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

                       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, 1997

                                       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 16, 1998 was approximately $428,276,000 (based on the
closing price for shares of the Registrant's Common Stock as reported by the
NASDAQ National Market System of $30.50 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 16, 1998 approximately 16,015,701 shares of the Registrant's Common
Stock, $.001 par value, were outstanding.
==========================================================================


PART I

ITEM 1. BUSINESS

Overview

SangStat, The Transplant 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 transplant
patients throughout their lifetimes. SangStat's lead drug candidates are
THYMOGLOBULIN for the treatment of acute graft rejection episodes, and
CYCLOSPORINE, for chronic daily immunosuppression to prevent graft
rejection. In January 1997, the Company filed a Product License
Application ("PLA") with the U.S. Food and Drug Administration ("FDA")
for marketing approval of THYMOGLOBULIN. In November 1996, the Company
filed an Abbreviated Antibiotic Drug Application ("ANDA"), which the FDA
accepted for review in January 1997, for marketing approval of its
proprietary CYCLOSPORINE formulation. In February 1998, the Company also
filed in Europe for marketing authorization for its proprietary
CYCLOSPORINE formulation. 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 1997. SangStat is also conducting clinical trials for a
generic AZATHIOPRINE product candidate for use as an adjunct therapy in
chronic immunosuppression. ALLOTRAP 2702, a proprietary HLA peptide
designed to promote graft acceptance, is in Phase II clinical trials in
Europe. To further the Company's goal of providing comprehensive disease
management, the Company has established THE TRANSPLANT PHARMACY, a
program designed to provide mail order distribution of drugs and
transplant patient management services.

SangStat's strategy is to provide a comprehensive disease management
approach to the organ transplantation market by developing a family of
products that address the needs of patients at each stage of transplant
care from pre-transplant monitoring to the lifetime post-transplant
phase. The Company plans to capitalize on this broad product pipeline by
developing relationships with key providers and managed care
organizations to better integrate the management of the transplant
patients' care and improve outcomes and lower costs.

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
200,000 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. HLAs
were originally discovered by Dr. Jean Dausset, a scientific advisor to
SangStat, and Nobel Prize laureate for this pioneering discovery.

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 lifetime post-transplant phase.

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 which 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% of kidney transplant patients (and a higher percentage for other
organs) have lost their grafts. Surgery is typically required to remove
the rejected kidney and 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 Lifetime Post-Transplant Phase.  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 1997,
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 products, product candidates and
services.

<TABLE>
<CAPTION>
                                        POTENTIAL CLINICAL
TRANSPLANT PHASE    PRODUCT/SERVICE            USE                    STATUS(1)
- -----------------  -----------------    ------------------    -------------------------
<S>                <C>                  <C>                   <C>
Pre-Transplant     PRA-STAT             Detects anti-HLA      Marketed
Monitoring                              antibodies in
                                        candidates
                   CROSS-STAT           Detects candidate     Marketed
                                        antibodies against
                                        a specific donor

Transplant         THYMOGLOBULIN(2)     Treats acute          PLA under review in U.S.;
Acute Care                              kidney rejection      NDS filed in Canada
                                        episodes
                   ALLOTRAP 2702        Promotes graft        Phase II trials (Europe)
                                        acceptance
                   CELSIOR(3)           Preserves organs      Clinical trials
                                        prior to
                                        transplantation

Lifetime Post-     CYCLOSPORINE         Chronic               ANDA under review in U.S.
Transplant Care                         immunosuppression
                   AZATHIOPRINE         Chronic               Bioequivalence trials
                                        immunosuppression
                   MONITORING           Patient management    Clinical trials
                   PRODUCTS

                   THE TRANSPLANT       Mail order and        Marketed
                   PHARMACY             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. "ANDA under
review" means that an Abbreviated Antibiotic Drug Application has been accepted
for filing by the FDA and is now under review for approval in the U.S. on the
basis that the product may be bioequivalent to an existing reference listed
drug and may conform with ANDA regulations. "NDS Filed" means that a New Drug
Submission has been filed with the Health Protection Board. "PLA under review"
means that a Product License Application for approval of a biological product
has been accepted for filing by the FDA and is now under review for approval in
the U.S. "Marketed" means that commercial sales of the product have commenced.
See "-Government Regulation."
(2)     THYMOGLOBULIN is licensed exclusively from Pasteur Merieux Connaught
("PMC") for the United States and Canada and commercialized by PMC in many
European countries. See "-Strategic Relationships."
(3)     CELSIOR was licensed from PMC and the Company has the exclusive rights
to market the product in the United States and Canada. See "-Strategic
Relationships."

Since its inception in 1988, SangStat has focused on the development
of products to improve the outcome of organ transplantation. The
Company's revenue is primarily derived from the distribution of the
Company's therapeutic transplantation product candidate, THYMOGLOBULIN
in Canada and from sales of its pre-transplant monitoring products PRA-
STAT and CROSS-STAT in the United States, Canada and Europe. Sales of
organ transplantation products comprised 92%, 88% and 78% of the
Company's net product sales in 1997, 1996 and 1995, respectively.

THYMOGLOBULIN

Thymoglobulin is a pasteurized, rabbit anti-human thymocyte
immunoglobulin (polyclonal antibody preparation) which induces
immunosuppression as a result of T-cell depletion. The Company filed a
PLA with the FDA for market approval in January 1997 with a proposed
indication for the treatment of acute allograft rejection and for
prevention of recurrent acute rejection in renal transplant patients..
SangStat has an exclusive license from PMC to market THYMOGLOBULIN in
the United States and Canada. Thymoglobulin is commercially available in
many European countries where it is a market leader in its category.
Approved for use in 44 countries, thymoglobulin has been commercialized
and used to treat more than over 40,000 patients principally in Europe
by PMC since 1985.

SangStat completed a pivotal Phase III human clinical trial in the
United States in August 1996. The trial was designed to demonstrate
safety and efficacy equivalent to current anti-T-cell therapy for the
treatment of acute kidney rejection episodes. The trial was a double-
blinded, randomized, multi- center Phase III clinical trial of
THYMOGLOBULIN versus ATGAM (marketed by Pharmacia & Upjohn Inc.) in the
treatment of acute rejection episodes following renal transplantation in
adults. The 163 adult patients enrolled in the trial were kidney
transplant recipients with biopsy-proven acute graft rejection. Patients
randomized into the treatment groups were to receive either 1.5 mg/kg
per day of THYMOGLOBULIN or 15 mg/kg per day of ATGAM for 7 to 14 days
and were followed for twelve months following enrollment. Patients were
stratified into groups according to the degree of rejection severity
(steroid resistant mild, moderate or severe rejection). The severity of
rejection was based on the kidney biopsy using the standardized
international Banff criteria. Of the 162 evaluable patients in the
trial, 82 received THYMOGLOBULIN and 80 received ATGAM. The trial was
conducted at 28 leading transplant centers around the United States.

An intent-to-treat analysis of the data (primary endpoint, i.e. the
major variable in the trial) indicated that the observed overall success
rate in the reversal of acute rejection for THYMOGLOBULIN was 87.8%
compared to an observed overall rate of 76.3% for ATGAM. These results,
which have not yet been reviewed by the FDA, were statistically
significant and demonstrated that THYMOGLOBULIN was not just equivalent
to ATGAM, but reversed rejection in a higher number of cases (p =
0.027). However, because the study was designed to show equivalence,
there can be no assurance that the FDA will allow a claim of
superiority. Success, according to the primary endpoint, was the post-
therapy return of serum creatinine level (a measure of kidney function)
to, or below, baseline level. A preliminary intent-to-treat analysis of
the secondary endpoints (i.e. secondary variables in the trial) showed
that the two therapies were equivalent for these secondary endpoints.
Secondary endpoints were (i) graft survival at Day 30, (ii) Day 30
creatinine to baseline creatinine ratio and (iii) histological
improvement between enrollment and post-therapy biopsies. Patients on
both therapies experienced similar side effects and there was no
difference in the safety profile between the two therapies.

SangStat believes that, because of the preclinical and clinical data
available on THYMOGLOBULIN from PMC, only the single completed Phase III
trial will be required in the United States to support FDA approval.
However, there can be no assurance that the results of a single Phase
III clinical trial, in combination with existing European safety and
efficacy data, will be sufficient to support an ELA, PLA, or any future
ELA supplements needed for commercial marketing. The Company filed an
ELA and a PLA with the FDA in August 1996 and January 1997,
respectively. Both applications have been accepted for filing and are
now under review by the FDA. The Company has filed an additional ELA
supplement for a new manufacturing facility at PMC necessary to meet
North American market demand. PLA `Complete Review' letter for the
THYMOGLOBULIN issued a complete review letter in January 1998. The pre-
approval site inspection of the PMC manufacturing facility has also been
completed. The receipt of this action letter indicates that the FDA has
completed its review of the THYMOGLOBULIN PLA within the twelve-month
review target suggested in the 1992 Prescription Drug User Fee Act
(PDUFA). In line with the FDA Modernization ACT (PDUFAII), the FDA's
Center for Biologics Evaluation and Research (CBER) is now issuing
`complete review' letters rather than `approvable' or `not approvable'
letters for biologics applications. FDA action on THYMOGLOBULIN's
Establishment License Application (ELA) is expected in the near future.
Prior to final potential product approval, CBER's `complete review'
letter for the THYMOGLOBULIN PLA requires responses to questions related
to the PLA. Following the completion of the manufacturing facility pre-
approval inspection the FDA has provided a separate list of
observations. SangStat and PMC have provided responses to all of the
questions on the PLA and observations from the inspection. Subject to
marketing clearance and scaling up of production, PMC will manufacture
commercial supplies of THYMOGLOBULIN for marketing and distribution by
SangStat in the United States. THYMOGLOBULIN is manufactured and
marketed outside North America by IMTIX, the PMC transplantation
division. In Canada, SangStat has filed a New Drug Submission ("NDS")
and is generating fluctuating 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. In the United States, SangStat has provided
THYMOGLOBULIN for compassionate use for over 70 patients. Data in
support of the PLA submission were derived from extensive European
clinical trials and post-marketing surveys, as well as experience in
Canada under the EDR program. SangStat is developing THYMOSTAT, a
monitoring assay for THYMOGLOBULIN to assist in optimal definition of
the therapeutic regimen (i.e. monitoring blood levels of a product to
determine which blood levels lead to the best results for patients using
the product). A 510(k) for market clearance of Thymostat is under review
at the FDA.

The Company announced in January 1998 the preliminary positive
results of the first U.S. double blinded trial evaluating THYMOGLOBULIN
versus ATGAM for induction therapy, at the time of transplant, to
prevent acute graft rejection in kidney transplant patients. The overall
incidence of acute rejection episodes in patients treated with
THYMOGLOBULIN was reduced 83.2% as compared to those patients treated
with ATGAM (p=0.01). The data showed that the overall incidence of acute
rejection (biopsy proven, primary endpoint) in the THYMOGLOBULIN treated
patients was 4.2% versus 25% in the ATGAM treated patients (p=0.01).
Other endpoints measured included Event Free Survival, cytomegalovirus
(CMV) disease, and serious adverse events. Event Free Survival, a
measure of overall success in this trial and defined as no rejection, no
death and no graft loss, was achieved by 94% of THYMOGLOBULIN treated
patients as compared to 61% of ATGAM treated patients (p=0.0005). Only
10.4% of patients treated with THYMOGLOBULIN developed CMV disease
versus 33.3% treated with ATGAM (P=0.025). There were also fewer serious
adverse events with THYMOGLOBULIN (p=0.0009). Greater and more
persistent T-cell depletion and a more frequent leukopenia were observed
with THYMOGLOBULIN treatment as compared to ATGAM. These findings may
partly explain the lower incidence of rejection with THYMOGLOBULIN as
compared to ATGAM.

