UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

    OR

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

                         Commission file number 0-19612

                          IMCLONE SYSTEMS INCORPORATED
             (Exact name of registrant as specified in its charter)

         DELAWARE                                          04-2834797
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

            180 Varick Street,
               New York, NY                                   10014
 (Address of principal executive offices)                  (Zip Code)

                                 (212) 645-1405
              (Registrant's telephone number, including area code)

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

      Securities registered pursuant to Section 12(g) of the Act: common stock,
                                                                 par value $.001

      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 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 and non-voting common equity held by
non-affiliates of the registrant as of March 26, 1999 was $342,927,580.

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

               Class                          Outstanding as of March  26, 1999
 -----------------------------                ----------------------------------
 Common stock, par value $.001                            24,599,358

      Documents Incorporated by Reference: The registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 24,
1999 to be filed with the Commission not later than 120 days after the close of
the registrant's fiscal year, has been incorporated by reference, in whole or in
part, into Part III, Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                          1998 Form 10-K Annual Report

                                TABLE OF CONTENTS

                                                                            Page

                                                                            ----
                                     PART I

Item 1.   Business                                                             1
Item 2.   Properties                                                          16
Item 3.   Legal Proceedings                                                   17
Item 4.   Submission of Matters to a Vote of
          Security Holders                                                    17

                                     PART II

Item 5.   Market for the Registrant's Common Equity and
          Related Stockholder Matters                                         17
Item 6.   Selected Financial Data                                             19
Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                 19
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk          26
Item 8.   Financial Statements and Supplementary Data                         26
Item 9.   Changes in and Disagreements With Accountants
          on Accounting and Financial Disclosure                              26

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                  27
Item 11.  Executive Compensation                                              27
Item 12.  Security Ownership of Certain Beneficial Owners
          and Management                                                      27
Item 13.  Certain Relationships and Related Transactions                      27

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and
          Reports on Form 8-K                                                 27

----------------
Cautionary Factors With Respect to Forward-Looking Statements

Those statements contained herein that do not relate to historical information
are forward-looking statements. There can be no assurance that the future
results covered by such forward-looking statements will be achieved. Actual
results may differ materially due to the risks and uncertainties inherent in our
business, including without limitation, the risks and uncertainties associated
with completing pre-clinical and clinical trials of our compounds that
demonstrate such compounds' safety and effectiveness; obtaining additional
financing to support our operations; obtaining and maintaining regulatory
approval for such compounds and complying with other governmental regulations
applicable to our business; obtaining the raw materials necessary in the
development of such compounds; consummating collaborative arrangements with
corporate partners for product development; achieving milestones under
collaborative arrangements with corporate partners; developing the capacity to
manufacture, market and sell our products, either directly or with collaborative
partners; developing market demand for and acceptance of such products;
competing effectively with other pharmaceutical and biotechnological products;
obtaining adequate reimbursement from third party payers; attracting and
retaining key personnel; protecting proprietary rights; and those other factors
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview and Risk Factors," all as are further discussed
herein.


                                      (i)
<PAGE>

PART I
Item 1. Business.

                                    OVERVIEW

We are a biopharmaceutical company, primarily engaged in the research and
development of drugs and other products for the treatment of cancer and
cancer-related disorders.

When we have successfully tested our products, we intend to sell them to the
public when and if we receive Food and Drug Administration ("FDA") and any other
required regulatory approvals. We may manufacture and market the products by
ourselves or in cooperation with others.

ImClone's Cancer-Related Products.

We currently have three cancer-related products that we are developing, two of
which we are testing in clinical trials. A clinical trial is a study in which a
product being tested is administered to patients under the supervision of a
qualified principal investigator. A clinical study is intended to determine,
among other things, the product's safety and effectiveness. We have not yet
commercialized and marketed any of these products or sold them to the public. We
are currently involved in developing the following cancer-related products:

o C225 Cancer Therapeutic ("C225").

o BEC2 Cancer Vaccine ("BEC2").

o c-p1C11 Monoclonal Antibody Inhibitor of Angiogenesis ("c-p1C11").

We discuss each of these products more fully below under the heading
"Development Programs."

Licensing of Diagnostics and Infectious Disease
    Products.

We have also researched, developed and tested products to diagnose, and vaccines
for, infectious diseases such as the sexually transmitted diseases gonorrhea and
chlamydia. We have licensed the rights to these diagnostic and infectious
disease products and vaccines to corporate partners. We use the licensing,
research support and royalty fee revenues that we receive from these corporate
partners, in part, to fund our ongoing research and development of
cancer-related products.

Research Programs.

In addition to our development programs, we also continue to conduct research in
various areas. We conduct such research to discover new treatments for cancer.
We conduct such research in-house, as well as in cooperation with certain
corporate partners and academic institutions.

Background and Facilities.

ImClone was incorporated in Delaware in 1984 and began its principal research
and development operations in March 1986. ImClone's principal executive offices
and laboratories are located at 180 Varick Street, New York, New York, 10014,
and the telephone number is (212) 645-1405.

We also operate a facility in Somerville, New Jersey where we manufacture
materials for product candidates of sufficient quality and in sufficient
quantity for human clinical trials.

                              DEVELOPMENT PROGRAMS

C225 Cancer Therapeutic.

Our main interventional therapeutic product candidate for cancer, C225, is a
chimerized (part mouse, part human) monoclonal antibody that blocks the
Epidermal Growth Factor ("EGF") receptor. An interventional therapeutic product
for cancer is a drug that interferes with the growth of tumors, and is used to
treat people who have developed cancer. An antibody is a protein that directly
recognizes foreign substances in the body, including tumors. The "monoclonal"
nature of an antibody means that the antibody is derived from a single
antibody-producing cell, called a hybridoma cell. C225 works to treat cancer in
the same manner as other growth factor receptor inhibitors, which process is
discussed in greater detail under the heading "ImClone's Research Programs
-Research on Interventional Therapeutics."

The EGF receptor is found in excessive amounts in the cells of approximately
one-third of all solid cancers. It is also found in select normal tissue. In
vivo animal studies, which for cancer studies can be studies in which animals
have been implanted with human tumors, have shown that C225, when used together
with various agents used in chemotherapy (doxorubicin, cisplatin or paclitaxel)
or with radiotherapy, helps these chemotherapeutic or radiotherapeutic agents
fight the tumors more effectively. These studies showed that the human tumors
established in these animals were eliminated, and the animals survived
tumor-free for a significant period of time. We have also found that C225


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used alone helps reduce tumors in animals that have been implanted with renal
cell carcinoma (kidney cancer) and pancreatic carcinoma (pancreatic cancer).

Our C225 product is now in clinical trials. Clinical trials are typically
conducted in three sequential phases, Phase I, Phase II and Phase III, although
the phases may overlap. In Phase I, the initial introduction of the drug into
human subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution, and excretion. A Phase II clinical trial studies a
limited number of patients to determine (1) if the drug has any effect on the
disease, (2) the correct dosage of the drug needed to produce the desired effect
and (3) the side effects of the dosage selected. A "Phase III" clinical trial is
conducted following a Phase II study which has shown that a product is effective
and acceptably safe. "Phase III" trials further evaluate clinical effectiveness
and further test for safety in a greater number of patients at multiple clinical
study sites.

Since December 1994, we have initiated several Phase Ib/IIa clinical trials of
C225 at Memorial Hospital (the patient care arm of Memorial Sloan-Kettering
Cancer Center) (referred to as "Sloan-Kettering"), Yale Cancer Center,
University of Virginia, MD Anderson Cancer Center and the University of Alabama,
among others. In these C225 Phase Ib/IIa studies, we have given C225
intravenously at selected doses, both alone and in combination with
chemotherapeutic drugs or radiotherapeutic agents, to patients with various
solid cancers, such as breast, prostate, head, and neck and renal cancers.
Certain of these studies are ongoing. These studies have shown that the drug is
generally well tolerated by patients.

A series of C225 pivotal studies is planned for 1999 based on positive results
from the Phase Ib/IIa studies. A pivotal study is a study after whose completion
FDA approval could be granted. One study will involve the administration to head
and neck cancer patients of C225 plus radiation therapy versus radiation therapy
alone, and in March 1999, the FDA gave us approval to initiate a Phase III
trial. A second trial will involve the use in head and neck cancer patients of
the drug plus cisplatin against cisplatin alone. A third trial will combine C225
and chemotherapy agents in patients who have failed prior chemotherapy in
squamous cell head and neck cancers. We also expect to begin in the near future
several additional Phase II clinical trials to continue to determine the types
of tumors on which C225 is most effective. In these clinical trials, we expect
C225 will be used in combination with chemotherapeutic agents or immune system
agents called cytokines.

In December 1998, we entered into an agreement with Merck KGaA ("Merck"), a
German-based drug company, relating to the development and commercialization of
C225. Under this agreement:

o   We have granted Merck the exclusive right to market C225 outside of North
    America. 

o   We have retained the right to market C225 within North America.
    
o   We have retained the right to be the exclusive manufacturer of C225.

o   We will co-develop C225 in Japan with Merck.

In return, Merck (1) paid us an upfront fee, (2) is paying to us early
cash-based milestone payments based upon our achievement of certain milestones
set forth in the agreement, (3) is paying to us, assuming we achieve further
milestones, additional milestone payments for which Merck will receive equity in
ImClone which will be priced at varying premiums to the then market price of the
common stock depending upon the timing of the achievement of the respective
milestones, (4) is providing to us subject to certain terms a secured line of
credit or guaranty for the build-out of a manufacturing facility by us for the
commercial production of C225, (5) is funding clinical development of C225
outside of North America, and (6) is required to pay us royalties on future
sales of C225 outside North America, if any.

BEC2 Cancer Vaccine.

BEC2 is our principal cancer vaccine product candidate. A cancer vaccine is
intended to be given to a patient after initial treatment of a tumor in order to
activate immune responses to protect against local spread, distant metastases,
or recurrence of the cancer. It is currently in the clinical development stage.
BEC2 is a monoclonal anti-idiotypic antibody. Anti-idiotypic antibodies are
antibodies directed against the site of another antibody to which antigens bind.
An antigen is a substance in the body that stimulates the body to produce
antibodies and/or T cells to fight disease. T cells are cells that are involved
in the immune system's response to fight disease. In certain cases, the
anti-idiotypic antibody can resemble the original antigen and thus stimulate an
immune system response. Often, such an anti-idiotypic antibody produces a
stronger immune response than the immune response produced by the original
antigen, which it resembles. As a result, the immune system of cancer patients
injected with an anti-idiotypic antibody that resembles an antigen on a tumor
will recognize the tumor antigen and destroy the tumor.

We have tested together with Sloan-Kettering scientists, the BEC2 antibody since
1991 in Phase I clinical trials at Sloan-Kettering against certain forms of
cancer, including both limited disease and extensive disease small cell lung
carcinoma and melanoma (skin cancer). Limited disease small cell lung carcinoma
is limited to 


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<PAGE>

the lungs. Extensive disease small cell lung carcinoma means that the disease
has migrated to other parts of the body. A statistically significant number of
patients with small cell lung carcinoma who participated in a pilot study
involving BEC2 at Sloan-Kettering had a considerably longer disease-free period
after treatment with BEC2 than would otherwise have been expected. We have begun
a Phase III multinational clinical trial for BEC2 in the treatment of limited
disease small cell lung carcinoma.

In December 1990, we entered into an agreement with Merck relating to the
development and commercialization of BEC2. Under this agreement, as subsequently
amended:

o    We have granted Merck exclusive rights to manufacture and market BEC2
     worldwide, but for North America where the parties share the right to
     co-market BEC2.

o    The parties intend that ImClone will be the bulk product manufacturer of
     BEC2 to support worldwide sales.

In return, Merck (1) is paying us research support, (2) is required to pay us
certain milestone fees, and (3) is required to pay us royalties on future sales
of BEC2 by Merck outside North America, if any with a portion of the earlier
funding being creditable against royalties.

Monoclonal Antibody Inhibitor of  Angiogenesis.

We have developed c-p1C11 as an inhibitor of angiogenesis. Angiogenesis is the
natural process of growth of new blood vessels. Vascular Endothelial Growth
Factor ("VEGF") regulates angiogenesis. VEGF is a natural growth factor, which
is also produced by tumor cells. Once produced by the tumor, it stimulates the
body's endothelial cells, which are the cells that line all blood vessels, to
grow. This results in the production of new blood vessels and ensures an
adequate blood supply to the tumor. The growth of a tumor depends upon the
growth of new blood vessels in this manner. KDR is a growth factor receptor
found almost exclusively on the surface of human endothelial cells. VEGF must
recognize and bind to this KDR receptor in order to stimulate the endothelial
cells to grow.

C-p1C11 is a chimerized monoclonal antibody, which specifically binds to the KDR
receptor for VEGF. By doing so, it prevents VEGF from binding to that receptor,
which, in turn, blocks endothelial cell growth and inhibits angiogenesis. The
c-p1C11 antibody, therefore, helps inhibit or eliminate cancer by preventing the
growth of new blood vessels and depriving the tumor of the blood supply that it
requires to grow. The c-p1C11 antibody is called "chimerized" because part of
the antibody is derived from a mouse, while the other part is derived from a
human. The benefit of the chimerization of this antibody in this way is that the
human part causes the antibody to be less immunogenic. That is, it lessens the
chance that the body will recognize the antibody as foreign and reject it. An
antibody such as c-p1C11 that inhibits angiogenesis may also be useful in
treating other diseases that, like cancer, depend on the growth of new blood
vessels. Such diseases include diabetic retinopathy, age-related macular
degeneration, and rheumatoid arthritis.

We are now conducting pre-clinical studies before filing an Investigational New
Drug Application ("IND") with the FDA to allow us to further test c-p1C11 as a
possible cancer therapeutic. Preliminary animal data demonstrate that c-p1C11
binds to blood vessels during tumor induced angiogenesis. Pre-clinical studies
are conducted before the beginning of clinical trials, and include both
laboratory evaluation of the chemistry of the product and animal studies to
determine the safety and effectiveness of the product. The results of the
pre-clinical studies are submitted to the FDA as part of the IND.

We are also working with MRC Collaborative Center in England to prepare a
"humanized" form of c-p1C11. A "humanized" form of c-p1C11 would essentially be
a human antibody that contains only a minimal amount of mouse components that
are necessary for the antibody to have therapeutic value without resulting in
the body rejecting the antibody. The humanized form of c-p1C11 would serve as a
back up, in the event that the chimerized c-p1C11 antibody causes an immune
response in the human body due to the presence of the mouse component.

IMCLONE'S RESEARCH PROGRAMS

General.

In addition to concentrating on our products in development, we perform ongoing
research in a number of related areas. We conduct research in-house. We also
cooperate with corporate partners and academic institutions on research. We hope
that such research efforts will identify, among other things, additional drugs,
and techniques to treat and prevent cancer which we can develop, test and
ultimately commercialize to manufacture and sell to the public.

Research on Interventional Therapeutics.

Tyrosine Kinase Receptor Inhibitors. We are conducting a research program to
develop inhibitors of tyrosine kinase receptors. Tyrosine kinase receptors are a
type of growth factor receptor. Tumor cells often depend on growth factors to
allow the tumor to continue to grow and multiply rapidly. These growth factors
act by 


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<PAGE>

binding to tyrosine kinase receptors, which are receptors located on the surface
of cells. When the growth factor binds to the receptor, this activates the
enzyme (kinase) part of the receptor, which initiates an "on signal" in the
cells. The kinase activity initiates the process of cell division, which results
in tumor growth. Therefore a product that inhibits tyrosine kinase receptors
would prevent the growth factor from binding with the tyrosine kinase receptor.
This would, in turn, prevent or inhibit the kinase activity that would result
from such binding, as well as the resulting cell division and tumor cell growth.

In the past, we have chosen to inhibit tyrosine kinase receptors with antibodies
that block the binding of growth factors to the receptors. For example, C225
blocks the binding of EGF to its receptor, EGFr and c-p1C11 blocks the binding
of VEGF to its receptor, KDR. More recently, we have started a discovery program
to identify small molecules that inhibit the enzyme part of growth factor
receptors. In October 1997, we entered into an agreement with CombiChem, Inc.,
("CombiChem") a combinational chemistry company. Under our agreement, we can use
CombiChem's library of structures of chemical compounds to help us identify
candidates that interfere with the function of growth factor receptors.
CombiChem will also synthesize novel and improved molecules that act as
inhibitors of the growth factor receptors. We have also entered into an
agreement with the Institute for Molecular Medicine in Freiburg, Germany, which
permits us to test small molecules as therapeutic candidates to see if they are
effective in inhibiting various tyrosine kinase receptors.

VE-cadherin. In connection with our anti-angiogenesis research program, we are
also doing research to see whether antibodies that inhibit vascular-specific
cadherin ("VE-cadherin") also inhibit angiogenesis. Cadherins are a family of
cell surface molecules that help organize tissue structures. Researchers believe
that VE-cadherin plays an important role in angiogenesis by organizing the
assembly of endothelial cells into vascular tubes, which is a necessary step in
the formation of new blood vessels. As we stated above, advanced tumor growth is
dependent on the formation of a capillary blood vessel network in the tumor to
ensure an adequate blood supply to the tumor. Therefore, antibodies that inhibit
VE-cadherin may inhibit such capillary formation in tumors, and help fight
cancer by cutting-off an adequate blood supply to the tumor. We intend to test
various monoclonal antibodies against VE-cadherin to see if they are effective
in inhibiting the function of the VE-cadherin, and the growth of blood vessels.

We also intend to use our chemical analysis techniques as well as CombiChem's
libraries to identify small molecules, in addition to antibodies, that inhibit
VE-cadherin. In connection with our VE-cadherin research program, we have been
assigned the exclusive rights to VE-cadherin-2, a recently developed form of
vascular-specific cadherin, and to antibodies that inhibit VE-cadherin. We also
collaborate with the Mario Negri Institute for Pharmacological Research (Milan,
Italy) to do pharmacological research to better determine the role of
VE-cadherin in angiogenesis.

Research on Potential Cancer Vaccines.

We are conducting research to discover possible cancer vaccines as another route
to cancer treatment. Cancer vaccines would activate immune responses to tumors
to protect against local spread, distant metastases, or recurrence of cancer.
Our BEC2 product is a cancer vaccine under development. We focus our research
efforts in our cancer vaccine research program on choosing appropriate cancer
cell targets and producing effective immune responses.

For example, we are now doing research on a possible melanoma vaccine based on
the melanoma antigen gp75. A melanoma is a tumor or cancerous growth of the
skin. The gp75 antigen stimulates the body to produce antibodies and T cells to
attack the malignant melanoma. Animal studies have shown that a gp75 cancer
vaccine is very effective in creating an immune response in the body against
melanoma cells, and may prevent or inhibit growth of experimental melanoma
tumors in mice.

Research on Endothelial Stem Cell Technology.

We have developed the technology necessary to isolate endothelial stem cells.
Endothelial stem cells are cells that may originate in the bone marrow. These
stem cells contribute to the development of new blood vessels throughout the
entire body. Endothelial stem cells help produce endothelial cells. We are
exploring the use of endothelial stem cells to stimulate collateral blood
circulation in ischemias. Ischemias are disease conditions where an organ of the
body does not receive enough blood. For example, a myocardial ischemia is caused
by the clogging of the blood vessels in the heart.

We believe that the ability to isolate endothelial stem cells could allow us to
use these cells to treat many ischemia conditions by using them to stimulate the
growth of new blood vessels to increase the supply of blood to a targeted area
of the body. We also believe that the isolated endothelial stem cells could be
used to treat other conditions where the stimulation of new blood vessel growth
is desired. These uses include the treatment of burn patients and the healing of
wounds.

We are also exploring the use of endothelial stem cells in connection with gene
therapy. Gene therapy involves inserting one or more genes into cells. The cells
may then be delivered by various mechanisms to specific 


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parts of the body in order to treat disease. For example, in diabetes, a
condition in which the pancreas does not produce enough insulin, a gene therapy
technique could be used to alter cells to produce insulin and deliver such
insulin producing cells to the pancreas.

We believe that a gene therapy delivery approach could also be used with
endothelial cells in order to treat cancer. Tumors require angiogenesis to grow.
Tumors must attract endothelial stem cells in order for angiogenesis to occur.
We believe that a gene therapy technique could be used to alter endothelial stem
cells to express tumor-destroying molecules and to deliver these altered
endothelial stem cells to the tumors.

This research on endothelial stem cells is being conducted through our
wholly-owned subsidiary, EndoClone Incorporated.

Research on Hematopoiesis.

We are conducting research in hematopoiesis, which is the growth and development
of blood cell elements. Current cancer treatments such as radiation and
chemotherapy are limited because they are harmful to bone marrow, the part of
the body that manufactures the cellular elements of blood. Radiation and
chemotherapy would be less harmful and could be used more effectively if the
hematopoietic stem cells in the bone marrow (i.e., the cells that make blood
cells) could be shielded from these harmful effects. This could be accomplished
if these blood cell-making stem cells could be removed from the patient before
treatment with radiation or chemotherapy and returned to the patient afterwards.
Therefore, our research, on hematopoiesis has been aimed at discovering factors
to support these blood-making stem cells and to control their proliferation,
differentiation, and functional deterioration. Our goal is to permit them to be
maintained in culture outside of the body without harming them.

Most stem cells, when they are removed from the patient's bone marrow, quickly
differentiate, that is, they become designated for a specific function and lose
their ability to make blood cells. The delta-like protein ("DLK") is a protein
which may help to maintain stem cells in their undifferentiated state while they
are outside the patient's body during radiation treatment or chemotherapy. We
have an exclusive license from The National Institutes of Health ("NIH") to DLK
for use in our studies involving stem cells. DLK may also be useful in gene
therapy using stem cells. DLK could be used to maintain the stem cells in their
undifferentiated state while they are genetically manipulated outside the body.
Then, the stem cells could be returned to the body as functioning, rather than
differentiated, stem cells.

In the course of our research on hematopoiesis, we discovered the FLK-2/FLT-3
receptor (originally referred to by ImClone as FLK-2, by others as FLT-3, and
herein as FLK-2/FLT-3). We are the exclusive licensee of a family of patents and
patent applications covering the FLK-2/FLT-3 receptor. FLK-2/FLT-3 ligand is a
protein that binds to and activates the FLK-2/FLT-3 receptor. The FLK-2/FLT-3
ligand's role seems to be to stimulate the growth of the hematopoietic blood
making stem cells. In addition, the FLK-2/FLT-3 ligand stimulates the production
of dendritic cells, which are potent cells that specialize in processing foreign
antigens and presenting these antigens to the immune system. The addition of the
FLK-2/ FLT-3 ligand to stem cells may help stem cells reproduce themselves while
outside of the body during radiation treatment or chemotherapy. This would
increase the number of stem cells, and speed up the bone marrow recovery process
after return of the stem cells to the patient's body after treatment.

We have entered into a non-exclusive license and supply agreement with Immunex
Corporation ("Immunex") under which we have granted Immunex a license to the
FLK-2/FLT-3 receptor for the limited use of the manufacture of the FLK-2/FLT-3
ligand. Immunex has granted us a license to use the FLK-2/FLT-3 ligand for use
in our ex vivo research on stem cells.

CORPORATE PARTNERSHIPS FOR IMCLONE'S INFECTIOUS DISEASE VACCINES AND DIAGNOSTICS

We have licensed our diagnostic and infectious disease vaccine products and
techniques, which are based on our earlier research, to corporate partners for
further development and commercialization.

Diagnostic Technologies.

We have a strategic alliance with Abbott Laboratories ("Abbott"). We have
licensed some of our diagnostic products and techniques to Abbott on a worldwide
basis. In mid-1995, Abbott launched its first DNA-based diagnostic test in
Europe, using our Repair Chain Reaction ("RCR") DNA probe technology. Abbott's
test is used to diagnose the sexually transmitted diseases chlamydia and
gonorrhea, as well as mycobacteria. The RCR DNA probe technology uses DNA
amplification techniques to detect the presence of DNA or RNA in biological
samples thereby indicating the presence of disease.

