<PAGE>   1

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                                 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, 1999
                                       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)

<TABLE>
<S>                                            <C>
                   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)
</TABLE>

                                 (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 28, 2000 was $2,562,514,413.

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

<TABLE>
<CAPTION>
              CLASS                        OUTSTANDING AS OF MARCH 28, 2000
              -----                        --------------------------------
<S>                                       <C>
  COMMON STOCK, PAR VALUE $.001                       31,187,627
</TABLE>

        Documents Incorporated by Reference:  The registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders scheduled to be held on May 31,
2000 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.
--------------------------------------------------------------------------------
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<PAGE>   2

                          IMCLONE SYSTEMS INCORPORATED

                          1999 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>             <C>                                                             <C>
                                       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.........................................     18
Item 6.         Selected Financial Data.....................................     19
Item 7.         Management's Discussion and Analysis of Financial Condition
                and Results of Operations...................................     20
Item 7A.        Quantitative and Qualitative Disclosures About Market
                Risk........................................................     28
Item 8.         Financial Statements and Supplementary Data.................     28
Item 9.         Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure....................................     28
                                      PART III
Item 10.        Directors and Executive Officers of the Registrant..........     29
Item 11.        Executive Compensation......................................     29
Item 12.        Security Ownership of Certain Beneficial Owners and
                Management..................................................     29
Item 13.        Certain Relationships and Related Transactions..............     29
                                      PART IV
Item 14.        Exhibits, Financial Statement Schedules and Reports on Form
                8-K.........................................................     29
</TABLE>

                                        i
<PAGE>   3

        As used in this Form 10-K, "ImClone," "company," "we," "ours," and "us"
refer to ImClone Systems Incorporated, except where the context otherwise
requires or as otherwise indicated.

                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
                        SAFE HARBOR CAUTIONARY STATEMENT

        This Form 10-K contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about our and our subsidiary's beliefs and
expectations, are forward-looking statements. These statements involve potential
risks and uncertainties; therefore, actual results may differ materially. You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date on which they were made. We do not undertake any
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.

        Important factors that may affect these expectations include, but are
not limited to: 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.

                                       ii
<PAGE>   4

                                     PART I

ITEM 1.  BUSINESS.

                                    OVERVIEW

          We are a biopharmaceutical company engaged in the research and
development of novel cancer treatments. We focus on what we believe are three
promising strategies for treating cancer: growth factor inhibitors, therapeutic
cancer vaccines and angiogenesis inhibitors.

          Our lead product candidate, IMC-C225, is a therapeutic monoclonal
antibody that inhibits stimulation of a receptor for growth factors upon which
certain solid tumors depend in order to grow. IMC-C225 has been shown in several
Phase I/II trials to have an acceptable safety profile, to be well tolerated
and, when administered with either radiation therapy or chemotherapy, to enhance
tumor reduction. IMC-C225 is currently in pivotal trials for treating head and
neck cancer. Upon the receipt of regulatory approval, we intend to market
IMC-C225 in the United States and Canada. We will rely on our development and
marketing partner, Merck KGaA, to market IMC-C225 outside the United States and
Canada and to pay us a royalty on all such sales. We are responsible for the
manufacture and supply of IMC-C225 for all clinical trials and eventual
commercial sales.

          Our next most advanced product candidate, BEC2, is a cancer vaccine.
In partnership with Merck KGaA, we are testing BEC2 for preventing recurrence or
progression of small-cell lung cancer in a Phase III pivotal trial. Upon the
receipt of regulatory approval, we intend to co-promote BEC2 with Merck KGaA in
North America. Merck KGaA will be responsible for developing and marketing BEC2
outside North America and will be obligated to pay us royalties on all such
sales. In addition, we intend to be the worldwide manufacturer of BEC2.