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's application for market
clearance of THYMOGLOBULIN for the treatment of rejection is currently
in late stage review at the FDA.


CYCLOSPORINE

In North America and Europe there are more than 200,000 transplant
recipients requiring expensive daily immunosuppressive therapy for the
rest of their lives. The majority of these patients use cyclosporine.
The Company estimates that the current cyclosporine cost per patient is
$6,000 to $8,000 per year. Cyclosporine is a small, cyclic peptide that
works by inhibiting T-cell activation and preventing T-cells from
attacking a transplanted organ. The development of cyclosporine for the
prevention of graft rejection was a medical breakthrough in the early
1980's and resulted in the rapid growth of organ transplantation.
Sandimmune, the original formulation of cyclosporine, was introduced by
Novartis, formerly Sandoz, in the United States in 1983. Neoral, an
"improved" formulation of cyclosporine with increased bioavailability,
was launched first in Europe in 1994 and then in the United States in
September 1995. Currently, the majority of all new transplant recipients
are started on Neoral, and, as of the end of 1997, the Company
estimates, based on information released by Novartis, that more than 80%
of European and 65% of the United States transplant recipients have been
initiated on, or converted to, Neoral. In November 1996, SangStat filed
an ANDA with the FDA, which the FDA accepted for review in January 1997,
for marketing approval of its proprietary formulation of CYCLOSPORINE.
The Company believes its formulation of CYCLOSPORINE is bioequivalent to
Novartis' newest formulation, Neoral. Worldwide sales of Novartis'
cyclosporine in 1997 were estimated at over $1.3 billion.

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 in
healthy volunteers in controlled, crossover trials 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. AUC to a defined time point (AUC
(0-t)) and AUC to infinity (AUC (0-(~)) are calculated separately. Among
other factors, if the 90% confidence intervals (for the ratio of the log
transformed parameters of SangStat's CYCLOSPORINE and Neoral) are
contained within the range of 80% to 125%, the formulations are
considered bioequivalent under current FDA policy.

SangStat's pivotal trial was a single-dose, randomized, cross over
bioequivalence trial in 36 healthy human volunteers comparing, under
fasting conditions, SangStat's CYCLOSPORINE with Neoral. 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.

Statistical comparison of the key pharmacokinetic parameters for
SangStat's CYCLOSPORINE and Neoral yielded the following results which
the Company believes demonstrate bioequivalence; however, the FDA has
not yet reviewed any of these data:


                  SANGSTAT/NEORAL          90% CONFIDENCE
PARAMETER     LEAST SQUARES MEAN RATIO      INTERVAL(1)        POWER(2)
-----------    ------------------------     --------------     --------
Cmax                    99.6%                96.9 - 104%        99.99%
AUC(0-t)                99.8%                97.3 - 103%        99.99%
AUC(0-()                99.4%                97.0 - 103%        99.99%

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

(1) Based on log transformed parameters.

(2) Power = Power (%) to detect 20% differences between treatments (a=0
    the study to be statistically significant, the power should be at l

(a=0.05). For the study to be statistically significant, the power
should be at least 80%.

SangStat has completed seven human trials with its proprietary
CYCLOSPORINE formulation in a total of 165 healthy volunteers. Two were
pivotal trials completed in 1996, one under fasted conditions and one
designed to assess food effect on cyclosporine bioavailability; both
demonstrated bioequivalence between SangStat's CYCLOSPORINE and Neoral.
The Company subsequently confirmed bioequivalence in four additional
healthy volunteer trials in 86 subjects (including both African
Americans and females) and a patient trial in 32 kidney transplant
recipients. In 1997, the Company began two studies, one of which was
completed in 1997 and the second of which is continuing into 1998, in
renal transplant patients, to document the long-term efficacy and safety
of SangStat's CYCLOSPORINE. The Company is continuing to conduct five
other studies, of which three were begun in 1997 and two in early 1998,
in kidney, liver or heart transplant recipients, to demonstrate the
bioequivalence of SangStat's CYCLOSPORINE to Novartis' Neoral. In each
of the pivotal and all additional trials, the incidence, severity or
frequency of side effects was similar between the two products. The
Company continues to expand its global regulatory clinical trial program
with trials ongoing and planned for different populations of organ
transplant recipients, and expects to present the results of these
trials at upcoming transplant and regulatory meetings.

Under current FDA regulations and policy, a generic cyclosporine that
is shown to be bioequivalent to Neoral may be approved without the need
to duplicate safety and efficacy trials. If the FDA approves SangStat's
CYCLOSPORINE based on bioequivalence to Neoral, SangStat intends to
market its formulation as a branded therapeutic substitute for Neoral.
SangStat recently unveiled an innovative cyclosporine delivery system
intended to be used by patients with the Company's CYCLOSPORINE drug
product candidate as it targets the $1.3 billion cyclosporine market.
CycloTech is a compact, hand held device with a built-in smart chip that
is designed to deliver and track each dose of cyclosporine taken by the
transplant patient. CycloTech is not commercially available and is
pending 510(k) clearance by the FDA. The CycloTech device will be made
available, subject to market clearance, to transplant recipients using
cyclosporine. It is designed to provide additional means to physicians
to monitor a patient's record of taking cyclosporine, while making it
convenient for recipients to manage and track their daily dosing
regimen. It is designed to enable physicians to use their computers to
down load recorded information from CycloTech and review each patient's
detailed daily dosing history, for up to the previous 12 months.

In February 1998, the Company received correspondence from the FDA
indicating that the Agency has completed its review of the Company's
CYCLOSPORINE marketing application. An application for marketing Sang-
35, SangStat's proprietary CYCLOSPORINE product candidate, was accepted
for review by the FDA in January 1997, as a bioequivalent formulation to
Novartis' Neoral for the prevention of rejection in organ transplant
recipients. The receipt of this letter, called a Minor Deficiency
letter, indicates that the FDA has completed its review of the Company's
CYCLOSPORINE ANDA including the Company's responses to key questions
during the review process. Prior to potential final product approval,
the Office of Generic Drugs (ODG) requires responses to a short list of
questions, to which the Company has responded. Importantly, the
remaining issues raised in this letter were not related to the
bioequivalence trials.

The Company has entered into an agreement for commercial scale
production of CYCLOSPORINE bulk material (i.e. the active ingredient of
CYCLOSPORINE) with Gensia Sicor, Inc. ("Gensia Sicor"). The agreement
has an initial term of ten years following the first regulatory approval
of CYCLOSPORINE for commercial sale in North America and Europe, subject
to earlier termination upon 120 days notice in the event of a
substantial breach by either party of its material obligations under the
agreement. SICOR S.p.A. ("SICOR"), Gensia Sicor's wholly owned
subsidiary, received approval from the FDA in July 1997 of an ANDA for
manufacture of bulk cyclosporine drug substance. In December 1997 SICOR
also received approval to manufacture cyclosporine bulk drug substance
in the European Union (EU). The European approval was issued as a
Certificate of suitability of Monographs of the European Pharmacopoeia.
The Company has also signed a second supply agreement for bulk
CYCLOSPORINE with a supplier that is approved by the FDA for manufacture
of cyclosporine bulk drug substance. The Company also has separately
contracted with Eli Lilly and Company ("Lilly") to manufacture the
finished commercial supply of SangStat's proprietary CYCLOSPORINE
product candidate for the anticipated worldwide market. Lilly will use
bulk CYCLOSPORINE, provided by SangStat, and fill and finish to produce
SangStat's proprietary formulated CYCLOSPORINE product for subsequent
commercial sale and distribution worldwide by the Company. A pre-
approval inspection of the product manufacturing facility at Eli Lilly
was deemed unnecessary by the FDA. In December 1997 the Company signed
an exclusive agreement with Amgen Inc. ("Amgen") for the registration,
marketing and distribution of SangStat's proprietary CYCLOSPORINE
product candidate in select territories in the Asia/Pacific rim.
SangStat has retained the exclusive commercial rights to its
CYCLOSPORINE in all other territories including North America and
Western Europe. There can be no assurance that the Company's third-party
manufacturers will perform satisfactorily and any such failure may delay
clinical trial development or the submission of 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
would have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. See "Risk
Factors-Limited Manufacturing Capability."

Successful development and commercialization of the Company's
CYCLOSPORINE drug candidate 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
manufacturing contractors. In addition, if the Company is unable to
demonstrate to the FDA that its formulation is bioequivalent to Neoral,
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.

Cyclosporine is particularly difficult to manufacture since it must
be extracted from whole cells and carefully purified. There can be no
assurance that SangStat's CYCLOSPORINE drug candidate 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 its CYCLOSPORINE product 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.

There can be no assurance that Novartis will not seek to protect its
market share through litigation, or other actions, against SangStat, its
affiliates and partners, or the FDA, or take actions which could
adversely affect the regulatory approval process. To date, no litigation
has been commenced by Novartis nor has Novartis threatened the Company
with litigation. In November 1996, however, Novartis filed a citizens'
petition with the FDA, seeking to prohibit the use of Neoral as a
reference drug for demonstration of bioequivalence. Neoral was listed as
a reference drug in the FDA's Approved Drug Products with Therapeutic
Equivalence Evaluations. In addition, in March of 1998, Novartis filed
another citizen's petition requesting that the FDA not approve any
generic version of Neoral not identical to the Neoral product
formulation. "See FDA Regulation: Approval of Therapeutic Products". The
Company has several patents pending on its cyclosporine formulation and
formulation technology. However, there can be no assurance that
SangStat's formulation will not be found to infringe on Novartis'
proprietary rights. If Novartis brings suit against SangStat in the
United States or elsewhere, SangStat could be greatly delayed in
obtaining regulatory approval of any CYCLOSPORINE product, or in
bringing any CYCLOSPORINE product candidate to market, or could be
enjoined from selling the product for a significant period of time or
ultimately be prevented from selling its CYCLOSPORINE product candidate
entirely. 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
CYCLOSPORINE entirely, which would have a material adverse effect on the
Company's future results of operations. A number of key employees were
previously employed at Novartis and it is possible a claim could be
asserted against SangStat based on such prior employment. While the
Company believes that such a claim would be without merit in part
because such employees have informed the Company that they did not have
any non-competition agreements with Novartis and that they have not
violated any confidentiality agreements with Novartis, such a claim
could nonetheless result in litigation. Any litigation, whether or not
resolved in favor of the Company, is likely to be expensive, lengthy and
time consuming and could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations. To
date no litigation has been threatened, but there can be no assurance
that Novartis will not commence litigation or otherwise attempt to delay
the marketing of CYCLOSPORINE in the future. See "Risk Factors-Risks
Associated with CYCLOSPORINE."


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. United States sales of
Imuran and Azathioprine in 1996 were estimated to be $80 million.