In December 1996, we amended our agreement with Abbott to allow Abbott to
exclusively license our patented DNA signal amplification technology,
AMPLIPROBE, to Chiron Diagnostics. DNA signal amplification technology such as
AMPLIPROBE uses 


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DNA amplification signal techniques in detecting the presence of DNA or RNA in
biological samples, thereby indicating the presence of disease. Abbott receives
a royalty payment from Chiron on all sales of Chiron branched DNA diagnostic
probe technology in countries covered by our patents. Abbott, in turn, pays any
such royalties it receives to us. Abbott has recently sold the Chiron branched
DNA diagnostic probe technology to Bayer Pharmaceutical Corporation.

Infectious Disease Vaccines.

We have given the Wyeth/Lederle vaccine and pediatrics division of American Home
Products Corporation ("American Home") a worldwide license to manufacture and
market our infectious disease vaccines. These vaccines are being developed by
American Home. In January 1998, we extended our agreement with American Home to
allow them to continue pre-clinical research on these vaccines through September
1999, in preparation for clinical trials of possible infectious disease vaccines
for the treatment of gonorrhea. Under the modified agreement, American Home must
pay us an annual license fee of $300,000, in semi-annual installments of
$150,000 each, until September 1999.

RESEARCH AND DEVELOPMENT

We initiated our in-house research and development in 1986. We have assembled a
scientific staff with a variety of complementary skills in a broad base of
advanced research technologies. These research technologies include oncology,
immunology, molecular and cellular biology, antibody engineering, protein and
synthetic chemistry and high-throughput screening. We also have recruited a
staff of technical and professional employees to carry out manufacturing of
clinical trial materials at our Somerville, New Jersey manufacturing facility.

In addition to our research programs pursued in-house, we collaborate with
certain academic institutions and corporations to support research in areas of
our product development efforts. We also have entered into collaborations with
major pharmaceutical companies in order to obtain funding and product
development and commercialization assistance for certain of our therapeutic
product candidates in exchange for specific product licensing rights. We intend
to enter into additional agreements of this nature with appropriate
pharmaceutical company partners with the resources and experience to assist us
financially to successfully bring our products to market, both in the U.S. and
abroad. There can be no assurance, however, that we will be successful in
consummating any such arrangements.

We have recorded expenses of approximately $21,049,000, $16,455,000 and
$11,482,000 for research and development in the years ended December 31, 1998,
1997 and 1996, respectively.

RESEARCH COLLABORATIONS AND IN-LICENSING ARRANGEMENTS

Our primary research collaborations which are non-clinical in nature are the
following:

CombiChem, Inc, San Diego, California. In October 1997, we entered into a
Collaborative Research and License Agreement with CombiChem to discover and
develop novel small molecules for use against selected targets for the treatment
of cancer. The companies are utilizing CombiChem's Discovery Engine(TM) and
Universal Informer Library(TM) to generate small molecules. These small
molecules are screened to identify lead candidates for development into drugs.
We provided CombiChem with $500,000 in October 1997 and $500,000 in October 1998
for these services through October 1999. We will pay CombiChem milestone
payments and royalties on marketed products resulting from the collaboration, if
any. At the same time, we also entered into a Stock Purchase Agreement pursuant
to which we purchased 312,500 shares of the common stock of CombiChem, as
adjusted, for a total purchase price of $2,000,000. CombiChem has agreed to use
the proceeds from the sale of its stock to us for general corporate purposes.

Mario Negri Institute for Pharmacological Research, Milan, Italy. We have a
supported research agreement with Mario Negri Institute for Pharmacological
Research. Under the agreement we support the work of Dr. Elisabetta Dejana who
is investigating the role of a recently discovered protein family, VE-cadherins,
in angiogenesis. VE-cadherins are believed to enable the formation of capillary
blood vessels in solid tumors. In connection with the commencement of this
supported research program, we also acquired proprietary rights to VE-cadherin-2
and to antibodies to VE-cadherin. The National Cancer Institute ("NCI") has
awarded to us a Phase I SBIR grant in the amount of $100,000 to support our
VE-cadherin program.

Memorial Sloan-Kettering Cancer Center, New York, New York. We have a supported
research agreement with Sloan-Kettering to support research in several areas,
including potential cancer vaccine product, gp75. We have an exclusive license
from Sloan-Kettering to the gp75 tumor antigen and to the BEC2 cancer vaccine
and we are required under the license to make good faith efforts to proceed
diligently with the manufacture and sale of these products.


                                       6
<PAGE>

Princeton University, Princeton, New Jersey. We have supported research under
the direction of certain faculty members at Princeton University. Specifically,
we have supported the research of Dr. Arnold Levine, Chairman of Princeton's
Department of Molecular Biology, in the area of the p53 tumor suppressor gene.
We have an exclusive license to the results of this research. This license is
terminable by Princeton University if we do not meet certain milestones in
connection with the development of the licensed technology.

We also have funded research of Dr. Ihor Lemischka of Princeton University on
tyrosine kinase receptors, including FLK-2, antibodies and ligands to such
receptors, and hematopoietic stem cells. We have an exclusive license from
Princeton University to the results of this research. This license is terminable
by the university if we do not meet certain developmental milestones. We also
have initiated work with Dr. Lemischka in identifying important stem cell or
stromal cell gene. Libraries of such genes are developed by Dr. Lemischka, and
then arrayed and sequenced by a third party, paid for by us and the information
gathered is studied to determine if unique genes have resulted. These genes
could be useful for a variety of purposes, including for hematopoiesis.

MRC Collaborative Centre, Mill Hill, United Kingdom. We are funding research at
the MRC Collaborative Centre on the humanization of our C225 and anti-KDR
antibodies and in the expression of our C225 antibody in a non-mouse cell line.

The University of North Carolina at Chapel Hill. We support research at The
University of North Carolina at Chapel Hill in a number of areas, including work
of Dr. P. Frederick Sparling in connection with vaccine candidates for N.
gonorrhea and N. meningitidis. These results are exclusively licensed to us.

Our primary in-licensing arrangements, which have resulted in the transfer of
intellectual property rights to us are the following:

The University of California at San Diego. In April 1993, we obtained an
exclusive worldwide license from the University of California to a United States
patent covering specific monoclonal antibodies that bind to EGFr. Our C225
product is the chimerized form of one such antibody.

Rhone-Poulenc Rorer, Inc. In June 1994, we obtained an exclusive worldwide
license from the pharmaceutical company, Rhone-Poulenc Rorer, Inc.
("Rhone-Poulenc Rorer") to pending patent applications covering the use of EGFr
monoclonal antibodies in combination with specific chemotherapeutic regimens.

National Institutes of Health. In October 1996, we obtained an exclusive,
worldwide patent license from the NIH for the DLK protein and gene. The
agreement provides us with an exclusive license to stem cell and gene therapy
applications of the DLK protein and gene, as well as related diagnostic uses.

Generally, subject to earlier termination provisions contained in the
agreements, the licenses described above terminate upon the expiration of the
life of any patent or a related period on unpatented technology.

CLINICAL COLLABORATIONS

Our principal collaborations that are related to our clinical trials are the
following:

Memorial Sloan-Kettering Cancer Center. We have agreements with Sloan-Kettering
to support research in several areas. These include the study of our potential
cancer vaccine products, BEC2 and gp75. We have an exclusive license to the
results of the research in the areas covered by the agreements. The BEC2
antibody has been tested since 1991 in Phase I clinical trials at
Sloan-Kettering against certain forms of cancer, including small cell lung
carcinoma and melanoma.

We also have agreements with certain institutions by which such institutions
serve as sites for our clinical trials.

The European Organization for Research and Treatment of Cancer ("EORTC"), an
oncology research clinical group, is involved in the Phase III multi-national
clinical trial for BEC2 in the treatment of limited disease small cell lung
carcinoma. The EORTC has responsibility for monitoring the trial in Europe at
various centers. It also randomizes patients and manages data for the worldwide
study. We utilize a contract research organization to coordinate and monitor the
study in the United States.

We anticipate utilizing a contract research organization to coordinate and
monitor in the United States our Phase III Study utilizing C225 in combination
with radiation therapy. We anticipate that arrangements similar to the above may
be employed for certain other future Phase II/III studies for C225.


                                       7
<PAGE>

CORPORATE COLLABORATIONS AND OUT-LICENSING ARRANGEMENTS

To facilitate commercialization of certain of our products, we have entered into
agreements with major pharmaceutical companies. Although the terms of each
agreement differ, these agreements generally provide for us to receive license
fees, research funding and royalties on net sales of any future products during
the life of any relevant patent or a related period on unpatented technology. In
some cases, license fees include payments related to the achievement of
regulatory or product development milestones.

Merck KGaA (Darmstadt, Germany)

BEC2 Research and License Agreement.

In April 1990, we entered into an agreement with Merck relating to the
development and commercialization of BEC2 and the recombinant gp75 antigen. It
has been amended a number of times, most recently in December 1997.

Under this agreement:

o     We have granted Merck a license, with the right to sublicense, to
      manufacture and market our BEC2 product and the recombinant gp75 antigen.
      This license is for all indications.

o     The territory that the license covers is the world; except that in North
      America we have granted Merck a sole license, without the right to
      sublicense, to market but not to manufacture BEC2.

o     We retain the right to co-promote BEC2 within North America.

o     It is the intent of ourselves and Merck that we will be the bulk product
      manufacturer of BEC2 to support worldwide sales.

o     We are required to give Merck the opportunity to negotiate a license in
      North America to gp75 before granting such a license to any third party.

In return, Merck:

o     Is making research support payments to us totaling $4,700,000, of which
      $4,375,000 has been received to date.

o     is required to make milestone payments to us of up to $22,500,000, of
      which $3,000,000 has been received to date, based on milestones achieved
      in the product development of BEC2.

o     is required to make royalty payments to us on all sales of the licensed
      products outside North America, if any, with a portion of the earlier
      funding received under the agreement being creditable against the amount
      of royalties due.

In addition, under the agreement, gross sales of BEC2 in North America will be
distributed in accordance with the terms of a co-promotion agreement for BEC2 to
be negotiated by the parties. Conduct of the clinical trials and regulatory
submissions outside North America are the responsibility of Merck and within
North America are our responsibility. Costs worldwide to conduct a multi-site,
multi-national Phase III clinical trial to obtain approval for the indication of
the treatment of limited disease small cell lung carcinoma for BEC2 are the
responsibility of Merck. These include our out-of-pocket costs (but do not
include costs of establishing a manufacturing facility) for manufacturing
materials for clinical trials, conduct of clinical trials and regulatory
submissions (other than drug approval fees which are the responsibility of Merck
or ourselves in our respective territories). If these expenses exceed DM
17,000,000, such excess expenses will be shared 60% by Merck and 40% by us.
Costs for the conduct of additional clinical trials for other indications will
be subject to separate budgets to be negotiated by the parties. We are
responsible for providing the supply of the active agent outside of North
America at the expense of Merck, and it is the intention of the parties that the
cost of goods sold in North America be paid out of gross sales of any licensed
product in North America in accordance with a co-promotion agreement to be
negotiated.

The agreement terminates upon the later of (i) the last to expire of any patents
issued and covered by the technology (ii) or fifteen years from the date of the
first commercial sale. After termination the license will survive without
further royalty payment and is irrevocable. The agreement may be terminated
earlier by us in the event Merck fails to pursue in a timely fashion regulatory
approval or sale of a licensed product in a country in which it has the right to
do so. It also may be terminated earlier by Merck if milestones are not
achieved.

In the year ended December 31, 1998, we recorded $3,500,000 in revenue from
Merck under this agreement, which consisted of milestone and research and
support payments.

In connection with the December 1997 amendment to the agreement with Merck for
BEC2, Merck purchased from us 400,000 shares of our Series A Convertible
Preferred Stock (the "Series A Preferred Shares" or "Series A Preferred Stock")
for a total price of approximately $40,000,000. The holders of the Series A
Preferred Shares are entitled to receive annual cumulative dividends of $6.00
per share. Dividends accrue as of the issuance date of the Series A Preferred
Shares. These dividends are payable on the outstanding Series A Preferred Shares
in cash on December 31 of each year 


                                       8
<PAGE>

beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. 100,000 of the Series A Preferred Shares could be immediately converted
into shares of our common stock beginning on December 15, 1997. An additional
100,000 Series A Preferred Shares will be able to be converted into shares of
our common stock on or after each of January 1, 2000, January 1, 2001 and
January 1, 2002. To date, no Series A Preferred Shares have been converted

Any Series A Preferred Shares converted into common stock before January 1, 2000
will be converted at a conversion price of $12.50 per share of common stock.
After that, the number of shares of common stock into which Series A Preferred
Shares are convertible is not fixed. Instead, the conversion price is determined
under a formula based upon the market price of our common stock at specified
measurement dates, which are generally one year apart. The lower the market
price of our common stock on the measurement date in question, the greater the
number of shares of common stock into which the Series A Preferred Shares may be
converted (i.e., the lower the conversion price). The conversion price is
determined as of the measurement date, and remains fixed until adjusted on the
next measurement date to reflect the market price of our common stock. During
the year 2002, the conversion price is 88% of the market price of our common
stock. If the market price of our common stock declines (or, in the case of the
year 2002 remains constant) after the measurement date in question is fixed, the
common stock may be purchased at a price that is lower than the price at which
the common stock is being sold on the open market.

The terms of the Series A Preferred Shares also give us the right, in certain
circumstances, to require the holders of the Series A Preferred Shares to
convert those shares into common stock at the conversion price then in effect.
Generally, if after the determination of the conversion price for the Series A
Preferred Shares on a measurement date, the average market price of our common
stock for any period of five trading days is greater than 150% of that
conversion price, we can require the conversion of the then convertible Series A
Preferred Shares at that conversion price. We also may redeem (i.e., repurchase)
all or any part of the Series A Preferred Shares at a price of $120 per share,
plus accrued dividends.

In connection with the purchase of the Series A Preferred Shares, Merck was
granted certain registration rights with respect to the shares of common stock
underlying the Series A Preferred Shares. Merck also agreed to refrain from
selling such shares of common stock for certain specified periods of time. These
terms were modified in connection with the execution of the C225 License and
Development Agreement with Merck in December 1998. In accordance with the terms
of the Series A Preferred Stock, we are required to recognize an assumed
incremental yield of $5,455,000 (calculated at the date of issuance and based on
the beneficial conversion feature noted above). Such amount is being amortized
as a preferred stock dividend over a four-year period beginning with the day of
issuance. Accrued dividends payable on the Series A Preferred Stock were
$2,512,000 at December 31, 1998. Additionally, we have recognized an incremental
yield on the conversion discount of $1,319,000 at December 31, 1998.

C225 License and Development Agreement.

In December 1998, we entered into an agreement with Merck relating to the
development and commercialization of C225. Under this agreement:

o     We have granted Merck exclusive rights to market C225 outside of North
      America. 

o     We have retained the right to market C225 within North America.

o     We will co-develop C225 in Japan with Merck.

o     We will be the manufacturer of C225 and Merck will purchase product from
      us for clinical trials and commercialization in its territory.

o     Merck has agreed not to own greater than 19.9% of our voting securities
      through December 3, 2002.

In return, Merck is:

o     paying to us $30 million in upfront fees and early cash-based milestone
      payments based upon our achievement of certain milestones set forth in the
      agreement, of which $4,000,000 has been received to date.

o     paying to us an additional $30 million assuming we achieve further
      milestones for which Merck will receive equity (the "Milestone Shares") in
      our company which will be priced at varying premiums to the then market
      price of the common stock depending upon the timing of the achievement of
      the respective milestones.

o     providing to us subject to certain terms a $30 million secured line of
      credit or guaranty for the build-out of a manufacturing facility by us for
      the commercial production of C225.

o     funding clinical development of C225 outside of North America.

o     required to pay us royalties on future sales of C225 outside of North
      America, if any.

The Milestone Shares, if issued, will be shares of our common stock (or a
non-voting preferred stock or other 


                                       9
<PAGE>

non-voting stock convertible into our common stock). The number of shares issued
to Merck will be determined by dividing the particular milestone payment due by
the purchase price of the common stock when the milestone is achieved. The
purchase price will relate to the then market price of our common stock, plus a
premium which varies, depending upon whether we achieve the milestone early,
on-time or late. The Milestone Shares will be a non-voting preferred stock or
other non-voting stock convertible into our common stock if the shares of common
stock that otherwise would be issued to Merck would result in Merck owning
greater than 19.9% of our common stock. This 19.9% limitation is in place
through December 2002. These convertible securities will not have voting rights.
They will be convertible at a price determined in the same manner as the
purchase price for shares of our common stock if shares of common stock were to
be issued. They will not be convertible if as a result of the conversion Merck
would own greater than 19.9% of our common stock. This 19.9% limitation is in
place through December 2002 except that after this date, Merck must sell shares
it receives as a result of conversion to the extent such shares result in
Merck's owning in excess of 19.9% of our common stock. We have granted Merck
certain registration rights regarding the shares of common stock that they may
acquire upon conversion of the Series A Preferred Shares and Milestone Shares.

This agreement may be terminated (1) by either Merck or ourselves in the event
of the material breach of the other party, (2) by Merck in various other
instances, including (a) at its discretion on any date on which a milestone is
achieved (in which case no milestone payment will be made), (b) for a one-year
period after first commercial sale of C225 in Merck's territory, upon Merck's
reasonable determination that the product is economically unfeasible (in which
case Merck is entitled to receive back 50% of the cash based milestones then
paid to date, but only based upon a royalty rate applied to our sales in North
America, if any), or (c) in the event we do not timely obtain certain collateral
license agreements in which case Merck also is entitled to a return of all
milestone payments to date. In the event of termination of the agreement, the
due date for the payment of the credit for the manufacturing facility will be
accelerated, or in the event of a guaranty, we will be required to use our best
reasonable efforts to release Merck as guarantor. Also, in the event by April
15, 1999 we fail to agree with Merck on a production concept for the
manufacturing facility or Merck fails to provide us with the credit facility or
guaranty then the agreement may be terminated by either of us, in which case
Merck is entitled to receive back all milestone payments made to date.

In the year ended December 31, 1998, we recorded $4,000,000 as a fee potentially
refundable from our corporate partner under this agreement.

Abbott Laboratories

We have licensed some of our diagnostic products and techniques to Abbott on a
worldwide basis. In mid-1995, Abbott launched its first DNA-based diagnostic
test in Europe, using our DNA probe technology. Abbott's test is used to
diagnose the sexually transmitted diseases chlamydia and gonorrhea, as well as
mycobacteria. The RCR DNA probe technology uses DNA amplification techniques to
detect the presence of DNA or RNA in biological samples thereby indicating the
presence of disease.

In December 1996, we amended our agreement with Abbott to allow Abbott to
exclusively license our patented DNA signal amplification technology,
AMPLIPROBE, to Chiron Diagnostics. DNA signal amplification technology such as
AMPLIPROBE also uses DNA signal amplification techniques in detecting the
presence of DNA or RNA in biological samples, thereby indicating the presence of
disease. Abbott receives a royalty payment from Chiron on all sales of Chiron
branched DNA diagnostic probe technology in countries covered by our patents.
Abbott, in turn, pays any such royalties it receives to us. Abbott has recently
sold the Chiron branched DNA diagnostic probe technology to Bayer Pharmaceutical
Corporation.

Under the agreement Abbott has paid us up-front fees and research support, and
is obligated to pay milestone fees and royalties on sales. In June 1997, we
received two milestone payments from Abbott totaling $1,000,000, as a result of
a patent issuance in Europe for our RCR technology. This is partially creditable
against royalties as described below. The issuance of the patent also entitles
us to receive royalty payments on sales in covered European countries for
products using our RCR technology. Abbott will be entitled to deduct from
royalties otherwise due, 25% of such royalties due for a two-year period and 50%
thereafter until a total of $500,000 has been deducted. In March 1999, we
received a notice of allowance from the U.S. Patent Office for our RCR
technology. The patent issuance upon this notice of allowance will entitle us to
a $500,000 milestone payment from Abbott and royalties on sales for a two year
period from initiation of U.S. sales by Abbott for products using our RCR
technology. The agreement terminates upon the later of (i) the last to expire of
any patents issued covered by the technology or (ii), if no patents are granted,
twenty years, subject to certain earlier termination provisions contained in the
agreement.


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<PAGE>

For the year ended December 31, 1998, we received a total of $295,000 in royalty
fees pursuant to our strategic alliance with Abbott.

American Home Products

In December 1987, we entered into a vaccine development and licensing agreement
with American Cyanamid Company ("Cyanamid") that provided Cyanamid an exclusive
worldwide license to manufacture and sell vaccines developed during the research
period of the agreement. In connection with the agreement, Cyanamid purchased
410,001 shares of our common stock. During the three-year research period of the
agreement, which period expired in December 1990, we were engaged in the
development of two vaccine candidates, the first of which was for N. gonorrhea
based on recombinant proteins, and the second of which was for Herpes Simplex
Virus based on recombinant glycoproteins B and D.

In September 1993, Cyanamid's Lederle-Praxis Biologicals division and ImClone
entered into a research collaboration agreement which by its terms supersedes
the earlier agreement as to N. gonorrhea vaccine candidates, but not as to
Herpes Simplex Virus vaccine candidates. The successor to Cyanamid, American
Home, has the responsibility under this agreement to pay research support to us,
as well as milestone fees and royalties on sales of any N. gonorrhea vaccine
that might arise from the collaboration. In January 1998, this agreement was
extended to continue annual research funding payable to us in the amount of
$300,000 through September 1999 and to extend through such date the period by
which American Home is required to have initiated clinical trials with a vaccine
candidate.

American Home has the responsibility under both agreements for conducting
pre-clinical and clinical trials of the vaccine candidates, obtaining regulatory
approval, and manufacturing and marketing the vaccines. There are penalties
payable by American Home in the event it fails to have filed for the
commencement of clinical trials by certain dates yet intends to continue to
develop the product, otherwise the product will revert to us. American Home is
required to pay royalties to us in connection with sales of the vaccines, if
any.

In the year ended December 31, 1998, we recorded revenues of $300,000 under the
American Home agreements.

Immunex Corporation

In the course of our research on hematopoiesis, we discovered the FLK-2/FLT-3
receptor. We are the exclusive licensees of a family of patents and patent
applications covering the FLK-2/FLT-3 receptor. FLK-2/FLT-3 ligand is a protein
that binds to and activates the FLK-2/FLT-3 receptor. The FLK-2/FLT-3 ligand is
owned by Immunex.

In December 1996, we entered into a non-exclusive license and supply agreement
with Immunex under which we granted Immunex an exclusive worldwide license to
the FLK-2/FLT-3 receptor for the limited use of the manufacture of the
FLK-2/FLT-3 ligand. Immunex is currently testing the ligand in human trials for
stem cell stimulation and for tumor inhibition. Under this agreement, we receive
royalty and licensing fees from Immunex, and Immunex has granted us a license to
use the FLK-2/FLT-3 ligand for use in our ex vivo research on stem cells. In
addition, Immunex has granted us a non-exclusive license in the United States
and Canada to use and sell the FLK-2/FLT-3 ligand, manufactured by Immunex, for
ex-vivo stem cell expansion, together with an exclusive license to distribute
the ligand with our own proprietary products for ex-vivo expansion. Immunex has
agreed to seek to obtain the consent of its parent company, American Home, to
expand the territory of this license to include the world outside North America.
Immunex will also supply FLK-2/FLT-3 ligand to us. Subject to earlier
termination provisions contained in the agreements, our license terminates in
December 2001, subject to a five- year renewal period, and Immunex's license
terminates thirteen years after the first commercial sale of the product.

In the year ended December 31, 1998, we recorded no revenue from Immunex under
this agreement.