          We are also developing inhibitors of angiogenesis, which could be used
to treat various kinds of cancer and other diseases. We have identified IMC-1C11
as our lead clinical candidate for angiogenesis inhibition. IMC-1C11 is an
antibody that binds selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor ("VEGF") receptor, thereby inhibiting
angiogenesis. We filed an application with the FDA in December 1999 in order to
commence clinical trials of IMC-1C11, which we initiated in March 2000.

          In addition to the development of our lead product candidates, we
continue to conduct research, both independently and in collaboration with
academic and corporate partners, in a number of areas related to our core focus
of growth factor inhibitors, therapeutic cancer vaccines and angiogenesis
inhibitors. We have also developed diagnostic products and vaccines for certain
infectious diseases, and we have licensed the rights to these products and
vaccines to corporate partners.

DEVELOPMENT PROGRAMS

IMC-C225 CANCER THERAPEUTIC

          The activation of the Epidermal Growth Factor receptor, or EGF
receptor, is believed to play a critical role in the rapid proliferation of
certain types of tumor cells and select normal cells. Certain cancer types are
characterized by the overexpression of the EGF receptor. For example, according
to the National Cancer Institute ("NCI"), more than 61,000 cases of head and
neck cancer are diagnosed in the United States each year. More than 90% of head
and neck cancer cases have been shown to overexpress the EGF receptor on the
surface of the tumor cells. Similarly, according to the NCI, there are
approximately 132,000 cases of colorectal cancer diagnosed in the United States
each year, and in roughly half of these cases, the tumor cells have an
overexpression of the EGF receptor. Other types of cancer are also
characterized, in certain patients, by overexpression of the EGF receptor
including lung, renal and pancreatic cancer. By preventing the binding of
critical growth factors to the EGF receptor, we believe it is possible to
inhibit the growth of these tumors.

          IMC-C225 is a chimerized (part human, part mouse) monoclonal antibody
that selectively binds to the EGF receptor and thereby inhibits growth of cells
dependent upon activation of the EGF receptor for replication. We have tested
IMC-C225 in numerous clinical trials, including several Phase I/II trials at
Sloan Kettering Memorial Cancer Center ("SLOAN KETTERING"), Yale Cancer Center,
University of Virginia, MD Anderson Cancer Center and the University of Alabama.
In

                                        1
<PAGE>   5

these studies, we have given IMC-C225 intravenously at selected doses, both
alone and in combination with radiation therapy or chemotherapy. In completed
trials to date, we have tested IMC-C225 in approximately 200 patients with
various solid cancers, such as head and neck, colorectal, lung, renal, breast
and prostate cancers.

          In June 1999, we completed a Phase I/II trial in which 12 patients
with advanced head and neck cancer were treated with IMC-C225 in combination
with cisplatin, a widely used chemotherapeutic drug. At the completion of the
trial, two of the nine evaluable patients had achieved a complete response and
four had achieved a partial response. Most of the patients had previously
received treatment, including standard chemotherapy, radiation therapy or
experimental treatments, and either did not respond or thereafter relapsed. In
particular, three of the six responders (including the two complete responders)
had previously been treated with a regimen containing cisplatin and relapsed
following such treatment.

          In January 1999, we completed a Phase I/II trial in which 16 patients
with advanced head and neck cancer were treated with IMC-C225 in combination
with radiation therapy. At the completion of the trial, all 15 evaluable
patients had responded to therapy; 13 of the patients had achieved a complete
response and two had achieved a partial response. This compares with historical
response rates of approximately 40% in similar patients treated with radiation
alone.

          We believe these trials have established an appropriate dosing regimen
and have provided preliminary evidence of efficacy. The primary side effect
observed in these trials has been a folliculitis skin rash, similar in
appearance to acne, that has varied in severity depending on the patient. The
rash subsides following completion of therapy. Additionally, a review of the
data from completed trials relating to the approximately 200 patients who have
received IMC-C225 has shown that three have experienced an anaphylactic reaction
to the drug. For that reason, we have established protocols for the initiation
of therapy in any patient whereby an initial dose of limited quantity is
administered in the presence of a physician. If an anaphylactic reaction is
experienced, dosing is terminated immediately and appropriate measures are taken
to mollify the symptoms.