SangStat has developed a generic AZATHIOPRINE for use in
transplantation as an adjunct therapy in chronic immunosuppression and
is currently conducting human bioequivalency trials. Pending successful
completion of these 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.

ALLOTRAP PEPTIDES

ALLOTRAP 2702 is a small peptide derived from the Company's
proprietary sHLA technology that 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. A key finding,
with respect to biological activity, was the statistically significant
in vivo inhibition of cell-mediated cytotoxicity by ALLOTRAP 2702. Such
inhibition had previously been identified as a key endpoint in
preclinical studies. The trial was conducted at the Center of
Transplantation at Nantes, the largest kidney/pancreas transplant center
in France, and was a double-blinded, randomized, placebo-controlled
safety and pharmacokinetic study of ALLOTRAP 2702 in 28 renal transplant
recipients. The results showed that there were no adverse effects
attributed to ALLOTRAP 2702 therapy, and no anti-peptide antibodies,
which would lower the peptide's potential immunosuppressive efficacy,
could be detected. Furthermore, renal function, as assessed by serum
creatinine levels at one and three months post-transplant, was similar
between the high dose peptide group and placebo group. In this study,
the investigators also found that ALLOTRAP 2702 resulted in a
statistically significant difference in cell-mediated ("Natural Killer"
or "NK" cells) cytotoxicity in the group receiving ten days' therapy as
compared to controls (p = 0.001). This effect on NK cell activity was
previously demonstrated in preclinical studies to be a key marker of
efficacy whereby NK cell inhibition correlated with the prolongation of
graft survival without the need for continuous immunosuppression. These
results indicate that ALLOTRAP 2702 had a biological effect in humans
and that NK cell activity may serve as a surrogate endpoint in future
trials. Additional human studies are ongoing or planned. Additional
ALLOTRAP peptides are in preclinical research.

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.

Pre-transplant HLA Monitoring Products and Product Candidates

SangStat's pre-transplant monitoring products and product candidates
are intended to improve HLA compatibility between organ donors and
recipients by providing accurate, rapid, efficient and standardized
testing. Current HLA testing mainly involves a complex procedure,
microlymphocytotoxicity, which is run in specialized transplant
laboratories by highly-trained technicians. These tests require viable
cells and multiple reagents. Results obtained from visual reading using
a microscope are often subjective. This method of HLA testing is labor
intensive and lacks accuracy and standardization, often causing
inconsistent results.

sHLA constitutes a convenient biological material for testing
transplant candidates to guide HLA compatible donor selection. Found in
whole blood and plasma of all individuals, sHLA molecules are similar to
cell HLAs: (i) they have the same basic structure, (ii) they bind to
anti-HLA antibodies and (iii) they are polymorphic. SangStat has
observed that sHLA molecules can be accurately measured using
immunoassay technology and substituted for cell HLAs for detection of
anti-HLA antibodies and HLA typing. SangStat's scientists showed that
sHLA molecules circulating in blood could be used for accurate and rapid
HLA typing and detection of anti-HLA antibodies. These assays form the
basis of the technology used to develop PRA-STAT and CROSS-STAT. The
Company is currently manufacturing and selling PRA-STAT and CROSS-STAT
through its direct sales force. These pre-transplant monitoring products
and product candidates together are expected to improve donor/recipient
matching and post-transplant monitoring.

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 and is
currently being marketed.

CROSS-STAT is designed to assess which candidate reacts the least to
the donor's HLAs, thus determining the best recipient for the available
organ (cross matching). If the candidate had antibodies against the
donor's HLAs, the HLA compatibility would be poor, and the candidate
would not receive the transplant. Crossmatching is the final step in
determining the best donor/recipient compatibility. The Company received
FDA clearance for CROSS-STAT in May 1995 and the product is currently
being marketed. The Company believes that such monitoring products could
contribute to better management of transplant patients and
immunosuppressive therapy.

In July 1996, the Company completed an agreement with Baxter
Healthcare Corporation ("Baxter") to reacquire marketing rights to PRA-
STAT and CROSS-STAT pre-transplant monitoring products. The Company
reacquired these products in order to market these monitoring products
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 products.

Organ Preservation Product Candidate

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 harvested 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 has acquired from
PMC an exclusive license to commercial rights for CELSIOR in the United
States and Canada. CELSIOR is a formulated solution to store and extend
viability of organs between organ recovery and transplantation. 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 is now conducting a multicenter clinical trial for a redesigned,
one-component, ready-to-use CELSIOR product candidate and intends to
submit a new 510(k). As of February 1998, 109 patients of 120 planned,
had been enrolled in this study at 15 North American centers.

Post-transplant Monitoring Product Candidates

The efficacy and safety of a transplant depends on individual
susceptibility to graft rejection and immunosuppressive therapy. Few
tools exist for post-transplant surveillance to assist physicians in
prescribing each patient's immunosuppressive drug regimen. SangStat is
developing several monitoring products to assist the physician in
customizing drug therapy for each patient, such as THYMOSTAT to monitor
patients treated with THYMOGLOBULIN.

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, 1997,
there were four participating transplant center sites actively referring
patients in the US. The Company has also established a central mail
order facility in Menlo Park, California.

SangStat is developing a dedicated sales force to market its
transplant products directly to transplant centers and patients. To
further this goal and to provide comprehensive disease management,
SangStat established THE TRANSPLANT PHARMACY, a program dedicated to
providing direct distribution by mail order of drugs and transplant
patient management services in September 1996. This service encourages
the promotion of medication compliance, measures clinical and economic
outcomes, and provides feedback directly to clinicians. Patients
electing to enroll will be able to have all of their medications filled
through the program's central pharmacy. THE TRANSPLANT PHARMACY will
also place a key individual, such as a pharmacist, in each transplant
center that joins the program to interact directly with physicians,
nurses and patients. THE TRANSPLANT PHARMACY 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.

Xenotransplantation

SangStat is working on a xenotransplantation technology (XE-9)
through its wholly-owned subsidiary, XenoStat, Inc. ("XenoStat").
Xenotransplantation is the transplantation of an organ from one species
to a different species. If successful in humans, it could partly
overcome the current limited availability of organs. SangStat does not
expect any application of the XenoStat technology in humans for the next
several years, if at all. Such applications will require extensive
clinical trials and regulatory approvals.

XENOJECT Technology

SangStat is developing a new platform technology called XENOJECT. The
Company believes XENOJECT will promote the elimination of undesirable
cells by halting the acceptance process of the immune system. XENOJECT
specifically redirects a graft immune response from its natural target
to an undesirable target by adding incompatible transplantation antigens
to the surface of the undesirable cell. XENOJECT may become an enabling
technology which offers major potential advantages over other specific
immunotherapy technologies, such as therapeutic monoclonal antibodies
(murine or humanized) or immunotoxins. Potential benefits include
increased potency, decreased immunogenicity, easier manufacturing (small
molecule) and potential for oral administration. Potential clinical
applications include cancer and infectious disease therapy. Currently,
the Company conducts discovery research in the field of cancer and
immune disorders. In March 1998, SangStat and Dyax Corp. signed a
Research and License agreement to discover peptides for use with
SangStat's XENOJECTT technology.


Strategic Relationships

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

In October 1993, SangStat entered into an exclusive licensing
agreement with PMC for the clinical development, marketing and sale of
THYMOGLOBULIN and CELSIOR in the United States and Canada. The agreement
provides, among other things, that (i) SangStat will use commercially
reasonable efforts to obtain regulatory approval through a Phase III
clinical trial for THYMOGLOBULIN for treatment of kidney rejection
episodes; (ii) PMC will manufacture and supply products for clinical and
commercial use; and (iii) SangStat will pay a fee upon achievement of
milestones as well as royalties based upon commercial sales. Although
THYMOGLOBULIN has been approved and is sold on a commercial basis in
many European countries, there can be no assurance that regulatory
approval will be obtained in the United States or Canada. The agreement
has an initial term of fifteen years, subject to earlier termination
upon 120 days notice of a substantial breach by either party of its
material obligations under the agreement.

Amgen, Inc.

In December 1997 the Company signed an exclusive agreement with Amgen
Inc. ("Amgen") for the registration, marketing and distribution of
SangStat's proprietary CYCLOSPORINE product candidate in select
territories in the Asia/Pacific rim. SangStat has retained the exclusive
commercial rights to its CYCLOSPORINE in all other territories including
North America and Western Europe. Under the terms of the agreement,
Amgen will have exclusive rights to market CYCLOSPORINE, 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.

Center of Transplantation of Nantes, France

SangStat's subsidiary, SangStat Atlantique S.A., leases approximately
2,500 square feet of office space within the Center of Transplantation
of Nantes, France (Centre Hospitalier Universitaire de Nantes). The
Center of Transplantation is the largest kidney transplant center in
France and has provided equipment and personnel to perform development
work for SangStat in the area of immunointervention. Work projects are
funded by SangStat on a project by project basis. Although it is not
obligated to do so, the Center of Transplantation has provided limited
funding for certain expenses incurred as part of the clinical
development of ALLOTRAP peptides.

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 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,
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, effectiveness marketing, distribution
and price. The Company believes it competes favorably with respect to
all of these factors. With respect to THYMOGLOBULIN, CYCLOSPORINE 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. 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. For example, the Company believes that the
degree of market penetration of its CYCLOSPORINE drug candidate is
dependent in part on whether the Company is the first company to market
a generic formulation of cyclosporine. 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, would compete with
CYCLOSPORINE, and Orthoclone OKT3, marketed by Johnson & Johnson and
ATGAM, marketed by Pharmacia & Upjohn Inc., 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
CYCLOSPORINE 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: Roche (mycophenolate
mofetil), Glaxo-Wellcome and Roxane (azathioprine) American Home
Products Corp. (rapamycin), Fujisawa Pharmaceutical Co. Ltd.
(tacrolimus), Novartis (Simulect), Bristol Myers Squibb (CTLA4), and
DuPont Merck (ViaSpan), and other companies including, but not limited
to Abbott, MedImmune Inc., BioTransplant, Inc., PMC, and Ivax Corp. In
addition, THE TRANSPLANT PHARMACY also competes with other drug
distribution companies, such as Chronimed Inc., 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 ten issued patents which
cover several different test formats for sHLA-based and allied assays,
including PRA-STAT and CROSS-STAT. The Company's patents expire on
various dates beginning in the year 2008 and ending in the year 2015.
SangStat has patent applications pending in the United States in the
pretransplant and post-transplant monitoring, CYCLOSPORINE, XENOJECT 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 its CYCLOSPORINE product
without infringing patent or other proprietary rights of Novartis or
other third parties. Although Novartis' composition of matter patent for
cyclosporine expired in September 1995 in the United States, Novartis'
patents relating to cyclosporine are expected to continue to present
significant barriers to entry to potential competitors. There can be no
assurance that Novartis or others will not seek to protect their market
share through litigation or otherwise against SangStat, its affiliates
and partners or the FDA, or actions which adversely affect the
regulatory approval process, such as citizens' petitions, or that
SangStat's formulation will not be found to infringe Novartis' or
others' proprietary rights. If Novartis or others bring suit against
SangStat, the Company could be greatly delayed in bringing its
CYCLOSPORINE product to market, enjoined from selling the product for a
significant period of time or ultimately be prevented from selling its
CYCLOSPORINE product candidate entirely. See "Risk Factors-Risks
Associated with CYCLOSPORINE."

