained in secrecy 
until patents issue. Since publication of discoveries in the scientific 
or patent literature tends to lag behind actual discoveries by several 
months, SangStat cannot be certain that it was the first to discover 
compositions covered by its pending patent applications or the first to 
file patent applications on such compositions. There can be no assurance 
that the Company's pending patent applications will result in issued 
patents or that any of its issued patents will afford protection against 
a competitor.

The Company also relies on trade secrets and proprietary know-how 
which it seeks to protect, in part, by confidentiality agreements with 
its employees and consultants. There can be no assurance that these 
agreements will not be breached, that the Company would have adequate 
remedies for any breach or that the Company's trade secrets will not 
otherwise become known or independently developed by competitors. The 
Company has registered or applied for registration of the names of most 
of its products under development or commercialized for research and 
development use. However, there can be no assurance that any trademark 
registration will be granted or not challenged by competitors. See 
"Business-Patents and Proprietary Technology."

Substantial Competition.  The drugs being developed by the Company 
compete with existing and new drugs being created by pharmaceutical, 
biopharmaceutical, biotechnology and diagnostics companies and 
universities. Many of these entities have significantly greater research 
and development capabilities, as well as substantial marketing, 
manufacturing, financial and managerial resources and represent 
significant competition for the Company. The principal factors upon 
which the Company's products compete are product utility, therapeutic 
benefits, ease of use, effectiveness marketing, distribution and price. 
With respect to THYMOGLOBULIN, SANGCYA, SANG-2000, and AZATHIOPRINE, the 
Company will be competing against large companies that have 
significantly greater financial resources and established marketing and 
distribution channels for competing products.  For example, Novartis 
currently controls virtually 100% of the worldwide cyclosporine markets 
and has significantly greater resources than the Company.  There can be 
no assurance that the Company will be able to compete successfully 
against Novartis. To date, the Company has a limited number of contracts 
with managed care providers and group purchasing organizations.  The 
Company's future sales will be dependent on the Company's ability to 
enter into contracts with these entities. The drug industry is 
characterized by intense price competition and the Company anticipates 
that it will face this and other forms of competition. There can be no 
assurance that developments by others will not render the Company's 
products or technologies obsolete or noncompetitive or that the Company 
will be able to keep pace with technological developments. Many of the 
competitors have developed or are in the process of developing 
technologies that are, or in the future may be, the basis for 
competitive products. Some of these products may have an entirely 
different approach or means of accomplishing the desired therapeutic 
effect than products being developed by the Company and may be more 
effective and less costly. In addition, many of these competitors have 
significantly greater experience than the Company in undertaking 
preclinical testing and human clinical trials of pharmaceutical products 
and obtaining regulatory approvals of such products. Accordingly, the 
Company's competitors may succeed in commercializing products more 
rapidly than the Company. For example, the Company believes that the 
degree of market penetration of SANG-2000 is dependent in part on 
whether the Company is the first company to market a bioequivalent 
formulation of cyclosporine. The Company believes that other companies 
may be developing cyclosporine formulations that may be marketed as 
generic equivalents. Were these competitors to develop their products 
more rapidly and complete the regulatory process sooner, it could have a 
material adverse effect on the Company's business, financial condition, 
cash flows and results of operations.

Treatments for the problems associated with transplantation that the 
Company's products seek to address are currently available. For example, 
Sandimmune and Neoral, marketed by Novartis, compete with SANGCYA and 
SANG-2000.   Orthoclone OKT3, marketed by Johnson & Johnson and ATGAM, 
marketed by Pharmacia & Upjohn Inc., Simulect, marketed by Novartis, and 
Zenapax, marketed by Roche Ltd., would be competitive with 
THYMOGLOBULIN.  Prograf marketed by Fujisawa Pharmaceutical Co. Ltd, 
CellCept, marketed by Roche Ltd. and Imuran, marketed by Glaxo Wellcome 
Ltd. would be competitive with SANGCYA, SANG-2000 and AZATHIOPRINE.  All 
of such products are commercially available for use as immunosuppressive 
drugs and are widely prescribed. In addition, One Lambda Inc., Pel 
Freez, Biotest Diagnostics Corp., and Genetic Therapy, Inc. market 
products for pre-transplant HLA monitoring and Abbott Laboratories 
markets a cyclosporine level post-transplant monitoring device, all of 
which are widely used. Additional therapeutics and monitoring products 
are available or are under development by these and other parties 
including, but not limited to: American Home Products Corp. (rapamycin), 
Bristol Myers Squibb (CTLA4), and DuPont Merck (ViaSpan), and other 
companies including, but not limited to Abbott (cyclosporine), MedImmune 
Inc., BioTransplant, Inc., and Ivax Corp.  All of the aforementioned 
competitive and other drugs are commercially available for use as 
immunosuppressive drugs and are widely prescribed. To the extent these 
therapeutics, monitoring products or novel transplant procedures address 
the problems associated with transplantation on which the Company has 
focused, they may represent significant competition. See "Business-
Competition."

Limited Manufacturing Capability.  In 1998, the Company leased a 
manufacturing facility in Lyon, France as part of the IMTIX transaction 
for the manufacture of THYMOGLOBULIN. The Company's wholly-owned 
subsidiary, IMTIX-SangStat, manufactures THYMOGLOBULIN.  There can be no 
assurance that IMTIX-SangStat will continue to meet FDA standards 
governing Good Manufacturing Practices ("GMP").  The Company currently 
relies on PMC to perform certain services for the Company in the 
manufacturing process.  See "--Risks Related to the Manufacture of 
SANGCYA, SANG-2000, and THYMOGLOBULIN."

The Company lacks facilities to manufacture any of its other drugs or 
drug candidates in accordance with current GMP prescribed by the FDA. 
The Company generally relies on third parties to manufacture compounds 
other than THYMOGLOBULIN and devices for commercial sales and clinical 
trials, including SANGCYA, PRA-STAT, CYCLOTECH, SANG-2000, ALLOTRAP 
1258, AZATHIOPRINE and CELSIOR and has contracted for commercial 
production of these compounds and devices. There can be no assurance 
that manufacturers will meet FDA standards governing GMP or other 
regulatory guidelines, that any BLA's required for manufacturing will be 
filed, reviewed and approved, or that any third-party manufacturer will 
pass a preapproval inspection. The Company is currently purchasing 
ALLOTRAP 1258  for clinical trials from UCB Bioproducts S.A. ("UCB") 
located in Belgium, and intends to contract with UCB for commercial 
production. The Company has contracted for commercial scale production 
of cyclosporine bulk material for SANGCYA and SANG-2000 with Gensia 
Sicor as well as with a second FDA approved manufacturer. In addition, 
the Company has contracted for the production of its finished formulated 
SANGCYA and SANG-2000 with Eli Lilly and Company. The Company has also 
contracted for manufacture of azathioprine bulk material with an FDA 
approved manufacturer and with a separate FDA approved manufacturer for 
production of its finished formulated AZATHIOPRINE product candidate. 
There can be no assurance that the Company will be able to enter into 
secondary commercial scale manufacturing contracts or that any other 
third-party arrangements can be established on a timely or commercially 
reasonable basis, or at all. The Company will depend on all such third 
parties to perform their obligations effectively and on a timely basis. 
There can be no assurance that such parties will perform and any 
failures by third parties may delay clinical development or submission 
of products for regulatory approval, or otherwise impair the Company's 
competitive position which could have a material adverse effect on the 
Company's business, financial condition, cash flows and results of 
operations. In addition, the manufacturing of drug candidates involves a 
number of technical steps and requires meeting stringent quality control 
specifications imposed by government regulatory bodies and by the 
Company itself. Additionally, such products can only be manufactured in 
facilities approved by the applicable regulatory authorities. Because of 
these and other factors, the Company may not be able to replace its 
manufacturing capacity quickly or efficiently in the event that its 
manufacturers are unable to manufacture their products at one or more of 
their facilities. For certain of its potential products, the Company 
will need to develop its production technologies further for use on a 
larger scale in order to conduct human clinical trials and produce such 
products for commercial scale at an acceptable cost.

The Transplant Pharmacy.  Establishing THE TRANSPLANT PHARMACY as a 
viable distribution system entails a number of risks including the 
Company's ability to enter into agreements with transplant centers to 
utilize THE TRANSPLANT PHARMACY's services, compliance with state 
regulations regarding pharmacy licensing and compliance with federal and 
state laws regulating payments for referrals for health care services. 
On November 11, 1998, the Office of the Inspector General (OIG) of 
the Department of Health & Human Services issued an Advisory Opinion 
which stated that the placement by a pharmacy of a licensed pharmacist 
at a hospital transplant center might constitute prohibited remuneration 
under the anti-kickback statute section 1128B9B) of the Social Security 
Act.  The Company did not request the Advisory Opinion and the Advisory 
Opinion only applies to the requesting party.  The Company believes that 
the operation of The Transplant Pharmacy differs from the fact pattern 
set out in the Advisory Opinion and does not constitute prohibited 
remuneration. There can be no assurance that the OIG will agree with 
this analysis, in which case The Transplant Pharmacy's program may be 
modified so that it would no longer include an on-site pharmacist at 
transplant centers.  There can be no assurance that the Company will be 
successful in establishing THE TRANSPLANT PHARMACY as a viable 
distribution method for the Company's products and services. See 
"Business-Products, Product Candidates and Services."