          While the data from the IMC-C225 clinical trials conducted to date
have been encouraging, the results from these trials are not sufficient to
establish that IMC-C225 is safe or effective in treating cancer.

          In order to establish whether IMC-C225 is safe and effective in
treating cancer in a large patient population and to continue to determine the
types of tumors on which IMC-C225 is most effective, we have begun the Phase II
and Phase III clinical trials summarized below. In each of these trials,
IMC-C225 is being used in combination with standard cancer therapies.

                                        2
<PAGE>   6

<TABLE>
<CAPTION>
                                                                       NUMBER OF
                                                                      PATIENTS TO
                                                                      BE ENROLLED
       TRIAL/INDICATION                       TREATMENT                 IN STUDY                 COMMENTS
       ----------------                       ---------               -----------                --------
<S>                                <C>                                <C>             <C>
Phase III                          - IMC-C225+ radiation (vs.             416         - open-label, stratified,
  Head and neck cancer               radiation alone)                                 randomized study
                                   - 8-week course of treatment                       - study initiated February 1999
                                                                                      - patient treatment commenced
                                                                                        April 1999
                                                                                      - 50+ sites expected
                                                                                      - primary endpoint: local
                                                                                      regional disease control at one
                                                                                        year
                                                                                      - study expanded into Europe in
                                                                                        December 1999
Phase III                          - IMC-C225+cisplatin (vs.              114         - double-blinded, placebo
  Head and neck cancer               placebo+cisplatin)                                 controlled, randomized study
                                   - 8-week course of treatment                       - conducted in cooperation with
                                                                                        the Eastern Cooperative
                                                                                        Oncology Group
                                                                                      - study initiated August 1999
                                                                                      - patient treatment commenced
                                                                                        December 1999
                                                                                      - 50+ sites expected
                                                                                      -primary endpoint: progression-
                                                                                       free survival
Phase II                           - IMC-C225+cisplatin                   175         - open-label, stratified, non-
  Refractory head and neck         - 6-week course of treatment                         randomized study
  cancer (patients previously                                                         - 98 patients expected to be
  failed regimen containing                                                             treated with IMC-C225
  cisplatin)                                                                          - patients are stratified by
                                                                                      disease progression or stable
                                                                                        disease
                                                                                      - study initiated August 1999
                                                                                      - patient treatment commenced
                                                                                        September 1999
                                                                                      - 40+ sites expected
                                                                                      - primary endpoint: response
                                                                                        rate
Phase II                           - IMC-C225+irinotecan                   98         - open-label, stratified, non-
  Refractory colorectal cancer     - 6-week course of treatment                         randomized study
  (patients previously failed                                                         - patients are stratified by
  regimen containing                                                                  disease progression or stable
  irinotecan)                                                                           disease
                                                                                      - study initiated October 1999
                                                                                      - patient treatment commenced
                                                                                        October 1999
                                                                                      - 20+ sites expected
                                                                                      - primary endpoint: response
                                                                                      rate
</TABLE>

We expect that results will be available from the two Phase III studies
described above during 2001. We expect that enough information may be available
from the two Phase II studies described above during the first half of 2000 to
determine whether the data are sufficient to support an application for Food and
Drug Administration ("FDA") approval of IMC-C225.

          We expect to conduct several additional Phase II clinical trials to
continue to determine whether IMC-C225 may be effective in treating other types
of cancer. We recently initiated a Phase II clinical trial of IMC-C225 in
combination with gemcitabine in treating pancreatic cancer. We also expect to
initiate additional Phase II trials in treating lung and other cancers later
this year. We recently expanded into Spain and France, with Merck KGaA, our
ongoing Phase III clinical trial for the treatment of head and neck cancer in
combination with radiation. In conjunction with Merck KGaA, we plan to expand
this trial into other European countries and conduct additional European
IMC-C225 clinical trials. There can be no assurance that we will receive
regulatory approval for IMC-C225 based on the results of our ongoing Phase II
clinical trials or any of our other ongoing or anticipated IMC-C225 clinical
trials.