MANUFACTURING

For us to support our ongoing research and development we maintain, supply and
staff a facility for the preparation, analysis and distribution of clinical
supplies to various clinical study sites. We operate a manufacturing facility
for biologics in Somerville, New Jersey. This facility includes laboratories,
storage areas, mechanical systems and qualified staff for the production and
analysis of biological materials according to the appropriate Federal, state and
local regulations. At this facility, we are currently producing C225, the EGFr
antibody, to supply our clinical trials, and packaging and distributing to
clinical study sites both the BEC2 antibody and C225 antibody. We are also
developing the purification process for c-p1C11 and are in the early stages of
production. This facility is operated according to current Good Manufacturing
Practices ("cGMP") which is a requirement for product manufactured for use in
clinical trials and for commercial sale. In January 1998, we completed the
construction and commissioning of a new 1,750 square foot process development
center at this facility dedicated to manufacturing process 


                                       11
<PAGE>

optimization for existing products and the pre-clinical and Phase I development
of new biological therapeutics.

We also have established relationships with qualified contract vendors to
perform specialized testing and manufacturing operations not performed by us. We
have in the past and expect to continue to establish defined development and
manufacturing arrangements with third party qualified contract vendors to
perform bulk and final product development and production to support our
clinical program needs.

We have an agreement in principle for the supplemental further development,
production, scale-up, and manufacture of our C225 antibody for use in our
clinical trials. Services pursuant to this agreement commenced in April 1998.
The total project cost is DM 8,950,000 (or currently approximately $5,424,000 of
which $1,897,000 was incurred for the year ended December 31, 1998).

Under our agreement with Merck for C225, we are taking the lead in developing,
in consultation with Merck, a production concept for a new manufacturing
facility. Merck is providing us, subject to certain terms, with a $30 million
secured line of credit or guaranty for the build-out of this facility. It is
anticipated that the facility will (i) be dedicated to the production of C225,
(ii) contain multiple 10,000 liter fermenters to be used in the fermentation of
the antibody (which is a necessary part of its production), (iii) be versatile
enough to adapt in the future for the production of other antibodies if
necessary or desired and (iv) have an area of approximately 100,000 square feet.
Under the terms of the agreement, if by April 15, 1999 we don't come to an
agreement with Merck on the production concept for the facility or Merck fails
to provide us with the credit facility or guaranty then the agreement may be
terminated by either party. We are reviewing whether to erect this facility
adjacent to our New Jersey manufacturing facility or at another site.

The materials that are used to manufacture our products include qualified cell
lines developed by us and specially qualified raw materials and components,
which we can obtain from a number of sources. We maintain necessary Quality
Control and Quality Assurance oversights of all materials used in the
manufacture of our clinical supplies.

Should any of our products be approved for commercial sale, such products will
need to be (1) manufactured in commercial quantities (2) in compliance with
regulatory requirements and (3) at acceptable costs. Although we have developed
products in the laboratory and in some cases have produced sufficient quantities
of materials for pre-clinical and clinical trials, production in later stage
clinical trials or commercial quantities may create technical challenges for us.

We expect that commercial production for C225 initially would be done at the new
facility and by the contract manufacturer providing us with supplemental
clinical supply of material. Ultimately, we expect to be the sole manufacturer
for commercial production. We would expect that a similar arrangement would be
followed for other products under development.

We have limited experience in later stage clinical-scale manufacturing and no
experience in commercial-scale manufacturing, and no assurance can be given that
we will be able to make the transition to later stage clinical or commercial
production or make the transition in a cost effective manner.

MARKETING

We do not have pharmaceutical marketing experience. We have recently hired a
Vice President of Marketing to develop our internal marketing capabilities. If
we were to market our products ourselves or with a partner, significant
additional expenditures and management resources would be required to develop an
internal sales force and there can be no assurance we would be successful in
penetrating the markets for any products developed or that internal marketing
capabilities would successfully be developed at all. We have co-promotion rights
for commercialization of our BEC2 cancer vaccine product in North America
pursuant to our agreement with Merck. In our agreement with Merck for C225, we
retained all rights to commercialize C225 in North America. We expect that in
other instances, we may enter into development agreements with third parties
that may include co-marketing or co-promotion arrangements or pursuant to which
we retain all such rights in a given territory. In the alternative, we could
grant exclusive marketing rights to our corporate partners in return for
up-front fees, milestone payments, and royalties on sales. Under these
arrangements, our partner may have the responsibility for a significant portion
of development of the product and regulatory approval. In the event that the
partner fails to develop a marketable product or fails to market a product
successfully, business may be adversely affected.

PATENTS AND TRADE SECRETS

Generally.

We seek patent protection for our proprietary technology and products in the
United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan as well as other


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<PAGE>

countries. The patent position of biopharmaceutical firms generally is highly
uncertain and involves complex legal and factual questions. Our success will
depend, in part, on whether we can;

o     Obtain patents to protect our own products.

o     Obtain licenses to use the technologies of third parties, which may be
      protected by patents.

o     Protect our trade secrets and know-how.

o     Operate without infringing the intellectual property and proprietary
      rights of others.

Patent Rights; Licenses.

We currently have exclusive licenses or assignments of 49 issued patents
worldwide, 27 of which are issued United States patents. We have the exclusive
right to develop certain anti-EGFr antibodies with potential anti-tumor activity
under a United States patent owned by the University of California. Ten of our
U.S. patents are licensed from Princeton University. Six of the Princeton
patents relate to hematopoietic and angiogenic receptor genes and the proteins
they encode, such as the tyrosine kinase receptors FLK-1 and FLK-2/FLT-3. The
other four Princeton patents relate to a DNA signal amplification system and p53
detection systems.

We currently have exclusive licenses or assignments to approximately 39 families
of patent applications that relate to our proprietary technology in the U.S. and
in foreign countries. The patent applications relate to a number of technologies
including the use of EGFr antibodies with chemotherapeutic agents;
anti-idiotypic antibodies for treating cancer, such as BEC2; antibodies to
receptor tyrosine kinases, such as FLK-1 and FLK-2/FLT-3; methods for amplifying
and detecting DNA, such as the RCR and AMPLIPROBE technologies; antiangiogenic
factors and proangiogenic factors; and hematopoietic factors. We cannot be
certain that patents will be issued as a result of any of these applications.
Nor can we be certain that any issued patents would protect or benefit us or
give us adequate protection from competing products. For example, issued patents
may be challenged and declared invalid. In addition, under many of the
agreements under which we have licenses to the patents or patent applications of
others, we are required to meet specified milestone or diligence requirements in
order to keep our license. We cannot be certain that we will satisfy any of
these requirements.

We hold rights under the patents of certain third parties that we consider
necessary for the development of our technology. We will most likely need to
obtain additional licenses to patents of others in order to commercialize
certain of the products that we are currently developing. We cannot be certain
that we will be able to obtain any such licenses or, if we can do so, how much
they will cost. We know that others have filed patent applications in various
countries that relate to several areas in which we are developing products. Some
of these patent applications have already been issued as patents and some are
still pending. The pending patent applications may issue as patents. Issued
patents are entitled to a rebuttable presumption of validity under the laws of
the U.S. and certain other countries. These issued patents may therefore limit
our ability to develop commercial products. If we need licenses to such patents
to permit us to develop or market our products, we cannot be certain that we
would be able to get such licenses on acceptable terms.

C225.

We have an exclusive license to an issued U.S. patent for the murine form of
C225, our EGF receptor antibody product. Our licensor did not obtain patent
protection outside the U.S. for this antibody. However, we have sought
additional patent protection by exclusively licensing from a major
pharmaceutical company a family of patent applications seeking to cover
antibodies to EGFr used in conjunction with chemotherapeutic agents. A patent
application also has been filed on the use of anti-EGFr antibodies with
radiation. We also have filed patent applications covering the chimeric and
humanized forms of the antibody and fragments of the antibody, in synergy with
chemotherapeutic agents or radiation. Additionally, humanized forms of the
antibody and antibody fragments, are claimed as well as methods of inhibiting
human tumors with C225 alone.

C225 is a "chimerized" monoclonal antibody, which means it is made of antibody
fragments derived from more than one type of animal. Patents have been issued to
other biotechnology companies that cover the chimerization of antibodies.
Therefore, we may be required to obtain licenses under these patents before we
can commercialize our own chimerized monoclonal antibodies, including C225. We
cannot be certain that we will be able to obtain such licenses in the
territories where we want to commercialize, or how much such licenses would
cost.

BEC2.

We have exclusively licensed from Sloan-Kettering a family of patents and patent
applications relating to our BEC2 monoclonal anti-idiotypic antibody. We know
that others have been issued patents in the U.S. and Europe covering
anti-idiotypic antibodies and/or their use for the treatment of tumors. These
patents, if valid, could be interpreted to cover our BEC2 monoclonal antibody
and certain uses of BEC2. Merck, our licensee of BEC2, has informed us that it
has obtained non-exclusive, worldwide licenses to these patents in order to
market BEC2 in its territory. We are entitled to co-promote 


                                       13
<PAGE>

BEC2 in the U.S., however, we cannot be certain that we could obtain such
licenses on commercially acceptable terms, if at all.

Angiogenesis Inhibitors.

With respect to our research on inhibitors to angiogenesis based on the FLK-1
receptor, we are the exclusive licensees of a family of patents and patent
applications covering the FLK-1 receptor and antibodies to the receptor and its
human homolog, KDR. We are also the assignee of a family of patent applications
filed by our scientists covering angiogenesis-inhibiting antibodies to receptors
that bind VEGF. A specific patent application of such family claims specifically
the use of FLK-1/KDR receptor antibodies to isolate cells expressing the
FLK-1/KDR receptor on their cell surface. Additionally, we are a co-owner of a
recently filed patent application claiming the use of FLK-1/KDR receptor
antibodies to isolate endothelial progenitor cells that express FLK-1/KDR on
their cell surface. At present, we are seeking exclusive rights to this
invention from the co-owners.

VE Cadherin.

We have an exclusive license to a family of patent applications covering novel
cadherin molecules that are involved in endothelial cell interactions. These
interactions are believed to be involved in angiogenic processes. The subject
patent applications also cover antibodies that bind to, and affect, the cadherin
molecules.

Diagnostics.

Our diagnostics program has been licensed for commercial development to Abbott.
The program includes target amplification technology and detection methods, such
as RCR technology, signal amplification technology, such as AMPLIPROBE and p53
mutation detection for assisting in cancer diagnosis. Our proprietary position
with respect to our diagnostics program is based on numerous families of patents
and patent applications. We have either an assignment or exclusive license to
these families of patents and patent applications. We have an exclusive license
to an issued patent assigned to Princeton University related to the underlying
technology for our AMPLIPROBE DNA amplification and detection system. We are
aware that patent applications have been filed by, and that patents have been
issued to, third parties in the field of DNA amplification technology. This
could affect our ability or Abbott's ability to commercialize our diagnostic
products.

Trade Secrets.

With respect to certain aspects of our technology, we rely, and intend to
continue to rely, on trade secrets, unpatented proprietary know-how and
continuing technological innovation to protect our competitive position. Such
aspects of our technology include methods of isolating and purifying antibodies
and other proteins, collections of plasmids in viable host systems, and
antibodies that are specific for proteins that are of interest to us. There is
no assurance that others will not independently develop substantially equivalent
proprietary information or techniques.

Relationships between us and our employees, scientific consultants and
collaborators provide these persons with access to our trade secrets, know-how
and technological innovation under confidentiality agreements with the parties
involved. Similarly, our employees and consultants enter into agreements with us
which require that they do not disclose confidential information of ours and
they assign to us all rights to any inventions made while in our employ relating
to our activities.

We seek patent protection for our proprietary technology and products, in the
United States and abroad. Patent applications have been submitted and are
pending in the United States, Canada, Europe and Japan as well as other
countries.

GOVERNMENT REGULATION

The research and development, manufacture and marketing of human pharmaceutical
and diagnostic products are subject to regulation primarily by the FDA in the
United States and by comparable authorities in other countries. These national
agencies and other federal, state and local entities regulate, among other
things, research and development activities and the testing, manufacturing,
safety, handling, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of the products that the we are developing.
Noncompliance with applicable requirements can result in refusal to approve
product license or other applications, or revocation of approvals previously
granted. Noncompliance also can result in fines, criminal prosecution, recall or
seizure of products, total or partial suspension of production or refusal to
allow a Company to enter into governmental supply contracts.

The process of obtaining requisite FDA approval has historically been costly and
time consuming. Current FDA requirements before a new human drug or biological
product may be marketed in the United States include (i) the successful
conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain
preliminary information on the product's safety, (ii) filing 


                                       14
<PAGE>

with the FDA of an IND application to conduct human clinical trials for drugs or
biologics, (iii) the successful completion of adequate and well-controlled human
clinical investigations to establish the safety and efficacy of the product for
its recommended use and (iv) filing by a company and approval by the FDA of a
New Drug Application ("NDA") for a drug product or a Biological License
Application ("BLA") for a biological product to allow commercial distribution of
the drug or biologic.

Pre-clinical tests include laboratory evaluation of product chemistry and animal
studies to assess the potential safety and efficacy of the product and its
formulation. The results of the pre-clinical tests are submitted to the FDA as
part of an IND.

Clinical trials involve administration of the product to patients under
supervision of a qualified principal investigator. Such trials are typically
conducted in three sequential phases, although the phases may overlap. In Phase
I, the initial introduction of the drug into human subjects, the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. Phase II involves studies in a limited patient population to (i)
determine the biological or clinical activity of the product for specific,
targeted indications, (ii) determine dosage tolerance and optimal dosage, and
(iii) identify possible adverse effects and safety risks. If Phase II
evaluations indicate that a product is effective and has an acceptable safety
profile, Phase III trials may be undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population at
multiple clinical study sites. The FDA reviews the results of the clinical
trials and may order the temporary or permanent discontinuation of clinical
trials at any time if it believes that clinical subjects are being exposed to an
unacceptable health risk. Investigational products used in both pre-clinical and
clinical tests must be produced in compliance with "cGMP" pursuant to FDA
regulations.

In October 1988, the FDA issued procedures designed to speed the availability of
new therapies to patients suffering from life-threatening diseases such as AIDS
and cancer. These procedures permit early consultation with and commitment from
the FDA regarding pre-clinical and clinical studies necessary to gain market
approval and to permit NDAs and BLAs to be approved on the basis of expanded
Phase II clinical data results.

Diagnostic products are regulated by the FDA as medical devices. In general, a
new diagnostic product that is not "substantially equivalent" to a legally
marketable product is subject to premarket approval requirements much like those
for drugs and biological products. Specifically, the device must be tested under
an investigational device exemption ("IDE") and approved by the FDA under a
premarket approval application ("PMA") before it can be commercially marketed.

Under current law, each domestic and foreign drug and device
product-manufacturing establishment must be registered with, and determined to
be adequate by, the FDA before product approval. Domestic manufacturing
establishments are subject to inspections by the FDA for compliance with cGMP
regulations and licensing specifications after an NDA, BLA or PMA has been
approved. Domestic and foreign manufacturing facilities are subject to periodic
FDA inspections and inspections by the foreign regulatory authorities where
applicable.

Sales outside the United States of products we develop will also be subject to
regulatory requirements governing human clinical trials and marketing for drugs
and biological products and devices. The requirements vary widely from country
to country, but typically the registration and approval process takes several
years and requires significant resources. In most cases, products that have not
been approved by the FDA for sale in the United States may be exported for sale
outside of the United States only if they have been approved in any one of the
following countries: the European Union, Canada, Australia, New Zealand, Japan,
Israel, Switzerland and South Africa.

Our research and development programs involve the use of biohazardous materials.
Accordingly, our business is subject to regulations under federal, state and
local laws regarding work force safety, environmental protection and hazardous
substance control, and to other present and possible future federal, state and
local regulations. We believe that our safety procedures for handling hazardous
materials comply with the requirements of such laws and regulations.

Our ability to earn sufficient returns on our products may depend in part on the
extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and there can be no assurance that adequate third-party coverage will
be available.

COMPETITION

Competition in the biopharmaceutical industry is intense and based significantly
on scientific and technological factors; the availability of patent and other
protection for technology and products, the ability to 


                                       15
<PAGE>

commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well as a
growing number of large pharmaceutical companies that are applying biotechnology
to their operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, including cancer. Many major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical
companies. These companies, as well as academic institutions, governmental
agencies and private research organizations, also compete with us in recruiting
and retaining highly qualified scientific personnel and consultants. Our ability
to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital
to us.

We are aware of certain products under development or manufactured by
competitors that are used for the prevention, diagnosis, or treatment of certain
diseases we have targeted for product development. Various companies are
developing biopharmaceutical products that potentially directly compete with our
product candidates. These include areas such as (1) the use of small molecules
to the receptor or antibodies to those receptors to treat cancer, (2) the use of
anti-idiotypic antibody or recombinant antigen approaches to cancer vaccine
therapy, (3) the development of inhibitors to angiogenesis, (4) and the use of
hematopoietic growth factors to treat blood system disorders to or for stem cell
or gene therapy. Some of these product candidates are in advanced stages of
clinical trials.

Our products under development and in clinical trials are expected to address
major markets within the cancer sector. Our competition will be determined in
part by the potential indications for which drugs are developed and ultimately
approved by regulatory authorities. Additionally, the timing of market
introduction of some of our potential products or of competitors' products may
be an important competitive factor. Accordingly, the relative speed with which
we can develop products, complete pre-clinical testing, clinical trials and
approval processes and supply commercial quantities to market are expected to be
important competitive factors. We expect that competition among products
approved for sale will be based on various factors, including product efficacy,
safety, reliability, availability, price, and patent position.

HUMAN RESOURCES

We initiated our in-house research and development in 1986. We have assembled a
scientific staff with a variety of complementary skills in a broad base of
advanced research technologies, including oncology, immunology, molecular and
cell biology, antibody engineering, protein and synthetic chemistry and
high-throughput screening. We have also recruited a staff of technical and
professional employees to carry out manufacturing of clinical trial materials at
our Somerville, New Jersey facility. Of our 138 full-time personnel on March 26,
1999, 56 were employed in our product development, clinical and manufacturing
programs, 43 in research (including two engaged in research for EndoClone), and
39 in administration. Our staff includes 23 persons with Ph.D.s and three with
M.D.s.

ENDOCLONE INCORPORATED

In January 1998, we formed a wholly-owned subsidiary, EndoClone Incorporated.
Through EndoClone we are exploring the use of endothelial stem cells to
stimulate collateral blood circulation in ischemias. We believe that the ability
to isolate endothelial stem cells could allow us to use these cells to treat
many ischemia conditions by using them to stimulate the growth of new blood
vessels to increase the supply of blood to a targeted area of the body. We also
believe that the isolated endothelial stem cells could be used to treat other
conditions where the stimulation of new blood vessel growth is desired. These
uses include the treatment of burn patients and healing of wounds. We are
exploring the use of endothelial stem cells in connection with gene therapy. We
believe that a gene therapy delivery approach could also be used with
endothelial cells in order to treat cancer. Tumors require angiogenesis to grow.
Tumors must attract endothelial stem cells in order for angiogenesis to occur.
We believe that a gene therapy technique could be used to alter endothelial stem
cells to express tumor-destroying molecules and to deliver these altered
endothelial stem cells to the tumors. We have begun hiring research scientists
to devote their time to this research area.

Item 2. Properties.

RESEARCH FACILITY--NEW YORK, NEW YORK

We currently occupy two contiguous leased floors at 180 Varick Street in New
York City. Currently we use approximately 30,000 of a total available 40,000
square feet on the two floors. The lease for the two floors was due to expire
March 31, 1999. We have entered into a 


                                       16
<PAGE>

new lease for the two floors which was effective as of January 1, 1999 and
expires in December 2004. The annual rent under the lease for 1999 is $720,000,
which increases by 3% per year for subsequent years. Rent expense for the New
York facility was approximately $574,000, $554,000, and $508,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. We have completed a design
concept to renovate the facility to better fit our needs as a result of our
growth since originally occupying the facility. The renovation will utilize all
40,000 square feet of space. It is expected to cost approximately $1.6 million
and is expected to be completed in approximately one year.

The original acquisition, construction and installation of our New York research
and development facilities were financed principally through the sale of
Industrial Development Revenue Bonds (the "IDA Bonds") issued by the New York
City Industrial Development Agency (the "NYIDA"). These facilities secure the
payment of debt service on the outstanding IDA Bonds.

MANUFACTURING FACILITY--SOMERVILLE, NEW JERSEY

In June 1992, we acquired certain property and a building in Somerville, New
Jersey at a cost to us of approximately $4,665,000, including expenses. We have
retrofitted the building to serve as our clinical-grade manufacturing facility.
When purchased, the facility had in place various features, including clean
rooms, air handling, electricity, and water for injection systems and
administrative offices. The cost for completion of facility modifications was
approximately $5,400,000.

Currently the facility is being operated to develop and manufacture materials
for our clinical trials. Under certain circumstances, we also may use the
facility for the manufacturing of commercial products. The timing and any
additional costs of adapting the facility for commercial manufacturing depend on
several factors, including the progress of products through clinical trials. In
January 1998, we completed the construction and commissioning of a new 1,750
square foot process development center at this facility dedicated to
manufacturing process optimization for existing products and the pre-clinical
and Phase I development of new biological therapeutics. Under our agreement with
Merck for C225, we are taking the lead in developing, in consultation with
Merck, a production concept for a new manufacturing facility. We are reviewing
whether to erect this facility adjacent to our New Jersey manufacturing facility
or at another site.

Item 3.  Legal Proceedings.

There is no material legal proceeding pending against us or any of our property,
nor was any such proceeding terminated during the fourth quarter of the year
ended December 31, 1998.

Item 4.  Submission of Matters to a Vote of Security Holders.

None.

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

MARKET INFORMATION

Our common stock is traded in the over-the-counter market and prices are
reported on the Nasdaq National Market tier of The Nasdaq Stock Market under the
symbol "IMCL".

The following table sets forth, for the periods indicated, the range of high and
low sale prices for the common stock on the Nasdaq National Market, as reported
by The Nasdaq Stock Market. The quotations shown represent inter-dealer prices
without adjustment for retail mark-ups, mark downs or commissions, and may not
necessarily reflect actual transactions.

''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
                                              High             Low
--------------------------------------------------------------------------------
    Year ended December 31, 1998

         First Quarter ...................   $ 8 7/16        $ 5 5/8            
         Second Quarter ..................   $13 7/8         $ 7 5/8            
         Third Quarter ...................   $13 7/8         $ 8 1/4            
         Fourth Quarter ..................   $12 1/8         $ 5 9/16           
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
                                               High            Low
--------------------------------------------------------------------------------
    Year ended December 31, 1997
   
         First Quarter ...................   $10 1/8         $ 5 3/4
         Second Quarter ..................   $ 7 7/8         $ 4 5/8
         Third Quarter ...................   $ 8 1/8         $ 4 5/8
         Fourth Quarter ..................   $ 8 1/2         $ 5 21/32
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''


                                       17
<PAGE>

STOCKHOLDERS

As of the close of business on March 26, 1999, there were approximately 281
holders of record of our common stock. We estimate that there are approximately
7,700 beneficial owners of our common stock.

DIVIDENDS

We have never declared cash dividends on our common stock and have no present
intention of declaring such cash dividends in the foreseeable future. The
holders of our Series A Preferred Stock are entitled to receive cumulative
dividends. They may receive dividends at the annual rate of $6.00 per share,
compounded annually. The dividends began to accrue when the Series A Preferred
Shares were issued on December 15, 1997. Dividends on the outstanding Series A
Preferred Shares are payable in cash on December 31st of each year beginning on
December 31, 1999, or at the time of conversion, whichever is sooner. Series A
Preferred Shares are of senior rank to all shares of common stock with respect
to payment of dividends.

RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES

In October 1998, we issued 15,000 shares of unregistered common stock to our
Vice President, Business Development and General Counsel upon exercise of
outstanding warrants for a total purchase price of $22,500. In December 1998, we
issued a total of 7,460 shares of unregistered common stock to a member of our
Board of Directors upon exercise of outstanding warrants and options for a total
purchase price of $15,757. Such issuances were consummated as private sales by
the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended.