No Assurance of FDA, Canadian or European Regulatory Approval; 
Government Regulation. The Company's research, preclinical development, 
clinical trials, manufacturing, marketing and distribution of its 
products in the United States and other countries are subject to 
extensive regulation by numerous governmental authorities including, but 
not limited to, the FDA. In order to obtain regulatory approval of a 
drug product, the Company must demonstrate to the satisfaction of the 
applicable regulatory agency, among other things, that such product is 
safe and effective for its intended uses and that the manufacturing 
facilities are in compliance with GMP requirements. The Company must 
also demonstrate the approvability of a BLA for its biological products. 
The approval of the Company's generic product candidates is dependent on 
demonstrating bioequivalence with reference products in addition to 
assurance of compliance with GMP regulations. In order to market its 
monitoring products, which are considered to be medical devices, the 
Company or its licensees will be required either to receive 510(k) 
marketing clearance or Premarket Approval Application ("PMA") approvals 
from the FDA for such products among other regulatory requirements. To 
obtain a 510(k) marketing clearance, the Company must show that a 
monitoring product is "substantially equivalent" to a legally marketed 
product not requiring FDA approval. In addition, the Company must 
demonstrate that it is capable of manufacturing the product to the 
relevant standards. To obtain PMA approval, the Company must submit 
extensive data, including pre-clinical and clinical trial data to prove 
the safety and efficacy of the device. Additionally, the Company is 
currently distributing several monitoring products for research or 
investigational use. Although the Company believes it is complying with 
FDA regulations regarding such distribution, there can be no assurance 
that the FDA will not determine that the Company is violating FDA 
regulations with respect to the distribution of these products. The 
process of obtaining FDA and other required regulatory approvals is 
lengthy and will require the expenditure of substantial resources, and 
there can be no assurance that the Company will be able to obtain the 
necessary approvals. Moreover, if and when such approval is obtained, 
the marketing, distribution and manufacture of the Company's products 
would remain subject to extensive regulatory requirements administered 
by the FDA and other regulatory bodies. Failure to comply with 
applicable regulatory requirements can result in, among other things, 
warning letters, fines, injunctions, civil penalties, recall or seizure 
of products, total or partial suspension of production, refusal of the 
government to grant pre-market clearance or pre-market approval, 
withdrawal of approvals and criminal prosecution of the Company and 
employees. Additionally, the Company intends to pursue commercialization 
of its products in European countries. Both the Company's pre-transplant 
and post-transplant monitoring products should be subject to regulation 
as in vitro medical devices for which regulations are being presently 
formulated under harmonized European Directives. This new Directive is 
likely to impose additional requirements on the pre-transplant 
donor/recipient matching products and the post-transplant monitoring 
products. This legislation may include, among other things, requirements 
with respect to the design, safety and performance of the products as 
well as impose premarket approval procedures such as product type 
certification and quality systems certification of manufacturing. The 
Company's therapeutic products are subject to foreign regulatory 
requirements governing the conduct of clinical trials, product 
licensing, pricing and reimbursement, which vary from country to 
country. The process of obtaining foreign regulatory approvals can be 
lengthy and require the expenditure of substantial resources, and there 
can be no assurance that the Company will be able to obtain the 
necessary approvals or the approvals for the proposed indications. See 
"Business-Government Regulation."

Dependence on Collaborative Relationships.  The Company has in the 
past relied on collaborative relationships to finance certain of its 
research and development programs. The Company may enter into 
collaborative relationships with corporate and other partners to develop 
and commercialize certain of its potential products. There can be no 
assurance that the Company will be able to negotiate acceptable 
collaborative arrangements in the future, that such collaborations will 
be available to the Company on acceptable terms or that any such 
relationships, if established, will be scientifically or commercially 
successful. See "Business-Strategic Relationships."

Dependence upon Key Personnel.  The Company's ability to develop its 
business depends in part upon its attracting and retaining qualified 
management and scientific personnel.  As the number of qualified 
personnel is limited, competition for such personnel is intense. There 
can be no assurance that the Company will be able to continue to attract 
or retain such people. The loss of key personnel or the failure to 
recruit additional key personnel could significantly impede attainment 
of the Company's objectives and have a material adverse effect on the 
Company's financial condition and results of operations. The Company's 
planned activities will require the addition of new personnel, including 
management, and the development of additional expertise by existing 
management personnel, in areas such as research, product development, 
preclinical testing, clinical trial management, regulatory affairs, 
finance, manufacturing, pharmacy affairs and marketing and sales. The 
inability to acquire such services or to develop such expertise could 
have a material adverse effect on the Company's business, financial 
condition and results of operations. 

Uncertainty of Pharmaceutical Pricing and Reimbursement.  The 
Company's ability to commercialize its products may depend in part on 
the extent to which reimbursement for the cost of such products and 
related treatment will be available from government health 
administration authorities, private health coverage insurers and other 
organizations. Significant uncertainty exists as to the pricing, 
availability of distribution channels and reimbursement status of newly 
approved healthcare products and there can be no assurance that adequate 
third party coverage will be available for the Company to maintain price 
levels sufficient for realization of an appropriate return on its 
investment in product development. In certain foreign markets, pricing 
or profitability of healthcare products is subject to government 
control. In the United States, there have been, and the Company expects 
that there will continue to be, a number of federal and state proposals 
to implement similar governmental control. In addition, an increasing 
emphasis on managed care in the United States has and will continue to 
increase the pressure on pharmaceutical pricing. While the Company 
cannot predict whether any such legislative or regulatory proposals will 
be adopted or the effect such proposals or managed care efforts may have 
on its business, the announcement of such proposals or efforts could 
have a material adverse effect on the Company's ability to raise 
capital, and the adoption of such proposals or efforts could have a 
material adverse effect on the Company's business, financial condition 
and results of operations. Further, to the extent that such proposals or 
efforts have a material adverse effect on other pharmaceutical companies 
that are prospective corporate partners for the Company, the Company's 
ability to establish corporate collaborations may be adversely affected. 
In addition, third-party payors are increasingly challenging the prices 
charged for medical products and services. If the Company succeeds in 
bringing one or more products to the market, there can be no assurance 
that these products will be considered cost effective or that 
reimbursement to the consumer will be available or will be sufficient to 
allow the Company to sell its products on a competitive basis. See 
"Business-Products, Product Candidates and Services."

Product Liability Exposure; Limited Insurance Coverage.  The Company 
faces an inherent business risk of exposure to product liability claims 
in the event that the use of products manufactured by the Company 
results in adverse effects during research, clinical development or 
commercial use. While the Company will attempt to take appropriate 
precautions, there can be no assurance that it will avoid significant 
product liability exposure. The Company's product liability insurance 
coverage is currently limited to $10,000,000 which may not be adequate 
insurance coverage to cover potential liability exposures. Moreover, 
there can be no assurance adequate insurance coverage will be available 
at acceptable cost, if at all, or that a product liability claim would 
not materially adversely affect the business, financial condition, cash 
flows and results of operations of the Company.

Hazardous Materials.  In connection with its research and development 
activities and operations, the Company is subject to federal, state and 
local laws, rules, regulations and policies governing the use, 
generation, manufacture, storage, air emission, effluent discharge, 
handling and disposal of certain materials, biological specimens and 
wastes. There can be no assurance that the Company will not incur 
significant costs to comply with environmental and health and safety 
regulations. The Company's research and development involves the 
controlled use of hazardous materials, including but not limited to 
certain hazardous chemicals and infectious biological specimens. 
Although the Company believes that its safety procedures for handling 
and disposing of such materials comply with the standards prescribed by 
state and federal regulations, the risk of accidental contamination or 
injury from these materials cannot be eliminated. In the event of such 
an accident, the Company could be held liable for any damages that 
result and any such liability could exceed the resources of the Company. 
See "Business-Government Regulation."

Effect of Certain Provisions: Anti-takeover Effects of Certificate of 
Incorporation, Bylaws, Stockholder Rights Plan and Delaware Law.  
Certain provisions of the Company's Certificate of Incorporation and 
Bylaws could delay or make more difficult a merger, tender offer or 
proxy contest involving the Company, which could adversely affect the 
market price of the Company's Common Stock. The Company's Board of 
Directors has the authority to issue up to 5,000,000 shares of Preferred 
Stock and to determine the price, rights preferences, privileges and 
restrictions, including voting rights, of those shares without any 
further vote or action by the stockholders. The rights of the holders of 
Common Stock will be subject to, and may be adversely affected by, the 
rights of the holders of any Preferred Stock that may be issued in the 
future. The issuance of Preferred Stock could have the effect of making 
it more difficult for a third party to acquire a majority of the 
outstanding voting stock of the Company. Further, the Company has 
adopted a stockholder rights plan. The plan allows for the issuance of a 
dividend to stockholders of rights to acquire shares of the Company or, 
under certain circumstances, an acquiring corporation, at less than half 
their fair market value. The plan could have the effect of delaying, 
deferring or preventing a change in control of the Company. In addition, 
the Company is subject to the antitakeover provisions of Section 203 of 
the Delaware General Corporation Law, which will prohibit the Company 
from engaging in a "business combination" with an "interested 
stockholder" for a period of three years after the date of the 
transaction in which the person became an interested stockholder, unless 
the business combination is approved in a prescribed manner. The 
application of Section 203 also could have the effect of delaying or 
preventing a change of control of the Company. 

Year 2000 Issue
The Company utilizes various computer software packages in the 
conduct of its business activities. The Company has conducted a 
preliminary assessment of its internal information technology systems to 
identify the systems that could be affected by the Year 2000 issue. 
Based on this preliminary assessment, the Company currently has no 
reason to believe that its critical internal information technology 
systems are not Year 2000 compliant. The Company intends to continue to 
assess the Year 2000 compliance of its internal information technology 
systems. To date, the Company has not made any material expenditures 
related to the Year 2000 compliance of its internal information 
technology systems and the Company does not currently anticipate 
spending any material amounts for Year 2000 remediation. Total cost of 
completing Year 2000 compliance is estimated to be less than $100,000.  
There can be no assurance that Year 2000 errors or defects will not be 
discovered in the Company's internal information technology systems. In 
the event Year 2000 errors or defects are discovered in the Company's 
internal information technology systems and the Company is not able to 
remedy such errors or defect in a timely manner or the cost to remedy 
such errors or defects is significant, there would be a material adverse 
effect on the Company's business, results of operations or financial 
condition. The Company has not yet fully assessed the extent of its 
exposure, or fully investigated the plans of its suppliers and vendors 
to address their exposures to these year 2000 problems, and thus the 
Company may be adversely impacted should these organizations not 
successfully address this issue. Completion of this work is targeted for 
June 30, 1999.  When all assessments have been completed, the Company 
will develop a contingency plan for any areas in which a Year 2000 
exposure exists.


ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures.  The following discussion about the 
Company's market risk disclosures involves forward-looking statements.  
Actual results could differ materially from those projected in the 
forward-looking statements.  The Company is exposed to market risk 
related to changes in interest rates and  equity security price risk.

Interest Rate Sensitivity.  The Company maintains a short-term 
investment portfolio consisting mainly of government and corporate bonds 
purchased with an average maturity of less than two years.  These 
available-for-sale securities are subject to interest rate risk and will 
fall in value if market interest rates increase.  If market interest 
rates were to increase immediately and uniformly by 10 percent from 
levels at December 31, 1998, the fair value of the portfolio would 
decline by an immaterial amount.  The Company generally has the ability 
to hold fixed income investments until maturity and therefore does not 
expect operating results or cash flows to be affected to any significant 
degree by the effect of a sudden change in market interest rates on its 
securities portfolio.

Equity Price Risk.  The Company holds a small portfolio of 
marketable-equity traded securities that are subject to market price 
volatility.  Equity price fluctuations of plus or minus 15 percent would 
not have a material impact on the Company.

All of the potential changes noted above are based on sensitivity 
analyses performed on the Company's financial positions at December 31, 
1998.  Actual results may differ materially.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to item 14(a)(1) and 14(a)(2) of this Annual Report
on Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

None. 