The Company's family of ALLOTRAP peptides is 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

The Company lacks facilities to manufacture any of its drug
candidates in accordance with current Good Manufacturing Practices
("GMP") prescribed by the FDA. The Company generally relies on third
parties to manufacture its compounds for clinical trials, including
THYMOGLOBULIN, CYCLOSPORINE, ALLOTRAP, AZATHIOPRINE and CELSIOR and has
contracted or expects to contract for commercial production of these
compounds. There can be no assurance that it will be able to enter into
commercial scale manufacturing contracts or that any other third-party
arrangements can be established on a timely or commercially reasonable
basis, or at all. If such arrangements are established, the Company will
depend 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 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 intends to obtain quantities of THYMOGLOBULIN for
clinical trials, distribution for compassionate use and commercial use
under an agreement with PMC. There can be no assurance that PMC or any
other manufacturer will meet FDA standards governing GMP or that any
ELAs or ELA supplements required for manufacturing will be filed,
reviewed and approved or that PMC will fulfill its obligations to
SangStat.

The Company has contracted for commercial scale production of
cyclosporine bulk material for its CYCLOSPORINE product candidate 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 CYCLOSPORINE product candidate with Eli Lilly. 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 "Risk Factors-Risks
Associated with CYCLOSPORINE."

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 and CROSS-
STAT the Company currently has in-house manufacturing capabilities and
believes it operates in compliance with GMP. However, there can be no
assurance that SangStat 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."

Marketing

SangStat currently plans to market directly those products for which
it retains commercial rights and obtains regulatory approval. However,
for certain territories, the Company may also enter into co-promotion
arrangements or other licensing arrangements with pharmaceutical,
diagnostic or biotechnology companies. SangStat has entered into an
exclusive agreement with Amgen for the registration, marketing and
distribution of SangStat's proprietary CYCLOSPORINE in certain Asian
Pacific Rim territories. SangStat retains the exclusive commercial
rights to its CYCLOSPORINE for all other territories including North
America and Europe. SangStat intends to expand its direct sales force to
market all of its transplant products, including THYMOGLOBULIN,
CYCLOSPORINE, AZATHIOPRINE, CELSIOR, ALLOTRAP 2702, PRA-STAT, CROSS-STAT
and other monitoring products. Implementation of this strategy will
depend on many factors, including the market potential of any products
the Company develops as well as on the Company's financial resources.
The Company sells certain of its monitoring products for research or
investigational use through a small, direct sales operation. Currently,
the Company is developing a sales force in North America and intends to
develop a sales force in Europe to market its therapeutic products.
SangStat has also established THE TRANSPLANT PHARMACY, a program
furthering the Company's approach of comprehensive disease management,
which will directly dispense all needed medications by mail to
transplant recipients enrolled in the program. See "Business-THE
TRANSPLANT PHARMACY." 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.

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 Product License Application
("PLA") together with an Establishment License Application ("ELA"), 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 continue 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 CYCLOSPORINE
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 CYCLOSPORINE
and AZATHIOPRINE, which in certain cases would require substitution of
the Company's CYCLOSPORINE for Neoral 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 Regulation

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 Regulation-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 will be mandatory beginning
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 the 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 importantly, 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. The compliance with this proposed
Directive must be in place no later than April 1, 1998. The Company's
monitoring products will likely have to meet the essential requirements
of the Directive. Once deemed acceptable 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.

Scientific, Medical, Pharmacy and Regulatory Advisory Boards

The Company's Scientific, Medical, Pharmacy and Regulatory Advisory
Boards consist of individuals with recognized expertise in immunology,
transplantation or regulatory affairs. The Scientific, Medical, Pharmacy
and Regulatory 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 and Regulatory 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.

Carol Clayberger, Ph.D., is an Assistant Professor of Immunology in
the Department of Cardiothoracic Surgery of Stanford University School
of Medicine, Stanford, California. Dr. Clayberger's current research is
centered on an understanding of the effect of synthetic peptides on the
immune response and the development of novel immunomodulatory agents.
Dr. Clayberger holds a Ph.D. in Cell Biology from Yale University.

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.

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.

F. Carl Grumet, M.D., is a Professor of Pathology at Stanford
University, Stanford, California. He is the Director of both the
Transfusion Service and the Histocompatibility Laboratory at Stanford
University Medical Center, the Director of the Stanford Specialized
Center for Research in Transfusion Medicine and Associate Medical
Director of the Stanford University Medical School Blood Center.

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.

Andrew J. Perlman, M.D., Ph.D., has been the Vice President of
Medical Research at Tularik, Inc., a private biotechnology company,
since January 1993. From 1987 to 1993, Dr. Perlman served in various
positions at Genentech, Inc., most recently as Senior Director, Clinical
Research. Dr. Perlman has a M.D. and a Ph.D. in Physiology from New York
University.

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.

Jean-Paul Soulillou, M.D., is a Professor of Immunology at the
University of Nantes, Nantes, France. He is the Director of the kidney
transplant program, which in 1992 performed the largest number of kidney
transplants in France and is one of the largest programs in Europe. He
is the Director of INSERM-U211 research laboratory and the founder and
scientific director of Fondation Transvie, a non-profit research
organization for xenotransplantation. Dr. Soulillou is also on the
editorial boards of Transplantation and The New England Journal of
Medicine.

Employees

As of December 31, 1997, the Company employed 112 people. Of these
employees, 57 were dedicated to research, development, manufacturing,
quality assurance and quality control, regulatory affairs or preclinical
testing. In addition, 24 people comprised the Company's sales and
marketing staffs in the United States, Canada and Europe. The Company is
the beneficiary of key person life insurance policy covering Dr.
Pouletty in the amount of $1,000,000. 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 California 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 1999
and may be renewed for subsequent years. The Company believes that its
facilities are sufficient to meet the Company's manufacturing needs with
respect to its monitoring products for the foreseeable future.

In addition, the Company leases approximately 4,500 square feet in
Menlo Park for its central mail order pharmacy.

The Company also leases approximately 2,500 square feet from the
Center of Transplantation in Nantes, France, which is the primary site
for preclinical development of therapeutics. This lease expires in
December 1998 and the Company has the option to renew its lease for use
of these facilities for additional five-year periods.

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

None.

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, 1996
    First Quarter........................... 19.125    10.250
    Second Quarter.......................... 21.250    15.750
    Third Quarter........................... 26.750    10.500
    Fourth Quarter.......................... 30.750    20.375

  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 (through March 16, 1998).. 37.750    24.625

                         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.


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, 1997, and with respect to the balance sheets as of December
31, 1997 and 1996, 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, 1994 and 1993 and
the balance sheet data as of December 31, 1995, 1994 and 1993, 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,
                                          -----------------------------------------------------
                                            1997       1996       1995       1994       1993
                                          ---------  ---------  ---------  ---------  ---------
                                                    (in thousands, except per share data)
<S>                                       <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
     Revenues:
          Net product sales...............  $3,777     $2,399     $2,698       $674       $518
          Collaborative agreement.........     750         --      1,125      3,000      2,625
          Government grants...............      --         --         --         --         51
                                          ---------  ---------  ---------  ---------  ---------
               Total revenues.............   4,527      2,399      3,823      3,674      3,194
                                          ---------  ---------  ---------  ---------  ---------
     Operating expenses:
          Cost of sales and manufacturing.   3,736      2,846      2,753      1,503        955
          Research and development........  16,210      8,330      6,647      4,845      3,679
          Selling, general and
            administrative................  11,067      6,120      3,773      3,157      2,202
                                          ---------  ---------  ---------  ---------  ---------
               Total operating expenses...  31,013     17,296     13,173      9,505      6,836
                                          ---------  ---------  ---------  ---------  ---------
     Loss from operations................. (26,487)   (14,897)    (9,350)    (5,831)    (3,642)
     Other income (expense) - net.........   5,506      2,123        672        284        (78)
                                          ---------  ---------  ---------  ---------  ---------
               Net loss...................($20,980)  ($12,774)   ($8,678)   ($5,547)   ($3,720)
                                          =========  =========  =========  =========  =========
     Net loss per  share - basic and        ($1.36)    ($1.03)    ($0.92)    ($0.79)
          diluted (1) ....................
                                          =========  =========  =========  =========
     Pro forma net loss per common and
       equivalent share(1)...................                                            $0.79
                                                                                      =========
     Shares used in per share
       computations(1)....................  15,376     12,405      9,385      7,049     (4,717)
</TABLE>

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                          -----------------------------------------------------
                                            1997       1996       1995       1994       1993
                                          ---------  ---------  ---------  ---------  ---------
                                                              (in thousands)
<S>                                       <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
     Cash, cash equivalents and short-term
       investments........................ $92,036    $41,321     $9,222    $12,378    $10,641
     Working capital......................  93,812     40,724      8,451     11,367      9,859
     Total assets......................... 104,354     44,750     11,560     14,450     12,499
     Long-term obligations, excluding current
       portion............................   1,557      1,100      1,091      1,153      1,346
     Accumulated deficit.................. (61,806)   (40,826)   (28,052)   (19,374)   (13,827)
     Total stockholders' equity...........  97,470     40,955      8,281     11,328      9,497

</TABLE>

-------------------------------
(1) For a description of the computation of net loss per common share see Note 1
    of Notes to Consolidated Financial Statements. Pro forma net loss per common
    and equivalent share includes convertible preferred stock.



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.

Overview

Since its inception in 1988, SangStat has focused on the development
of products to improve the outcome of organ transplantation. The
Company's revenue is primarily derived from the distribution of the
Company's therapeutic transplantation product candidate, THYMOGLOBULIN
in Canada from sales of its pre-transplant monitoring products PRA-STAT
and CROSS-STAT (the "Monitoring Products") in the United States, Canada
and Europe. Sales of these organ transplantation products comprised 78%,
88% and 92% of the Company's net product sales in 1995, 1996 and 1997,
respectively.

The Company has also from time to time sold other monitoring products
for laboratory research and investigational use and various devices and
services. These other revenue sources comprised 22%, 12% and 8% of total
product revenues in 1995, 1996 and 1997, respectively. These other
revenue sources are not central to the Company's current or future
strategy or operating objectives.

The Company's accumulated deficit from inception through December 31,
1997 was $61,806,000. The Company's operating loss has 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 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, potential litigation with Novartis
regarding the Company's CYCLOSPORINE product candidate, 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 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

Net loss.  Net loss increased from $8,678,000 in 1995 to $12,774,000
in 1996 and further to $20,980,000 in 1997, primarily reflecting
increases in research and development, including clinical trials and
regulatory affairs, and selling, general and administrative expenses.

Total revenues. Net product sales decreased by $299,000 or 11% from
$2,698,000 in 1995 to $2,399,000 in 1996 and increased by $1,378,000 or
57% to $3,777,000 in 1997. The decrease in sales from 1995 to 1996 was
substantially due to a 19% decline in revenues for THYMOGLOBULIN due to
a decrease in the number of compassionate use cases which qualified for
THYMOGLOBULIN under Canada's EDR program. The decrease in THYMOGLOBULIN
sales from 1995 to 1996 was partially offset by a 25% increase in sales
of Monitoring Products and the commencement of THE TRANSPLANT PHARMACY
sales. The increase from 1996 to 1997 primarily reflects a 36% increase
in sales of Monitoring Products and an 894% increase in sales of THE
TRANSPLANT PHARMACY.