                                       18
<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                     Year Ended December 31,

(In thousands, except share and per share data)      1998         1997       1996         1995        1994
<S>                                               <C>          <C>         <C>           <C>         <C>     
Statements of Operations Data:
Revenues                                          $   4,193   $  5,348     $    600    $    800    $     950
Operating expenses:
  Research and development                           21,049     16,455       11,482       8,768       11,816
  General and administrative                          7,145      5,356        3,961       3,739        3,348
Interest and other income                            (3,054)    (1,523)        (918)     (3,120)      (3,186)
Interest and other expense                              435        551          823       1,054          821
Equity in loss of affiliate                              --         --           --          --          342
                                                  ---------   --------     --------    --------    ---------
Loss before extraordinary item                      (21,382)   (15,491)     (14,748)     (9,641)     (12,191)
Extraordinary loss on extinguishment of debt             --         --        1,267          --           --
                                                  ---------   --------     --------    --------    ---------
Net loss                                            (21,382)   (15,491)     (16,015)     (9,641)     (12,191)
Preferred dividends (including assumed
incremental yield attributable to beneficial
conversion feature of $1,268 in 1998 and $51 in
 1997)                                                3,668        163           --          --           --
                                                  ---------   --------     --------    --------    ---------
Net loss to common stockholders                   $ (25,050)  $(15,654)    $(16,015)   $ (9,641)   $ (12,191)
                                                  =========   ========     ========    ========    =========
Basic and Diluted net loss per common share:
Loss before extraordinary item                    $   (1.03)  $  (0.67)    $  (0.76)   $  (0.72)   $   (1.12)
Extraordinary loss on extinguishment of debt             --         --        (0.07)         --           --        
                                                  ---------   --------     --------    --------    ---------
Net loss                                              (1.03)     (0.67)       (0.83)      (0.72)       (1.12)
                                                  =========   ========     ========    ========    =========
Weighted average shares outstanding                  24,301     23,457       19,371      13,311       10,903

                                                                          December 31,
(In thousands)                                       1998       1997         1996         1995        1994
Balance Sheet Data:
Cash and securities                               $  46,739   $ 59,610     $ 13,514     $10,207    $   3,032
                                                                                     
Working capital                                      35,073     56,671        7,695       3,735       (1,470)
Total assets                                         62,252     75,780       25,885      22,803      (17,467)
Long-term obligations                                 3,746      3,430        2,775       4,235        4,487
Accumulated deficit                                (138,846)  (117,464)    (101,973)    (85,958)     (76,317)
Stockholders' equity                                 45,174     68,226       16,589      11,823        8,176
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

The following discussion and analysis by our management is provided to identify
certain significant factors which affected our financial position and operating
results during the periods included in the accompanying financial statements.

OVERVIEW AND RISK FACTORS

We are a biopharmaceutical company engaged primarily in the research and
development of therapeutic products for the treatment of selected cancers and
cancer-related disorders. Our products under development include (i) cancer
therapeutics, (ii) cancer vaccines and (iii) inhibitors of angiogenesis. Since
our inception in April 1984, we have devoted substantially all of our efforts
and resources to research and development conducted on our own behalf and
through collaborations with corporate partners and academic research and
clinical institutions. We have generated a cumulative net loss of approximately
$138,846,000 for the period from our inception to December 31, 1998. We expect
to incur significant additional operating losses over each of the next several
years. The major sources of our working capital have been:

o     the proceeds from the public and private sale of equity securities.


                                       19
<PAGE>

o     the sale of the IDA Bonds by the NYIDA (the proceeds of which have been
      used for the acquisition, construction and installation of our research
      and development facility in New York City).

o     license fees.

o     contract research and development fees.
   
o     royalties from collaborative partners.

o     interest earned on these funds.

Substantially all of our products are in various stages of development, clinical
studies or research. Substantially all our revenues were generated from license
and research arrangements with collaborative partners. Our revenues under
research and license agreements with corporate sponsors have fluctuated and are
expected to fluctuate significantly from period to period. Similarly, our
results of operations have fluctuated and are expected to fluctuate
significantly from period to period. These variations have been, and are
expected to be, based primarily on:

o     The status of development of our various products.

o     The time at which we enter into research and license agreements with
      corporate partners that provide for payments to us, and the timing of
      payments to us under these agreements.

o     Whether or not we achieve specified research or commercialization
      milestones.

o     Timely payment by our corporate partners of amounts payable to us.

o     The addition or termination of research programs or funding support.

o     The timing of sales by Abbott, our partner in diagnostics, of products
      that use our technology, and the amount for which such products are sold.

o     Variations in the level of expenses related to our proprietary products
      during any given period.

Our products are only in the development stage. Before we can commercialize our
products and begin to sell them to generate revenues, they will need substantial
additional development and clinical testing, which will cost a lot of money.
Generally, to make a profit we will need to successfully develop, test,
introduce and market our products. It is not certain that any of our products
will be successfully developed or that required regulatory approvals to
commercialize them can be obtained. Further, even if we successfully develop a
product, there is no assurance that we will be able to successfully manufacture
or market that product or that customers will buy it.

Our products will require substantial additional development and clinical
testing and investment prior to commercialization. To achieve profitable
operations, we, alone or with others, must successfully develop, introduce and
market our products. No assurance can be given that any of our product
development efforts will be successfully completed, that required regulatory
approvals can be obtained or that any products, if developed, will be
successfully manufactured or marketed or achieve customer acceptance.

RESULTS OF OPERATIONS

Years Ended December 31, 1998 and 1997

Revenues.

Revenues for the years ended December 31, 1998 and 1997 were $4,193,000 and
$5,348,000, respectively, a decrease of $1,155,000, or 22%. Revenues for the
year ended December 31, 1998 consisted of (i) $300,000 in research support from
our partnership with American Home in infectious disease vaccines, (ii)
$1,000,000 in milestone revenue and $2,500,000 in research and support payments
from our agreement with Merck for BEC2, (iii) $295,000 in royalty revenue from
our strategic alliance with Abbott in diagnostics and (iv) $98,000 from a Phase
I Small Business Innovation Research grant from the National Cancer Institute
for a program in cancer-related angiogenesis. Revenues for the year ended
December 31, 1997 consisted of (i) $300,000 in research support from our
partnership with American Home in infectious disease vaccines, (ii) $2,000,000
in milestone revenue and $1,667,000 in research and support payments from our
agreement with Merck for BEC2 and (iii) $1,000,000 in milestone revenue and
$381,000 in royalty revenue from our strategic alliance with Abbott in
diagnostics. The decrease in revenues for the year ended December 31, 1998 was
primarily attributable to a decrease in milestone revenue which can vary widely
from period to period depending upon the timing of the achievement of various
research and development milestones for products under development.


                                       20
<PAGE>

Operating; Research and Development Expenses.

Total operating expenses for the years ended December 31, 1998 and 1997 were
$28,194,000 and $21,811,000, respectively, an increase of $6,383,000, or 29%.
Research and development expenses for the years ended December 31, 1998 and 1997
were $21,049,000 and $16,455,000, respectively, an increase of $4,594,000 or
28%. Such amounts for both years ended December 31, 1998 and 1997 represented
75% of total operating expenses. The increase in research and development
expenses for the year ended December 31, 1998 was partially attributable to (i)
the costs associated with an agreement in principle for the supplemental further
development and manufacture of clinical grade C225 to support ongoing and future
human clinical trials, (ii) expenditures associated with additional staffing in
the area of discovery research, (iii) the initiation of new supported research
programs with academic institutions, (iv) the establishment of corporate
in-licensing arrangements and (v) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with C225. This increase was partially offset by the one-time $2,233,000
non-cash compensation expense recorded for the year ended December 31, 1997 in
connection with the extension of the term of an officer's warrant to purchase
397,000 shares of common stock.

General and Administrative Expenses.

General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for our technology and products. Such expenses for the years ended
December 31, 1998 and 1997 were $7,145,000 and $5,356,000, respectively, an
increase of $1,789,000, or 33%. The increase in general and administrative
expenses primarily reflected (i) additional support staffing for the expanding
research, development, clinical and manufacturing efforts of the Company,
particularly with respect to C225 and (ii) expenses associated with the pursuit
of strategic corporate alliances and other corporate development expenses. We
expect general and administrative expenses to increase in future periods to
support our planned increases in research, development, clinical and
manufacturing efforts.

Interest and Other Income and Interest Expense.

Interest and other income was $3,054,000 for the year ended December 31, 1998
compared to $1,523,000 for the year ended December 31, 1997, an increase of
$1,531,000, or 101%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in our investment portfolio
resulting from the private placement of Series A Preferred Stock completed in
December 1997. Interest expense was $435,000 and $551,000 for the years ended
December 31, 1998 and 1997, respectively, a decrease of $116,000 or 21%.
Interest expense for both periods primarily included (i) interest on an
outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA
Bond") with a principal amount of $2,200,000, (ii) interest recorded on capital
lease obligations and (iii) interest recorded on a liability to Pharmacia and
UpJohn Inc. ("Pharmacia"), for the reacquisition of the worldwide rights to a
recombinant mutein form of Interleukin-6 ("IL-6m") as well as clinical material
manufactured and supplied to us by Pharmacia. The decrease was primarily
attributable to the (i) December 1997 repayment of an IDA Bond issued in 1986
(the "1986 IDA Bond") with a principal amount of $2,113,000 and (ii) February
1998 repayment of the remaining liability to Pharmacia.

Net Losses.

We had net losses to common stockholders of $25,050,000 or $1.03 per share for
the year ended December 31, 1998 compared with $15,654,000 or $0.67 per share
for the year ended December 31, 1997. The increase in the net losses and per
share net loss to common stockholders was due primarily to the factors noted
above and the accrued dividends and incremental yield on the Series A Preferred
Shares.

Years Ended December 31, 1997 and December 31, 1996

Revenues.

Revenues for the years ended December 31, 1997 and 1996 were $5,348,000 and
$600,000 respectively, an increase of $4,748,000. Revenue for the year ended
December 31, 1997 consisted of (i) $300,000 in research support from our
partnership with American Home in infectious disease vaccines, (ii) $2,000,000
in milestone revenue and $1,667,000 in research and support payments from our
agreement with Merck for BEC2, and (iii) $1,000,000 in milestone payments and
$381,000 in royalty revenue from our strategic alliance with Abbott in
diagnostics. Revenues for the year ended December 31, 1996 consisted of (i)
$300,000 in research support from our partnership with American Home in
infectious disease vaccines, (ii) $225,000 in royalty revenue from our strategic
alliance with Abbott in diagnostics, and (iii) 


                                       21
<PAGE>

$75,000 in license fees from our cross-licensing agreement with Immunex for
novel hematopoietic growth factors. The increase in revenues for the year ended
December 31, 1997 was primarily attributable to (i) our having achieved
development milestones under our agreement with Merck for BEC2, and (ii) our
strategic alliance with Abbott. Milestone revenue can vary widely from period to
period depending upon the timing of the achievement of various research and
development milestones for products under development.

Operating; Research and Development Expenses.

Total operating expenses for the years ended December 31, 1997 and 1996 were
$21,811,000 and $15,443,000, respectively, an increase of $6,368,000 or 41%.
Research and development expenses for the years ended December 31, 1997 and 1996
were $16,455,000 and $11,482,000, respectively, an increase of $4,973,000 or
43%. Such amounts for the years ended December 31, 1997 and December 31, 1996
represented 75% and 74%, respectively, of total operating expenses. The increase
in research and development expenses for the year ended December 31, 1997 was
partly attributable to (i) a one-time $2,233,000 non-cash compensation expense
recorded in connection with the extension of the term of an officer's warrant to
purchase 397,000 shares of our common stock, and (ii) costs associated with
additional staffing, contract manufacturing and testing, and expenditures in the
functional areas of product development, manufacturing and clinical and
regulatory affairs associated with C225, and (iii) growth in the area of
discovery research for future product candidates.

General and Administrative Expenses.

General and administrative expenses include administrative personnel costs,
costs incurred in connection with pursuing arrangements with corporate partners
and technology licensors, and expenses associated with applying for patent
protection for our technology and products. Such expenses for the years ended
December 31, 1997 and 1996 were $5,356,000 and $3,961,000, respectively, an
increase of $1,395,000 or 35%. The increase in general and administrative
expenses primarily reflects (i) $279,000 non-cash compensation expense recorded
in connection with an option grant to one of our officers, and (ii) additional
support staffing for our expanding research, development, clinical and
manufacturing efforts, particularly with respect to C225. We expect general and
administrative expenses to increase in future periods to support planned
increases in research and development.

Interest and Other Income and Interest Expense.

Interest and other income was $1,523,000 for the year ended December 31, 1997
compared to $918,000 for the year ended December 31, 1996, an increase of
$605,000 or 66%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in our investment portfolio
resulting from the proceeds received from a public offering of our common stock
completed in March 1997 and a private placement of Series A Preferred Stock
completed in December 1997. Interest expense was $551,000 and $823,000 for the
years ended December 31, 1997 and 1996, respectively, a decrease of $272,000 or
33%. Interest expense for both periods primarily included (i) interest on two
then outstanding IDA Bonds with an aggregate principal amount of $4,313,000
($2,113,000 of which was repaid in December 1997), and (ii) interest recorded on
the liability to Pharmacia, for the reacquisition of the worldwide rights to
IL-6m as well as clinical material manufactured and supplied to us by Pharmacia.
The decrease was primarily attributable to the May 1996 exchange of debt for our
common stock with the Oracle Group and one of our Directors.

Net Losses.

We had net losses to common stockholders of $15,654,000 or $0.67 per share for
the year ended December 31, 1997, compared with $16,015,000 or $0.83 per share
for the year ended December 31, 1996. The year ended December 31, 1996 included
a $1,267,000 or $0.07 per share extraordinary loss on early extinguishment of
debt. This extraordinary loss resulted from the issuance of our common stock in
lieu of cash repayment of a $2,500,000 loan due the Oracle Group and a $180,000
long-term note owed to one of our Directors. The decrease in the per share net
loss to common stockholders is due primarily to the increased number of shares
of our common stock outstanding as a result of the March 1997 public offering of
our common stock.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, our principal sources of liquidity consisted of cash and
cash equivalents and short-term securities available for sale of approximately
$46,739,000. We have financed our operations since inception primarily through:

o     the proceeds from the public and private sales of our equity securities.


                                       22
<PAGE>

o     the sale of three issues of IDA Bonds through the NYIDA.

o     license fees.

o     contract research and development fees.

o     royalties received under agreements with collaborative partners.
 
o     interest earned on these funds.

Since inception:

o     public and private sales of equity securities in financing transactions
      have raised approximately $163,799,000 in net proceeds.

o     the sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
      aggregate of $6,313,000, the proceeds of which have been used for the
      acquisition, construction and installation of our research and development
      facility in New York City, and of which $2,200,000 is currently
      outstanding.

o     we have earned approximately $32,855,000 from license fees, contract
      research and development fees and royalties from collaborative partners,
      including approximately $4,193,000 earned during the year ended December
      31, 1998.

o     We have earned approximately $8,463,000 in interest income, including
      approximately $3,016,000 earned during the year ended December 31,1998.

In April 1998, we entered into an agreement in principle with a pharmaceutical
manufacturer for the supplemental further development, production scale-up and
manufacture of our lead therapeutic product candidate, C225, for use in human
clinical trials. Services pursuant to this agreement commenced in April 1998 and
are anticipated to conclude in October 1999. The total project cost is DM
8,950,000, or currently approximately $5,424,000. As of December 31, 1998, we
had incurred a liability of approximately $1,897,000 for services provided under
this agreement.

In October 1997, we entered into a Collaborative Research and License Agreement
with CombiChem to discover and develop novel small molecules against selected
targets for the treatment of cancer. At the same time as we entered into this
agreement, we entered into a Stock Purchase Agreement pursuant to which we
purchased 312,500 shares of common stock of CombiChem, as adjusted, for a total
purchase price of $2,000,000. The investment has been classified as a long-term
asset. During the year ended December 31, 1998 we recorded an unrealized loss of
$652,000 on this investment due to a reduction in the market value of the stock.
We deem this reduction in market value to be temporary and therefore, the
unrealized loss was recorded as a component of accumulated other comprehensive
loss.

We have obligations under various capital leases for certain laboratory, office
and computer equipment and also certain building improvements primarily under a
December 1996 financing agreement (the "1996 Financing Agreement") and an April
1998 financing agreement (the "1998 Financing Agreement") with Finova Technology
Finance, Inc. ( "Finova" ). The 1996 Financing Agreement allowed us to finance
the lease of equipment and make certain building and leasehold improvements to
existing facilities involving amounts totalling approximately $2,500,000. Each
lease has a fair market value purchase option at the expiration of a 42-month
term. Pursuant to the 1996 Financing Agreement, we issued to Finova a warrant
expiring December 31, 1999 to purchase 23,220 shares of our common stock at an
exercise price of $9.69 per share. We recorded a non-cash debt discount of
approximately $125,000 in connection with this financing, which discount is
being amortized over the 42-month term of the first lease. The 1996 Financing
Agreement with Finova expired in December 1997 and we utilized only $1,745,000
of the full $2,500,000 under the agreement. In April 1998, we entered into the
1998 Financing Agreement with Finova totalling approximately $2,000,000. The
terms of the 1998 Financing Agreement are substantially similar to the now
expired 1996 Financing Agreement except that each lease has a 48-month term. As
of December 31, 1998, we had entered into ten individual leases under both the
1996 Financing Agreement and the 1998 Financing Agreement aggregating a total
cost of $3,069,000 and had $676,000 available under the 1998 Financing
Agreement. The 1998 Financing Agreement terminates on March 31, 1999 and we are
in discussions regarding its extension for an additional 60 day period.

We have spent and will continue to spend in the future substantial funds to
continue the research and development of our products, conduct pre-clinical and
clinical trials, establish clinical-scale and commercial-scale manufacturing in
our own facilities or in the facilities of others, and market our products. We
have entered into preliminary discussions with several major pharmaceutical
companies regarding various alternatives concerning the funding of research and
development for certain of our products. No assurance can be given that we will
be successful in consummating any such alternatives. Such strategic alliances
could include up-front license fees plus milestone fees and revenue sharing.
There can be no assurance that we will be successful in achieving such
alliances, nor can we predict 


                                       23
<PAGE>

the amount of funds which might be available to us if we entered into such
alliances or the time at which such funds would be made available or the other
terms of any such alliances.

In January 1998, we completed the construction and commissioning of a new 1,750
square foot process development center at our Somerville, New Jersey facility at
a cost of approximately $1,650,000. Under our agreement with Merck for C225, we
are taking the lead in developing, in consultation with Merck, a production
concept for a new manufacturing facility. Merck is providing us, subject to
certain terms, with a $30 million secured line of credit or guaranty for the
build-out of this facility. We are reviewing whether to erect this facility
adjacent to our current manufacturing facility in New Jersey or at another
location.

We rent our New York City facility under a lease which was scheduled to expire
in March 1999. We renewed the entire lease for a term commencing as of January
1, 1999 through December 2004 and plan to retrofit the facility to better suit
our needs at a cost of approximately $1,600,000.

The 1990 IDA Bond in the outstanding principal amount of $2,200,000 becomes due
in 2004. We will incur annual interest on the 1990 IDA Bond aggregating
approximately $250,000. We have granted the NYIDA a security interest in
substantially all facility equipment located in the New York facility to secure
our obligations to the NYIDA under the 1990 IDA Bond.

The holders of the 400,000 shares of Series A Preferred Shares are entitled to
receive cumulative dividends at an annual rate of $6.00 per share. Dividends
accrue as of the issuance date of the Series A Preferred Shares and are payable
on the outstanding Series A Preferred Shares in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. Accrued dividends were $2,512,000 at December 31, 1998.

Total capital expenditures made during the year ended December 31, 1998 were
$1,203,000. Of such expenditures, $731,000 have been reimbursed in accordance
with the terms of the 1998 Financing Agreement with Finova. Of the total capital
expenditures made during year ended December 31, 1998, $730,000 related to
improving and equipping our manufacturing facility in New Jersey. The balance of
capital additions was for leasehold improvements, equipment and computer-related
purchases for the corporate office and research laboratories in New York.

We expect that our existing capital resources should enable us to maintain our
current and planned operations through March 2001. Certain of our research and
support payments from corporate partners have defined expiration dates during
1999. Under these existing corporate partnerships, we expect to receive final
research and support payments of approximately $758,000 which will be recognized
through the third quarter of 1999. Additionally, certain milestone payments are
subject to attaining research and development milestones, many of which have not
yet been achieved. There can be no assurance that we will achieve these
milestones. Our future working capital and capital requirements will depend upon
numerous factors, including, but not limited to:

o     progress of our research and development programs, pre-clinical testing
      and clinical trials.

o     our corporate partners fulfilling their obligations to us.

o     timing and cost of seeking and obtaining regulatory approvals.

o     timing and cost of manufacturing scale-up and effective commercialization
      activities and arrangements.

o     level of resources that we devote to the development of marketing and
      sales capabilities.

o     costs involved in filing, prosecuting and enforcing patent claims.

o     technological advances.

o     status of competitors.

o     our ability to maintain existing and establish new collaborative
      arrangements with other companies to provide funding to us to support
      these activities.

o     costs of establishing both clinical scale and commercial scale
      manufacturing capacity in our facility and those of others.

In order to fund our capital needs after March 2001, we will require significant
levels of additional capital and we intend to raise the capital through
additional arrangements with corporate partners, equity or debt financings or
from other sources including the proceeds of product sales, if any. There is no
assurance that we will be successful in consummating any such arrangements. If
adequate funds are not available, we 


                                       24
<PAGE>

may be required to significantly curtail our planned operations.

Uncertainties associated with the length and expense of pre-clinical and
clinical testing of any of our product candidates could greatly increase the
cost of development of such products and affect the timing of any anticipated
revenues from product sales. Our failure to obtain regulatory approval for any
product will preclude its commercialization. In addition, our failure to obtain
patent protection for our products may make certain of our products commercially
unattractive.

At December 31, 1998, we had net operating loss carryforwards for federal income
tax purposes of approximately $129,485,000 which expire at various dates from
2000 through 2018. At December 31, 1998 we had research credit carryforwards of
approximately $3,642,000 which expire at various dates between years 2009 and
2018. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended,
the annual utilization of a company's net operating loss and research credit
carryforwards may be limited if the company experiences a change in ownership of
more than 50 percentage points within a three-year period. Since 1986, we
experienced two ownership changes. Accordingly, our net operating loss
carryforwards available to offset future federal taxable income arising before
such ownership changes are limited to $5,159,000 annually. Similarly, we are
restricted in using our research credit carryforwards arising before such
ownership changes to offset future federal income tax expense.

Year 2000

The "Year 2000 problem" involves mainly the inability of certain computer
programs and microprocessing devices to differentiate between the year 1900 and
the year 2000 because two-digit rather than four-digit fields were used to
identify the year. There are a variety of related "date" problems, including the
use by older programs and devices of algorithms that will fail to correctly
identify the year 2000 and certain other years in the twenty-first century as
leap years. A Year 2000 problem could cause a computer system or microprocessor
that is date sensitive to malfunction, resulting in system failures. Such
failures could cause disruptions of our operations, including, without
limitation, the systems in place at our Branchburg clinical-scale manufacturing
facility, computers, communication devices and laboratory instrumentation and
systems which use dated information in our research and development and
scientific testing or, possibly, in our pre-clinical or clinical trials.

To deal with the Year 2000 problem we have developed a year 2000 program that
has three main phases: (i) review of information technology ("IT") and non-IT
systems for the purposes of assessing the potential impact of Year 2000 on our
business and identifying non-Year 2000 compliant systems; (ii) remediation and
development of contingency plans; and (iii) testing. These phases are not
necessarily sequential. We have a Year 2000 team to coordinate and carry out the
various phases and Reporting Responsible Persons in each critical area,
including computer hardware, software, other hardware, laboratory equipment,
collaborators and process/clinical development. While we believe that our
program is and will be adequate to address Year 2000 problems, there can be no
assurance that our operations will not be adversely affected. While we have
devoted significant resources to dealing with the Year 2000 problem, our efforts
to date have not caused the deferral of any other significant IT projects.