PART III

The information required by Items 10 through 13 of Part III is 
incorporated by reference from the registrant's Proxy Statement, under 
the captions "Nomination and Election of Directors," "Beneficial 
Stock Ownership," "Compensation of Executive Officers" and 
"Compensation Committee Interlocks and Insider Participation in Insider 
Participation and Certain Transactions", which Proxy Statement will be 
mailed to stockholders in connection with the registrant's annual 
meeting of stockholders which is expected to be held in May 1999.


PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a) The following documents are filed as a part of this Annual Report 
on Form 10-K:

1. Financial Statements. 

Independent Auditors' Report    
Consolidated Balance Sheets - December 31, 1998 and 1997        
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996      
Consolidated Statements of Comprehensive Income for the years ended
  December 31, 1998, 1997 and 1996      
Consolidated Statements of Stockholders' Equity for the years ended
  December 31, 1998, 1997 and 1996        
Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996      
Notes to Consolidated Financial Statements for the years ended
  December 31, 1998, 1997 and 1996      


2. Financial Statement Schedule.

   Schedule II - Valuation and Qualifying Accounts and Reserves    

All other schedules are omitted because they are not required, are not 
applicable or the information is included in the consolidated financial
statements and notes thereto.


3. Exhibits.  Reference is made to Item 14(c) of this Annual 
Report on Form 10-K.

(b)     Reports on Form 8-K. 

        Form 8-K filed on October 15, 1998 as amended on December 14, 1998

(c)     Exhibits. 

   2.1  (7)  Agreement and Plan of Merger dated as of July 24, 1995 between 
             SangStat Delaware, Inc., and SangStat Medical Corporation, a
             California corporation, as filed with the Delaware Secretary of
             State on August 11, 1995.

   2.2  (9)  Master Agreement between SangStat Medical Corporation and
             Pasteur Merieux Serums & Vaccins, S.A. dated June 10, 1998,
             including Exhibit 8 thereto.

   3.2  (7)  Certificate of Incorporation of SangStat Delaware, Inc.

   3.4  (6)  Certificate of Designation for the Series A Junior Participating
             Preferred Stock, filed with the Delaware Secretary of State on
             August 16, 1995.

   3.5 (7)   Amended and Restated Bylaws of the Registrant.

   4.5  (3)  Specimen Common Stock Certificate of Registrant.

  10.1 (1)(3)Collaborative Agreement effective April 19, 1993, as amended, 
             between SangStat and Baxter Healthcare Corporation.

  10.2 (1)(3)License Agreement, dated October 21, 1991, between the Registrant
             and The Board of Trustees of Leland Stanford Junior University.

  10.3  (3)  Contract for the Provision of Services, dated October 5, 1993
             between the Centre Hospitalier Universitaire de Nantes and SangStat
             Atlantique.

  10.4 (1)(3)License Agreement, dated October 13, 1993, between the 
             Registrant and Pasteur Merieux Serums et Vaccins.

  10.5 (1)(3)Letter Agreement between SangStat and Ortho Biotech.

  10.6 (2)(3)1990 Stock Option Plan, as amended October 1992 and form of Stock
             Option Agreement.

  10.7 (2)(3)1993 Stock Option/Stock Issuance Plan.

  10.8  (3)  Series B Stock Purchase Agreement, dated September 21, 1989, 
             between the Registrant and the Investors listed in Schedule A
             thereto.

  10.9  (3)  Series C Stock and Warrant Purchase Agreement, dated January 26, 
             1990, between the Registrant and the Investors listed in Schedule A
             thereto.

 10.10  (3)  Series D Stock and Warrant Purchase Agreement, dated July 15, 1991,
              between the Registrant and the Investors listed in Schedule A
             thereto.

 10.11  (3)  Amendment Agreement to the Series D Stock and Warrant Purchase
             Agreement, dated October 5, 1992, between the Registrant and the
             Investors listed in Schedule A of that certain Series D Stock and
             Warrant Purchase Agreement, dated July 15, 1991.

 10.12  (3)  Note and Warrant Purchase Agreement, dated October 2, 1992, between
             the Registrant and the Investors listed in the Schedule of Lenders
             thereto.

 10.13  (3)  Series E Stock and Warrant Purchase Agreement, dated April 19, 
             1993, between the Registrant and the Investors listed in Schedule A
             thereto.

 10.14 (2)(3)Amended and Restated Shareholders Agreement, dated January 26,
             1990, between the Registrant and Philippe Pouletty.
             1993, between the Registrant and the Investors listed in Schedule A
             thereto.

 10.14 (2)(3)Amended and Restated Shareholders Agreement, dated January 26,
             1990, between the Registrant and Philippe Pouletty.

 10.15  (3)  Equipment Lease Agreement dated October 11, 1990 between SangStat
             and David Rammler.

 10.16  (3)  Real Property Lease, dated August 20, 1990, between the Registrant
             and Menlo Business Park and Patrician Associates, Inc.

 10.17  (3)  Lease Agreement dated September 1, 1993 between SangStat Atlantique
             and Center Hospitalier, Universitaire de Nantes.

 10.18  (7)  Form of Indemnification Agreement to be entered into between the
             Registrant and each of its officers and directors.

 10.19 (1)(3)License Agreement, dated November 15, 1993, between the Registrant
             and the Board of Trustees of Leland Stanford Junior University.

 10.20  (3)  Letter Agreement between the Registrant and Baxter Healthcare
             Corporation dated December 11, 1993.

 10.21 (1)(5)License Agreement with Pasteur Merieux Serums et Vaccins.

 10.22 (2)(5)Supply Agreement with Pasteur Merieux Serums et Vaccins.

 10.23  (4)  Common Stock Purchase Agreement, dated December 23, 1994, between
             the Registrant and the Investors listed in Schedule A thereto.

 10.25  (8)  Rights Agreement, dated as of August 14, 1995, between the
             Registrant and First National Bank of Boston.

 10.26       Real Property Sub-Lease, dated March 8, 1999, between the 
             Registrant and Kelley-Clarke, Inc.  Real Property lease between 
             Kelly-Clarke Inc. and Kaiser Development Company dated September 
             1, 1988 as amended on February 26, 1990, May 1, 1990, May 5, 
             1990, and April 19, 1995

  21.1       Subsidiaries of Registrant.

  23.1       Independent Auditors' Consent.

  24.1       Power of Attorney. (Reference is made to page 61)

  27.1       Financial Data Schedule.

____________

        (1)  Confidential Treatment has been granted for the deleted portions 
             of this document.

        (2)  Management contract or compensatory plan or arrangement. 

        (3)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-1 (No. 33-70436).

        (4)  Previously filed as an Exhibit to the Registrant's Form 8-K filed 
             January 6, 1994.

        (5)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-1 (No. 33-88432).

        (6)  Previously filed as an Exhibit to Registrant's Form 8-K filed 
             August 14, 1995.

        (7)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form 8-B filed December 4, 1995.

        (8)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-3 (No. 333-2301).

        (9)  Previously filed as Exhibits to the Registrant's Form 8-K/A
             as amended on December 14, 1998.


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of SangStat Medical Corporation:

We have audited the accompanying consolidated balance sheets of SangStat 
Medical Corporation and subsidiaries (the Company) as of December 31, 
1998 and 1997, and the related consolidated statements of operations, 
comprehensive income, stockholders' equity and cash flows for each of 
the three years in the period ended December 31, 1998. Our audits also 
included the consolidated financial statement schedule listed in Item 
14(a)2.  These financial statements and financial schedule are the 
responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements and financial schedule
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, such consolidated financial statements present fairly, 
in all material respects, the financial position of SangStat Medical 
Corporation and subsidiaries at December 31, 1998 and 1997, and the 
results of their operations and their cash flows for each of the three 
years in the period ended December 31, 1998 in conformity with generally 
accepted accounting principles.  Also, in our opinion, such financial 
statement schedule, when considered in relation to the basic consolidated
financial statements as a whole, presents fairly in all material respects
the information set forth therein.

DELOITTE & TOUCHE LLP

San Jose, California
February 2, 1999




                          SANGSTAT MEDICAL CORPORATION

                          CONSOLIDATED BALANCE SHEETS
<TABLE> 
<CAPTION> 
                                                           December 31,
                                                   ----------------------------
                                                       1998           1997
                                                   -------------  -------------
<S>                                                <C>            <C>
                             ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.....................    $16,285,653    $50,630,819
  Short-term investments........................     13,374,742     41,404,955
  Accounts receivable (net of allowance for
   doubtful accounts $928,917 in 1998 and
   $139,297 in 1997)............................     10,962,814      1,012,631
  Other receivables.............................      2,441,393        581,420
  Inventories...................................     33,375,259      3,757,451
  Prepaid expenses..............................      1,727,058      1,752,036
                                                   -------------  -------------
          Total current assets..................     78,166,919     99,139,312
PROPERTY AND EQUIPMENT--Net.....................      3,133,768      2,015,373
INTANGIBLE ASSETS--Net of accumulated 
   amortization of $351,144.....................     14,151,172            --
OTHER ASSETS....................................     11,875,449      3,199,785
                                                   -------------  -------------
          TOTAL.................................   $107,327,308   $104,354,470
                                                   =============  =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..............................    $25,824,098     $3,486,726
  Accrued liabilities...........................      3,197,225      1,222,607
  Capital lease obligations--current portion....        492,921        327,222
  Notes payable--current portion................      1,824,768        290,855
                                                   -------------  -------------
          Total current liabilities.............     31,339,012      5,327,410
                                                   -------------  -------------
CAPITAL LEASE OBLIGATIONS.......................        765,290      1,020,361
                                                   -------------  -------------
NOTES PAYABLE...................................     15,636,361        536,507
                                                   -------------  -------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 16)
STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value, 5,000,000
    shares authorized; none outstanding.........            --             --
  Common stock, $.001 par value, 25,000,000
    shares authorized; outstanding: 1998,
    16,214,851 shares; 1997, 16,009,531
    shares......................................    160,250,935    159,265,454
  Accumulated deficit...........................   (100,269,950)   (61,806,012)
  Accumulated other comprehensive income.........      (394,340)        10,750
                                                   -------------  -------------
          Total stockholders' equity............     59,586,645     97,470,192
                                                   -------------  -------------
          TOTAL.................................   $107,327,308   $104,354,470
                                                   =============  =============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>

                          SANGSTAT MEDICAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE> 
<CAPTION> 

                                                 Year Ended December 31, 
                                       -----------------------------------------
                                           1998          1997          1996
                                       ------------- ------------- -------------
<S>                                    <C>           <C>           <C>
REVENUES:
  Net product sales...................  $18,585,859    $3,777,170    $2,398,979
  Revenue from collaborative
    agreements (Note 8)...............    1,092,629       750,000            --
                                       ------------- ------------- -------------
     Total revenues...................   19,678,488     4,527,170     2,398,979
                                       ------------- ------------- -------------