As expected, no collaborative agreement milestone payments were
received from Baxter in 1996 or 1997 reflecting completion of the final
milestones for PRA-STAT and CROSS-STAT in 1995. The final payments of
$1,125,000 in the first six months of 1995 represented the completion of
$10.0 million received by SangStat for milestones, license fees and
equity from 1993 through 1995 under its collaborative agreement with
Baxter. The Company reacquired commercial rights for Monitoring Products
from Baxter in July 1996, and now directly markets such products through
its own sales and marketing staff in the United States and Europe. The
Company received an initial payment of $750,000 in 1997 from Amgen under
the collaborative distribution agreement for CYCLOSPORINE in certain
territories outside the United States.

Cost of sales and manufacturing.  Cost of sales and manufacturing
expenses increased by $93,000 or 3% from $2,753,000 in 1995 to
$2,846,000 in 1996 and increased further by $890,000 or 31% to
$3,736,000 in 1997. The increase from 1995 to 1996 was substantially due
to additional costs associated with increased sales of Monitoring
Products and commencement of THE TRANSPLANT PHARMACY sales. This
increase was partially offset by a decrease in sales of THYMOGLOBULIN,
resulting in a decrease of $324,000 in direct THYMOGLOBULIN costs. The
increase from 1996 to 1997 reflects 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. The Company's
Monitoring Products business does not currently generate a profit
because the Company has not achieved a scale of production that allows
it to cover fixed manufacturing costs.

   Research and development.  Research and development expenses
increased by $1,683,000 or 25% from $6,647,000 in 1995 to $8,330,000 in
1996 and increased further by $7,880,000 or 95% to $16,210,000 in 1997.
The increase from 1995 to 1996 was substantially associated with further
expansion of clinical and regulatory activities associated with the
Company's pharmaceutical product candidates including the filing of an
Abbreviated Antibiotic Drug Application (ANDA) for marketing clearance
of its proprietary Neoral-bioequivalent CYCLOSPORINE product candidate
with the FDA in November 1996. The increase from 1996 to 1997 primarily
reflects continued expansion of clinical and regulatory activities for
CYCLOSPORINE and THYMOGLOBULIN. In 1997, the Company completed several
bioequivalence trials of its proprietary CYCLOSPORINE formulation versus
Novartis' Neoral in different populations of healthy volunteers as well
as several conversion trials in stable kidney transplant recipients.
These trials were not requested by the FDA but were conducted to provide
additional data for opinion leader support. SangStat also initialed
several clinical studies for converting renal, heart and liver
transplant recipients on Novartis' Neoral to SangStat's CYCLOSPORINE.
The Company also supported a Phase II trial utilizing THYMOGLOBULIN for
induction therapy to prevent acute rejection in kidney transplant
recipients.


Selling, general and administrative. Selling, general and
administrative expenses increased by $2,347,000 or 62% from 3,773,000 in
1995 to $6,120,000 in 1996 and increased further by $4,947,000 or 81% to
$11,067,000 in 1997. The increase from 1995 to 1996 reflected in part
the Company's reacquisition of marketing rights to Monitoring Products
from Baxter in July 1996 and commencement in third quarter 1996 of sales
of Monitoring Products through its own sales staff in the United States
and Europe. As a result, sales and marketing expenses for Monitoring
Products increased $1,251,000 from 1995 to 1996. General and
administrative expenses increased by $1,096,000 from 1995 to 1996 as the
result of the establishment of a pilot facility for THE TRANSPLANT
PHARMACY, as well as expanded investor relations and other general and
administrative activities. The increase from 1996 to 1997 reflects the
Company's expansion of its marketing and sales staff for its therapeutic
product candidates THYMOGLOBULIN and CYCLOSPORINE and continued growth
of THE TRANSPLANT PHARMACY. From 1996 to 1997 selling and marketing
expenses increased by $2,093,000 for Monitoring Products and therapeutic
products. General and administrative expenses increased by $2,855,000
from 1996 to 1997, reflecting continuing expansion of THE TRANSPLANT
PHARMACY as well and other general and administrative activities.

Other income and expenses.  Interest income increased by $1,450,000
or 179% from $811,000 in 1995 to $2,261,000 in 1996 and by $3,456,000 or
153% to $5,717,000 in 1997. These increases are due primarily to the
increase in average cash balances available for investment as a result
of the sale of equity securities during 1995, 1996 and 1997. The Company
conducts its European operations through its wholly-owned French
subsidiary, SangStat Atlantique S.A. and its Canadian operations through
its wholly-owned subsidiary SangStat Canada, Ltd. and does not currently
engage in any foreign currency hedging activities. The Company's
operations in Europe are primarily related to research and development,
including clinical trial activities, for its pharmaceutical product
candidates and sales and marketing activities for Monitoring Products.
The Company's loss generated from its European operations increased by
$246,000 or 23% from $1,067,000 in 1995 to $1,313,000 in 1996 and by
$338,000 or 26% to $1,651,000 in 1997. These increases are primarily due
to expansion of research and development and sales and marketing
activities. The Company has not historically experienced significant
gains or losses associated with foreign currency rate fluctuations and
does not believe it has significant exposure to risks associated
therewith. See Notes 1, 7 and 13 of Notes to Consolidated Financial
Statements.

Liquidity and Capital Resources

From inception through December 31, 1997, the Company has financed
its operations substantially from proceeds of approximately $21,236,000
from private placements, $7,500,000 in licensing fees and milestone
payments from collaborative agreements and $137,977,000 from public
offerings of its Common Stock.

During the years ended December 31, 1995, 1996 and 1997, the
Company's net cash used in operating activities was approximately
$8,591,000, $12,526,000 and $22,352,000, 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, 1997, the Company had cash, cash equivalents
and short-term investments of $92,036,000 and total assets of
$104,354,000.

Net cash provided by financing activities totalled $5,213,000,
$44,811,000 and $76,615,000 during the years ended December 31, 1995,
1996 and 1997. Such amounts were substantially comprised of proceeds
received from the sale of Common Stock during the respective periods of
$5,581,000, $45,159,000 and $77,376,000 offset in part by net repayments
of notes payable and capital lease obligations.

Net cash used in investing activities totalled $1,873,000,
$17,048,000 and $23,416,000 during the years ended December 31, 1995,
1996 and 1997, and resulted substantially from the Company's net
purchases of short-term investments.

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
$1 million during 1998.

At December 31, 1997, the Company had Federal, state and foreign net
operating loss ("NOL") carryforwards of approximately $56,055,000,
$13,437,000 and $1,393,000, respectively, available to reduce future
taxable income. In addition, the Company had available research and
experimentation credit carryforwards of approximately $1,510,000 and
$815,000 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 expects to incur significant costs related to, among
other things, continued clinical and preclinical testing, regulatory
approval activities and research and development programs in the future,
and establishment of larger sales staffs in the United States and
Europe. If and when the Company receives FDA approval of its therapeutic
drug candidates, the Company expects to have additional working capital
requirements for expansion of sales, increased inventory levels and
payment of certain license obligations. If the Company receives FDA
approval for THYMOGLOBULIN, it would be obligated to make a final
milestone payment under a related license agreement totalling $1.5
million.

The Company may need to raise additional funds through additional
financings, including private or public equity 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
anticipates that its existing capital resources will be sufficient to
fund its operations for at least the next several years. 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.

Recently Issued Accounting Standards.  In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive
Income, which requires that an enterprise report, by major components
and as a single total, the change in its net assets during the period
from nonowner sources, and 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.  Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or cash
flows.  Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.

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, 1997, the Company's
accumulated deficit was $61,806,000. The Company's operating expenses
have increased from approximately $13.2 million to $17.3 million to
$31.0 million over the last three fiscal years. Total revenues decreased
from approximately $3.8 million to $2.4 million then increased to $4.5
million while net losses from operations increased from approximately
$9.4 million to $14.9 million to $26.5 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 and sales of
THYMOGLOBULIN in Canada under Canada's Emergency Drug Release (EDR)
program.


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 potential products. Much of the development
work for several of the Company's potential products remains to be
completed. 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. To date, the Company has
no drug products approved for commercial sale in any country.

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 will prevent or substantially slow 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.

The Company's first drug candidate, THYMOGLOBULIN, for which the
Company has licensed the rights from PMC in the United States and
Canada, has not yet been approved for commercial sale in these
territories. The Company completed a single multi-center Phase III
clinical trial in the United States in August 1996 and filed an
Establishment License Application ("ELA") with PMC and PLA with the FDA
in August 1996 and January 1997, respectively. The Company has also
filed an NDS for marketing approval in Canada.

However, there can be no assurance that the results of this Phase III
clinical trial, in combination with existing European safety and
efficacy data and manufacturing process data, will be sufficient to
support an ELA, PLA, or any necessary future ELA supplement needed for
commercial marketing. In addition, there can be no assurance that
THYMOGLOBULIN will be demonstrated to have the manufacturing or quality
control specifications and requisite safety and efficacy so that an
ELA/PLA or NDS will be obtained from either the United States or Canada,
respectively, or that THYMOGLOBULIN will be manufactured in sufficient
quantities or will become a viable commercial product.

The Company's other principal pharmaceutical product candidates,
including the Company's formulations of CYCLOSPORINE and AZATHIOPRINE,
as well as CELSIOR and ALLOTRAP 2702, have not been approved for
commercial sale in any country. The Company commenced human
bioequivalence trials with respect to AZATHIOPRINE in October 1996. In
1996 the Company voluntarily withdrew its 510(k) for a two-component
CELSIOR product and is now conducting a clinical trial for a redesigned
one-component, ready-to-use CELSIOR product candidate. The Company has
completed a Phase I clinical trial and an initial Phase II
pharmacokinetic and safety clinical trial for ALLOTRAP 2702, both of
which took place in France. The Company designed both 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 2702 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 CYCLOSPORINE.  The Company is developing a
generic CYCLOSPORINE for chronic immunosuppression. Commercialization of
the Company's CYCLOSPORINE drug candidate may be several years away and
successful development and commercialization 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 manufacturing contractors. In addition, if the Company
is unable to demonstrate to the FDA that its formulation is
bioequivalent to Neoral, 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. There can be no
assurance that the proposed labeling, dosage form or manufacturing
process of the Company's CYCLOSPORINE, or the results of the Company's
CYCLOSPORINE bioequivalence study, will be accepted by the FDA.
Furthermore, there can be no assurance that the current FDA policies and
regulations pertaining to the Company's products or product candidates
will not change in the future.