We have completed phase one with regard to our own systems. We reviewed the
potential impact of the "Y2K" bug on our research and development, product
development, manufacturing, financial, communication and administrative
operations. We determined which systems are critical to our business. We also
determined which systems were non-year 2000 compliant.

As for the second phase, we are in the process of remediating through corrective
programming modifications or system replacement all mission critical systems
that we identified as non-compliant. We estimate that this process is 80%
complete and that it will be finished by June 30, 1999. In addition, for systems
that we have identified as non-mission critical, we also intend to either
correct them through programming changes or replace them with compliant software
and any necessary hardware or, possibly, simply discontinue using the system.

We have already developed testing protocols and have begun testing for all
mission-critical systems and have completed approximately 60% of the testing we
currently anticipate. We expect to have completed testing of all mission
critical systems no later than June 30, 1999. We are also in the process of
testing other systems, and expect to have completed that process no later than
June 30, 1999.

The Company estimates the cost of its Year 2000 program to be approximately
$350,000, of which approximately $165,000 has been spent through December 31,
1998. This includes the purchase of third-party software and required hardware
to run such software as well as the cost of modifying software. This 


                                       25
<PAGE>

estimate is management's good faith estimate based on a variety of contingency
assessments and is subject to change. Such expenditures will be funded from the
Company's internal resources.

In addition to the review of internal systems, we have identified and begun to
make inquiries of our critical suppliers, corporate partners, manufacturers,
clinical study sites, service suppliers, communications providers, lessor
utilities, and banks whose system failures or non-compliant products could have
an adverse impact on our operations. We expect to complete the identification
and assessment process for such entities prior to June 30, 1999. While we are
not currently aware of any material Year 2000 problems involving such entities
that are likely to adversely affect us, there can be no assurance that there
will not be such problems or that, if discovered, they will be timely
remediated.

We are in the process of developing contingency plans to deal with possible
disruptions of important operations such as discovery research, product
development, manufacturing and ongoing clinical trials. Such disruptions could
affect the development and ultimate marketing of potential products as well as
put us at a competitive disadvantage relative to companies that have corrected
such problems. These contingency plans may need to be refined as more
information becomes available.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our holdings of financial instruments are comprised of U.S. corporate debt,
foreign corporate debt, U.S. government debt, foreign government/agency
guaranteed debt and commercial paper. All such instruments are classified as
securities available for sale. We do not invest in portfolio equity securities
or commodities or use financial derivatives for trading purposes. Our debt
security portfolio represents funds held temporarily pending use in our business
and operations. We manage these funds accordingly. We seek reasonable
assuredness of the safety of principal and market liquidity by investing in
rated fixed income securities while at the same time seeking to achieve a
favorable rate of return. Our market risk exposure consists principally of
exposure to changes in interest rates. Our holdings are also exposed to the
risks of changes in the credit quality of issuers. We typically invest in the
shorter-end of the maturity spectrum or highly liquid investments. 

The table below presents principal amounts and related weighted average interest
rates by year of maturity for our investment portfolio:

<TABLE>
<CAPTION>
                             1999           2000         2001       2002    2003    Thereafter        Total       Fair Value
                         -----------     ---------    ---------    ------  ------   ----------      ----------    ----------
<S>                      <C>             <C>          <C>           <C>     <C>     <C>              <C>           <C>
Fixed Rate               $ 2,000,000    $3,156,000         --        --      --           --       $ 5,156,000   $ 5,199,000
Average Interest Rate           5.41%         5.09%        --        --      --           --              5.21%         --
                                                                                                   
Variable Rate            $ 9,257,000    $3,995,000   $1,764,000      --      --    $22,651,000(1)  $37,667,000   $37,652,000
Average Interest Rate           5.49%         5.63%        5.17%     --      --           5.56%           5.53%         --
                         -----------    ----------   ----------    ------  ------  -----------     -----------   -----------
                         $11,257,000    $7,151,000   $1,764,000      --      --    $22,651,000(1)  $42,823,000   $42,851,000
                         ===========    ==========   ==========    ======  ======  ===========     ===========   ===========
</TABLE>                                             

(1)   These holdings are highly liquid and we consider the potential for loss of
      principal to be minimal.

Item 8.  Financial Statements and Supplementary Data.

The response to this item is submitted as a separate section of this report
commencing on Page F-1.

Item 9. Changes In and Disagreements With Accountants on Accounting and 
Financial Disclosure.

         Not Applicable.


                                       26
<PAGE>

                                    PART III

The information required by "Item 10. - Directors and Executive Officers of the
Registrant"; "Item 11. Executive Compensation"; "Item 12. - Security Ownership
of Certain Beneficial Owners and Management"; and "Item 13. - Certain
relationships and Related Transactions" is incorporated into Part III of this
Annual Report on Form 10-K by reference to our Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on May 24, 1999.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1) and (2).   The response to this portion of Item 14. is submitted as a 
                  separate section of this report commencing on  page F-1.

(a)(3)            Exhibits (numbered in accordance with Item 601 of 
                  Regulation S-K).

<TABLE>
<CAPTION>
                                                                                                         Incorporation
Exhibit No.                         Description                                                           by Reference
-----------                         -----------                                                           ------------
<S>          <C>                                                                                            <C>  
 3.1        Certificate of Incorporation, and all amendments thereto                                        O (3.1)
 3.2        Amended and Restated By-Laws of the Company                                                     N (3.2)
 4.1        Form of Warrant issued to the Company's officers and directors under Warrant Agreements         A (4.1)
 4.2        Stock Purchase Agreement between Erbamont Inc. and the Company, dated May 1, 1989               A (4.2)
 4.3        Stock Purchase Agreement between American Cyanamid Company (Cyanamid) and the Company           A (4.3)
            dated December 18, 1987
 4.4        Form of Subscription Agreement entered into in connection with September 1991 private           A (4.4)
            placement
 4.5        Form of Warrant issued in connection with September 1991 private placement                      A(4.5) 
 4.6        Preferred Stock Purchase Agreement between the Company and Merck KGaA ("Merck") dated  
            December 3, 1997                                                                                P
 4.7        Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock     P
10.1        Company's 1986 Employee Incentive Stock Option Plan, including form of Incentive Stock          F (10.1)
            Option Agreement
10.2        Company's 1986 Non-qualified Stock Option Plan, including form of Non-qualified Stock Option    F (10.2)
            Agreement
10.3        Company's 401(k) Plan                                                                           F (10.3)
10.4        Research and License Agreement between Merck and the Company dated December 19, 1990            B (10.4)
10.5        Hematopoietic Growth Factors License Agreement between Erbamont, N.V.  and the Company,         B (10.6)
            dated May 1, 1989, and Supplemental Amendatory Agreement between Erbamont, N.V. and the
            Company dated September 28, 1990
10.6        Agreement between Cyanamid and the Company dated December 18, 1987 and supplemental             B (10.7)
            letter agreement between Cyanamid and the Company dated September 6, 1991
10.7        Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company         B (10.8)
10.8        Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company         B (10.9)
            dated September 21, 1989                                                                                       
10.9        Supported Research Agreement between Memorial Sloan-Kettering Cancer Center (MSKCC) and         A (10.10)
            the Company dated March 26, 1990                                                                
10.10       License Agreement between MSKCC and the Company, dated March 26, 1990                           B (10.11)
10.11       License Agreement between MSKCC and the Company, dated March 26, 1990                           B (10.12)
10.12       License Agreement between MSKCC and the Company, dated March 26, 1990                           B (10.13)
10.13       Research Agreement between the Trustees of Princeton University (Princeton) and the Company     
            dated January 1, 1991                                                                           B (10.14)
10.14       Research Agreement between Princeton and the Company dated May 1, 1991                          B (10.15)
10.15       Research Agreement between Princeton and the Company dated May 1, 1991                          B (10.16)
10.16       License Agreement between Princeton and the Company dated March 20, 1991                        B (10.17)
10.17       License Agreement between Princeton and the Company dated May 29, 1991                          B (10.18)
</TABLE>

                                       27
<PAGE>

<TABLE>

<S>          <C>                                                                                            <C>  
10.18       License Agreement between Princeton and Oncotech, Inc. dated September 3, 1987                  B (10.19)
10.19       Supported Research Agreement between The University of North Carolina at Chapel Hill ("UNC")    B (10.20)
            and the Company effective July 5, 1988                                                         
10.20       License Agreement between UNC and the Company dated July 5, 1988                                B (10.21)
10.21       License Agreement between UNC and the Company dated July 27, 1988                               B (10.22)
10.22       Supported Research Agreement between UNC and the Company effective April 1, 1989                B (10.23)
10.23       License Agreement between UNC and the Company dated July 1, 1991                                B (10.24)
10.24       Agreement between Celltech Limited and the Company dated May 23, 1991                           B (10.25)
10.25       Form of Non-disclosure and Discovery Agreement between employees of the Company and the      
            Company                                                                                         A (10.30)
10.26       Industrial Development Bond Documents:                                                          A (10.31)
10.26.1     Industrial Development Revenue Bonds (1985 ImClone Systems Incorporated Project)                A (10.31.1)
10.26.1.1   Lease Agreement, dated as of October 1, 1985, between the New York City Industrial
            Development Agency (NYCIDA) and the Company, as Lessee                                          A (10.31.1.3)
10.26.1.2   Indenture of Trust, dated as of October 1, 1985, between NYCIDA and United States Trust
            Company of New York (US Trust), as Trustee A (10.31.1.2) 
10.26.1.3   Company Sublease Agreement, dated as of October 1, 1985, between the Company and
            NYCIDA                                                                                          A (10.31.1.3) 

10.26.1.4   Tax Regulatory Agreement, dated October 9, 1985, from NYCIDA and the Company to US Trust,
            as Trustee                                                                                      A (10.31.1.4)
10.26.1.5   Lessee Guaranty Agreement, dated as of October 1, 1985, between the Company and US Trust,  
            as Trustee                                                                                      A (10.31.1.5)
10.26.1.6   First Supplemental Indenture of Trust, dated as of November 1, 1985 from the NYCIDA 
            to US Trust                                                                                     A (10.31.1.6) 
10.26.1.7   Third Supplemental Indenture of Trust, dated as of October 12, 1990 from NYCIDA 
            to US Trust                                                                                     A (10.31.1.7)
10.26.2     Industrial Development Revenue Bonds (1986 ImClone Systems Incorporated Project)                A (10.31.2)
10.26.2.1   First Amendment to Company Sublease Agreement, dated as of December 1, 1986, between
            the Company, as Sublessor, and NYCIDA as Sublessee                                              A (10.31.2.1)
10.26.2.2   First Amendment to Lease Agreement, dated as of December 1, 1986, between NYCIDA
            and the Company, as Lessee                                                                      A (10.31.2.2)
10.26.2.3   Second Supplement Indenture of Trust, dated as of December 1, 1986 between NYCIDA and            
            US Trust, as Trustee                                                                            A (10.31.2.3)
10.26.2.4   Tax Regulatory Agreement, dated December 31, 1986, from NYCIDA and
            the Company to US Trust, as Trustee                                                             A (10.31.2.4) 
10.26.2.5   First Amendment to Lessee Guaranty Agreement, dated as of December 1, 1986, between the             
            Company and US Trust, as Trustee                                                                A (10.31.2.5)
10.26.2.6   Bond Purchase Agreement, dated as of December 31, 1986, between NYCIDA and New York
            Muni Fund, Inc., as Purchaser                                                                   A (10.31.2.6)
10.26.2.7   Letter of Representation and Indemnity Agreement, dated as of December 31, 1986, from 
            the Company to NYCIDA and New York Muni Fund, Inc., as Purchaser                                A (10.31.2.7)
10.26.3     Industrial Development Revenue Bonds (1990 ImClone Systems Incorporated Project)                A (10.31.3) 
10.26.3.1   Lease Agreement, dated as of August 1, 1990, between NYCIDA and the Company, as lessee          A (10.31.3.1) 
10.26.3.2   Company Sublease Agreement, dated as of August 1, 1990, between the Company, as
            Sublessor,  and NYCIDA                                                                          A (10.31.3.2)
10.26.3.3   Indenture of Trust, dated as of August 1, 1990, between NYCIDA and US Trust, as Trustee         A (10.31.3.3)
10.26.3.4   Guaranty Agreement, dated as of August 1, 1990, from the Company to US Trust, as Trustee        A (10.31.3.4) 
10.26.3.5   Tax Regulatory Agreement, dated August 1, 1990, from the Company and NYCIDA to US
            Trust,  as Trustee                                                                              A (10.31.3.5)
10.26.3.6   Agency Security Agreement, dated as of August 1, 1990, from the Company, as Debtor, and
            the NYCIDA to US Trust, as  Trustee                                                             A (10.31.3.6) 
10.26.3.7   Letter of Representation and Indemnity Agreement, dated as of August 14, 1990, from
            the Company to NYCIDA, New York Mutual Fund, Inc., as the Purchaser and Chase Securities,
            Inc., as Placement Agent Company to NYCIDA                                                      A (10.31.3.7) 
10.27       Lease Agreement between 180 Varick Street Corporation and the Company, dated October 8, 1985,    
            and Additional Space and Modification Agreement between 180 Varick Street Corporation and the
            Company, dated June 13, 1989                                                                    A (10.32)
10.28       License Agreement between The Board of Trustees of the Leland Stanford Junior University and   
            the Company effective May 1, 1991                                                               A (10.33)
</TABLE>

                                       28
<PAGE>

<TABLE>

<S>          <C>                                                                                            <C>  
10.29       License Agreement between Genentech, Inc. and the Company dated December 28, 1989               A (10.34)
10.30       License Agreement between David Segev and the Company dated December 28, 1989                   B (10.35)
10.31       Letter of Intent between the Company and Dr. David Segev dated November 18, 1991                C (10.40)
10.32       Agreement between the Company and Celltech Limited dated March 11, 1992                         C (10.42)
10.33       Agreement of Sale dated June 19, 1992 between the Company and Korsch Tableting Inc.             D (10.45)
10.34       Research and License Agreement, having an effective date of December 15, 1992, between the
            Company and Abbott Laboratories                                                                 E (10.46)
10.35       Research and License Agreement between the Company and Chugai Pharmaceutical Co., Ltd.         
            dated January 25, 1993                                                                          E (10.47)
10.36       License Agreement between the Company and the Regents of the University of California dated
            April 9, 1993                                                                                   G (10.48)
10.37       Contract between the Company and John Brown, a division of Trafalgar House, dated               H (10.49)
            January 19, 1993
10.38       Collaboration and License Agreement between the Company and the Cancer Research Campaign
            Technology, Ltd., signed April 4, 1994, with an effective date of April 1, 1994.                G (10.50)
10.39       Termination Agreement between the Company and Erbamont Inc. dated July 21, 1993                 H (10.51)
10.40       Research and License Agreement between the Company and Cyanamid dated September 15, 1993        G (10.52)
10.41       Clinical Trials Agreement between the Company and the National Cancer Institute dated           H (10.53)
            November 23, 1993
10.42       License Agreement between the Company and UNC dated December 1, 1993                            G (10.54)
10.43       Notice of Termination for the research collaboration between the Company and Chugai             H (10.55)
            Pharmaceutical Co., Ltd. dated December 17, 1993
10.44       License Agreement between the Company and Rhone-Poulenc Rorer dated June 13, 1994               I (10.56) 
10.45       Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL         I (10.57)
            Ultra Fund Limited dated August 12, 1994

10.46       Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL         I (10.58)
            Ultra Fund Limited dated November 4, 1994
10.47       Offshore Securities Subscription Agreement between ImClone Systems Incorporated and             I (10.59)
            Anker Bank Zuerich dated November 10, 1994
10.48       Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and  
            High River Limited Partnership relating to capital stock of Cadus Pharmaceutical Corporation    J (10.60)
10.49       Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and High 
            River Limited Partnership relating to 300,000 shares of common stock of ImClone
            Systems Incorporated                                                                            J (10.61)
10.50       Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and          J (10.62)
            High River Limited Partnership relating to 150,000 shares common stock of ImClone Systems
            Incorporated
10.51       Stock Purchase Agreement, dated as of August 10, 1995, by and between ImClone Systems
            Incorporated and the members of the Oracle Group                                                J (10.63)
10.52       Form of Warrant issued to the members of the Oracle Group                                       J (10.64)
10.53       Loan Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated        J (10.65)
            and the members of the Oracle Group
10.54       Security Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated    J (10.66)
            and the members of the Oracle Group
10.55       Mortgage, dated August 10, 1995, made by ImClone Systems Incorporated for the benefit of
            Oracle Partners, L.P., as Agent                                                                 J (10.67)
10.56       Financial Advisory Agreement entered into between the Company and Genesis Merchant Group      
            Securities dated November 2, 1995                                                               K (10.68)
10.57       Repayment Agreement (with Confession of Judgment, and Security Agreement) entered into between 
            the Company and Pharmacia, Inc. on March 6, 1996                                                K (10.69)
10.58       License Amendment entered into between the Company and Abbott Laboratories on 
            August 28, 1995, amending the Research  and License Agreement between the parties
            dated December 15, 1992                                                                         K (10.70) 
10.59       Amendment of September 1993 to the Research and License Agreement between the Company and       K (10.71)
            Merck of April 1, 1990
10.60       Amendment of October 1993 to the Research and License Agreement between the Company and         K (10.72)
            Merck of April 1, 1990
10.61       Employment agreement dated May 17, 1996 between the Company and Carl S. Goldfischer             L (10.73) 
</TABLE>

                                       29
<PAGE>

<TABLE>

<S>          <C>                                                                                            <C>  
10.62       Financial Advisory Agreement dated February 26, 1997 between the Company and Hambrecht & 
            Quist LLC                                                                                       L (10.74)
10.63       Exchange Agreement exchanging debt for common stock dated as of April 15, 1996 among the        L (10.75)
            Company and members of The Oracle Group.
10.64       Collaborative Research and License Agreement between the Company and CombiChem, Inc.            M (10.76)
            dated October 10, 1997
10.65       Amendment of May 1996 to Research and License Agreement between the Company and Merck           P (10.65)
            of April 1, 1990
10.66       Amendment of December 1997 to Research and License Agreement between the Company and            P (10.66)
            Merck of April 1, 1990
10.67       Equipment Leasing Commitment from Finova Technology Finance, Inc.                               Q (10.67)
10.68       Development and License Agreement between the Company and Merck KGaA dated
            December 14, 1998                                                                               R (10.70)
10.69       Lease dated as of December 15, 1998 for the Company's premises at 180 Varick Street, 
            New York, New York                                                                              T
10.70       Engagement Agreement, as amended between the Company and Diaz & Altschul Capital LLC            T
10.71       Amendment dated March 2, 1999 to Development and License Agreement between the Company
            and Merck KGaA                                                                                  T
21.1        Subsidiaries                                                                                    T
23.1        Consent of KPMG LLP                                                                             T
27.1        Financial Data Schedule                                                                         T
99.1        1996 Incentive Stock Option Plan, as amended                                                    O (99.1)
99.2        1996 Non-Qualified Stock Option Plan, as amended                                                O (99.2)
99.3        ImClone Systems Incorporated 1998 Non-Qualified Stock Option Plan                               S (99.1)
99.4        ImClone Systems Incorporated 1998 Employee Stock Purchase Plan                                  S (99.2)
99.5        Option Agreement, dated as of September 1, 1998, between the Company and Ron Martell            S (99.3)
</TABLE>
------------------------
A Previously filed with the Commission; incorporated by reference to
Registration Statement on Form S-1, File No. 33-43064.

B     Previously filed with the Commission; incorporated by reference to
      Registration Statement on Form S-1, File No. 33-43064. Confidential
      treatment was granted for a portion of this exhibit.

C     Previously filed with the Commission; incorporated by reference to
      Registration Statement on Form S-1, File No. 33-48240. Confidential
      treatment was granted for a portion of this exhibit.

D     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K, filed June 26, 1992.

E     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1992. Confidential treatment was granted for a portion of this
      Exhibit.

F     Previously filed with the Commission; incorporated by reference Amendment
      No. 1 to Registration Statement on to Form S-1, File No. 33-61234.

G     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1993. Confidential Treatment was granted for a portion of this
      Exhibit.

H     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1993.

I     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1994.

J     Previously filed with the Commission; incorporated by reference to
      Registration Statement on Form S-2, File No. 33-98676.

K     Previously filed with the Commission, incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1995.

L     Previously filed with the Commission, incorporated by reference to the
      Company's Annual Report on Form 10-K for the fiscal year ended December
      31, 1996.


                                       30
<PAGE>

M     Previously filed with the Commission; incorporated by reference to the
      Company's Quarterly Report on Form 10-Q for the quarter ended September
      30, 1997, as amended. Confidential treatment was granted for a portion of
      this Exhibit.

N     Previously filed with the Commission; incorporated by reference to the
      Company's Current Report on Form 8-K dated January 21, 1998.

O     Previously filed with the Commission; incorporated by reference to the
      Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
      1997.

P     Previously filed with the Commission; incorporated by reference to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1997.
      Confidential treatment was granted for a portion of this Exhibit.

Q     Previously filed with the Commission; incorporated by reference to the
      Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
      1998.

R     Previously filed with the Commission; incorporated by reference to the
      Company's Registration Statement on Form S-3, File No. 333-67335.
      Confidential treatment was granted for a portion of this Exhibit.

S     Previously filed with the Commission; incorporated by reference to the
      Company's Registration Statement on Form S-8, File No. 333-64827.

T     Filed herewith.

(b)  Reports on Form 8-K

On December 16, 1998, we filed with the Securities and Exchange Commission (the
"Commission") a Current Report on Form 8-K dated December 14, 1998 relating to
our signing of a Development and Licensing Agreement with Merck (Item 5).


                                       31
<PAGE>

                                   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.

                                   IMCLONE SYSTEMS INCORPORATED

       March 29, 1999              By     /s/ Samuel D. Waksal
                                          ------------------------------------- 
                                          Samuel D. Waksal
                                          President and Chief Executive Officer

      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 date indicated.                  

Signature                     Title                                Date
---------                     -----                                ----
/s/ Robert F. Goldhammer      Chairman of the Board of Directors   March 29,1999
----------------------------
(Robert F. Goldhammer)

/s/ Samuel D. Waksal          President, Chief Executive Officer   March 29,1999
----------------------------  and Director (Principal Executive 
(Samuel D. Waksal)            Officer)

/s/ Harlan W. Waksal          Executive Vice President,            March 29,1999
----------------------------  Chief Operating Officer and
(Harlan W. Waksal)             Director

/s/ Carl S. Goldfischer       Vice President, Finance and          March 29,1999
----------------------------  Chief Financial Officer 
(Carl S. Goldfischer)         (Principal Financial Officer)

/s/ Richard Barth             Director                             March 29,1999
----------------------------
(Richard Barth)

/s/ Jean Carvais              Director                             March 29,1999
----------------------------
(Jean Carvais)

/s/ Vincent T. DeVita, Jr.    Director                             March 29,1999
----------------------------
(Vincent T. DeVita, Jr.)

/s/ David M. Kies             Director                             March 29,1999
----------------------------
(David M. Kies)

/s/ Paul B. Kopperl           Director                             March 29,1999
----------------------------
(Paul B. Kopperl)

/s/ John Mendelsohn           Director                             March 29,1999
----------------------------
(John Mendelsohn)

/s/ William R. Miller         Director                             March 29,1999
----------------------------
(William R. Miller)


                                       32
<PAGE>

                              FINANCIAL STATEMENTS

                          Index to Financial Statements

Financial Statements
Independent Auditors' Report .............................................   F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 ................   F-3
Consolidated Statements of Operations and Comprehensive Loss
   for the Years Ended December 31, 1998, 1997, and 1996 .................   F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
   December 31, 1998, 1997, and 1996 .....................................   F-5
Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1998, 1997, and 1996 .....................................   F-6
Notes to the Consolidated Financial Statements ...........................   F-7


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

      ImClone Systems Incorporated:
    
      The Board of Directors and Stockholders

      We have audited the consolidated  financial  statements of ImClone Systems
Incorporated  and  subsidiary  as  listed  in  the  accompanying   index.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the financial  position of ImClone
Systems  Incorporated  and  subsidiary as of December 31, 1998 and 1997, and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.