COSTS AND OPERATING EXPENSES:
  Cost of sales and manufacturing
    expenses..........................   12,531,559     3,735,776     2,845,802
  Research and development............   17,688,113    16,210,198     8,330,129
  Selling, general and administrative.   27,148,614    11,067,763     6,120,489
  Acquired in-process research and
    development.......................    3,218,516            --            --
  Amortization of intangible assets...      351,144            --            --
                                       ------------- ------------- -------------
     Total costs and operating
       expenses.......................   60,937,946    31,013,737    17,296,420
                                       ------------- ------------- -------------
     Loss from operations.............  (41,259,458)  (26,486,567)  (14,897,441)

INTEREST INCOME--NET..................    3,052,721     5,506,381     2,123,606
                                       ------------- ------------- -------------
LOSS BEFORE INCOME TAXES..............  (38,206,737)  (20,980,186)  (12,773,835)
INCOME TAXES..........................      257,201            --            --
                                       ------------- ------------- -------------
NET LOSS.............................. ($38,463,938) ($20,980,186) ($12,773,835)
                                       ============= ============= =============
NET LOSS PER SHARE - Basic and
  diluted (Note 1)....................       ($2.39)       ($1.36)       ($1.03)
                                       ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES........   16,080,444    15,375,753    12,405,081
                                       ============= ============= =============
</TABLE> 

                       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE> 
<CAPTION> 

                                                 Year Ended December 31, 
                                       -----------------------------------------
                                           1998          1997          1996
                                       ------------- ------------- -------------
<S>                                    <C>           <C>           <C>
Net loss.............................. ($38,463,938) ($20,980,186) ($12,773,835)
Unrealized gains and losses on
  marketable securities classified
  as available for sale...............     (493,702)      (78,097)       91,969
Foreign currency translation
  adjustments.........................       88,612       (34,648)      (26,177)
                                       ------------- ------------- -------------
Total comprehensive loss.............. ($38,869,028) ($21,092,931) ($12,708,043)
                                       ============= ============= =============
</TABLE> 

                See notes to consolidated financial statements.
<PAGE>

                          SANGSTAT MEDICAL CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                    Accumulated
                                                Common Stock                          Other
                                         -------------------------   Accumulated    Comprehensive
                                           Shares       Amount         Deficit        Income        Total
                                         ----------- -------------  --------------  ----------  -------------
<S>                                      <C>         <C>            <C>             <C>         <C>
BALANCES, January 1, 1996............     9,598,083   $36,275,765    ($28,051,991)    $57,703     $8,281,477
Sale of common stock (net of
  issuance costs of $408,729)........     3,450,000    45,062,271           --            --      45,062,271
Exercise of stock options............        81,117        96,817           --            --          96,817
Issuance of stock for services.......           360         8,460           --            --           8,460
Stock option compensation expense....           --        214,000           --            --         214,000
Accumulated translation adjustment...           --           --             --        (26,177)       (26,177)
Unrealized gain on investments.......           --           --             --         91,969         91,969
Net loss.............................           --           --       (12,773,835)        --     (12,773,835)
                                         ----------- -------------  --------------  ----------  -------------
BALANCES, December 31, 1996..........    13,129,560    81,657,313     (40,825,826)    123,495     40,954,982
Sale of common stock (net of
  issuance costs of $542,325)........     2,730,000    76,634,775           --            --      76,634,775
Exercise of stock options............       146,671       741,160           --            --         741,160
Issuance of stock for services.......         3,300        79,200           --            --          79,200
Stock option compensation expense....           --        153,006           --            --         153,006
Accumulated translation adjustment...           --           --             --        (34,648)       (34,648)
Unrealized gain on investments.......           --           --             --        (78,097)       (78,097)
Net loss.............................           --           --       (20,980,186)        --     (20,980,186)
                                         ----------- -------------  --------------  ----------  -------------
BALANCES, December 31, 1997..........    16,009,531   159,265,454     (61,806,012)     10,750     97,470,192
Exercise of stock options............       205,320       868,973           --            --         868,973
Stock option compensation expense....           --        116,508           --            --         116,508
Accumulated translation adjustment...           --           --             --         88,612         88,612
Unrealized loss on investments.......           --           --             --       (493,702)      (493,702)
Net loss.............................           --           --       (38,463,938)        --     (38,463,938)
                                         ----------- -------------  --------------  ----------  -------------
BALANCES, December 31, 1998..........    16,214,851  $160,250,935   ($100,269,950)  ($394,340)   $59,586,645
                                         =========== =============  ==============  ==========  =============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>


                          SANGSTAT MEDICAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             Year Ended December 31, 
                                                   -----------------------------------------
                                                       1998          1997          1996
                                                   ------------- ------------- -------------
<S>                                                <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.......................................  ($38,463,938) ($20,980,186) ($12,773,835)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation and amortization................     1,937,478       629,018       421,261
    Stock compensation expense...................       116,508       232,206       222,460
    Acquired in-process research and development.     3,218,516          --            --
    Deferred income taxes........................       257,201          --            --
    Changes in assets and liabilities:
      Accounts receivable........................    (4,162,935)     (631,503)        5,167
      Other receivables..........................      (656,151)     (109,722)     (316,123)
      Inventories................................   (18,979,864)   (2,966,786)      (37,016)
      Prepaid expenses...........................     1,464,377    (1,341,952)     (344,110)
      Accounts payable...........................    15,132,367     2,438,310        63,502
      Accrued liabilities........................      (815,599)      378,840       232,860
                                                   ------------- ------------- -------------
     Net cash used in operating activities.......   (40,952,040)  (22,351,775)  (12,525,834)
                                                   ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment............    (1,383,842)     (516,049)     (279,888)
  Maturities of short-term investments...........    34,210,182    13,012,560    16,560,957
  Purchase of short-term investments.............    (6,673,671)  (32,993,651)  (33,362,727)
  Business acquired in purchase transaction,
       net of cash acquired......................   (10,737,164)         --            --
  Other assets...................................    (8,926,027)   (2,919,144)       33,444
                                                   ------------- ------------- -------------
   Net cash provided by (used in) investing 
             activities.........................      6,489,478   (23,416,284)  (17,048,214)
                                                   ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock...........................       868,973    77,375,935    45,159,088
  Note payable borrowings........................       216,303          --         383,000
  Notes payable repayments.......................      (676,165)     (404,547)     (446,481)
  Repayment of capital lease obligations.........      (380,327)     (355,930)     (285,018)
                                                   ------------- ------------- -------------

      Net cash provided by financing activities...       28,784    76,615,458    44,810,589
                                                   ------------- ------------- -------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH..........        88,612       (35,520)      (26,787)
                                                   ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS....................................   (34,345,166)   30,811,879    15,209,754
CASH AND CASH EQUIVALENTS, Beginning of year.....    50,630,819    19,818,940     4,609,186
                                                   ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, End of year...........   $16,285,653   $50,630,819   $19,818,940
                                                   ============= ============= =============

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Property acquired under capital leases.........      $290,955    $1,144,459      $318,863
                                                   ============= ============= =============
  Property acquired under notes payable..........  $         --  $         --      $290,050
                                                   ============= ============= =============
  Unrealized gain (loss) on investments..........     ($493,702)     ($78,097)      $91,969
                                                   ============= ============= =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for interest.........      $225,054      $225,562      $149,295
                                                   ============= ============= =============


On September 30, 1998, the Company acquired IMTIX (see Note 2).
In conjunction with this acquisition, liabilities were assumed as follows:

    Fair value of assets acquired................   $35,138,650
    Acquired in-process research and development.     3,218,516
    Cash paid....................................   (11,661,684)
    Discounted note payable......................   (16,208,456)
                                                   -------------
         Liabilities assumed.....................   $10,487,026
                                                   =============

</TABLE>
                See notes to consolidated financial statements.
<PAGE>


                       SANGSTAT MEDICAL CORPORATION

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              YEARS ENDED DECEMBER 31, 1998, 1997 and 1996

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization-SangStat Medical Corporation and subsidiaries (the 
Company) is a specialty pharmaceutical company applying a disease 
management approach to improve the outcome of organ transplantation. The 
Company's products and product candidates are designed to prevent and 
treat graft rejection and monitor patients throughout the lifelong 
transplantation process.

Principles of Consolidation-The consolidated financial statements 
include the accounts of the Company and its wholly-owned subsidiaries. 
Intercompany accounts and transactions are eliminated.

Revenue Recognition-Revenue from product sales is recognized upon 
shipment, net of estimated sales allowances. Revenue from collaborative 
agreements is recognized in accordance with the contract terms, 
generally as milestones are met and no significant obligation for future 
services exists (see Note 8).

Research and Development-Research and development costs are expensed 
as incurred and include expenses associated with new product research, 
clinical trials of existing technologies and regulatory affairs 
activities associated with product candidates.

Cash and Cash Equivalents-The Company considers all highly liquid 
debt instruments purchased with an original maturity date of three 
months or less to be cash equivalents.

Short-Term Investments - The Company has classified all of its 
investments as available-for-sale securities.  While the Company's 
practice is to hold debt securities to maturity, the Company has 
classified all debt securities as available-for-sale securities, as the 
sale of such securities may be required prior to maturity to implement 
management strategies. The carrying value of all securities is adjusted 
to fair market value, with unrealized gains and losses, net of deferred 
taxes, being excluded from earnings and reported as a separate component 
of stockholders' equity and is included in accumulated other comprehensive
income. Cost is based on the specific identification method for purposes of
computing realized gains or losses.

Inventories - Inventories are stated at the lower of cost (first-in, 
first-out) or market.

Property and Equipment - Property and equipment are stated at cost. 
Depreciation is calculated using the straight-line method over estimated 
useful lives of three to five years. Leasehold improvements and assets 
under capital leases are amortized over the shorter of their lease term 
or estimated useful life.

Other Assets - At December 31, 1998 and 1997, other assets included a 
$2.0 and $2.5 million investment in Gensia Sicor, respectively.  Gensia 
Sicor is one of the Company's suppliers of bulk cyclosporine drug 
substance (see Note 3). At December 31, 1998, other assets also includes
$7.5 million of restricted cash that serves as collateral for a note payable
(See Note 2) and $727,000 of deferred income tax benefits.

Income Taxes - The Company records income taxes using the asset and 
liability approach, whereby deferred tax assets and liabilities, net of 
valuation allowances, are recorded for the future tax consequences of 
temporary differences between financial statement and tax bases of 
assets and liabilities and for the benefit of net operating loss 
carryforwards.

Foreign Currency Translation - Operations of the Company's foreign 
subsidiaries are measured using local currency as the functional 
currency for each subsidiary. Assets and liabilities of the foreign 
subsidiaries are translated into U.S. dollars at the exchange rates in 
effect as of the balance sheet dates, and results of operations for each 
subsidiary are translated using average rates in effect for the periods 
presented. Foreign currency transaction gains and losses are included in 
the consolidated statements of operations.