          We have entered into a development and marketing agreement with Merck
KGaA relating to IMC-C225. Under this agreement, we have retained the right to
develop and market IMC-C225 within the United States and Canada, and we have
granted Merck KGaA the exclusive right, except in Japan (where we will
co-develop and co-market IMC-C225 with Merck KGaA), to develop and market
IMC-C225 outside of the United States and Canada. Under the agreement, we will
manufacture IMC-C225. In return, Merck KGaA has agreed to pay up-front fees and
to make cash milestone payments and equity investments in our business if

                                        3
<PAGE>   7

specific milestones are achieved. Merck KGaA will also pay us royalties on any
sales of IMC-C225 outside of the United States and Canada. Through March 15,
2000, we have received $20 million in up-front fees and milestone payments from
Merck KGaA and Merck KGaA has confirmed that we have achieved milestones with
respect to which we are entitled to receive an additional $6 million in payments
under this agreement. In addition, Merck KGaA has agreed to provide a guaranty
of our credit agreement obligations relating to the construction of our new
IMC-C225 commercial manufacturing facility.

          As described above, we are testing IMC-C225 in several different types
of cancer. While in certain cancer types, like head and neck cancer, the EGF
receptor is overexpressed in nearly every patient with such cancer, in others,
like colorectal cancer, many patients will not be positive for the EGF receptor.
Currently, for the purpose of testing of patients in the colorectal cancer
trial, a diagnostic assay must be used to determine which patients are positive
for the EGF receptor. Patients must be positive for the EGF receptor to be
included in this trial. Currently, such diagnostic tests are being performed in
a laboratory setting as there are no commercialized assays available for such
purpose. If IMC-C225 is approved for treating particular cancer types, standard
diagnostic kits will need to be available commercially. We are in late stage
discussions with a company capable of developing, obtaining regulatory approval
for and commercializing such an assay in a timely fashion so that it will be
readily available both for our ongoing clinical trials and for
commercialization.

BEC2 CANCER VACCINE

          A cancer vaccine works by the administration of an antigen or the
mimic of an antigen that is found on the surface of certain types of cancer
cells and which activates immune responses to protect against metastasis or
recurrence of the tumor. A cancer vaccine will generally be given after the
tumor has responded to initial treatment. Often, an antigen mimic can produce a
stronger immune response than that produced by the original antigen that it
resembles.

          BEC2 is a monoclonal antibody that we are developing as a cancer
vaccine. BEC2 mimics GD3, a molecule expressed on the surface of several types
of cancer cells. By mimicking GD3, BEC2 stimulates an immune response against
cells expressing GD3.

          We have tested BEC2 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 the lungs. Extensive disease small-cell
lung carcinoma means that the disease has migrated to other parts of the body.
In one such trial, 15 patients with small-cell lung carcinoma who had previously
received chemotherapy and radiation therapy and achieved a partial or complete
response were treated with BEC2. At the time the results were analyzed,
approximately 27% of the patients had survived nearly five years following
diagnosis. These survival rates are longer than historical survival rates for
similar patients receiving conventional therapy and formed the basis for going
forward with Phase III studies. This trial is not sufficient to establish that
BEC2 is safe or effective in treating cancer.

          In conjunction with Merck KGaA, we have initiated a 570-patient
multinational pivotal Phase III trial for BEC2 in the treatment of limited
disease small-cell lung cancer. The trial will examine patient survival two
years after course of therapy. We expect to complete enrollment in the trial
during 2001.

          We have entered into a development and marketing agreement with Merck
KGaA relating to BEC2. We have retained the right to co-promote BEC2 with Merck
KGaA within North America, and we have granted Merck KGaA exclusive rights to
develop and market BEC2 outside of North America. Under the agreement, Merck
KGaA is also funding the Phase III pivotal trial. In addition, we intend to be
the worldwide manufacturer of BEC2.