                                                       /s/  KPMG LLP
                                                       -------------------------
                                                            KPMG LLP

Princeton, New Jersey
February 19, 1999


                                      F-2
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                           Consolidated Balance Sheets
                 (in thousands, except per share and share data)

<TABLE>
<CAPTION>
                                                                       December 31,          December 31,
                                     Assets                                1998                  1997
                                                                       -----------           -----------
<S>                                                                     <C>                   <C>      
Current assets:
  Cash and cash equivalents ........................................    $   3,888             $   2,558
  Securities available for sale ....................................       42,851                57,052
  Prepaid expenses .................................................          470                   596
  Other current assets .............................................        1,196                   589
                                                                        ---------             ---------
                Total current assets ...............................       48,405                60,795
                                                                        ---------             ---------
Property and equipment:
  Land .............................................................          340                   340
  Building and building improvements ...............................       10,519                 8,969
  Leasehold improvements ...........................................        4,846                 4,832
  Machinery and equipment ..........................................        7,834                 6,315
  Furniture and fixtures ...........................................          640                   550
  Construction in progress .........................................          115                 2,159
                                                                        ---------             ---------
                Total cost .........................................       24,294                23,165

   Less accumulated depreciation and amortization ..................      (12,877)              (11,294)
                                                                        ---------             ---------
                Property and equipment, net ........................       11,417                11,871
                                                                        ---------             ---------

Patent costs, net ..................................................          860                   944
Deferred financing costs, net ......................................           46                    55
Other assets .......................................................        1,524                 2,115
                                                                        ---------             ---------
                                                                        $  62,252             $  75,780
                                                                        =========             =========
                      Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable .................................................    $   1,109             $   1,731
  Accrued expenses and other .......................................        4,847                 1,440
  Interest payable .................................................           45                    68
  Deferred revenue .................................................           75                   208
  Fee potentially refundable from corporate partner ................        4,000                  --
  Current portion of long-term liabilities .........................          744                   677
  Preferred stock dividends payable ................................        2,512                  --
                                                                        ---------             ---------
                Total current liabilities ..........................       13,332                 4,124
                                                                        ---------             ---------

Long-term debt .....................................................        2,200                 2,200
Other long-term liabilities, less current portion ..................        1,546                 1,118
Preferred stock dividends payable ..................................         --                     112
                                                                        ---------             ---------
                Total liabilities ..................................       17,078                 7,554
                                                                        ---------             ---------
Commitments and contingencies

Stockholders' equity:
  Preferred stock, $1.00 par value; authorized
    4,000,000 shares; issued and outstanding
    Series A Convertible: 400,000 at December
    31, 1998 and December 31, 1997 (preference
    in liquidation $42,512 and $40,112, respectively)  .............          400                   400
  Common stock, $.001 par value; authorized 45,000,000
    shares; issued 24,567,312 and 24,265,072 at December
    31, 1998 and December 31, 1997, respectively;
    outstanding 24,516,495, and 24,214,255 at December
    31, 1998 and December 31, 1997, respectively ...................           25                    24
  Additional paid-in capital .......................................      184,853               185,706
  Accumulated deficit ..............................................     (138,846)             (117,464)
  Treasury stock, at cost; 50,817 shares at
    December 31, 1998 and December 31, 1997  .......................         (492)                 (492)
  Note receivable - officer and stockholder ........................         (142)                 --
  Accumulated other comprehensive income (loss):
    Unrealized (loss) gain on securities available for sale ........         (624)                   52
                                                                        ---------             ---------
                Total stockholders' equity .........................       45,174                68,226
                                                                        ---------             ---------
                                                                        $  62,252             $  75,780
                                                                        =========             =========
</TABLE>
                 See accompanying notes to financial statements.


                                      F - 3

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

          Consolidated Statements of Operations and Comprehensive Loss
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                      ------------------------------------------
                                                                        1998             1997             1996
                                                                      --------         --------         --------
<S>                                                                   <C>              <C>              <C>     
Revenues:
   License fees from third parties ...............................    $  1,000         $  3,000         $     75
   Research and development funding from third
     parties and other ...........................................       3,193            2,348              525
                                                                      --------         --------         --------
                   Total revenues ................................       4,193            5,348              600
                                                                      --------         --------         --------
Operating expenses:
   Research and development ......................................      21,049           16,455           11,482
   General and administrative ....................................       7,145            5,356            3,961
                                                                      --------         --------         --------
                   Total operating expenses ......................      28,194           21,811           15,443
                                                                      --------         --------         --------

Operating loss ...................................................     (24,001)         (16,463)         (14,843)
                                                                      --------         --------         --------
Other:
   Interest and other income .....................................      (3,054)          (1,523)            (918)
   Interest expense ..............................................         435              551              823
                                                                      --------         --------         --------
                   Net interest and other income .................      (2,619)            (972)             (95)
                                                                      --------         --------         --------
Loss before extraordinary item ...................................     (21,382)         (15,491)         (14,748)

Extraordinary loss on extinguishment of debt .....................        --               --              1,267
                                                                      --------         --------         --------

Net loss .........................................................     (21,382)         (15,491)         (16,015)

Preferred dividends (including assumed incremental
   yield attributible to beneficial conversion
   feature of $1,268 and $51 for the years ended
   December 31, 1998 and 1997, respectively) .....................       3,668              163             --
                                                                      --------         --------         --------
Net loss to common stockholders ..................................    $(25,050)        $(15,654)        $(16,015)
                                                                      ========         ========         ========
Net loss per common share:
   Basic and diluted:

     Loss before extraordinary item ..............................       (1.03)           (0.67)           (0.76)
     Extraordinary loss on extinguishment of debt ................        --               --              (0.07)
                                                                      --------         --------         --------
   Net loss ......................................................    $  (1.03)        $  (0.67)        $  (0.83)
                                                                      ========         ========         ========
Weighted average shares outstanding ..............................      24,301           23,457           19,371
                                                                      ========         ========         ========
Comprehensive loss:

Net loss .........................................................    $(21,382)        $(15,491)        $(16,015)

Other comprehensive income (loss):
   Unrealized gain on securities available for sale:
     Unrealized holding gain (loss) arising during the period ....        (638)              99              (49)
     Less: Reclassification adjustment for realized gain
        (loss) included in net loss ..............................          38               (2)            --
                                                                      --------         --------         --------
                   Total other comprehensive income (loss)  ......        (676)             101              (49)
                                                                      --------         --------         --------
Total Comprehensive loss .........................................    $(22,058)        $(15,390)        $(16,064)
                                                                      ========         ========         ========
</TABLE>
                 See accompanying notes to financial statements.


                                      F - 4

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                 Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 1998, 1997 and 1996
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                                                  
                                                Preferred Stock           Common Stock       Additional                           
                                           -----------------------   ----------------------   Paid-in   Accumulated    Treasury   
                                             Shares       Amount       Shares      Amount     Capital     Deficit        Stock    
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
<S>                                           <C>       <C>          <C>         <C>         <C>         <C>          <C>         
Balance at December 31, 1995 ............        --     $     --     16,819,622  $       17  $   97,914  $  (85,958)  $     (150) 
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Issuance of common stock ................                             2,200,000           2      13,560                           
Options exercised .......................                               266,275                     846                           
Warrants exercised ......................                               604,892           1       2,960                           
Options granted to non-employees ........                                                            95                           
Extinguishment of debt ..................                               357,333                   3,260                           
Debt discount ...........................                                                           125                           
Treasury shares .........................                                                                                    (19) 
Changes in unrealized loss on                                                                                                     
   securities available for sale ........                                                                                         
Net loss ................................                                                                   (16,015)              
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Balance at December 31, 1996 ............        --           --     20,248,122          20     118,760    (101,973)        (169) 
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Issuance of preferred stock .............     400,000          400                               39,597                           
Issuance of common stock ................                             3,000,000           3      23,152                           
Options exercised .......................                               147,450                     223                           
Warrants exercised ......................                               869,500           1       1,385                           
Options granted to non-employees ........                                                           189                           
Options/warrants granted to employees ...                                                         2,512                           
Treasury shares .........................                                                                                   (323) 
Changes in unrealized loss on                                                                                                     
   securities available for sale ........                                                                                         
Preferred stock dividends ...............                                                          (112)                          
Net loss ................................                                                                   (15,491)              
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Balance at December 31, 1997 ............     400,000          400   24,265,072          24     185,706    (117,464)        (492) 
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Options exercised .......................                               154,097           1         613                           
Warrants exercised ......................                               143,755                     200                           
Issuance of shares through employee stock                                                                                         
   purchase plan ........................                                 4,388                      33                           
Options granted to non-employees ........                                                           540                           
Options granted to employees ............                                                           150                           
Changes in unrealized gain on                                                                                                     
   securities available for sale ........                                                                                         
Note receivable - officer and stockholder                                                                                         
Interest on note receivable - officer                                                                                             
   and stockholder ......................                                                            11                           
Preferred stock dividends ...............                                                        (2,400)                          
Net loss ................................                                                                   (21,382)              
                                           ----------   ----------   ----------  ----------  ----------  ----------   ----------  
Balance at December 31, 1998 ............     400,000   $      400   24,567,312  $       25  $  184,853  $ (138,846)  $     (492) 
                                           ==========   ==========   ==========  ==========  ==========  ==========   ==========  

<CAPTION>
                                              Note       Accumulated             
                                           Receivable       Other
                                           Officer and  Comprehensive
                                           Stockholder       Loss         Total
                                           ----------     ----------   ----------
<S>                                        <C>            <C>          <C>       
Balance at December 31, 1995 ............  $     --       $     --     $   11,823
                                           ----------     ----------   ----------
Issuance of common stock ................                                  13,562
Options exercised .......................                                     846
Warrants exercised ......................                                   2,961
Options granted to non-employees ........                                      95
Extinguishment of debt ..................                                   3,260
Debt discount ...........................                                     125
Treasury shares .........................                                     (19)
Changes in unrealized loss on                            
   securities available for sale ........                        (49)         (49)
Net loss ................................                                 (16,015)
                                           ----------     ----------   ----------
Balance at December 31, 1996 ............        --              (49)      16,589
                                           ----------     ----------   ----------
Issuance of preferred stock .............                                  39,997
Issuance of common stock ................                                  23,155
Options exercised .......................                                     223
Warrants exercised ......................                                   1,386
Options granted to non-employees ........                                     189
Options/warrants granted to employees ...                                   2,512
Treasury shares .........................                                    (323)
Changes in unrealized loss on                            
   securities available for sale ........                        101          101
Preferred stock dividends ...............                                    (112)
Net loss ................................                                 (15,491)
                                           ----------     ----------   ----------
Balance at December 31, 1997 ............        --               52       68,226
                                           ----------     ----------   ----------
Options exercised .......................                                     614
Warrants exercised ......................                                     200
Issuance of shares through employee stock                
   purchase plan ........................                                      33
Options granted to non-employees ........                                     540
Options granted to employees ............                                     150
Changes in unrealized gain on                            
   securities available for sale ........                       (676)        (676)
Note receivable - officer and stockholder        (131)                       (131)
Interest on note receivable - officer                    
   and stockholder ......................         (11)                       --
Preferred stock dividends ...............                                  (2,400)
Net loss ................................                                 (21,382)
                                           ----------     ----------   ----------
Balance at December 31, 1998 ............  $     (142)    $     (624)  $   45,174
                                           ==========     ==========   ==========
</TABLE>
                 See accompanying notes to financial statements


                                      F - 5

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                      ---------------------------------
                                                                         1998        1997        1996
                                                                      ---------   ---------   ---------
<S>                                                                   <C>         <C>         <C>       
Cash flows from operating activities:
  Net loss .........................................................  $ (21,382)  $ (15,491)  $ (16,015)
  Adjustments to reconcile net loss to net
      cash used in operating activities:
    Depreciation and amortization ..................................      1,769       1,797       1,704
    Expense associated with issuance
      of options and warrants ......................................        690       2,729          95
    Extraordinary loss on extinguishment of debt ...................       --          --         1,267
    Discounted interest amortization ...............................       --          --           156
    Write-off of patent costs ......................................        235         146        --
    (Gain) loss on sale of investments .............................        (38)          2        --
    Changes in:
      Prepaid expenses .............................................        126        (474)         (7)
      Other current assets .........................................       (607)       (110)       (453)
      Due from officer and stockholder .............................       --           101          31
      Other assets .................................................        (62)        (37)        (14)
      Interest payable .............................................        (23)       (170)       (105)
      Accounts payable .............................................       (622)        672          67
      Accrued expenses and other ...................................      3,407          75         540
      Deferred revenue .............................................       (133)        208        --
      Fee potentially refundable from corporate partner ............      4,000        --          --
                                                                      ---------   ---------   ---------
                Net cash used in operating activities ..............    (12,640)    (10,552)    (12,734)
                                                                      ---------   ---------   ---------
Cash flows from investing activities:
    Acquisitions of property and equipment .........................       (472)     (1,657)       (272)
    Purchases of securities available for sale .....................    (62,779)   (241,623)    (32,665)
    Sales and maturities of securities available for sale ..........     76,996     195,450      21,836
    Investment in CombiChem, Inc. ..................................       --        (2,000)       --
    Additions to patents ...........................................       (254)       (212)       (343)
                                                                      ---------   ---------   ---------
                Net cash provided by (used in) investing activities      13,491     (50,042)    (11,444)
                                                                      ---------   ---------   ---------
Cash flows from financing activities:
    Net proceeds from issuance of preferred stock ..................       --        39,997        --
    Net proceeds from issuance of common stock .....................       --        23,154      13,562
    Proceeds from exercise of stock options and warrants ...........        682       1,581       3,807
    Proceeds from issuance of common stock under
        the employee stock purchase plan ...........................         33        --          --
    Purchase of treasury stock .....................................       --          (323)        (19)
    Proceeds from equipment and building improvement financings ....        594        --          --
    Repayment of long-term debt ....................................       --        (2,113)       --
    Payments of other liabilities ..................................       (830)     (1,878)       (645)
                                                                      ---------   ---------   ---------
                Net cash provided by financing activities ..........        479      60,418      16,705
                                                                      ---------   ---------   ---------
Net increase (decrease) in cash and cash equivalents ...............      1,330        (176)     (7,473)

Cash and cash equivalents at beginning of period ...................      2,558       2,734      10,207
                                                                      ---------   ---------   ---------
Cash and cash equivalents at end of period .........................  $   3,888   $   2,558   $   2,734
                                                                      =========   =========   =========
</TABLE>
                 See accompanying notes to financial statements.


                                      F - 6
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                   Notes To Consolidated Financial Statements

     (1) Organization and Basis of Preparation

     ImClone Systems Incorporated (the "Company") is a biopharmaceutical company
engaged  primarily in the research and  development of therapeutic  products for
the  treatment  of cancer and cancer  related  disorders.  The  Company  employs
accounting  policies that are in accordance with generally  accepted  accounting
principles in the United States.

     The  biopharmaceutical   industry  is  subject  to  rapid  and  significant
technological  change.  The Company has numerous  competitors,  including  major
pharmaceutical  and  chemical  companies,   specialized   biotechnology   firms,
universities and other research  institutions.  These competitors may succeed in
developing  technologies  and products that are more effective than any that are
being developed by the Company or that would render the Company's technology and
products   obsolete  and   non-competitive.   Many  of  these  competitors  have
substantially  greater  financial and technical  resources  and  production  and
marketing  capabilities  than the Company.  In addition,  many of the  Company's
competitors  have   significantly   greater   experience  than  the  Company  in
pre-clinical testing and human clinical trials of new or improved pharmaceutical
products  and in  obtaining  Food  and Drug  Administration  ("FDA")  and  other
regulatory approvals on products for use in health care. The Company is aware of
various products under  development or manufactured by competitors that are used
for the prevention,  diagnosis or treatment of certain  diseases the Company has
targeted for product development,  some of which use therapeutic approaches that
compete directly with certain of the Company's product  candidates.  The Company
has limited experience in conducting and managing pre-clinical testing necessary
to enter clinical trials required to obtain government approvals and has limited
experience in conducting clinical trials. Accordingly, the Company's competitors
may succeed in  obtaining  FDA  approval  for  products  more  rapidly  than the
Company,  which could adversely affect the Company's  ability to further develop
and market its products. If the Company commences  significant  commercial sales
of its  products,  it will  also be  competing  with  respect  to  manufacturing
efficiency and marketing capabilities, areas in which the Company has limited or
no experience.

     (2) Summary of Significant Accounting Policies

     (a) Principles of Consolidation

     The consolidated  financial  statements include the financial statements of
ImClone  Systems   Incorporated  and  its  wholly-owned   subsidiary   Endoclone
Incorporated.  All significant  intercompany balances and transactions have been
eliminated in consolidation.

     (b) Cash Equivalents

     Cash  equivalents  consist  primarily  of  U.S.   Government   instruments,
commercial  paper,  master notes and other readily  marketable debt instruments.
The  Company   considers  all  highly  liquid  debt  instruments  with  original
maturities not exceeding three months to be cash equivalents.

     (c) Investments in Securities

     The Company  classifies its investment in debt and equity securities in one
of three categories: trading, available-for-sale,  or held-to-maturity.  Trading
securities  are bought and held  principally  for the purpose of selling them in
the near term.  Held-to-maturity  securities are those debt  securities in which
the Company has the ability and intent to hold the security until maturity.  All
other securities not included in trading or  held-to-maturity  are classified as
available-for-sale.

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
Held-to-maturity  securities  are recorded at amortized  cost,  adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings.  Unrealized holding gains
and losses,  net of related tax effect,  on 


                                      F-7
<PAGE>

available-for-sale  securities  are excluded from earnings and are reported as a
separate component of accumulated  comprehensive  loss until realized.  Realized
gains and losses from the sale of  available-for-sale  securities are determined
on a specific identification basis.

     A decline in the market value of any available-for-sale or held-to-maturity
security  below  cost that is deemed to be other  than  temporary  results  in a
reduction  in  carrying  amount to fair  value.  The  impairment  is  charged to
earnings  and a new cost basis for the  security is  established.  Premiums  and
discounts   are   amortized   or   accreted   over  the  life  of  the   related
held-to-maturity security as an adjustment to yield using the effective interest
method. Dividend and interest income is recognized when earned.

     At  December  31,  1998  and  1997,  all  investments  in  securities  were
classified as available-for-sale.

     (d) Long-Lived Assets

     Property and equipment are stated at cost.  Equipment  under capital leases
are stated at the present value of minimum lease payments. Depreciation of fixed
assets is provided by straight-line methods over estimated useful lives of three
to twelve years, and leasehold improvements are being amortized over the related
lease term or the service lives of the improvements, whichever is shorter.

     Patent and patent  application  costs are  capitalized  and  amortized on a
straight-line basis over their respective expected useful lives, up to a 15-year
period.

     The Company reviews long-lived assets for impairment when events or changes
in  business  conditions  indicate  that  their full  carrying  value may not be
recovered.  Assets are  considered to be impaired and written down to fair value
if expected associated cash flows are less than the carrying amounts. Fair value
is generally the present value of the expected associated cash flows.

     (e) Deferred Financing Costs

     Costs incurred in obtaining the Industrial  Development Revenue Bonds (Note
6) are amortized  using the  straight-line  method over the terms of the related
bonds.

     (f) Revenue Recognition

     License fees are recognized if the Company  enters into license  agreements
with third parties that provide for the payment of non-refundable  fees when the
agreement  is  signed  or when all  parties  concur  that  specified  goals  are
achieved.  These fees are recognized as license fee revenues in accordance  with
the terms of the particular agreement.

     Research and  development  funding  revenue is derived  from  collaborative
agreements  with third parties and is recognized in accordance with the terms of
the respective contracts.

     Royalty  revenue is  recognized  when earned and  collection  is  probable.
Royalty  revenue is derived from sales of products by corporate  partners  using
licensed Company technology.

     Revenue  recognized  in the  accompanying  statements  of operations is not
subject to repayment.  Amounts received that are subject to repayment if certain
specified  goals are not met are classified as fees  potentially  refundable and
recognized as revenue upon the  achievement  of such  specified  goals.  Revenue
received that is related to future performance is classified as deferred revenue
and recognized when the revenue is earned.

     (g) Stock-Based Compensation Plans

     The Company has two types of stock-based  compensation  plans, stock option
plans and a stock  purchase  plan.  The  Company  accounts  for its  stock-based
compensation  plans in accordance  with the provisions of Accounting  Principles
Board ("APB")  Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and
related interpretations.  As such, compensation expense would be recorded on the
date of grant  only if the market  price on the date of grant 


                                      F-8
<PAGE>

of the underlying  stock exceeded the exercise price.  The Company  provides the
pro forma net income and pro forma earnings per share  disclosures  for employee
stock  option  grants made in 1995 and future  years as if the  fair-value-based
method defined in Statement of Financial  Accounting  Standards ("SFAS") No. 123
had been applied.

     (h) Research and Development

     Research and development expenditures made pursuant to certain research and
development  contracts  with  academic  institutions,  and  other  research  and
development costs, are expensed as incurred.

     (i) Income Taxes

     Income  taxes are  accounted  for under  the  asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

     (j) Use of Estimates

      Management of the Company has made a number of estimates  and  assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities  to prepare  these  financial  statements in
conformity with generally accepted accounting  principles.  Actual results could
differ from those estimates.

     (k) Net Loss Per Common Share

     Basic and  diluted  loss per common  share is based on the net loss for the
relevant period,  adjusted for cumulative Series A Preferred Stock dividends and
the assumed  incremental yield attributable to beneficial  conversion feature of
$3,668,000,  $163,000 and none for the years ended  December 31, 1998,  1997 and
1996, respectively,  divided by the weighted average number of shares issued and
outstanding  during the  period.  For  purposes  of the  diluted  loss per share
calculation,  the exercise or conversion  of all potential  common shares is not
included since their effect would be anti-dilutive  for all years presented.  As
of December 31, 1998, 1997 and 1996, the Company had  approximately  10,933,000,
9,444,000 and  5,380,000,  respectively,  potential  common  shares  outstanding
including  convertible  preferred stock,  stock options and stock warrants.  The
potential  shares  of  Common  Stock to which the  Series A  Preferred  Stock is
convertible  is based on the future market price of the Company's  Common Stock.
The potential  Common Stock  outstanding  relating to Preferred Stock conversion
for the years ended December 31, 1998 and 1997 has been  estimated  based on the
respective  closing prices of the Common Stock at December 31, 1998 and December
31, 1997.

      (l) Comprehensive Income (Loss)

     On  January  1,  1998,  the  Company   adopted  SFAS  No.  130,   Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
presentation  of  comprehensive  income  and  its  components  in a full  set of
financial statements.  Comprehensive income (loss) consists of net income (loss)
and  net  unrealized  gains  (losses)  on  securities  and is  presented  in the
consolidated  statements  of  operations  and  comprehensive  loss.  Prior  year
financial  statements have been  reclassified to conform to the  requirements of
SFAS No. 130.

      (m) Reclassification

      Certain amounts  previously  reported have been reclassified to conform to
the current year's presentation.