Stock-Based Compensation - The Company accounts for stock-based awards 
to employees using the intrinsic value method in accordance with APB 
No. 25, Accounting for Stock Issued to Employees ("APB 25"). The Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123), 
which requires the disclosure of pro forma net income and earnings per
share as if the Company adopted the fair value-based method in measuring
compensation expense.

Net Loss Per Share - The Company adopted Statement of Financial 
Accounting Standards No. 128, Earnings per Share ("SFAS 128"), which 
replaces the previously reported primary and fully diluted loss per 
share with basic and diluted earnings per share (EPS) and requires a 
dual presentation of basic and diluted EPS. Basic EPS excludes dilution 
and is computed by dividing net loss by the weighted average of common 
shares outstanding for the period. Diluted EPS reflects the potential 
dilution that would occur if securities or other contracts to issue 
common stock were exercised or converted into common stock. Common share 
equivalents including stock options, warrants and redeemable convertible 
preferred stock have been excluded, as their effect would be 
antidilutive. 

The following is a reconciliation of the numerators and denominators of 
the basic and diluted net loss per share computations:

<TABLE> 
<CAPTION> 
                                                 Year Ended December 31, 
                                       -----------------------------------------
                                           1998          1997          1996
                                       ------------- ------------- -------------
<S>                                    <C>           <C>           <C>
Net Loss (Numerator):
Net loss.............................   ($38,463,938) ($20,980,186) ($12,773,835)
                                       ============= ============= =============

Shares (Denominator):
Weighted average shares outstanding..     16,080,444    15,375,753    12,405,081
                                       ============= ============= =============

Net Loss Per Share, Basic and Diluted        ($2.39)       ($1.36)       ($1.03)
                                       ============= ============= =============
</TABLE> 

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

The Company sells its products to organizations in the healthcare 
industry in the United States, Canada and Europe, and does not require 
its customers to provide collateral or other security to support 
accounts receivable. The Company maintains allowances for estimated 
potential bad debt losses.

The Company participates in the dynamic biopharmaceutical industry. 
The Company believes that changes in any of the following areas could 
have a negative impact on the Company in terms of its future financial 
position and results of operations: ability to obtain additional 
financing; successful product development; manufacturing and marketing 
capabilities; ability to negotiate acceptable collaborative 
relationships; obtaining necessary FDA and foreign regulatory approvals; 
ability to attract and retain key personnel; litigation and other claims 
against the Company, including, but not limited to, patent claims; 
increased competition; uncertainty regarding health care reimbursement 
and reform; and potential exposure for product liability and hazardous 
materials.

Recently Issued Accounting Standards -  In the first quarter of 1998, the 
Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, 
Reporting Comprehensive Income, which requires an enterprise to report, 
by major components and as a single total, the change in its net assets 
during the period from non-owner sources.

The following are the components of accumulated other comprehensive income:

                                                           December 31,
                                                   ----------------------------
                                                       1998           1997
                                                   -------------  -------------
Unrealized gain (loss) on investments               $ (468,938)     $  24,764
Accumulated translation adjustments                     74,598        (14,014)
                                                   -------------  -------------
    Total                                           $ (394,340)     $  10,750
                                                   =============  =============


In 1998, the Company adopted Financial Accounting Standards Board (FASB) issued 
SFAS No. 131, Disclosures About Segments of an Enterprise and Related 
Information, which establishes annual and interim reporting standards 
for an enterprise's business segments and related disclosures about its 
products, services, geographic areas and major customers.  

In June 1998, the Financial Accounting Standards Board issued SFAS 
No. 133, Accounting for Derivative Instruments and Hedging Activities. 
This Statement requires companies to record derivatives on the balance 
sheet as assets or liabilities, measured at fair value. Gains or losses 
resulting from changes in the values of those derivatives would be 
accounted for depending on the use of the derivative and whether it 
qualifies for hedge accounting. SFAS 133 will be effective for the 
Company's fiscal year ending December 31, 2000. Management believes that 
this statement will not have a significant impact on the Company.

Other than the addition of the statement of comprehensive income, the 
adoption of SFAS Nos. 130 and 131 did not impact the Company's 
financial statements.


2. ACQUISITION

On September 30, 1998, the Company completed the acquisition of 
Pasteur Merieux Connaught's (PMC) organ transplant business known as 
IMTIX.  The acquisition was accounted for using the purchase method of 
accounting.  The resulting wholly owned subsidiary of the Company, named 
IMTIX-SangStat, is dedicated to the research, development, manufacture 
and marketing of pharmaceuticals for transplantation.  The aggregate 
purchase price of approximately $31 million consisted of $10 million 
paid upon closing and a non-interest bearing note of $21 million payable 
over five years as follows: $3 million in 1999, $3 million in 2000, $6 
million in 2001, $5 million in 2002 and $4 million in 2003.  The note 
payable is discounted at a rate of 9.25% and is included in Notes 
payable (see Note 7).  In addition, the Company will pay PMC certain 
royalties on IMTIX-SangStat product sales.  The aggregate purchase price 
and approximately $2.5 million of acquisition costs were allocated to 
the net tangible assets acquired based on their fair value on the date 
of acquisition, identifiable intangible assets and purchased in-process 
research and development.  The purchased in-process research and 
development of approximately $3.2 million was charged to the Company's 
operations in the third quarter of 1998 and represents the value of 
products that had not yet reached technological feasibility and no 
alternative future use. The estimated value for the in-process 
technology was determined using the income approach which discounted to 
present value the cash flows expected to be derived from the in-process 
products. The projections were based on historical trends and future 
expectations of the acquired company's revenue and expenses to be 
generated from the in-process products.  The discount rate used 
reflected the risk associated with development of the in-process 
products.  The Company currently intends to continue the development of 
the acquired in-process products and has not yet determined if it will 
be successful in its efforts to complete as the safety and efficacy of 
these products has not yet been determined.  The determination of the 
products' safety and efficacy is expected to be completed in 1999 with 
estimated costs to complete the clinical studies less than $500,000.  
Depending on the outcome of the ongoing clinical studies, further 
studies may be required to fully assess the feasibility of the acquired 
in-process products.  Approximately $14.2 million of the purchase price 
was allocated to various specified intangible assets and is being 
amortized over their estimated useful lives ranging from five to 
fourteen years. The amounts allocated to intangible assets were 
determined on the basis of the appraised value of the related intangible 
assets. The appraisal techniques used in the Company's acquisitions 
included certain assumptions, including, the extent, character and 
utility, the income generating or cost-savings attributes, the nature 
and timing of the functional or economic obsolescence and the relative 
risk and uncertainty associated with an investment in intangible assets.  
Additionally, as part of the acquisition, the Company has approximately 
$7.5 million of restricted cash that serves as collateral for the 
standby letter of credit in favor of Pasteur Merieux Connaught.

The operating results of IMTIX have been included in the consolidated 
statements of operations since the date of acquisition.  Pro forma 
results of operations, assuming the acquisition had taken place at 
January 1, 1997, would be as follows (in thousands except for net loss 
per share):

                                       1998         1997
                                   ------------ ------------
Revenue...................             $36,971      $24,645
Loss from operations......             (41,539)     (34,452)
Net loss..................             (38,112)     (28,079)
Net loss per share........              ($2.37)      ($1.83)


3.  INVESTMENTS

     Available-for-sale securities consist of the following:

                                     December 31, 1998
                      ---------------------------------------------------
                                    Unrealized   Unrealized   Estimated 
                       Amortized     Gain on      Loss on        Fair
                          Cost     Investments  Investments     Value
                      ------------ ------------ ------------ ------------
  Corporate bonds ....$13,169,685      $70,897      ($5,840) $13,234,742
  One year CD ........    140,000         --           --        140,000
                      ------------ ------------ ------------ ------------

  Short-term
   investments........ 13,309,685       70,897       (5,840)  13,374,742
  Corporate equity
   securities.........  2,500,000         --       (533,995)   1,966,005
                      ------------ ------------ ------------ ------------
  Total...............$15,809,685      $70,897    ($539,835) $15,340,747
                      ============ ============ ============ ============


                                     December 31, 1997
                      ---------------------------------------------------
                                    Unrealized   Unrealized   Estimated 
                       Amortized     Gain on      Loss on        Fair
                          Cost     Investments  Investments     Value
                      ------------ ------------ ------------ ------------
  Corporate bonds ....$30,102,832      $28,260      ($9,267) $30,121,825
  Commercial paper ... 11,299,487         --        (16,357)  11,283,130
                      ------------ ------------ ------------ ------------
  Short-term
   investments........ 41,402,319       28,260      (25,624)  41,404,955
  Corporate equity
   securities.........  2,500,000       22,128         --      2,522,128
                      ------------ ------------ ------------ ------------
  Total...............$43,902,319      $50,388     ($25,624) $43,927,083
                      ============ ============ ============ ============

     Corporate equity securities represent the Company's investment in Gensia 
Sicor and are included in other assets.

     The contractual maturities of available-for-sale debt securities at
December 31, 1998 are as follows:

                                                 Estimated 
                                    Amortized       Fair
                                       Cost        Value
                                   ------------ ------------
     Within one year ..............$11,683,437  $11,714,932
     One year to two years.........  1,626,248    1,659,810
                                   ------------ ------------
     Short-term investments........$13,309,685  $13,374,742
                                   ============ ============


4.  INVENTORIES

    Inventories consist of:
                                                         December 31,
                                                 -------------------------
                                                     1998         1997
                                                 ------------ ------------
     Raw materials.............................. $18,103,938   $1,929,954
     Work in process............................   8,945,516      144,389
     Finished goods.............................   6,325,805    1,683,108
                                                 ------------ ------------
           Total................................ $33,375,259   $3,757,451
                                                 ============ ============

5.  PROPERTY AND EQUIPMENT

    Property and equipment consist of:
                                                         December 31,
                                                 -------------------------
                                                     1998         1997
                                                 ------------ ------------
     Machinery and equipment....................  $5,800,936   $3,852,666
     Furniture and fixtures.....................     574,537      156,955
     Leasehold improvements.....................     403,273      283,470
                                                 ------------ ------------
     Total......................................   6,778,746    4,293,091
     Accumulated depreciation and amortization..  (3,644,978)  (2,277,718)
                                                 ------------ ------------
     Property and equipment--net................  $3,133,768   $2,015,373
                                                 ============ ============

     Included in machinery and equipment at December 31, 1998 and 1997 are
assets leased under capital leases of $1,086,578 and $1,330,802 (net of
accumulated amortization of $1,022,291 and $813,007), respectively.