There can be no assurance that Novartis will not seek to protect its
market share through litigation, or other actions, against SangStat, its
affiliates and partners, or the FDA, or take actions which could
adversely affect the regulatory approval process. To date, no litigation
has been commenced by Novartis nor has Novartis threatened the Company
with litigation. In November 1996, however, Novartis filed a citizens'
petition with the FDA, as described below, seeking to prohibit the use
of Neoral as a reference drug for demonstration of bioequivalence. There
also can be no assurance that SangStat's formulation will not be found
to infringe on Novartis' proprietary rights. If Novartis brings suit
against SangStat in the United States or elsewhere, SangStat could be
greatly delayed in bringing any CYCLOSPORINE product candidate to
market, or could be enjoined from selling the product for a significant
period of time or ultimately be prevented from selling its CYCLOSPORINE
product candidate entirely. A number of key employees were previously
employed at Novartis and it is possible a claim could be asserted
against SangStat based on such prior employment. While the Company
believes that such a claim would be without merit, in part because such
employees have informed the Company that they did not have any non-
competition agreements with Novartis and that they have not violated any
confidentiality agreements with Novartis, such a claim could nonetheless
result in litigation. Any litigation, whether or not resolved in favor
of the Company, is likely to be expensive, lengthy and time consuming
and could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. To date no
litigation has been threatened, but there can be no assurance that
Novartis will not commence litigation or otherwise attempt to delay the
marketing of CYCLOSPORINE in the future.

Novartis filed a citizens' petition with the FDA to remove the
designation of its Neoral cyclosporine product as a reference listed
drug in the FDA's Approved Drug Products with Therapeutic Equivalence
Evaluations (the "Orange Book"). A "reference listed drug" is an
approved drug against which generic drug candidates can be measured to
determine bioequivalence. The FDA has not yet acted on this citizen's
petition. The FDA has accepted for review SangStat's CYCLOSPORINE ANDA
submitted for approval based on bioequivalence to Neoral. Neoral was
listed as a reference drug in the Orange Book published in February
1997. However SangStat may be required to submit a full application
(NDA) rather than an ANDA for any generic cyclosporine product submitted
for approval based on bioequivalence to Neoral. If the FDA requires
SangStat to file a full application rather than an ANDA for CYCLOSPORINE
the time required for agency review of the application could be
materially lengthened and adversely affect the likelihood of agency
approval of the application. In addition, in March of 1998, Novartis
filed another citizen's petition requesting that the FDA not approve any
generic version of Neoral not identical to the Neoral product
formulation.. Novartis may submit additional citizens' petitions and
other documents and information to the FDA that may raise other issues
related to procedural and substantive requirements for approval of any
SangStat CYCLOSPORINE application. The submission of such petitions,
documents, and/or information could materially lengthen the time
required for agency review of the application and adversely affect the
likelihood of agency approval of the application.


Cyclosporine is particularly difficult to manufacture and there can
be no assurance that SangStat's CYCLOSPORINE drug candidate 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 its CYCLOSPORINE product without infringing
patent or other proprietary rights of Novartis or other third parties.
Although Novartis' composition of matter patent for cyclosporine expired
in September 1995 in the United States, Novartis' patents relating to
cyclosporine formulations are expected to continue to present
significant barriers to entry to potential competitors.

The Company has contracted for commercial scale production of
cyclosporine bulk material (i.e. the active ingredient of CYCLOSPORINE)
for its CYCLOSPORINE drug candidate 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 the Company's finished
CYCLOSPORINE product with Eli Lilly. SangStat's ANDA for U.S. marketing
clearance of its finished CYCLOSPORINE drug product is currently under
review at the FDA. 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.

Uncertainty of Market Acceptance.  Even if regulatory approvals are
obtained, uncertainty exists as to whether the Company's products will
be accepted by the market. In addition, there can be no assurance that
the Company will receive an "AB" rating (i.e. designation by the FDA
that a generic drug is bioequivalent to an FDA approved reference listed
drug, allowing substitution of one for the other) on CYCLOSPORINE or
AZATHIOPRINE which in certain cases would require substitution of the
Company's CYCLOSPORINE for Neoral and AZATHIOPRINE for Imuran,
respectively. 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 CYCLOSPORINE, there can be no assurance that even if product approval
is obtained, the Company will be successful in taking significant market
share away from Novartis.

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.

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 SangStat can manufacture, or have
manufactured, formulate or commercialize CYCLOSPORINE without infringing
third-party patents. Although Novartis' composition of matter patent for
cyclosporine expired in September 1995 in the United States, Novartis'
process and formulation patents relating to cyclosporine are expected to
continue to present significant barriers to entry to potential
competitors because of the large number and scope of Novartis' patents,
and the difficulty of solubilizing cyclosporine bulk material into a
formulated drug product. There can be no assurance that Novartis or its
contract manufacturers will not seek to protect its market share through
litigation, or otherwise, or that SangStat's CYCLOSPORINE will not be
found to infringe Novartis' or others' proprietary rights. Any
litigation, brought by Novartis or other parties, whether or not
resolved in favor of the Company, is likely to be expensive and time-
consuming and could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations. No
assurance can be given that Novartis will not commence litigation or
otherwise attempt to affect the regulatory approval or marketing of
CYCLOSPORINE in the future. If Novartis or other companies were to
successfully bring legal actions against the Company claiming patent or
other intellectual property right infringements, in addition to any
liability for damages, the Company could be enjoined by a court from
selling such products or processes and might be required to obtain a
license to manufacture or sell the affected product or process. There
can be no assurance that the Company would prevail in any such action or
that the Company could obtain any license required under any such patent
on acceptable terms. In particular, in the case of CYCLOSPORINE, the
Company believes that no license would be available on acceptable terms.
The biotechnology and pharmaceutical industries have experienced
significant litigation regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation with respect
to CYCLOSPORINE or any other product, it could consume a substantial
portion of the Company's financial and human resources, regardless of
the outcome of such litigation. See "Business-Patents and Proprietary
Technology" and "Risk Factors - Risks Associated with CYCLOSPORINE."

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.
The Company believes it competes favorably with respect to all of these
factors. With respect to THYMOGLOBULIN, CYCLOSPORINE 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. 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 its CYCLOSPORINE drug candidate 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 would compete with
CYCLOSPORINE. Additionally, Orthoclone OKT3, marketed by Johnson &
Johnson, ATGAM, marketed by Pharmacia & Upjohn Inc., 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 CYCLOSPORINE and AZATHIOPRINE. 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.  The Company lacks facilities to
manufacture any of its drug candidates in accordance with current good
manufacturing practices prescribed and strictly enforced by the FDA. The
Company generally relies on third parties to manufacture its compounds
for clinical trials, including THYMOGLOBULIN, CYCLOSPORINE,
AZATHIOPRINE, CELSIOR and ALLOTRAP 2702 and has contracted or expects to
contract for commercial production of these compounds. The Company has
an agreement with PMC under which it intends to obtain THYMOGLOBULIN for
clinical trials and commercial use. There can be no assurance that PMC
or other manufacturers will meet FDA standards governing Good
Manufacturing Practices ("GMP") or other regulatory guidelines, that any
ELA'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 2702 for clinical trials
from UCB Bioproducts S.A. ("UCB") located in Belgium, and intends to
contract with UCB for commercial production. The Company is currently
purchasing CYCLOSPORINE for clinical trials from Gensia Sicor under a
contract which also provides for the production of commercial scale
quantities. The Company has also entered into an agreement with Eli
Lilly under which Lilly has agreed to fill and finish bulk cyclosporine,
provided by the Company into the Company's proprietary formulated
CYCLOSPORINE drug product for subsequent commercial sale and
distribution worldwide by the Company. There can be no assurance that
the Company will be able to enter into secondary bulk material source
contracts or successful 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.

To date, the Company is manufacturing only two monitoring products in
commercial quantities, PRA-STAT and CROSS-STAT, which are being marketed
by SangStat's direct sales force in Europe and North America. To be
successful, the Company's products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable
cost. The Company has limited experience in manufacturing its monitoring
products, and there can be no assurance that the Company will be able to
continue production of its existing products and scale-up production of
future monitoring products to commercial levels. In addition, some
materials used in the Company's products may be available only from sole
suppliers. There can be no assurance that interruptions in supplies will
not occur in the future, which could have a material adverse effect on
the Company's ability to manufacture its products or to conduct clinical
trials.

Limited Marketing Capability.  The Company has a limited marketing
and sales staff. 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. Currently, the Company is
developing a sales force in North America and intends to develop a sales
force in Europe to market its products. However, there can be no
assurance that the Company will be able to complete the establishment of
a sales force or enter into co-promotion or distribution agreements on
terms favorable to the Company or on a timely basis. In addition, if the
Company succeeds in bringing products to market, it will compete with
many other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the
Company's marketing and sales operations would compete successfully
against such other companies. The Company has recently established THE
TRANSPLANT PHARMACY for the direct distribution by mail order of the
Company's products and services, as well as products and services of
third parties. 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. 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-Marketing."

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 PLA and ELA 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 the 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, including consultants and members
of its Scientific, Medical and Regulatory Advisory Board. 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. See
"Business-Scientific, Medical, Pharmacy and Regulatory Advisory Board"
and "Management."

Uncertainty of Pharmaceutical Pricing and Reimbursement.  SangStat'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 government 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."

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.

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 $3,000,000 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."

Volatility of Stock Price.  The market prices for securities of
biotechnology companies, including the Company's, have historically been
highly volatile, and 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
technological innovations or new therapeutic products by the Company or
its competitors, regulatory developments, disputes or developments
related to patent or other proprietary rights, public concern as to the
safety of products developed by the Company or others and general market
conditions may have a significant effect on the market price of the
Common Stock. See "Price Range of Common Stock."

Effect of Certain Provisions; Antitakeover 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 believes, that with appropriate
modification to existing software and implementation of new software,
that the Year 2000 issue will not pose significant operational problems
and is not anticipated to be material to its financial position or
results of operations. There can be no assurance, however, that there
will not be delays in, or increased costs associated with, the
implementation of such changes, and the Company's inability to implement
such changes could have a material adverse effect on the Company's
business, operating results, and 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.

ITEM 7A.        Quantitative and Qualitative Disclosures About Market Risk

        Disclosure under this item is not required in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

Not applicable.


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 June 1998.

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                                              52
Consolidated Balance Sheets - December 31, 1997 and 1996                  53
Consolidated Statements of Operations for the years ended
  December 31, 1997, 1996 and 1995                                        54
Consolidated Statements of Stockholders' Equity for the years
  ended December 31, 1997, 1996 and 1995                                  55
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1996 and 1995                                        56
Notes to Consolidated Financial Statements for the years ended
  December 31, 1997, 1996 and 1995                                        57


2. Financial Statement Schedule.



All schedules have been omitted since the required information

is not present in amounts sufficient to require submission of

the schedule or because the information required is included

in the consolidated financial statements or 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.

No reports on Form 8-K were filed during the last quarter of the
fiscal year covered by this Annual Report on Form 10-K.

(c)     Exhibits.


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

3.1(7) Amended and Restated Articles of Incorporation of the
Registrant filed November 29, 1993.

3.2 Certificate of Incorporation of SangStat Delaware, Inc.

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.

3.5 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 Provisions of Services, dated October 5, 1993
between the Centre Hospitals or 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 15,
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 Patrick Associates, Inc.

10.17(3) Lease Agreement dated September 1, 1993 between SangStat
Atlantique and Centre 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 21, 1994
between the Registrant and the investors listed in Schedule A
thereto.

10.25(10) Rights Agreement, dated as of August 14, 1995, between the
Registrant and First National Bank of Boston.

21.1(5) Subsidiaries of Registrant.

23.1 Independent Auditors' Consent.

24.1 Power of Attorney. (Reference is made to page 67)

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).