                                      F-9
<PAGE>

(3) Securities Available for Sale

      The amortized  cost,  gross  unrealized  holding gains,  gross  unrealized
holding  losses  and  fair  value  for  available-for-sale  securities  by major
security type at December 31, 1998 and 1997, were as follows:

At December 31, 1998:

<TABLE>
<CAPTION>
                                                   Gross         Gross
                                                Unrealized    Unrealized
                                   Amortized     Holding       Holding          Fair
                                      Cost        Gains         Losses          Value
                                   ----------   ---------    -----------     -----------
<S>                               <C>           <C>          <C>             <C>        
Commercial  paper ..............  $ 4,738,000   $    --      $       --      $ 4,738,000
U.S. government debt ...........    2,000,000       2,000            --        2,002,000
U.S. corporate  debt ...........   21,633,000      69,000         (48,000)    21,654,000
Foreign corporate debt .........   14,150,000      44,000         (42,000)    14,152,000
Foreign government/agency 
  guaranteed  debt .............      302,000       3,000            --          305,000
                                  -----------   ---------    ------------    -----------
                                  $42,823,000   $ 118,000    $    (90,000)   $42,851,000
                                  ===========   =========    ============    ===========
</TABLE>

At December 31, 1997:


<TABLE>
<CAPTION>
                                                    Gross         Gross
                                                 Unrealized    Unrealized
                                   Amortized      Holding       Holding          Fair
                                      Cost         Gains         Losses          Value
                                   ----------    ---------    -----------     -----------
<S>                               <C>            <C>          <C>             <C>        
Commercial paper ...............  $12,104,000    $  4,000             $--    $12,108,000
U.S. government debt ...........   23,568,000      24,000          (5,000)    23,587,000
U.S. corporate debt ............    3,992,000       4,000            --        3,996,000
Foreign corporate debt .........    4,719,000       7,000            --        4,726,000
Foreign government/agency                       
  guaranteed debt ..............   12,617,000      18,000            --       12,635,000
                                  -----------    --------    ------------    -----------
                                  $57,000,000    $ 57,000    $     (5,000)   $57,052,000
                                  ===========    ========    ============    ===========
</TABLE>

      Maturities of debt  securities  classified as  available-for-sale  were as
follows at December 31, 1998:

Years ended December 31,

                                                       Amortized       Fair
                                                         Cost          Value
                                                      -----------   -----------
1999 ...............................................  $11,257,000   $11,260,000
2000 ...............................................    7,151,000     7,198,000
2001 ...............................................    1,764,000     1,757,000
2002 ...............................................         --            --
2003 ...............................................         --            --
2004 and thereafter ................................   22,651,000    22,636,000
                                                      -----------   -----------
                                                      $42,823,000   $42,851,000
                                                      ===========   ===========

      Proceeds from the sale of investment  securities  available-for-sale  were
$35,604,000,  $9,115,000  and  $2,596,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Gross realized gains included in income in 1998 and
1997 were $41,000 and $1,000, respectively and gross realized losses included in
income in 1998 and 1997 were $3,000 in both years.  There were no realized gains
or losses in 1996.


                                      F-10
<PAGE>

(4) Other Assets

      The following items are included in other assets:

                                                   December 31,     December 31,
                                                       1998             1997
                                                   -----------      ------------
Deposits ...................................        $  176,000       $  115,000
Investment in CombiChem, Inc. ..............         1,348,000        2,000,000
                                                    ----------       ----------
                                                    $1,524,000       $2,115,000
                                                    ==========       ==========

      In October 1997,  the Company  entered into a  Collaborative  Research and
License  Agreement with CombiChem,  Inc.  ("CombiChem")  to discover and develop
novel small  molecules  for use against  selected  targets for the  treatment of
cancer.  The  companies  are  utilizing  CombiChem's  Discovery  Engine(TM)  and
Universal Informer  Library(TM) to generate small molecules for screening in the
Company's assays for identification of lead candidates. The Company is providing
CombiChem with research  funding  through October 1999 in the amount of $500,000
annually and  milestone  payments and  royalties on marketed  products,  if any,
resulting  from  the  collaboration.   Concurrent  with  the  execution  of  the
Collaborative  Research and License Agreement,  the Company entered into a Stock
Purchase  Agreement  pursuant to which the Company  purchased  312,500 shares of
common  stock  of  CombiChem,   as  adjusted,  for  aggregate  consideration  of
$2,000,000.  The Company  recorded an unrealized loss of $652,000 and none as of
December 31, 1998 and 1997, respectively,  on this investment due to a reduction
in the market  value of the stock.  The Company  deems this  reduction in market
value to be  temporary  and  therefore  this  unrealized  loss was recorded as a
component of accumulated other comprehensive loss.

(5) Accrued Expenses and Other

      The following items are included in accrued expenses and other:

                                                    December 31,    December 31,
                                                        1998           1997
                                                    ------------    ------------
Salaries and other payroll related  expenses .....  $1,256,000       $  773,000
Legal and accounting fees ........................     484,000          169,000
Research and development contract services .......   2,032,000             --
Other ............................................   1,075,000          498,000
                                                    ----------       ----------
                                                    $4,847,000       $1,440,000
                                                    ==========       ==========

(6) Long-term Debt

      On December 31, 1986, the New York City Industrial Development Agency (the
"NYIDA") issued on behalf of the Company an Industrial  Development Revenue Bond
(the "1986 Bond") bearing annual  interest at 10.75% in the amount of $2,113,000
with a maturity  date of December  15, 1994.  The proceeds  from the sale of the
1986  Bond  were  used by the  Company  for the  acquisition,  construction  and
installation  of the  Company's  research and  development  facility in New York
City.  During December 1994, the 1986 Bond's original  maturity date of December
15, 1994 was  extended to June 15, 1996.  During June 1996,  the Company and the
NYIDA extended the maturity date an additional  eighteen  months to December 15,
1997. The Company repaid the obligation on December 15, 1997.

      In August 1990, the NYIDA issued another  Industrial  Development  Revenue
Bond (the  "1990  Bond")  bearing  annual  interest  at 11.25% in the  amount of
$2,200,000. The 1990 Bond is due May 1, 2004. The 1990 Bond includes a provision
that if the  Company  terminates  its  lease on its New York  City  facility,  a
portion  of which was  scheduled  to expire  in March  1999,  the 1990 Bond will
become due 60 days prior to such date. The Company  renewed the entire lease for
the New York City  facility  effective  as of January 1, 1999  through  December
2004.  The proceeds  from the sale of the 1990 Bond were used by the Company for
the acquisition,  construction  and  installation of the Company's  research and
development facility in New York City.


                                      F-11
<PAGE>

     The Company has granted a security  interest in substantially all equipment
located in its New York City facility to secure the obligation of the Company to
the NYIDA relating to the 1990 Bond. Interest expense on the 1986 and 1990 Bonds
was  approximately  $248,000 for the year ended  December 31, 1998, and $465,000
for each of the years ended December 31, 1997 and 1996, respectively.

(7) Other Long-term Liabilities

      Other long-term liabilities are comprised of the following:

                                                   December 31,    December 31,
                                                        1998           1997
                                                   -----------    --------------
Liability to reacquire IL-6m rights ..........     $    --          $   283,000
Liability under capital lease obligations ....       2,253,000        1,469,000
Liability under license agreement                       37,000           43,000
                                                   -----------      -----------
                                                     2,290,000        1,795,000
Less current portion .........................        (744,000)        (677,000)
                                                   -----------      -----------
                                                   $ 1,546,000      $ 1,118,000
                                                   ===========      ===========

      In July 1993, the Company  entered into an agreement with Erbamont,  Inc.,
now a subsidiary of Pharmacia  and Upjohn,  Inc.  ("Pharmacia"),  to acquire the
worldwide  rights to IL-6m, a blood cell growth factor,  which had been licensed
to Pharmacia pursuant to a development and licensing agreement. In consideration
of the return of rights and the transfer of certain  material  and  information,
the Company had paid  $1,400,000  and entered into a repayment  agreement for an
additional  $2,400,000 payable over 24 months commencing March 1996. At December
31, 1998, all amounts due Pharmacia  under the repayment  agreement were paid in
full. Additionally,  the Company is required to pay Pharmacia up to $2.7 million
in royalties on eventual sales of IL-6m, if any.

      The  Company  is  obligated  under  various  capital  leases  for  certain
laboratory, office and computer equipment and also certain building improvements
primarily  under a  December  1996  financing  agreement  (the  "1996  Financing
Agreement")  and  an  April  1998  financing   agreement  (the  "1998  Financing
Agreement") with Finova Technology Finance, Inc. ("Finova").  The 1996 Financing
Agreement allowed the Company to finance the lease of equipment and make certain
building and leasehold  improvements to existing  facilities  involving  amounts
aggregating  approximately  $2,500,000.  Each  lease  has a  fair  market  value
purchase  option at the  expiration  of a 42-month  term.  Pursuant  to the 1996
Financing  Agreement,  the Company issued to Finova a warrant expiring  December
31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69
per share.  The  Company  recorded a non-cash  debt  discount  of  approximately
$125,000 in connection  with this  financing,  which discount is being amortized
over the 42-month term of the first lease.  The 1996  Financing  Agreement  with
Finova  expired  in  December  1997 and the  Company  did not  utilize  the full
$2,500,000 under the agreement. In April 1998, the Company entered into the 1998
Financing Agreement with Finova aggregating approximately $2,000,000.  The terms
of the 1998  Financing  Agreement are  substantially  similar to the now expired
1996  Financing  Agreement  except  that each lease has a  48-month  term and no
warrants were issued.  As of December 31, 1998, the Company had entered into ten
individual leases under both the 1996 Financing Agreement and the 1998 Financing
Agreement  aggregating  a total cost of  $3,069,000  and had $676,000  available
under the 1998  Financing  Agreement.  The 1998 Financing  Agreement  terminates
March 31, 1999 and the Company is in discussions  regarding its extension for an
additional  60 days.  There are no  financial  covenants  associated  with these
financing agreements. See Notes 13 and 15.


                                      F-12
<PAGE>

      At December 31, 1998 and 1997,  the gross amount of laboratory  equipment,
office  equipment,  building  improvements  and  furniture  and fixtures and the
related  accumulated  depreciation and  amortization  recorded under all capital
leases were as follows:

                                                  December 31,      December 31,
                                                      1998              1997
                                                  ------------      ------------
Laboratory, office and computer equipment ....     $ 2,407,000      $ 1,204,000
Building  improvements .......................         861,000          831,000
Furniture and fixtures .......................          92,000             --
                                                   -----------      -----------
                                                     3,360,000        2,035,000
Less accumulated depreciation and ............        (643,000)        (291,000)
                                                   ===========      ===========
                                                   $ 2,717,000      $ 1,744,000
                                                   ===========      ===========

      In connection  with the  Company's  production  and eventual  marketing of
certain  products,  the Company  entered into a license  agreement that requires
minimum  annual  royalty  payments  throughout  the term of the  agreement.  The
agreement  expires in 2004 and calls for  minimum  annual  payments  of $10,000,
which are creditable against royalties that may be due from sales. To the extent
the minimum annual royalties are not expected to be offset by sales, the Company
has charged the net present value of these payments to  operations.  An interest
rate of 10% was used to discount the cash flows.

      In July 1995,  a director  loaned the Company  $180,000 in exchange  for a
long-term note due two years from issuance at an annual  interest rate of 8%. As
part of the  transaction,  the director was granted 36,000  warrants to purchase
Company  Common Stock at $1.50 per share and an  additional  36,000  warrants to
purchase  Common  Stock at $3.00 per share.  In May 1996,  the  Company  and the
director  exchanged  the note for 24,000  shares of Common Stock and the Company
paid the  accrued  and unpaid  interest  on the note in the amount of $10,000 in
cash.   The  Company   recorded  an   extraordinary   loss  of  $39,000  on  the
extinguishment  of the debt.  The Company has  registered  such shares of Common
Stock with the Securities and Exchange  Commission  (the  "Commission")  under a
registration  statement in accordance  with the provisions of the Securities Act
of 1933 (the "1933 Act").

      On August 11, 1995, the Oracle Group purchased  1,000,000 shares of Common
Stock for a purchase price of $1.5 million and made a loan to the Company in the
aggregate  amount of $2.5  million  with a  two-year  maturity,  but  subject to
mandatory  prepayment,  in whole or in part,  upon  the  occurrence  of  certain
events,  including the raising of certain  additional funds. The loan carried an
annual  interest  rate of 8%. The Oracle Group  includes  Oracle  Partners,  LP,
Quasar International Partners C.V., Oracle Institutional Partners LP, Sam Oracle
Fund,  Inc.  and Warren B.  Kanders.  The Oracle  Group also  received  warrants
exercisable at any time until August 10, 2000  entitling the holders  thereof to
purchase  500,000  shares  of  Common  Stock at a price of $1.50  per  share and
500,000 shares of Common Stock at a price of $3.00 per share. As a result of the
Company's  offerings of shares of its Common Stock in November 1995 and February
1996,  the Oracle  Group was entitled to require the Company to apply 20 percent
of the  gross  proceeds  of the sale of the  shares  of  Common  Stock  from the
offerings to repay the loan.

      In May 1996,  the Company and the Oracle Group  exchanged the notes in the
aggregate  outstanding  principal  amount of $2.5 million for 333,333  shares of
Common Stock and the Company  paid the accrued and unpaid  interest on the notes
in the amount of $143,000 in cash. The Company recorded an extraordinary loss of
$1,228,000 on the  extinguishment  of the debt. The Company has registered  such
shares of Common Stock with the  Commission  under a  registration  statement in
accordance with the provisions of the 1933 Act.

(8) Collaborative Agreements

      In  December   1990,   the  Company   entered  into  a   development   and
commercialization  agreement  with  Merck  KGaA  ("Merck")  with  respect to its
principal  cancer  vaccine  product  candidate,  BEC2 and the  recombinant  gp75
antigen (collectively "BEC2"). The agreement has been amended a number of times,
most recently in December 1997. The agreement  grants Merck a license,  with the
right to sublicense,  to manufacture and market BEC2 for all indications outside
of North  America.  Merck has also been granted a license,  without the right to
sublicense, to 


                                      F-13
<PAGE>

market but not manufacture  BEC2 in North America.  The Company has the right to
co-promote  BEC2 in North  America.  In  return,  the  Company  is  entitled  to
$4,700,000,  of which $4,167,000 has been recognized as of December 31, 1998, in
research support payments.  Merck is also required to make milestone payments up
to $22,500,000, of which $3,000,000 has been recognized as of December 31, 1998,
based on milestones  achieved in the licensed  products'  development.  Merck is
also  required to pay  royalties on the eventual  sales of BEC2 outside of North
America,  if any.  Revenues  arising from sales of BEC2 in North America will be
distributed  in  accordance  with the terms of a  co-promotion  agreement  to be
negotiated by the parties.

      In December  1998,  the Company  entered  into a  development  and license
agreement with Merck with respect to its lead interventional therapeutic product
candidate  for cancer,  C225.  In exchange for  exclusive  rights to market C225
outside of North  America and  co-development  rights in Japan,  the Company can
receive  $30,000,000,  of which  $4,000,000 has been received as of December 31,
1998,  in  up-front  fees  and  early  cash-based  milestone  payments  assuming
achievement of defined  milestones.  An additional  $30,000,000  can be received
assuming  the  achievement  of further  milestones  for which Merck will receive
equity in the Company.  The equity  underlying these milestone  payments will be
priced  at  varying  premiums  to the  then  market  price of the  Common  Stock
depending  upon the  timing of the  achievement  of the  respective  milestones.
Additionally,  Merck  will,  subject to certain  terms,  provide  the  Company a
$30,000,000  secured  line  of  credit  or  guaranty  for  the  build-out  of  a
manufacturing  facility for the commercial  development of C225.  Merck will pay
the Company a royalty on future sales of C225 outside of North America,  if any.
Merck has also  agreed not to own  greater  than 19.9% of the  Company's  voting
securities through December 3, 2002. The agreement may be terminated by Merck on
any date on which a milestone is achieved  (in which case no  milestone  payment
will be made) or for a one year period after the first  commercial  sale of C225
in Merck's territory,  upon Merck's reasonable determination that the product is
economically  unfeasible (in which case Merck is entitled to receive back 50% of
the cash based  milestones then paid to date, but only based upon a royalty rate
applied  to the  Company's  sales in North  America,  if any).  In the  event of
termination of the agreement, the due date for the payment of the line of credit
for  the  manufacturing  facility  will be  accelerated,  or in the  event  of a
guaranty,  the Company will be required to use its best efforts to release Merck
as guarantor. In the event by April 15, 1999 the Company and Merck fail to agree
on a concept  for the  manufacturing  facility  or Merck  fails to  provide  the
Company  with  the  credit  facility  or  guaranty  then  the  agreement  may be
terminated by either party,  in which case Merck is entitled to receive back all
milestone  payments made to date.  Additionally,  the Company must timely obtain
certain collateral license agreements and the failure to do so will also entitle
Merck to  receive  back all  milestone  payments  made to date.  The  $4,000,000
milestone  payment  received  in  December  1998  has  been  recorded  as a  fee
potentially  refundable from corporate partner and will be recognized as revenue
upon the parties  mutual  agreement of the  manufacturing  facility  concept and
obtaining the defined collateral license agreements.

      Revenues  for the  years  ended  December  31,  1998,  1997 and 1996  were
$4,193,000,  $5,348,000 and $600,000  respectively.  Revenues for the year ended
December  31,  1998  consisted  of (i)  $300,000 in  research  support  from the
Company's  partnership with the Wyeth/Lederle Vaccine and Pediatrics Division of
American  Home Products  Corporation  ("American  Home") in  infectious  disease
vaccines,  (ii)  $1,000,000 in milestone  revenue and $2,500,000 in research and
support  payments from the Company's  research and license  agreement with Merck
KGaA  ("Merck")  with respect to the  Company's  BEC2 product  candidate,  (iii)
$295,000 in royalty  revenue from the Company's  strategic  alliance with Abbott
Laboratories  ("Abbott") in  diagnostics,  and (iv) $98,000 from a Phase I Small
Business  Innovation  Research  grant from the National  Cancer  Institute for a
program in cancer-related angiogenesis. Revenues for the year ended December 31,
1997  consisted  of  (i)  $300,000  in  research   support  from  the  Company's
partnership with American Home in infectious  disease vaccines,  (ii) $2,000,000
in milestone  revenue and  $1,667,000 in research and support  payments from the
Company's  research  and  license  agreement  with  Merck  with  respect  to the
Company's BEC2 product candidate,  and (iii) $1,000,000 in milestone revenue and
$381,000 in royalty revenue from the Company's strategic alliance with Abbott in
diagnostics.  Revenues  for the year ended  December  31, 1996  consisted of (i)
$300,000 in research  support from the Company's  partnership with American Home
in  infectious  diseases,  (ii)  $225,000 in royalty  revenue from the Company's
strategic alliance with Abbott in diagnostics, and (iii) $75,000 in license fees
from  the  Company's   cross-licensing   agreement   with  Immunex   Corporation
("Immunex") for novel hematopoietic growth factors.

      Revenues were derived from the following geographic areas:


                                      F-14
<PAGE>

                                                Year Ended December 31,
                                    --------------------------------------------
                                       1998              1997            1996
                                    ----------        ----------     -----------
United States ..............        $  693,000        $1,681,000       $600,000
Germany ....................         3,500,000         3,667,000           --
                                    ----------        ----------       --------
                                    $4,193,000        $5,348,000       $600,000
                                    ==========        ==========       ========

(9) Preferred Stock

      In connection  with the December 1997 amendment to the Company's  research
and license  agreement with Merck,  Merck purchased from the Company in December
1997 400,000 shares of the Company's  Series A Convertible  Preferred Stock (the
"Series  A  Preferred   Shares"  or  "Series  A  Preferred   Stock")  for  total
consideration  of $40,000,000.  The holders of the Series A Preferred Shares are
entitled to receive annual  cumulative  dividends of $6.00 per share.  Dividends
accrue as of the issuance date of the Series A Preferred  Shares and are payable
on the outstanding  Series A Preferred Shares in cash annually on December 31 of
each year beginning December 31, 1999 or at the time of conversion or redemption
of the Series A Preferred Shares on which the dividend is to be paid,  whichever
is sooner.  Up to 100,000 Series A Preferred Shares as of December 31, 1998 were
convertible  and an  additional  100,000  Series A Preferred  Shares will become
convertible  on each of January 1,  2000,  January 1, 2001 and  January 1, 2002.
During  the  period  from  issuance  through  December  31,  1999,  the Series A
Preferred  Shares are  convertible at a price equal to $12.50 per share;  during
the period from January 1, 2000 through December 31, 2000 the Series A Preferred
Shares are convertible at a price equal to the average of the closing prices for
the Common Stock for the five  trading days ending on December 31, 1999;  during
the period from January 1, 2001 through December 31, 2001 the Series A Preferred
Shares are convertible at a price equal to the average of the closing prices for
the Common Stock for the five  trading days ending on December 31, 2000;  during
the period from January 1, 2002 through December 31, 2002 the Series A Preferred
Shares are  convertible  at a  beneficial  conversion  price equal to 88% of the
average of the closing  prices for the Common  Stock for the five  trading  days
ending on December  31,  2001;  and anytime  after  January 1, 2003 the Series A
Preferred  Shares are convertible at a price equal to the average of the closing
prices for the Common  Stock for the five  trading  days ending on December  31,
2002.  The  conversion  price is  subject to  adjustment  in the case of certain
dilutive  events.  Further,  in the event the average market price of the Common
Stock for the five consecutive  trading days ending one trading day prior to any
trading day during which any Series A Preferred  Shares are outstanding  exceeds
150% of the  conversion  price  then in  effect,  the  Company  has the right to
require the holder of the Series A  Preferred  Shares to convert all such shares
that may be convertible. The Company may also redeem in whole or any part of the
Series A Preferred  Shares then  outstanding  at a redemption  price of $120 per
Preferred Share, plus accrued and unpaid dividends thereon.  In the event of any
voluntary or involuntary liquidation,  dissolution or winding up of the Company,
the  holders of the Series A  Preferred  Shares  shall be entitled to receive in
cash out of the assets of the Company,  whether  from capital or from  earnings,
available for distribution to its stockholders,  before any amount shall be paid
the holders of the Common Stock or holders of other classes or series of capital
stock of the Company, an amount equal to the preference in liquidation; provided
that, if the assets are  insufficient  to pay the full amount due to the holders
of Series A Preferred  Shares,  such  holders  will  receive a pro rata  portion
thereof.  In  accordance  with the terms of the Series A  Preferred  Stock,  the
Company is required to  recognize  an assumed  incremental  yield of  $5,455,000
(calculated  at the date of  issuance  and  based on the  beneficial  conversion
feature  noted  above).  Such amount is being  amortized  as a  preferred  stock
dividend over a four-year  period  beginning  with the day of issuance.  Accrued
dividends  payable  were  $2,512,000  or $6.28 per share at December  31,  1998.
Additionally,  the Company has recognized an incremental yield attributable to a
beneficial conversion feature of $1,319,000 at December 31, 1998.


                                      F-15
<PAGE>

(10) Stock Options and Warrants

      (a) Stock Option Plans:

      In February  1986,  the Company  adopted and the  shareholders  thereafter
approved an Incentive  Stock Option Plan and a  Non-Qualified  Stock Option Plan
(the "86 Plans"). In February 1996, the Company's Board of Directors adopted and
the shareholders  thereafter approved an additional  Incentive Stock Option Plan
and Non-Qualified Stock Option Plan (the "96 Plans"). In May 1998, the Company's
Board of Directors  adopted an additional  Non-Qualified  Stock Option Plan (the
"98 Plan")  which  shareholders  are not required to approve.  Combined,  the 86
Plans,  the 96 Plans,  as amended,  and the 98 Plan  provide for the granting of
options to purchase up to  5,500,000  shares of Common  Stock to key  employees,
directors,  consultants and advisors of the Company. Incentive stock options may
not be granted at a price  less than the fair  market  value of the stock at the
date of  grant  and may not be  granted  to  non-employees.  Options  may not be
granted under the 98 Plan to officers or directors. Options under all the plans,
unless  earlier  terminated,  expire ten years  from the date of grant.  Certain
options  granted  under  these  plans  vest over  one-to-five-year  periods.  At
December 31,  1998,  options to purchase  4,409,124  shares of Common Stock were
outstanding  and 453,405 shares were available for grant.  Options may no longer
be granted under the 86 Plans pursuant to the terms of the 86 Plans.