6.  ACCRUED LIABILITIES

    Accrued liabilities consist of: 
                                                         December 31,
                                                 -------------------------
                                                     1998         1997
                                                 ------------ ------------
     Salaries and related benefits..............  $2,499,443   $1,086,683
     Other......................................     697,782      135,924
                                                 ------------ ------------
              Total.............................  $3,197,225   $1,222,607
                                                 ============ ============

7.  NOTES PAYABLE

    Notes payable consist of:
                                                         December 31,
                                                 -------------------------
                                                     1998         1997
                                                 ------------ ------------
    Notes due to former Series E
      preferred stockholders....................    $141,586     $462,239
    Baxter equipment note.......................     191,038      227,144
    Research and development loan...............      16,434      107,381
    Other loans.................................     518,662       30,598
    Note payable to PMC.........................  21,000,000          --
    Discount on note payable to PMC.............  (4,406,591)         --
                                                 ------------ ------------
    Total.......................................  17,461,129      827,362
    Less current portion........................  (1,824,768)    (290,855)
                                                 ------------ ------------
    Long-term................................... $15,636,361     $536,507
                                                 ============ ============


Upon the Company's initial public offering in 1993, notes payable of 
$1,240,897 were issued to Series E preferred stockholders in accordance 
with certain anti-dilution provisions of the Series E preferred stock 
purchase agreement.  These notes are payable in annual installments 
through 2003 and bear interest at 6.06%.

The Baxter equipment note is payable in quarterly installments 
through 2003 and bears interest at 8.25%.

The research and development loan provided by the French government 
is denominated in French Francs, does not bear interest and is payable 
in 1999.  Other loans consist primarily of a note payable for insurance 
and a non-interest bearing loan denominated in French Francs provided by 
a French government agency.

On September 30, 1998, the Company completed the acquisition of 
Pasteur Merieux Connaught's organ transplant business known as IMTIX. 
The aggregate purchase price of approximately $31 million consisted of 
$10 million paid upon closing and $21 million payable over five years as 
follows: $3 million in 1999, $3 million in 2000, $6 million in 2001, $5 
million in 2002 and $4 million in 2003.  The note payable is discounted 
at a rate of 9.25%, which the Company believes is consistent with its 
normal borrowing rate.  The resulting discount of approximately $4.8 
million is being accreted as an addition to interest expense over the 
term of the note.  As of December 31, 1998, $384,000 of amortization had 
been recognized.

As of December 31, 1998, future principal payments of notes payable are
as follows:

 Years Ending December 31,
---------------------------------
  1999..........................................  $1,824,768
  2000..........................................   1,804,992
  2001..........................................   5,106,944
  2002..........................................   4,532,777
  2003..........................................   3,864,569
  Thereafter....................................     327,079
                                                 ------------
              Total............................. $17,461,129
                                                 ============


8.  COLLABORATIVE AGREEMENTS

In December 1997, the Company signed an agreement with Amgen Inc. 
("Amgen") for the exclusive registration, marketing and distribution 
of SANGCYA and SANG-2000 in selected territories in the Asia/Pacific Rim 
region.  SangStat has retained the exclusive commercial rights to 
SANGCYA and SANG-2000 in all other territories including North America 
and Western Europe.  Under the terms of the agreement, Amgen will have 
exclusive rights to market SANGCYA and SANG-2000, under SangStat's 
branded trademark, in Australia, New Zealand, China and Taiwan.  The 
licensing agreement includes an initial $750,000 payment to SangStat and 
other milestone and reimbursement payments based on key regulatory 
submissions and approvals.  The initial $750,000 payment was received in 
1997 and is included in revenue from collaborative agreements in the 
Consolidated Statements of Operations.  Additional payments and 
reimbursements of $1,036,145 were received in 1998 and are included in 
revenue from collaborative agreements in the Consolidated Statements of 
Operations.

In April 1993, the Company entered into a collaborative licensing, 
marketing and development agreement (the Agreement) with Baxter 
Healthcare Corporation (Baxter). The Agreement provided to Baxter 
exclusive marketing rights to certain products. The Agreement was 
amended upon written consent of the parties such that, effective July 1, 
1996, the Company reacquired exclusive commercial rights for the 
monitoring products from Baxter. Since that date, the Company has been 
marketing these monitoring products through its own sales staff in the 
United States and Europe.


9.  LEASING ARRANGEMENTS

The Company leases administrative facilities under operating leases 
and machinery and equipment under capital leases expiring through 2003. 
As of December 31, 1998, future minimum annual payments under capital 
and operating leases are as follows:

                                                  Capital    Operating
 Years Ending December 31,                        Leases      Leases
---------------------------------               ----------- -----------
  1999.........................................   $639,379    $954,147
  2000.........................................    588,921     677,365
  2001.........................................    152,230     660,062
  2002.........................................     46,430     635,478
  2003.........................................      2,100     543,017
                                                ----------- -----------
  Total minimum lease payments.................  1,429,060  $3,470,069
                                                            ===========
  Less amounts representing interest...........   (170,849)
                                                -----------
  Present value of minimum lease payments......  1,258,211
  Less current portion.........................   (492,921)
                                                -----------
  Capital lease obligations....................   $765,290
                                                ===========

Rent expense for the years ended December 31, 1998, 1997 and 1996 was 
$760,946, $343,710 and $289,007, respectively.


10.  STOCKHOLDERS' EQUITY

Common Stock  - In March 1996, the Company issued 3,450,000 shares of 
common stock in a public offering for net consideration of $45,062,271, 
and in March and April of 1997 issued a total of 2,730,000 shares of 
common stock in a public offering for net consideration of $76,634,775.

Stockholder Rights Plan - In August 1995, the Company's Board of 
Directors approved a plan to protect stockholders' rights in the event 
of a proposed takeover of the Company. Under the plan a preferred share 
purchase right (Right) is attached to each share of common stock. The 
Rights are exercisable only if a person or group acquires 15% or more of 
the Company's common stock or announces a tender offer, the consummation 
of which would result in ownership by a person or group of 15% or more 
of the Company's common stock. Each Right will entitle stockholders to 
buy one one-hundredth of a share of a new series of junior participating 
preferred stock at an exercise price of $45 upon certain events. If, 
after the Rights become exercisable, the Company is acquired in a merger 
or other business combination transaction, or sells 50% or more of its 
assets or earnings power, each Right will entitle its holder to 
purchase, at the Right's then-current price, a number of the acquiring 
company's common shares having a market value at the time of twice the 
Right's exercise price. If a person or group acquires 15% or more of the 
Company's outstanding common stock, each Right will entitle its holder 
(other than such person or members of such group) to purchase, at the 
Right's then-current exercise price, a number of the Company's common 
shares (or cash, other securities or property) having a market value 
twice the Right's exercise price. At any time within ten days after a 
person or group has acquired beneficial ownership of 15% or more of the 
Company's common stock, the Rights are redeemable for $.01 per Right at 
the option of the Board of Directors. The Rights expire on August 25, 
2005, unless earlier redeemed or exchanged.

Stock Option Plans - Under the Company's stock option plans, incentive 
or non-statutory stock options to purchase up to 3,242,200 shares of 
common stock may be granted to employees, directors, and consultants. 
Incentive and non-statutory options must be granted at not less than 
fair market value at the date of grant. 

A summary of stock option activity is as follows: 

                                                                     Weighted
                                                                     Average
                                                         Number of   Exercise
                                                           Shares     Price
                                                         ---------- ----------

Balances, January 1, 1996 .............................. 1,014,213      $3.85
Options granted (weighted average fair value of $8.16)..   243,700      15.02
Options exercised.......................................   (81,117)      1.19
Options canceled........................................    (7,204)      6.47
                                                         ---------- ----------
Balances, December 31, 1996 (737,333) vested at a 
  weighted average exercise price of $6.15)............. 1,169,592       6.61
Options granted (weighted average fair value of $13.81).   487,542      22.35
Options exercised.......................................  (146,671)      5.05
Options canceled........................................    (9,274)     18.47
                                                         ---------- ----------
Balances, December 31, 1997 (784,199 vested at a 
  weighted average exercise price of $13.16).............1,501,189      11.78
Options granted (weighted average fair value of $16.43). 1,363,757      25.64
Options exercised.......................................  (205,320)      4.24
Options canceled........................................  (103,983)     22.31
                                                         ---------- ----------

Balances, December 31, 1998............................. 2,555,643      19.32
                                                         ========== ==========

Options to purchase common stock generally vest over a period of four 
years, are exercisable immediately and expire ten years from the date of 
grant. Unvested common shares acquired under the plan are subject to 
repurchase by the Company at the original issuance price. At 
December 31, 1998, 1,125 outstanding shares were subject to such 
repurchase rights at prices ranging from $13.50 to $23.63 per share. As 
of December 31, 1998, options for 48,720 shares, which were granted 
outside of the stock option plan, were outstanding and are included in 
the above table. As of December 31, 1998, 230,017 shares were available 
under the plan for future grant.

During 1996, the Board of Directors, subject to shareholder approval, 
approved the 1996 Directors' Option Plan and in accordance with the Plan 
granted options to purchase a total of 74,000 shares of common stock to 
non-employee Directors in 1996 at option prices of $13.50 to $23.50 per 
share. At the Annual Stockholder's meeting on June 19, 1997, the 1996 
Directors' Option Plan was approved by a vote of the stockholders. Under 
this Plan, up to a total 250,000 options to purchase shares of the 
Company's common stock may be issued. The fair market value of the 
Company's stock on the measurement date of June 19, 1997 was $23.63 per 
share. The difference between the fair market value on the measurement 
date and the exercise price of the options granted in 1996 is being 
amortized over the vesting period of these options. Also in accordance 
with the Directors' Option Plan, during 1998 and 1997, each of the six 
non-employee Directors were granted options to purchase 3,000 shares of 
the Company's common stock. In addition, in 1998, each of the non-
employee directors was granted options to purchase 10,000 shares of the 
Company's common stock.  Options granted under the Directors' Option 
Plan are also included in the above table.

Additional information regarding options outstanding as of 
December 31, 1998 is as follows:


<TABLE>
<CAPTION>
                  Options Outstanding and Exercisable     Vested Options
                 ------------------------------------- ---------------------
                              Weighted Avg. Weighted              Weighted
                               Remaining     Average               Average
     Range of      Number     Contractual   Exercise    Number    Exercise
 Exercise Prices Outstanding   Life (yrs)     Price     Vested      Price
---------------- -----------  ------------ ----------- --------- -----------
<S>              <C>          <C>          <C>         <C>       <C>
 $0.19 -  $2.50     138,289           3.3       $0.73   138,289       $0.73
  2.51 -   5.00     158,835           6.1        4.92   151,994        4.92
  5.10 -   8.25     281,157           5.7        6.24   212,938        6.22
  8.26 -  13.50     178,064           7.3       13.50    77,381       13.50
 13.51 -  26.50   1,179,928           9.1       21.23   281,020       20.43
 26.51 -  30.00     308,588           9.2       28.70    25,384       28.82
 30.01 -  35.00     255,782           9.2       33.00    53,762       33.00
 35.01 -  55.00      55,000           8.9       36.13    10,000       36.13
                 -----------  ------------ ----------- --------- -----------
                  2,555,643           8.1      $19.32   950,768      $12.44
                 ===========  ============ =========== ========= ===========
</TABLE>

Additional Stock Plan Information - Effective for 1996, the Company 
was required to adopt the disclosure requirements of Statement of 
Financial Accounting Standards No. 123, Accounting for Stock-Based 
Compensation (SFAS 123). SFAS 123 defines a fair value method of 
accounting for stock-based compensation awards to employees. The Company 
has elected to continue to follow the provisions of Accounting 
Principals Board No. 25, Accounting for Stock Issued to Employees, and 
its related interpretations.