MONOCLONAL ANTIBODY INHIBITOR OF ANGIOGENESIS

          Our general experience with growth factors, particularly the use of
IMC-C225 to block the EGF receptor, has enabled us to pursue another promising
approach for the treatment of cancer, the inhibition of angiogenesis.
Angiogenesis is the natural process of new blood vessel growth. VEGF is one of a
group of molecules that helps regulate angiogenesis. Tumor cells as well as
normal cells produce VEGF. Once produced by the tumor cells, VEGF stimulates the
production of new blood ves-

                                        4
<PAGE>   8

sels and ensures an adequate blood supply to the tumor, enabling the tumor to
grow. KDR is a growth factor receptor found almost exclusively on the surface of
human endothelial cells, which are the cells that line all blood vessels. VEGF
must recognize and bind to this KDR receptor in order to stimulate the
endothelial cells to grow and cause new blood vessels to form. We believe that
interference with the binding of VEGF to the KDR receptor inhibits angiogenesis,
and can potentially be used to slow or halt tumor growth.

          IMC-1C11 is a chimerized monoclonal antibody, which specifically binds
to the KDR receptor. By doing so, it prevents VEGF from binding to that
receptor, which, in turn, blocks endothelial cell growth and inhibits
angiogenesis. IMC-1C11 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. We filed an IND application with the FDA in December 1999
in order to commence clinical trials of IMC-1C11, which we initiated in March
2000.

          We believe IMC-1C11 will be effective in treating many solid and
liquid tumors and that it may also be useful in treating other diseases such as
diabetic retinopathy, age-related macular degeneration, and rheumatoid arthritis
that, like cancer, depend on the growth of new blood vessels.

IMCLONE'S RESEARCH PROGRAMS

GENERAL

          In addition to concentrating on our products in development, we
perform ongoing research, including research in each of the areas of our ongoing
clinical programs of growth factor inhibitors, therapeutic cancer vaccines and
angiogenesis inhibitors. We have assembled a scientific staff with expertise in
a variety of disciplines, including oncology, immunology, molecular and cellular
biology, antibody engineering, protein and synthetic chemistry and
high-throughput screening. In addition to pursuing research programs in-house,
we collaborate with academic institutions and corporations to support our
research and development efforts.

RESEARCH ON GROWTH FACTOR INHIBITORS

          We are conducting a research program to develop inhibitors to the
cell-signal transduction pathways of a class of enzymes referred to as tyrosine
kinases. These pathways have been shown to be involved in the rapid
proliferation of tumor cells. We are developing monoclonal antibodies to inhibit
the binding of growth factors to cellular receptors that trigger these pathways,
thereby potentially inhibiting cell division and tumor growth. We are also
developing small molecule inhibitors to the tyrosine kinase pathways.

          In October 1997, we entered into an agreement with CombiChem, Inc.
("COMBICHEM") a combinational chemistry company recently acquired by E.I. du
Pont de Nemours and Company, to utilize its library of structures of chemical
compounds to help us identify and synthesize novel small molecule candidates
that interfere with the function of growth factor receptors. Performance under
this agreement is substantially complete. 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.

RESEARCH ON 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 metastasis or recurrence of cancer. We
are focusing our cancer-vaccine research efforts on developing melanoma
vaccines.

          In addition to the development of BEC2, we are conducting research on
a possible melanoma vaccine based on the melanoma antigen gp75. A melanoma is a
tumor or cancerous growth of the skin. 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. Additionally, we are investigating the use of other
melanoma antigens to be used in conjunction with gp75 for the development of an
effective vaccine. We are also investigating various modes of enhancing the
capacity of the vaccine to elicit an immune response. We have retained North
American marketing and manufacturing rights for gp75 and have licensed to Merck
KGaA the rights to manufacture and market gp75 outside North America. We expect
to commence human clinical trials of gp75 in 2000.