      A summary of stock option activity follows:

                                                                      Weighted
                                                                      average
                                                                      exercise
                                                    Number of        price per
                                                      shares           share
                                                    ---------        -----------
Balance at December 31, 1995 ................       1,366,954          $ 2.34
1996 activity:                                                    
   Granted ..................................       1,077,875            9.32
   Exercised ................................        (266,275)           3.18
   Canceled .................................         (74,977)           2.58
                                                    ---------     
Balance at December 31, 1996 ................       2,103,577            5.80
1997 activity:                                                    
   Granted ..................................         456,194            6.62
   Exercised ................................        (147,450)           1.51
   Canceled .................................         (35,226)           8.60
                                                    ---------     
Balance at December 31, 1997 ................       2,377,095            6.19
1998 activity:                                                    
   Granted ..................................       2,432,976           10.19
   Exercised ................................        (154,097)           3.98
   Canceled .................................        (246,850)          11.04
                                                    ---------     
Balance at December 31, 1998 ................       4,409,124          $ 8.20
                                                    ========= 

      In May 1996, the Company granted an officer an option to purchase  225,000
shares of the Company's Common Stock at an exercise price below the market price
of the stock on the date of  grant.  The  Company  is  recognizing  compensation
expense as prescribed under APB Opinion No. 25.

      In September  1998 and January 1999,  the Company  granted  options to its
Vice   President  of  Marketing  and  Vice  President  of  Product  and  Process
Development  to  respectively  purchase  60,000  shares of Common  Stock.  These
options were not granted under any of the above mentioned Incentive Stock Option
or   Non-Qualified   Stock  Option  Plans.   The  terms  of  these  options  are
substantially similar to those granted under the 98 Plan.

      During the years  ended  December  31,  1998,  1997 and 1996,  the Company
granted options to purchase 124,000, 32,000 and 116,000 shares, respectively, of
its Common  Stock to certain  Scientific  Advisory  Board  


                                      F-16
<PAGE>

members and outside  consultants in consideration for future services.  The fair
value of these grants was  calculated  using the  Black-Scholes  option  pricing
model. See Note 10(c) for weighted average  assumptions  used.  During the years
ended  December 31, 1998,  1997 and 1996, the Company  recognized  approximately
$540,000, $189,000 and $95,000,  respectively,  in compensation expense relating
to the  options  granted  to  Scientific  Advisory  Board  members  and  outside
consultants.  During the years  ended  December  31,  1998,  1997 and 1996,  the
Company granted options to outside members of its Board of Directors to purchase
approximately 44,000,  153,000 and 158,000 shares,  respectively,  of its Common
Stock.

      During April 1995,the company completed the sale of the remaining one-half
of its  shares of capital  stock of Cadus for $3.0  million  to High  River.  In
exchange for receiving a now-expired right to repurchase all outstanding  shares
of capital stock of Cadus held by High River,  the Company granted to High River
two options to purchase shares of Common Stock. One option if for 150,000 shares
at an  exercise  price per share  equal to $2.00,  subject to  adjustment  under
certain circumstances, and the other option is for 300,000 shares at an exercise
price  per  share  equal  to  $0.69,   subject  to   adjustment   under  certain
circumstances.  Both options will expire on April 26, 2000. The 450,000  options
have a weighted average exercise price of $1.13.

      (b) Warrants

      As of December 31, 1998, a total of 2,263,590  shares of Common Stock were
issuable upon exercise of outstanding  warrants.  Such warrants have been issued
to certain  officers,  directors  and other  employees of the  Company,  certain
Scientific  Advisory  Board  members,   certain  investors  and  certain  credit
providers and investors.

      A summary of warrant activity follows:

                                                                      Weighted
                                                                      average
                                                                      exercise
                                                   Number of         price per
                                                     shares            share
                                                   ---------        -----------
Balance at December 31, 1995 ................      3,891,567          $ 3.15
1996 activity:
Granted .....................................         23,220            9.69
Exercised ...................................       (604,892)           4.89
Canceled ....................................        (33,050)          12.92
                                                   ---------
Balance at December 31, 1996 ................      3,276,845            2.41
1997 activity:
Granted .....................................        397,000            1.50
Exercised ...................................       (869,500)           1.56
Canceled ....................................       (397,000)           1.50
                                                   ---------
Balance at December 31, 1997 ................      2,407,345            2.71
1998 activity:
Granted .....................................           --               --
Exercised ...................................       (143,755)           1.39
Canceled ....................................           --               --
                                                   ---------
Balance at December 31, 1998 ................      2,263,590          $ 2.80
                                                   =========

      In March 1997, the Company  extended for a two-year  period the term of an
officer's  warrant to purchase 397,000 shares of the Company's Common Stock at a
per share exercise price equal to $1.50.  In connection  with this  transaction,
the  Company   recognized   non-cash   compensation   expense  of  approximately
$2,233,000.

      During  September  1996,  the Company  repriced  certain  warrants held by
investors to purchase  80,700  shares of Common Stock in order to promote  their
exercise  prior to pending  expiration.  The warrants were repriced to an amount
which was ten percent less than the average  closing  price for the Common Stock
for the thirty  days  leading 


                                      F-17
<PAGE>

up to and including the day prior to the date of exercise. The fair market value
of the warrants was reflected as a cost of capital.

      During  November  1996,  the Company  repriced  certain  warrants  held by
investors to purchase  130,000  shares of Common Stock in order to promote their
exercise  prior to pending  expiration.  The warrants were repriced to an amount
which was ten percent less than the average  closing  price for the Common Stock
for the thirty  days  leading up to and  including  the day prior to the date of
exercise.  The fair market  value of the  warrants  was  reflected  as a cost of
capital.

      The outstanding warrants (which are all currently  exercisable) expire and
are exercisable for the number of shares of Common Stock as shown below:

December 1999 ....................................................       35,520
March 2000 .......................................................        6,150
July 2000 ........................................................       72,000
August 2000 ......................................................      925,000
November 2000 ....................................................       12,720
March 2001 .......................................................        2,500
May 2001 .........................................................      847,700
June 2003 ........................................................       12,000
December 2005 ....................................................      350,000
                                                                      ---------
Total ............................................................    2,263,590
                                                                      =========

      (c) SFAS No. 123 Disclosures:

      The following  tables  summarize the weighted  average fair value of stock
options and warrants  granted to employees and directors  during the years ended
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                               Option Plans
                                     --------------------------------------------------------------------
                                              1998                   1997                     1996
                                     --------------------    ------------------     ---------------------
                                       Shares        $         Shares      $         Shares         $
                                     ---------    ------     ----------  ------     ---------     -------
<S>                                  <C>          <C>        <C>          <C>        <C>            <C>   
Exercise price is less than market
value at date of grant.............      --       $   --         --       $ --       225,000      $ 6.36
Exercise price equals market value
at date of grant ..................  900,476(1)   $ 5.52     424,194(1)   $ 4.29     736,875(1)     $ 5.31
Exercise price exceeds market
value at date of grant ............  1,408,500    $ 6.28         --         --            --       --
</TABLE>

      (1) Does not include  124,000  shares in 1998,  32,000  shares in 1997 and
116,000 shares in 1996 under options granted to non-employees. The fair value of
these  non-employee  grants  has  been  recorded  as  compensation   expense  as
prescribed by SFAS No. 123.

                                      F-18
<PAGE>

                                                                       
<TABLE>
<CAPTION>
                                                                   Warrants
                                     --------------------------------------------------------------------
                                              1998                   1997                     1996
                                     --------------------    ------------------     ---------------------
                                       Shares        $         Shares      $         Shares         $
                                     ---------    ------     ----------  ------     ---------     -------
<S>                                  <C>          <C>        <C>          <C>        <C>            <C>   
Exercise price is less than market  
value at date of grant .............      --       $ --     397,000(1)   $ 5.91        --         $  --
Exercise price equals market value
at date of grant ...................      --       $ --         --       $  --       23,220       $ 5.39
Exercise price exceeds market
value at date of grant .............      --       $ --         --       $  --         --         $  --
</TABLE>

      (1) The only  grant  of  warrants  during  1997  was the  extension  of an
officer's  warrant to purchase 397,000 shares of Common Stock. The extension has
been  considered a cancellation  of the original grant and the issuance of a new
below market grant.  Accordingly,  the Company recognized  compensation  expense
consistent with APB Opinion No. 25.

      The fair value of stock  options  and  warrants  was  estimated  using the
Black-Scholes  option pricing model. The Black-Scholes  model considers a number
of variables  including the exercise  price and the expected life of the option,
the current price of the Common Stock, the expected  volatility and the dividend
yield of the underlying Common Stock, and the risk-free interest rate during the
expected  term of the option.  The  following  summarizes  the weighted  average
assumptions used:

                                  Option Plans                  Warrants
                          --------------------------   -------------------------
                           1998     1997      1996     1998    1997     1996
                           ----     ----      ----     ----    ----     ----
Expected life (years) ..   5.3        5.0      3.5      --      2.0    2.0 (1)
Interest rate ..........  5.58%      6.00%    5.00%     --     6.00%    5.00%
Volatility ............. 76.03%    72.29%   85.13%      --    72.29%   85.13%
Dividend yield .........     0%        0%       0%      --      0%       0%
                                                                    
      (1) The  weighted  average  expected  life does not include  the  warrants
repriced in 1996 as they were exercised simultaneously.


                                      F-19
<PAGE>

      The  following  table  summarizes  information  concerning  stock  options
outstanding at December 31, 1998:

                                    Weighted
                                    Average    Weighted                 Weighted
                       Number      Remaining    Average      Number      Average
   Range of         Outstanding   Contractual  Exercise   Exercisable   Exercise
Exercise Prices     at 12/31/98      Term        Price    at 12/31/98     Price
---------------     -----------      ----        -----    -----------     -----
 $0.563 - 2.00 ...    665,825        2.36       $ 1.13      637,575     $ 1.14
  3.75 - 6.00 ....    510,125        8.38         5.71      396,751       5.73
  6.063 - 7.875 ..    602,727        8.76         6.44       66,003       7.08
  8.125 - 10.625 .    492,300        8.13         8.95      257,092       8.57
 10.875 - 11.33 ..    504,147        7.40        10.88      300,602      10.88
 11.375 ..........  1,319,000        9.42        11.38          --        --  
 11.50 - 13.33 ...    315,000        9.23        11.84       14,250      13.03
                    ---------                              ---------
                    4,409,124        7.76       $ 8.20     1,672,273    $ 5.46
                    =========                              =========
                     
      As of December 31, 1998, the  outstanding  warrants to purchase  2,263,590
common  shares  were all  exercisable  and  have a  weighted  average  remaining
contractual term of 2.9 years. The weighted average  remaining  contractual term
at December 31, 1998 for the 6,150, outstanding warrants exercisable at $.63 per
share is 1.2 years,  the 12,300  exercisable  at $.69 per share is 1.0 year, the
1,313,420  exercisable at $1.50 per share is 2.1 years, the 498,500  exercisable
at $3.00 per share is 1.6 years,  the 350,000  exercisable at $5.50 per share is
7.0 years,  the 12,000  exercisable at $7.00 per share is 4.5 years,  the 23,220
exercisable at $9.69 per share is 1.0 year, the 6,000  exercisable at $10.00 per
share is 1.9 years, and the 42,000 exercisable at $13.33 per share is 2.3 years.

      The Company  applies APB  Opinion  No. 25 and related  Interpretations  in
accounting  for its options and  warrants.  Except as previously  indicated,  no
compensation  cost has been  recognized for its stock option and warrant grants.
Had  compensation  cost for the Company's  stock option  grants been  determined
based on the fair value at the grant dates for awards consistent with the method
of SFAS No.  123,  the  Company's  net loss and loss per share  would  have been
increased or decreased to the pro forma amounts indicated below.

                                                  Year Ended December 31,
                                      ------------------------------------------
                                           1998          1997          1996
                                      ------------  ------------   -------------
Net loss to common As reported        $(25,050,000) $(15,654,000)  $(16,015,000)
stockholders       Pro forma           (32,306,000)  (17,283,000)   (19,653,000)

Loss per share     Basic and diluted:
                   As reported        $      (1.03) $      (0.67)  $      (0.83)
                   Pro forma                 (1.33)        (0.74)         (1.01)
                                      
      The pro forma  effect on the loss for the years ended  December  31, 1998,
1997, and 1996 is not  necessarily  indicative of the pro forma effect on future
years'  operating  results  since it does not take  into  effect  the pro  forma
compensation expense related to grants made prior to January 1, 1995.

(11) Employee Stock Purchase Plan

      In April  1998,  the  Company's  Board of  Directors  adopted  the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"),  subject to
shareholders'  approval which was received in May 1998. The ESPP allows eligible
employees  to purchase  shares of the  Company's  Common Stock  through  payroll
deductions  at  the  end of  quarterly  purchase  periods.  To be  eligible,  an
individual must be employed for a period of not less than six months,  he or she
is  required  to work more than 20 hours per week for at least  five  months per
calendar year and he or she may not own greater than 5% of the Company's  Common
Stock.  Pursuant to the ESPP, the Company has 


                                      F-20
<PAGE>

reserved  500,000 shares of Common Stock for issuance.  On the first day of each
quarterly  purchase  period,  each  eligible  employee   participating  in  such
quarterly  purchase  period  will be granted  an option to  purchase a number of
shares of Common Stock  determined  by dividing  such  employee's  contributions
accumulated prior to the last day of the quarterly period by the purchase price.
The purchase price is equal to 85% of the market price per share on the last day
of each  quarterly  purchase  period.  An employee may  purchase  stock from the
accumulation  of  payroll  deductions  of up to a  maximum  of 15% of his or her
compensation,   limited  to  $25,000  per  year.   As  of  December   31,  1998,
participating  employees  have  purchased  4,388  shares of  Common  Stock at an
aggregate  purchase  price of  approximately  $33,000  and  495,612  shares were
available for future  purchases.  No  compensation  expense has been recorded in
connection with the ESPP.

(12) Income Taxes

      The tax effects of  temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are presented below.

<TABLE>
<CAPTION>
                                                                December 31,  December 31,
                                                                    1998           1997
                                                               ------------    ------------
<S>                                                            <C>             <C>         
Deferred tax assets:
  Liability to reacquire IL-6m rights and materials ........   $       --      $    262,000
  Research and development credit carryforward .............      3,642,000       2,303,000
  Compensation relating to the issuance of stock options and
    warrants ...............................................        376,000         189,000
  Net operating loss carryforwards .........................     57,169,000      52,408,000
  Other ....................................................      3,424,000       1,116,000
                                                               ------------    ------------
        Total gross deferred tax assets ....................     64,611,000      56,278,000
             Less valuation allowance ......................    (64,611,000)    (56,278,000)
                                                               ------------    ------------
             Net deferred tax assets .......................           --              --
                                                               ------------    ------------
        Deferred tax liabilities:
                                                               ------------    ------------
             Total gross deferred tax liabilities ..........           --              --
                                                               ------------    ------------
              Net deferred tax .............................   $       --      $       --
                                                               ============    ============
</TABLE>

         A valuation  allowance is provided when it is more likely than not that
some portion or all of the  deferred  tax assets will not be  realized.  The net
change in the total  valuation  allowance for the years ended  December 31, 1998
and 1997 was an increase of $8,333,000  and  $5,460,000,  respectively.  The tax
benefit assumed using the Federal  statutory tax rate of 34% has been reduced to
an  actual  benefit  of zero due  principally  to the  aforementioned  valuation
allowance.

         At December 31, 1998, the Company had net operating loss  carryforwards
for federal income tax purposes of  approximately  $129,485,000  which expire at
various  dates from 2000 through  2018.  At December  31, 1998,  the Company had
research  credit  carryforwards  of  approximately  $3,642,000  which  expire at
various  dates  between  years 2009 and 2018.  Pursuant  to  Section  382 of the
Internal Revenue Code of 1986, as amended, the annual utilization of a company's
net  operating  loss and  research  credit  carryforwards  may be limited if the
Company  experiences  a change in  ownership of more than 50  percentage  points
within a  three-year  period.  Since  1986,  the  Company  experienced  two such
ownership changes.  Accordingly,  the Company's net operating loss carryforwards
available to offset future federal  taxable income arising before such ownership
changes are limited to $5,159,000 annually. Similarly, the Company is restricted
in using its research credit carryforwards arising before such ownership changes
to offset future federal income tax expense.


                                      F-21
<PAGE>

(13) Commitments

     Leases

     The Company leases its New York City facility  under an operating  lease, a
portion of which was scheduled to expire in March 1999. The Company  renewed the
entire lease  effective as of January 1, 1999 through  December 2004. The annual
minimum  rent for 1999 is  $720,000  and  increases  3%  annually  for each year
thereafter.  Rent  expense  for the New York  City  facility  was  approximately
$574,000, $554,000, and $508,000 for the years ended December 31, 1998, 1997 and
1996, respectively. See also Note 6.

     Future minimum lease payments under the capital and operating leases are as
follows:

                                                    Capital        Operating
Years ending December 31,                           Leases           Leases
                                                  ----------       ----------

1999 .........................................       900,000          769,000
2000 .........................................       889,000          780,000
2001 .........................................       520,000          794,000
2002 .........................................       248,000          815,000
2003 .........................................         --             823,000
2004 .........................................         --             835,000
                                                 -----------       ----------
                                                   2,557,000        4,816,000
Less interest expense ........................      (304,000)            --
                                                 -----------       ----------
                                                 $ 2,253,000       $4,816,000
                                                 ===========       ==========

     Supported Research

     The Company has entered into various  research and license  agreements with
certain academic  institutions  and others to supplement the Company's  research
activities  and to obtain  for the  Company  rights to certain  technology.  The
agreements  generally  require  the  Company  to fund  the  research  and to pay
royalties  based upon  percentages  of  revenues,  if any,  on sales of products
developed from technology arising under these agreements.

     Consulting Agreements

     The  Company  has  consulting  agreements  with  several of its  Scientific
Advisory Board members and other consultants. These agreements generally are for
a term of one year or are terminable at the Company's option.

     Contract Services

         In April, 1998, the Company entered into an agreement in principle with
a  pharmaceutical   manufacturer  for  the  supplemental   further  development,
production  scale-up and manufacture of its lead therapeutic  product candidate,
C225,  for use in human  clinical  trials.  Services  pursuant to this agreement
commenced in April 1998 and are  anticipated  to conclude in October  1999.  The
total  project cost is  DM8,950,000,  or as of December  31, 1998  approximately
$5,424,000.  As of December  31,  1998,  the Company had incurred a liability of
approximately  $1,897,000 (U.S. dollar equivalent) for services provided to date
under this agreement.


                                      F-22
<PAGE>

(14) Retirement Plans

     The Company  maintains a 401(k) retirement plan available to all full-time,
eligible employees.  Employee  contributions are voluntary and are determined on
an individual  basis,  limited to the maximum amount allowable under federal tax
regulations.  The Company, at its discretion,  may make certain contributions to
the plan. The Company contributed approximately $47,000 to the plan for the year
ended December 31, 1998. No such  contributions were made to the plan during the
years ended December 31, 1997 and 1996.

(15) Supplemental Cash Flow Information and Non-cash Investing and Financing

     Activities are as follows:
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                   -------------------------------------
                                                                       1998         1997        1996
                                                                   -----------   ----------  -----------
<S>                                                                <C>           <C>         <C>        
Cash paid during the year for:
Interest ........................................................  $   422,000   $  707,000  $   817,000
                                                                   ===========   ==========  ===========
Non-cash investing and finance activities:
    Finova capital asset and lease obligations additions ........      731,000    1,324,000      421,000
                                                                   ===========   ==========  ===========
    Fair value of Finova warrant ................................         --           --        125,000
                                                                   ===========   ==========  ===========
    Other capital lease obligations .............................         --         28,000         --
                                                                   ===========   ==========  ===========
    Unrealized gain (loss) on securities available-for-sale .....     (676,000)     101,000      (49,000)
                                                                   ===========   ==========  ===========
    Extinguishment of Oracle Group debt for stock ...............         --           --      2,500,000
                                                                   ===========   ==========  ===========
    Extinguishment of director debt for stock ...................         --           --        180,000
                                                                   ===========   ==========  ===========
    Preferred Stock dividend ....................................    2,400,000      163,000         --
                                                                   ===========   ==========  ===========
    Warrant exercise paid with a note, including accrued interest      142,000         --           --
                                                                   ===========   ==========  ===========
</TABLE>

(16) Related Party Transactions

     The Company has scientific  consulting  agreements  with two members of the
Board of Directors. Expenses relating to these agreements were $112,000 for each
of the years ended December 31, 1998, 1997 and 1996.

     Through March 1995, the Company made miscellaneous noninterest-bearing cash
advances  to  the  President  and  CEO  of the  Company  totaling  approximately
$156,000.  The  officer  provided  the  Company  with a demand  promissory  note
pursuant to which the officer was obligated to repay the debt over a twenty-four
month period  ending April 30, 1997. In March 1997,  the Company  accepted a new
promissory note (the "new promissory  note") in the aggregate amount of $110,000
from the  officer.  The new  promissory  note was payable as to $15,000 no later
than May 15, 1997 and the remainder upon the earlier of on demand by the Company
or December 31, 1997 and bore interest at the rate of 5%  compounded  quarterly.
The new  promissory  note covered the  remaining  balance of the original  note,
interest thereon and additional  miscellaneous cash advances made since the date
of the original note totaling $15,000.  At December 31, 1997, the new promissory
note was paid in full by the officer.

     In January 1996, the Company paid Concord  International  Investment Group,
LP,  approximately  $163,000  for  services  rendered  by it to the  Company  in
connection with structuring a contemplated  product related  financing for C225.
Mr.  Robert F.  Goldhammer,  Chairman  of the Board of  Directors,  is a limited
partner of Concord International Investment Group, LP.

     In  August  1995 and  January  1996,  the  Company  paid  Delano &  Kopperl
Financial Advisors,  Inc. a total of approximately $69,000 for services rendered
by it to the Company in  connection  with  structuring  a  contemplated  product
related  financing  for C225.  Paul B.  Kopperl,  a director of the Company,  is
President, director, and 25% shareholder of Delano & Kopperl Financial Advisors,
Inc.


                                      F-23
<PAGE>

     In  January  1998,  the  Company   accepted  a  promissory   note  totaling
approximately  $131,000  from  its  President  and CEO in  connection  with  the
exercise of a warrant to purchase  87,305 shares of the Company's  common stock.
The note is due no later  than two years  from  issuance  and is full  recourse.
Interest is payable on the first  anniversary date of the promissory note and on
the stated maturity or any  accelerated  maturity at the annual rate of 8.5%. At
December 31, 1998,  the total amount due the Company,  including  interest,  was
approximately  $142,000 and is classified in the stockholders' equity section of
the balance sheet as a note receivable from officer and stockholder.

     In October 1998, the Company accepted an unsecured promissory note totaling
$100,000  from its  Executive  Vice  President  and COO.  The note is payable on
demand  including  interest  at the annual rate of 8.25% for the period that the
loan is  outstanding.  At December 31,  1998,  the total amount due the Company,
including interest, is approximately $102,000.

     In August 1998,  the Company  entered into a utilization  agreement  with a
company to provide  certain  support  services.  This  company is  considered  a
related  party  because of common  management.  The Company is being  reimbursed
$2,000 per month for providing laboratory space and related support.

(17) Fair Value of Financial Instruments

     For the years ended December 31, 1998 and 1997,  the following  methods and
assumptions  were used to  estimate  the fair value of each  class of  financial
instrument:

     Cash and cash  equivalents,  accounts  payable,  accrued and other  current
liabilities

     The carrying  amounts  approximate fair value because of the short maturity
of those instruments.

Long-term debt

     Discounted  cash flow  analyses  were used to  determine  the fair value of
long-term  debt  because  quoted  market  prices  on  these   instruments   were
unavailable.  The fair  value of these  instruments  approximated  the  carrying
amount.


                                      F-24