SFAS 123 requires that the fair value of stock-based awards to 
employees be calculated through the use of option pricing models, even 
though such models were developed to estimate the fair value of freely 
tradable, fully transferable options without vesting restrictions, which 
significantly differ from the Company's stock option awards. These 
models also require subjective assumptions, including future stock price 
volatility and expected time to exercise, which greatly affect the 
calculated values. The Company's calculations were made using the Black-
Scholes option pricing model with the following weighted average 
assumptions: expected life, five and a half years; stock volatility, 69% 
in 1998, 61% in 1997, and 54% in 1996; risk free interest rate, 
approximately 5.25% in 1998, 6% in 1997, and 6% in 1996; and no dividend 
payments during the expected term. Forfeitures are recognized as they 
occur. If the computed fair values of the plan awards had been amortized 
to expense over the vesting period of the awards, pro forma net loss 
would have been approximately  $44,789,000 ($2.79 loss per share) in 
1998, $23,647,000 ($1.54 loss per share) in 1997, and $13,378,000 ($1.08 
loss per share) in 1996. 


11.  INCOME TAXES

Loss before income taxes and provision for income taxes
consists of the following: 

<TABLE> 
<CAPTION> 
                                                    December 31,
                                      -----------------------------------------
                                          1998          1997          1996
                                      ------------- ------------- -------------
<S>                                   <C>           <C>           <C>
  Income (loss) before income taxes:
   Domestic.....................      ($35,616,375) ($20,655,443) ($12,634,970)
   Foreign......................        (2,590,362)     (324,743)     (138,865)
  Provision for income taxes:
   Domestic.....................                             --            --
   Foreign - deferred...........            257,201          --            --
                                      ------------- ------------- -------------
                    Net loss          ($38,463,938) ($20,980,186) ($12,773,835)
                                      ============= ============= =============
</TABLE>

     No income tax provision (benefit) has been provided due to the Company's
continuing losses.

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating loss
and tax credit carryforwards. Significant components of the Company's deferred
income tax assets are as follows:

<TABLE>
<CAPTION>
                                               December 31,
                                      ---------------------------
                                          1998          1997
                                      ------------- -------------
<S>                                   <C>           <C>
  Deferred tax assets:
   Net operating losses............... $34,169,555   $20,249,517
   General business credits...........   2,293,271     2,324,855
   Accruals and reserves deductible 
     in different periods.............   2,547,209     2,691,360
   Depreciation.......................     354,287       196,995
   Other..............................     232,000         --
                                      ------------- -------------
                                        39,596,322    25,462,727
  Valuation allowance................. (38,869,322)  (25,462,727)
                                      ------------- -------------
        Total.........................    $727,000    $    --
                                      ============= =============
</TABLE>

     Based on its history of operating losses, the Company has placed a
valuation allowance of $38,869,322 and $25,462,727 against its otherwise
recognizable net deferred tax assets at December 31, 1998 and 1997,
respectively, due to the uncertainty surrounding the realizability of these
benefits.

     At December 31, 1998,, the Company had federal, California and foreign net
operating loss carryforwards of approximately $93,699,000, $24,821,000, and
$1,502,000, respectively, available to reduce future taxable income. Such
carryforwards expire beginning in 1998 through 2019.

     Also at December 31, 1998, the Company had research and experimentation
credit carryforwards available of approximately $1,490,000 and $803,000 for
federal and state tax purposes, respectively. The federal tax credit
carryforwards expire beginning in 2004 and the state tax credit carryforwards
have no expiration date.

     Utilization of the net operating losses and credits may be subject to an
annual limitation due to ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.


12.  EMPLOYEE BENEFIT PLAN

The Company has a 401(k) tax-deferred savings plan, whereby eligible 
employees may contribute a portion of their eligible compensation. 
Company contributions are discretionary and through December 31, 1998 
the Company had not made any contributions.


13.  MAJOR CUSTOMERS

For the year ended December 31, 1998, the Company did not have any single
customer that accounted for more than 10% of revenue.  However, one 
customer, had an accounts receivable balance of 10% of the total 
accounts receivable as of December 31, 1998.  Two customers accounted 
for approximately 17% and 16%, respectively, of total revenues in 1997. 
A different customer accounted for approximately 10% of total revenues 
in 1996.


14.  FOREIGN OPERATIONS

The Company is engaged in the business of developing and marketing 
products and services for use in transplantation. The Company's 
operations in Europe primarily relate to the manufacture, marketing, 
research and development and clinical study of therapeutic products for 
transplantation.  The Company's operations in the rest of the world are 
principally sales and marketing related.

Summarized data for the Company's domestic and foreign operations are 
as follows:


<TABLE>
<CAPTION>
                                    UNITED                                 REST OF
                                    STATES       EUROPE       CANADA      THE WORLD  CONSOLIDATED
                                 ------------- ------------ ------------ ----------- -------------
<S>                              <C>           <C>          <C>          <C>         <C>
   Year ended December 31, 1998:
      Sales to unaffiliated
         customers..............  $11,655,898   $4,885,238   $1,355,953  $1,781,399   $19,678,488
                                 ============= ============ ============ =========== =============

      Loss from operations...... ($38,923,146) ($2,186,954)   ($149,358)        --   ($41,259,458)
                                 ============= ============ ============ =========== =============

      Total assets..............  $67,461,238  $39,413,114     $452,956         --   $107,327,308
                                 ============= ============ ============ =========== =============

   Year ended December 31, 1997:
      Sales to unaffiliated
         customers..............   $2,761,970     $568,823   $1,196,377         --     $4,527,170
                                 ============= ============ ============ =========== =============

      Loss from operations...... ($24,478,875) ($1,650,726)   ($356,966)        --   ($26,486,567)
                                 ============= ============ ============ =========== =============

      Total assets.............. $102,337,876   $1,369,084     $647,510         --   $104,354,470
                                 ============= ============ ============ =========== =============

   Year ended December 31, 1996:
      Sales to unaffiliated
         customers..............     $931,706     $275,154   $1,192,119         --     $2,398,979
                                 ============= ============ ============ =========== =============

      Loss from operations...... ($13,431,697) ($1,312,577)   ($153,167)        --   ($14,897,441)
                                 ============= ============ ============ =========== =============
      Total assets..............  $43,005,162     $953,026     $791,928         --    $44,750,116
                                 ============= ============ ============ =========== =============
</TABLE>

15. BUSINESS SEGMENT DATA

The Company is a specialty pharmaceutical company engaged in the 
discovery, development, manufacturing and marketing of transplantation 
products worldwide as well as applying a disease management approach to 
improve the outcome of organ transplantation.  The Company is organized 
and operates in two business segments: transplantation products and 
transplantation services.  Transplantation products consist primarily of 
products for patient monitoring and therapeutic products for preventing 
and treating organ rejection.  Transplantation services consist 
principally of mail order pharmaceutical and patient management 
services.  The following information is presented in accordance with the 
requirements of SFAS No. 131, "Disclosures about Segments of an 
Enterprise and Related Information."



                              Transplantation  Transplantation
                                 Products          Services         Total
                                --------------  ---------------- --------------


Net Revenues...............1998  $11,294,138       $8,384,350    $19,678,488
                           1997    3,206,422        1,320,748      4,527,170
                           1996    2,398,979             --        2,398,979

Interest income........... 1998    3,610,822             --        3,610,822
                           1997    5,716,607             --        5,716,607
                           1996    2,261,450             --        2,261,450

Interest expense...........1998      558,101             --          558,101
                           1997      210,226             --          210,226
                           1996      137,844             --          137,844

Depreciation and
amortization...............1998    1,872,359           65,119      1,937,478
                           1997      586,954           42,064        629,018
                           1996      421,261             --          421,261

Segment loss...............1998  (35,984,107)      (2,479,831)   (38,463,938)
                           1997  (19,586,094)      (1,394,092)   (20,980,186)
                           1996  (12,773,835)            --      (12,773,835)

Segment assets.............1998  104,348,907        2,978,401    107,327,308
                           1997  103,534,562          819,908    104,354,470
                           1996   44,750,116             --       44,750,116



16. SUBSEQUENT EVENTS

Litigation
Novartis vs. SangStat
On February 11, 1999, Novartis Pharmaceuticals Corporation filed a 
lawsuit (case number 99-065) in Federal District Court for the District 
of Delaware against the Company alleging infringement of United States 
patent #5,389,382, a cyclosporine technology patented by Novartis A.G.  
The Novartis patent does not cover Neoral but rather a separate delivery 
system not used in the Neoral formulation.  Novartis seeks the following 
relief:  (i) a finding that SangStat willfully infringed the patent; 
(ii) to permanently enjoin SangStat from infringing the Novartis patent; 
(iii) treble damages; and (iv) reasonably attorneys' fees , costs and 
expenses.  SangStat's answer is due April 5, 1999 and discovery will not 
begin until after the answer is filed.  SangStat believes that the 
lawsuit is without merit and that it does not infringe the Novartis 
patent.  SangStat intends to defend itself vigorously against this 
claim.  

Although the Company is optimistic that this dispute will ultimately be 
resolved favorably to the Company, the course of litigation is 
inherently uncertain and there can be no assurance of a favorable 
outcome.  As a result of the Novartis suit, SangStat could be enjoined 
from selling SANGCYA for a significant period of time or ultimately be 
prevented from selling SANGCYA. Should this happen, the Company does not 
believe it would be able to obtain a license from Novartis on acceptable 
terms because the Company believes cyclosporine is an important product 
for Novartis and that Novartis would not want to diminish its profits 
from this product by licensing it on acceptable terms to the Company. 
Failure to obtain any such required license could prevent the Company 
from selling SANGCYA entirely, which would have a material adverse 
effect on the Company's future results of operations. The litigation, 
whether or not resolved favorably to the Company, is likely to be 
expensive, lengthy and time consuming, will divert management's 
attention and could have a material adverse effect on the Company's 
business, financial condition, cash flows and results of operations.  
SANG-2000 is not covered by this lawsuit and the Company does not 
believe that this lawsuit will have an impact on the regulatory approval 
of Sang-2000. See "Risk Factors-Litigation with Novartis."