                                        5
<PAGE>   9

RESEARCH ON ANGIOGENESIS INHIBITORS

          We are continuing to work with DC101 in animal models. DC101 is an
antibody that neutralizes the FLK-1 receptor, which is the mouse receptor to
VEGF that corresponds to KDR in humans. Such models have shown that DC101
inhibits tumor growth, and we are now focusing on establishing protocols for
combination therapies of DC101 with radiation therapy or chemotherapy.
Preliminary studies have shown that such combination results in better efficacy
than with the DC101 antibody alone. We are supporting research in this area at
Sunnybrook Health Science Center, University of Toronto ("SUNNYBROOK HEALTH
SCIENCE CENTER").

          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 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.

          In connection with our VE-cadherin research program, we have been
assigned the exclusive rights to VE-cadherin-2, a recently developed form of
VE-cadherin, and to antibodies that inhibit VE-cadherins. We also collaborate
with the Mario Negri Institute for Pharmacological Research, Milan, Italy (the
"MARIO NEGRI INSTITUTE"), to do pharmacological research to better determine the
role of VE-cadherin in angiogenesis.

          We are conducting research on small molecules to develop inhibitors of
enzymes important in angiogenesis.

MISCELLANEOUS RESEARCH AREAS

          We are conducting additional research outside of our three principal
areas of clinical focus. These include: (1) a means to induce apoptosis
(programmed cell-death) in order to enhance tumor cell killing, including
looking for small molecules that enhance the apoptosic process; (2) efforts to
isolate endothelial stem cells and to determine the utility of such isolated
cells, possibly in stimulation of wound healing, muscle regeneration or repair
of damage to blood-deprived tissues; and (3) development of a panel of genes
potentially useful for the maintenance and stimulation of stem cells.

RESEARCH COLLABORATIONS AND CLINICAL COLLABORATIONS

          We engage in collaborations in the course of conducting our research
and clinical studies. We support research at the Mario Negri Institute to
explore the role that a family of proteins, called VE-cadherins, plays in
angiogenesis. At the University of Texas, Southwestern Medical Center we are
further studying the role VE-cadherins play in angiogenesis by studying
VE-cadherin-2, a type of VE-cadherin, in animal models. At the Sunnybrook Health
Science Center, we are supporting research to evaluate whether chemotherapy
combined with neutralizing antibodies to the FLK-1/VEGF receptor will result in
a synergistic anti-angiogenic response. At Princeton University and the
University of Pennsylvania, we are collaborating in the development of an
extensive panel of stem cell and stromal cell genes, toward the identification
of genes critical to stem cell maintenance and stimulation.

          In the clinical area, at the University of Wisconsin-Madison Medical
School, we are conducting additional studies of IMC-C225 in head and neck
cancers in combination with radiation therapy. The European Organization for
Research and Treatment of Cancer is involved in managing the worldwide data for
the BEC2 Phase III study.

          At Sloan Kettering, we collaborate both in the research area and
clinical area. We support research on both potential cancer vaccine products
BEC2 and gp75. We have been testing BEC2 in Phase I clinical trials at Sloan
Kettering against certain forms of cancer, including small-cell lung carcinoma
and melanoma.

                                        6
<PAGE>   10

          Our collaborations with Merck KGaA in developing our IMC-C225 and BEC2
products are described in the following section.

COLLABORATIONS WITH MERCK KGAA

          IMC-C225 License and Development Agreement.  In December 1998, we
entered into an agreement with Merck KGaA relating to the development and
commercialization of IMC-C225. Under this agreement:

          - we have retained the rights to market IMC-C225 within the United
            States and Canada

          - we have granted Merck KGaA exclusive rights, except in Japan, to
            market IMC-C225 outside of the United States and Canada

          - we have agreed to supply Merck KGaA, and Merck KGaA has agreed to
            purchase, IMC-C225 for the conduct of clinical trials and the
            commercialization of the product outside the United States and
            Canada