(10)    Previously filed as an Exhibit to the Registrant's Form 8-A filed
August 25, 1997.


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 27, 1998.

SANGSTAT MEDICAL CORPORATION

By:
                Philippe Pouletty, M.D.
                Chairman and Chief Executive Officer


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philippe Pouletty and James F.
Hinrichs, 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.


           SIGNATURE                         TITLE                   DATE
-------------------------------  -----------------------------  -------------

    /s/ PHILIPPE POULETTY        Chief Executive Officer        March 27 , 1998
-------------------------------   (Principal Executive
   Philippe Pouletty, M.D.       Officer) and Chairman of the
                                 Board of Directors

    /s/ JAMES F. HINRICHS        Chief Financial Officer        March 27, 1998
-------------------------------   (Principal Accounting Officer)
    James F. Hinrichs

   /s/ GORDON RUSSELL             Director                      March 27 , 1998
-------------------------------
    Gordon Russell

   /s/ FREDRIC J. FELDMAN        Director                       March 27 , 1998
-------------------------------
    Fredric J. Feldman, Ph.D.

   /s/ ELIZABETH GREETHAM        Director                       March 27 , 1998
-------------------------------
    Elizabeth Greetham

   /s/ RICHARD D. MURDOCK        Director                       March 27 , 1998
-------------------------------
    Richard D. Murdock

   /s/ ANDREW PERLMAN            Director                       March 27 , 1998
-------------------------------
    Andrew Perlman, M.D., Ph.D.

    /s/ VINCENT WORMS            Director                       March 27 , 1998
-------------------------------
    Vincent Worms

<PAGE>

SANGSTAT MEDICAL CORPORATION

Index to Exhibits

                                                         Sequentially
       Exhibit            Description                    Numbered 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.

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

3.2 Certificate of Incorporation of SangStat Delaware, Inc.

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.

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

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).

(10)    Previously filed as an Exhibit to the Registrant's Form 8-A filed
August 25, 1997.



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,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of SangStat Medical
Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
February 6, 1998


                          SANGSTAT MEDICAL CORPORATION

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                          December 31,
                                                  ---------------------------
                                                          1997          1996
                                                  -------------  ------------
<S>                                               <C>            <C>
                             ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.....................   $50,630,819   $19,818,940
  Short-term investments........................    41,404,955    21,501,961
  Accounts receivable (net of allowance for          1,012,631       399,437
   doubtful accounts $139,297 in 1997 and
   $98,919 in 1996).............................
  Other receivables.............................       581,420       483,252
  Inventories...................................     3,757,451       802,137
  Prepaid expenses..............................     1,752,036       413,181
                                                  -------------  ------------
          Total current assets..................    99,139,312    43,418,908
PROPERTY AND EQUIPMENT--Net.....................     2,015,373       993,995
OTHER ASSETS....................................     3,199,785       337,213
                                                  -------------  ------------
          TOTAL.................................  $104,354,470   $44,750,116
                                                  =============  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..............................    $3,486,726    $1,094,104
  Accrued liabilities...........................     1,222,607       875,602
  Capital lease obligations--current portion....       327,222       262,339
  Notes payable--current portion................       290,855       462,743
                                                  -------------  ------------
          Total current liabilities.............     5,327,410     2,694,788
                                                  -------------  ------------
CAPITAL LEASE OBLIGATIONS.......................     1,020,361       296,715
                                                  -------------  ------------
NOTES PAYABLE...................................       536,507       803,631
                                                  -------------  ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
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: 1997,
    16,009,531 shares; 1996, 13,129,560
    shares......................................   159,265,454    81,657,313
  Accumulated deficit...........................   (61,806,012)  (40,825,826)
  Accumulated translation adjustment............       (14,014)       20,634
  Unrealized gain on investments................        24,764       102,861
                                                  -------------  ------------
          Total stockholders' equity............    97,470,192    40,954,982
                                                  -------------  ------------
          TOTAL.................................  $104,354,470   $44,750,116
                                                  =============  ============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>

                          SANGSTAT MEDICAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                  -----------------------------------------
                                                          1997      1996          1995
                                                  ------------- ------------- -------------
<S>                                               <C>           <C>           <C>
REVENUES:
  Net product sales.............................    $3,777,170    $2,398,979    $2,697,759
  Revenue from collaborative agreements (Note 6).      750,000            --     1,125,000
                                                  ------------- ------------- -------------
          Total revenues........................     4,527,170     2,398,979     3,822,759
                                                  ------------- ------------- -------------

COSTS AND OPERATING EXPENSES:
  Cost of sales and manufacturing expenses......     3,735,776     2,845,802     2,753,173
  Research and development......................    16,210,198     8,330,129     6,647,232
  Selling, general and administrative...........    11,067,763     6,120,489     3,772,289
                                                  ------------- ------------- -------------
          Total costs and operating expenses......  31,013,737    17,296,420    13,172,694
                                                  ------------- ------------- -------------
     Loss from operations.......................   (26,486,567)  (14,897,441)   (9,349,935)

OTHER INCOME (EXPENSE):
  Interest income...............................     5,716,607     2,261,450       811,056
  Interest expense..............................      (210,226)     (137,844)     (139,118)
                                                  ------------- ------------- -------------
          Other income--net.....................     5,506,381     2,123,606       671,938
                                                  ------------- ------------- -------------
NET LOSS........................................  ($20,980,186) ($12,773,835)  ($8,677,997)
                                                  ============= ============= =============
NET LOSS PER SHARE - Basic and diluted (Note 1)...      ($1.36)       ($1.03)       ($0.92)
                                                  ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES..................    15,375,753    12,405,081     9,384,726
                                                  ============= ============= =============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>

                          SANGSTAT MEDICAL CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                              Unrealized
                                               Common Stock                       Accumulated Gain (Loss)
                                        -------------------------   Accumulated   Translation     on
                                          Shares       Amount         Deficit     Adjustment  Investments      Total
                                        ----------- -------------  -------------  ----------  -----------  -------------
<S>                                     <C>         <C>            <C>            <C>         <C>          <C>
BALANCES, January 1, 1995..........      8,468,391   $30,695,155   ($19,373,994)    $58,442     ($51,958)   $11,327,645
Sale of common stock (net of issuance
  costs of $317,818).................    1,000,000     5,182,182                                              5,182,182
Exercise of stock options and
  warrants...........................      129,692       398,428                                                398,428
Accumulated translation adjustment...                                               (11,631)                    (11,631)
Unrealized gain on investments.......                                                             62,850         62,850
Net loss.............................                                (8,677,997)                             (8,677,997)
                                        ----------- -------------  -------------  ----------  -----------  -------------
BALANCES, December 31, 1995..........    9,598,083    36,275,765    (28,051,991)     46,811       10,892      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)     20,634      102,861     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 loss 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)   ($14,014)     $24,764    $97,470,192
                                        =========== =============  =============  ==========  ===========  =============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>

                          SANGSTAT MEDICAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                             -----------------------------------------
                                                                 1997          1996          1995
                                                             ------------- ------------- -------------
<S>                                                          <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.................................................. ($20,980,186) ($12,773,835)  ($8,677,997)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation and amortization...........................      629,018       421,261       349,420
    Stock compensation expense..............................      232,206       222,460            --
    Changes in assets and liabilities:
      Accounts receivable...................................     (631,503)        5,167      (222,518)
      Other receivables.....................................     (109,722)     (316,123)      (46,503)
      Inventories...........................................   (2,966,786)      (37,016)     (157,992)
      Prepaid expenses......................................   (1,341,952)     (344,110)      (23,357)
      Accounts payable......................................    2,438,310        63,502        77,110
      Accrued liabilities...................................      378,840       232,860       110,547
                                                             ------------- ------------- -------------
         Net cash used in operating activities..............  (22,351,775)  (12,525,834)   (8,591,290)
                                                             ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock......................................   77,375,935    45,159,088     5,580,610
  Note payable borrowings...................................           --       383,000       252,033
  Notes payable repayments..................................     (404,547)     (446,481)     (333,650)
  Repayment of capital lease obligations....................     (355,930)     (285,018)     (285,627)
                                                             ------------- ------------- -------------
         Net cash provided by financing activities..........   76,615,458    44,810,589     5,213,366
                                                             ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................     (516,049)     (279,888)      (20,262)
  Maturities of short-term investments......................   13,012,560    16,560,957    20,401,597
  Purchase of short-term investments........................  (32,993,651)  (33,362,727)  (22,392,910)
  Other assets..............................................   (2,919,144)       33,444       138,994
                                                             ------------- ------------- -------------
         Net cash used in investing activities..............  (23,416,284)  (17,048,214)   (1,872,581)
                                                             ------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................      (35,520)      (26,787)       30,763
                                                             ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........   30,811,879    15,209,754    (5,219,742)
CASH AND CASH EQUIVALENTS, Beginning of year................   19,818,940     4,609,186     9,828,928
                                                             ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, End of year......................  $50,630,819   $19,818,940    $4,609,186
                                                             ============= ============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES:
  Property acquired under capital leases....................   $1,144,459      $318,863      $273,532
                                                             ============= ============= =============
  Property acquired under notes payable..................... $         --      $290,050  $         --
                                                             ============= ============= =============
  Unrealized gain (loss) on investments.....................     ($78,097)      $91,969       $62,580
                                                             ============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
  Cash paid during the year for interest....................     $225,562      $149,295      $143,950
                                                             ============= ============= =============
</TABLE>
                See notes to consolidated financial statements.
<PAGE>

SANGSTAT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995

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 6).

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.  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, 1997, other assets included a $2.5
million investment in Gensia Sicor, which is one of the Company's
suppliers of bulk CYCLOSPORINE drug substance (see Note 2).

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").

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.  All net loss per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS 128
requirement.

Recently Issued Accounting Standards-In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive
Income, which requires that an enterprise report, by major components
and as a single total, the change in its net assets during the period
from nonowner sources, and 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.  Adoption of these statements will not impact the
Company's consolidated financial position, results of operations or cash
flows.  Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.

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.

2.  INVESTMENTS

     Available-for-sale securities consist of the following:

                                               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 ...  2,500,000       22,128         --      2,522,128
                      ------------ ------------ ------------ ------------
                      $43,902,319      $50,388     ($25,624) $43,927,083
                      ============ ============ ============ ============


                                               December 31, 1996
                      ---------------------------------------------------
                                    Unrealized   Unrealized   Estimated
                       Amortized     Gain on      Loss on        Fair
                          Cost     Investments  Investments     Value
                      ------------ ------------ ------------ ------------
  Corporate bonds ....$21,399,100     $106,836      ($3,975) $21,501,961
                      ============ ============ ============ ============

     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, 1997 are as follows:

                                                 Estimated
                                    Amortized       Fair
                                       Cost        Value
                                   ------------ ------------
        Within one year ...........$23,256,584  $23,247,272
        One year to two years...... 18,145,735   18,157,683
                                   ------------ ------------
        Short-term investments.....$41,402,319  $41,404,955
                                   ============ ============

3.  INVENTORIES

    Inventories consist of:
                                                         December 31,
                                                 -------------------------
                                                     1997         1996
                                                 ------------ ------------
     Raw materials..............................  $1,929,954     $265,537
     Work in process............................     144,389      275,503
     Finished goods.............................   1,683,108      261,097
                                                 ------------ ------------
           Total................................  $3,757,451     $802,137
                                                 ============ ============

4.  PROPERTY AND EQUIPMENT

    Property and equipment consist of:
                                                         December 31,
                                                 -------------------------
                                                     1997         1996
                                                 ------------ ------------
     Machinery and equipment....................  $3,852,666   $2,491,647
     Furniture and fixtures.....................     156,955       50,296
     Leasehold improvements.....................     283,470      122,104
                                                 ------------ ------------
     Total......................................   4,293,091    2,664,047
     Accumulated depreciation and amortization..  (2,277,718)  (1,670,052)
                                                 ------------ ------------
     Property and equipment--net................  $2,015,373     $993,995
                                                 ============ ============

     Included in machinery and equipment at December 31, 1997 and 1996 are
assets leased under capital leases of $1,330,802 and $456,083 (net of
accumulated amortization of $813,007 and $496,831), respectively.