Novartis vs. FDA
Novartis Pharmaceuticals Corporation sued the FDA on February 11, 1999 
in the United States District Court for the District of Columbia (case 
number 1:99CV-00323) alleging that the FDA did not follow its own 
regulations in approving SANGCYA in October 1998.  The lawsuit against 
the FDA appears to be based on arguments similar to those used in the 
failed citizen's petition in which Novartis alleged that because Neoral 
and SANGCYA, both oral solutions, are based on different formulation 
technologies, they should be classified as different dosage forms.  
Novartis asks that the court rescind the AB rating that was given to 
SANGCYA.  Loss of the "AB" rating would prevent SANGCYA from being 
automatically substitutable for Neoral oral solution, which would impede 
the marketing of SANGCYA.  The Company believes that the lawsuit is 
without merit and that the FDA will prevail in this matter.  Although 
the Company is optimistic that this dispute will ultimately be resolved 
favorably to the Company, the course of litigation is inherently 
uncertain and there can be no assurance of a favorable outcome.  
Novartis' requested relief, if granted, could have a significant 
negative economic impact on SangStat. In order to defend its interests 
vigorously, SangStat filed a Motion for Leave to Intervene in this 
lawsuit on February 23, 1999.  The Court has not yet ruled on this 
motion. See "Risk Factors-Litigation with Novartis."


Relocation of Corporate Headquarters
The Company will relocate its headquarters from Menlo Park, California 
to Fremont, California in approximately June 1999. Floor space in 
Fremont will be approximately 44,000 square feet, including offices, 
laboratory space, storage area and specialized areas for pilot 
production and pre-clinical testing. The lease for the Fremont building 
space will expire in 2005 and may be renewed for subsequent years. 
The future minimum payments by year and in the aggregate consists of the 
following:

<TABLE>
<S>                                                 <C>
  1999.........................................         $222,176
  2000.........................................          438,273
  2001.........................................          532,123
  2002.........................................          692,023
  2003.........................................          794,673
  Thereafter...................................        1,237,110
                                                    -------------
  Total minimum lease payments.................       $3,916,378
                                                    =============
</TABLE>


Schedule II
                          SANGSTAT MEDICAL CORPORATION
                  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
               For the Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                  Balance  Additions                            Balance
                                    at     charged to                             at
                                 beginning   costs                                end
                                    of        and                                 of
          Description             period   expenses  Deductions     Other       period
-------------------------------- --------- --------- ----------   ----------   ---------
<S>                              <C>       <C>       <C>          <C>          <C>
1996
Allowance for doubtful accounts   $16,228   $24,150     $  --           --      $40,378

1997
Allowance for doubtful accounts   $40,378  $123,626    $24,707 (1)      --     $139,297

1998
Allowance for doubtful accounts  $139,297  $772,808   $231,041 (1) $247,853 (2)$928,917
</TABLE>

(1) Accounts written off, net of recoveries.
(2) Allowance added from the acquisition of IMTIX.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this report to be 
signed on its behalf by the undersigned, thereunto duly authorized, on 
March 30, 1999.

SANGSTAT MEDICAL CORPORATION

By:             /s/ JEAN-JACQUES BIENAIME
                -------------------------
                Jean-Jacques Bienaime
                President and Chief Executive Officer


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature 
appears below constitutes and appoints Jean-Jacques Bienaime and Carole 
L. Nuechterlein, and each of them, as his true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for 
him and in his name, place and stead, in any and all capacities, to sign 
any and all amendments to this Report on Form 10-K, and to file the 
same, with all exhibits thereto, and other documents in connection 
therewith, with the Securities and Exchange Commission, granting unto 
said attorneys-in-fact and agents, and each of them, full power and 
authority to do and perform each and every act and thing requisite and 
necessary to be done in connection therewith, as fully to all intents 
and purposes as he might or could do in person, hereby ratifying and 
confirming all that said attorneys-in-fact and agents, or any of them, 
or their or his substitute or substitutes, may lawfully do or cause to 
be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of 
the Registrant and in the capacities and on the dates indicated.



    /s/ PHILIPPE POULETTY        Chairman of the               March 30 , 1999
-------------------------------  Board of Directors
   Philippe Pouletty, M.D.       

    /s/JEAN-JACQUES BIENAIME     Chief Executive Officer       March 30 , 1999
------------------------------- 
  Jean-Jacques Bienaime      


    /s/ JAMES F. HINRICHS        Chief Financial Officer        March 30, 1999
-------------------------------  (Principal Accounting Officer)
    James F. Hinrichs, CFA.           

   /s/ FREDRIC J. FELDMAN        Director                       March 30 , 1999
-------------------------------
    Fredric J. Feldman, Ph.D.

   /s/ ELIZABETH M. GREETHAM     Director                       March 30 , 1999
-------------------------------
    Elizabeth Greetham

   /s/ RICHARD D. MURDOCK        Director                       March 30 , 1999
-------------------------------
    Richard D. Murdock

   /s/ ANDREW PERLMAN, M.D, PHD  Director                       March 30 , 1999
-------------------------------
    Andrew Perlman, M.D., Ph.D.

    /s/ VINCENT WORMS            Director                       March 30 , 1999
-------------------------------
    Vincent Worms

<PAGE>

                            SANGSTAT MEDICAL CORPORATION

Index to Exhibits

                                                               Sequentially
Exhibit                                                          Numbered
  No.                                Description                   Page
-------      ------------------------------------------------------------
   2.1  (7)  Agreement and Plan of Merger dated as of July 24, 1995 between the
             SangStat Delaware, Inc., and SangStat Medical Corporation, a
             California corporation, as filed with the Delaware Secretary of
             State on August 11, 1995.

   2.2  (9)  Master Agreement between SangStat Medical Corporation and
             Pasteur Merieux Serums & Vaccins, S.A. dated June 10, 1998,
             including Exhibit 8 thereto.

   3.1  (8)  Amended and Restated Articles of Incorporation of the
             Registrant filed November 29, 1993.

   3.3  (7)  3.3(7) Bylaws of Registrant.

   3.4  (6)  Certificate of Designation for the Series A Junior Participating
             Preferred Stock, filed with the Delaware Secretary of State on
             August 16, 1995.

   4.5  (3)  Specimen Common Stock Certificate of Registrant.

  10.1 (1)(3)Collaborative Agreement effective April 19, 1993, as amended, 
             between SangStat and Baxter Healthcare Corporation.

  10.2 (1)(3)License Agreement, dated October 21, 1991, between the Registrant
             and The Board of Trustees of Leland Stanford Junior University.

  10.3  (3)  Contract for the Provision of Services, dated October 5, 1993
             between the Centre Hospitalier Universitaire de Nantes and SangStat
             Atlantique.

  10.4 (1)(3)License Agreement, dated October 13, 1993, between the 
             Registrant and Pasteur Merieux Serums et Vaccine.

  10.5 (1)(3)Letter Agreement between SangStat and Ortho Biotech.

  10.6 (2)(3)1990 Stock Option Plan, as amended October 1992 and form of Stock
             Option Agreement.

  10.7 (2)(3)1993 Stock Option/Stock Issuance Plan.

  10.8  (3)  Series B Stock Purchase Agreement, dated September 21, 1989, 
             between the Registrant and the Investors listed in Schedule A
             thereto.

  10.9  (3)  Series C Stock and Warrant Purchase Agreement, dated January 26, 
             1990, between the Registrant and the Investors listed in Schedule A
             thereto.

 10.10  (3)  Series D Stock and Warrant Purchase Agreement, dated July 15, 1991,
              between the Registrant and the Investors listed in Schedule A
             thereto.

 10.11  (3)  Amendment Agreement to the Series D Stock and Warrant Purchase
             Agreement, dated October 5, 1992, between the Registrant and the
             Investors listed in Schedule A of that certain Series D Stock and
             Warrant Purchase Agreement, dated July 15, 1991.

 10.12  (3)  Note and Warrant Purchase Agreement, dated October 2, 1992, between
             the Registrant and the Investors listed in the Schedule of Lenders
             thereto.

 10.13  (3)  Series E Stock and Warrant Purchase Agreement, dated April 19, 
             1993, between the Registrant and the Investors listed in Schedule A
             thereto.

 10.14 (2)(3)Amended and Restated Shareholders Agreement, dated January 26,
             1990, between the Registrant and Philippe Pouletty.


 10.15  (3)  Equipment Lease Agreement dated October 11, 1990 between SangStat
             and David Rammler.

 10.16  (3)  Real Property Lease, dated August 20, 1990, between the Registrant
             and Menlo Business Park and Patrician Associates, Inc.

 10.17  (3)  Lease Agreement dated September 1, 1993 between SangStat Atlantique
             and Center Hospitalier.

 10.18  (7)  Form of Indemnification Agreement to be entered into between the
             Registrant and each of its officers and directors.


 10.19 (1)(3)License Agreement, dated November 15, 1993, between the Registrant
             and the Board of Trustees of Leland Stanford Junior University.

 10.20  (3)  Letter Agreement between the Registrant and Baxter Healthcare
             Corporation dated December 11, 1993.

 10.21 (1)(5)License Agreement with Pasteur Merieux Serums et Vaccins.

 10.22 (2)(5)Supply Agreement with Pasteur Merieux Serums et Vaccins.

 10.23  (4)  Common Stock Purchase Agreement, dated December 23, 1994, between
             the Registrant and the Investors listed in Schedule A thereto.

 10.25  (8)  Rights Agreement, dated as of August 14, 1995, between the
             Registrant and First National Bank of Boston.

 10.26       Real Property Sub-Lease, dated March 8, 1999, between the 
             Registrant and Kelley-Clarke, Inc.  Real Property lease between 
             Kelly-Clarke Inc. and Kaiser Development Company dated September 
             1, 1988 as amended on February 26, 1990, May 1, 1990, May 5, 
             1990, and April 19, 1995

  21.1  (5)  Subsidiaries of Registrant.

  23.1       Independent Auditors' Consent.

  24.1       Power of Attorney. (Reference is made to page 47)

  27.1       Financial Data Schedule.

____________

        (1)  Confidential Treatment has been granted for the deleted portions 
             of this document.

        (2)  Management contract or compensatory plan or arrangement. 

        (3)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-1 (No. 33-70436).

        (4)  Previously filed as an Exhibit to the Registrant's Form 8-K filed 
             January 6, 1994.

        (5)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-1 (No. 33-88432).

        (6)  Previously filed as an Exhibit to Registrant's Form 8-K filed 
             August 14, 1995.

        (7)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form 8-B filed December 4, 1995.

        (8)  Previously filed as an Exhibit to the Registrant's Registration 
             Statement on Form S-3 (No. 333-2301).

        (9)  Previously filed as Exhibits to the Registrant's Form 8-K/A
             as amended on December 14, 1998.