5.  ACCRUED LIABILITIES

     Accrued liabilities consist of:
                                                         December 31,
                                                 -------------------------
                                                     1997         1996
                                                 ------------ ------------
     Salaries and related benefits..............  $1,086,683     $713,447
     Other......................................     135,924      162,155
                                                 ------------ ------------
              Total.............................  $1,222,607     $875,602
                                                 ============ ============


6.  COLLABORATIVE AGREEMENTS

In December 1997, the Company signed an agreement with Amgen Inc.
("Amgen") for the exclusive registration, marketing and distribution of
SangStat's proprietary CYCLOSPORINE product candidate in selected
territories in the Asia/Pacific Rim region.  SangStat has retained the
exclusive commercial rights to its CYCLOSPORINE in all other territories
including North America and Western Europe.  Under the terms of the
agreement, Amgen will have exclusive rights to market CYCLOSPORINE,
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 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.

In October 1993, the Company entered into an agreement with Pasteur
Merieux Serums et Vaccins (the Merieux Agreement). The Merieux Agreement
specifies that the Company will have exclusive rights to market certain
Merieux products in the United States and Canada upon approval of the
FDA or similar agencies. The Company must use reasonable commercial
efforts to obtain FDA approval. The Merieux Agreement provides for
payments by the Company upon completion of certain milestones totaling
$2,000,000 and royalties on sales of products, subject to minimum
amounts. There were no amounts expensed under the Merieux Agreement in
1997, 1996 or 1995.

In April 1993, the Company entered into a collaborative licensing,
marketing and development agreement (the Agreement) with Baxter
Healthcare Corporation (Baxter). The Agreement provides to Baxter
exclusive marketing rights to certain products. In addition, the
Agreement specifies that the Company develop certain products pursuant
to specifications and milestones as outlined in the Agreement. In 1995,
$1,125,000 was earned as the final milestones were attained and
represented the completion of $10.0 million received by SangStat for
milestones, license fees and equity from 1993 through 1995 under its
collaborative agreement with Baxter. The costs associated with the
development of the products encompassed under the Agreement and
achievement of related milestones were approximately $1,400,000 in 1995;
such costs have been included in research and development expenses in
the Consolidated Statements of Operations. 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.

7.  NOTES PAYABLE

    Notes payable consist of:
                                                         December 31,
                                                 -------------------------
                                                     1997         1996
                                                 ------------ ------------
    Notes due to former Series E
      preferred stockholders....................    $462,239     $555,485
    Baxter equipment note.......................     227,144      260,419
    Research and development loan...............     107,381      217,291
    Other loans.................................      30,598      233,179
                                                 ------------ ------------
    Total.......................................     827,362    1,266,374
    Less current portion........................    (290,855)    (462,743)
                                                 ------------ ------------
    Long-term...................................    $536,507     $803,631
                                                 ============ ============


     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 antidilution 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 1998.
Other loans consist primarily of a note payable for insurance and a noninterest
bearing loan denominated in French Francs provided by a French government
agency.

     As of December 31, 1997, future principal payments of notes payable are as
follows:

 Years Ending December 31,
---------------------------------
  1998..........................................    $290,855
  1999..........................................     120,510
  2000..........................................     108,546
  2001..........................................     112,163
  2002..........................................     116,088
  Thereafter....................................      79,200
                                                 ------------
              Total.............................    $827,362
                                                 ============

8.  STOCKHOLDERS' EQUITY

Common Stock-In February 1995, the Company issued 1,000,000 shares
of common stock in a public offering for net consideration of
$5,182,182, in March 1996 issued 3,450,000 shares of common stock in a
public offering for net consideration of $45,062,271, and in March and
April 1997 issued 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 nonstatutory stock options to purchase up to 2,542,200 shares of
common stock may be granted to employees, directors, and consultants.
Incentive stock options must be granted at not less than fair market
value at the date of grant. Nonstatutory options must be granted at not
less than 85% of fair market value at the date of the grant.

A summary of stock option activity is as follows:

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

Balances, January 1, 1995 .............................    557,275      $2.00
Options granted (weighted average fair value of $3.28)..   501,080       5.73
Options exercised.......................................   (37,460)      0.55
Options canceled........................................    (6,682)      0.41
                                                         ----------
Balances, December 31, 1995 (255,798 vested at a
  weighted average exercise price of $1.50)............  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 (636,816 vested at a
  weighted average exercise price of $3.39)............  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............................. 1,501,189     $11.78
                                                         ==========

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, 1997, 6,708 outstanding shares were subject to such
repurchase rights at prices ranging from $13.50 to $23.63 per share. As
of December 31, 1997, 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, 1997, 789,791 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
nonemployee 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 1997, each of the six
nonemployee Directors were granted options to purchase 3,000 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, 1997 is as follows:

     Additional information regarding options outstanding as of December 31,
1997 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     261,933           4.2       $1.06   261,733       $1.06
  2.51 -   5.00     185,855           7.0        4.80   164,163        4.80
  5.10 -   8.25     322,301           7.1        6.28   177,128        6.25
  8.26 -  13.50     218,600           8.5       13.50    55,245       13.50
 13.51 -  26.50     457,500           9.2       20.90    81,569       20.53
 36.13               55,000           9.9       36.13       --           --
                 -----------  ------------ ----------- --------- -----------
                  1,501,189           7.5      $11.78   739,838       $6.21
                 ===========  ============ =========== ========= ===========
</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, 61%
in 1997, 54% in 1996 and 54% in 1995; risk free interest rate,
approximately 6% in 1997, 6% in 1996 and 7% in 1995; and no dividend
payments during the expected term. Forfeitures are recognized as they
occur. If the computed fair values of the 1997, 1996 and 1995 awards had
been amortized to expense over the vesting period of the awards,
pro forma net loss would have been approximately  $23,647,000 ($1.54 per
share) in 1997, $13,378,000 ($1.08 per share) in 1996 and $8,903,000
($0.95 per share) in 1995.  However, the impact of outstanding non-
vested stock options granted prior to 1995 has been excluded from the
pro forma calculation; accordingly, the pro forma adjustments are not
indicative of future period pro forma adjustments, when the calculation
will apply to all applicable stock options.

9.  LEASING ARRANGEMENTS

     The Company leases administrative facilities under operating leases and
machinery and equipment under capital leases expiring through 2002. As of
December 31, 1997, future minimum annual payments under capital and operating
leases are as follows:

                                                  Capital    Operating
 Years Ending December 31,                        Leases      Leases
---------------------------------               ----------- -----------
  1998.........................................   $458,757    $507,135
  1999.........................................    516,152     361,103
  2000.........................................    527,806      62,845
  2001.........................................    110,038          --
  2002.........................................      8,881          --
                                                ----------- -----------
  Total minimum lease payments.................  1,621,634    $931,083
                                                            ===========
  Less amounts representing interest...........   (274,051)
                                                -----------
  Present value of minimum lease payments......  1,347,583
  Less current portion.........................   (327,222)
                                                -----------
  Capital lease obligations.................... $1,020,361
                                                ===========


     Rent expense for the years ended December 31, 1997, 1996 and 1995 was
$343,710, $289,007 and $267,312, respectively.

10.  INCOME TAXES

     Loss before income taxes consists of the following:
<TABLE>
<CAPTION>
                                                               December 31,
                                                 ----------------------------------------
                                                     1997          1996          1995
                                                 ------------- ------------- ------------
<S>                                              <C>           <C>           <C>
    Income (loss) before income taxes:
     Domestic.................................   ($20,655,443) ($12,634,970) ($8,856,483)
     Foreign..................................       (324,743)     (138,865)     178,486
                                                 ------------- ------------- ------------
                                                 ($20,980,186) ($12,773,835) ($8,677,997)
                                                 ============= ============= ============
</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 and liabilities are as follows:

<TABLE>
<CAPTION>
                                                          December 31,
                                                 ---------------------------
                                                     1997          1996
                                                 ------------- -------------
<S>                                              <C>           <C>
   Deferred tax assets:
     Net operating losses.......................  $20,249,517   $14,222,632
     General business credits...................    2,324,855     1,127,395
     Accruals deductible in different periods...    2,691,360       743,564
     Depreciation...............................      196,995       141,335
                                                 ------------- -------------
                                                   25,462,727    16,234,926
   Valuation allowance..........................  (25,462,727)  (16,234,926)
                                                 ------------- -------------
          Total.................................  $       --    $       --
                                                 ============= =============
</TABLE>

     Based on its history of operating losses, the Company has placed a
valuation allowance of $25,462,727 and $16,234,926 against its otherwise
recognizable net deferred tax assets at December 31, 1997 and 1996,
respectively, due to the uncertainty surrounding the realizability of these
benefits.

     At December 31, 1997, the Company had federal, California and foreign net
operating loss carryforwards of approximately $56,055,000, $13,437,000, and
$1,393,000, respectively, available to reduce future taxable income. Such
carryforwards expire beginning in 1998 through 2013.

     Also at December 31, 1997, the Company had research and experimentation
credit carryforwards available of approximately $1,510,000 and $815,000 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.

11.  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, 1997
the Company had not made any contributions.


12.  MAJOR CUSTOMERS

Amgen accounted for approximately 17% of total revenues in 1997 (see
Note 6).  Baxter accounted for approximately 16% and 49% of total
revenues in 1996 and 1995, respectively (see Note 6). Another customer
accounted for approximately 10% of total revenues in 1996.

13.  FOREIGN OPERATIONS

     The Company is engaged in one business segment: the development and
marketing of products for use in transplantation, including monitoring test
products and therapeutic products. The Company's operations in Europe are
conducted primarily in France and primarily relate to research and development
and clinical trials for therapeutic products.

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

<TABLE>
<CAPTION>
                                    UNITED
                                    STATES       EUROPE        CANADA     CONSOLIDATED
                                 ------------  -----------   ----------   ------------
<S>                              <C>           <C>           <C>          <C>
   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
                                 ============= ============= ============ =============

   Year ended December 31, 1995:
      Sales to unaffiliated
         customers............     $2,356,211  $        --    $1,466,548    $3,822,759
                                 ============= ============= ============ =============

      Loss from operations....    ($8,193,698)  ($1,066,847)    ($89,390)  ($9,349,935)
                                 ============= ============= ============ =============

      Total assets............    $10,348,129      $610,015     $601,733   $11,559,877
                                 ============= ============= ============ =============
</TABLE>