          - we will co-develop and co-market IMC-C225 in Japan with Merck KGaA

          - we have granted Merck KGaA an exclusive license outside of the
            United States and Canada, without the right to sublicense, to apply
            certain of our patents to a humanized EGF receptor antibody on which
            Merck KGaA has performed preclinical studies

In return, Merck KGaA is:

          - paying to us $30 million in up-front fees and early cash-based
            milestone payments based upon achievement of certain milestones set
            forth in the agreement, of which $20 million has been received
            through March 15, 2000, and Merck KGaA has confirmed that we have
            achieved milestones with respect to which we are entitled to receive
            an additional $6 million in payments

          - paying to us an additional $30 million assuming achievement of
            further milestones for which Merck KGaA will receive equity (the
            "MILESTONE SHARES") in our company, which will be at prices at
            varying premiums to the then market price of the common stock
            depending upon the timing of the achievement of the respective
            milestones

          - providing to us, if we so choose, subject to certain terms, a $30
            million guaranty for the construction of a manufacturing facility by
            us for the commercial production of IMC-C225

          - funding clinical development of IMC-C225 outside of the United
            States and Canada

          - required to pay us royalties on its future sales of IMC-C225 outside
            of the United States and Canada, if any

          The milestone shares, if issued, will be shares of our common stock
(or a non-voting security convertible into our common stock). The number of
shares issued to Merck KGaA 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 the
milestone is achieved 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 issuing shares of common stock to Merck KGaA would result in
Merck KGaA owning greater than 19.9% of our common stock. 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
into common stock if, as a result of the conversion, Merck KGaA would own
greater than 19.9% of our common stock. This 19.9% limitation is in place
through December 2002. After this date, Merck KGaA must sell shares it receives
as a result of conversion to the extent such shares result in Merck KGaA's
owning in excess of 19.9% of our common stock. We have granted Merck KGaA
certain registration rights regarding the shares of common stock that it may
acquire upon conversion of the series A preferred stock and milestone shares.

          This agreement may be terminated by Merck KGaA in various instances,
including (1) at its discretion on any date on which a milestone is achieved (in
which case no milestone payment will

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be made), (2) for a one-year period after first commercial sale of IMC-C225 in
Merck KGaA's territory, upon Merck KGaA's reasonable determination that the
product is economically unfeasible (in which case Merck KGaA is entitled to
receive back 50% of the cash-based milestone payments then paid to date, but
only out of revenues received, if any, based upon a royalty rate applied to the
gross profit from IMC-C225 sales or IMC-C225 license fees in the United States
and Canada), or (3) in the event we do not obtain certain collateral license
agreements in which case Merck KGaA also is entitled to a return of all cash
amounts with respect to milestone payments to date, plus liquidated damages of
$500,000. In April 1999, the parties agreed on the production concept for the
manufacturing facility and are currently working toward securing Merck KGaA's
guaranty of our obligations under a $30 million credit facility relating to the
construction of the manufacturing facility. In the event of termination of the
agreement, we will be required to use our best reasonable efforts to cause the
release of Merck KGaA as guarantor. Merck KGaA has also agreed to reimburse us
for one-half of the outside contract service costs incurred with respect to the
Phase III clinical trial of IMC-C225 in combination with radiation in head and
neck cancer patients.

          As of December 31, 1999, we had recorded $20 million as fees
potentially refundable from our corporate partner under this agreement.

          BEC2 Research and License Agreement. Effective April 1990, we entered
into an agreement with Merck KGaA relating to the development and
commercialization of BEC2 and the recombinant gp75 antigen. Under this
agreement:

          - we have granted Merck KGaA a license to develop and market BEC2
            worldwide and gp75 outside North America

          - we have retained the right to co-promote BEC2 within North America

          - it is intended that we will be the bulk product manufacturer of BEC2
            to support worldwide sales

          - we are required to give Merck KGaA the opportunity to negotiate a
            license in North America to gp75 before granting such a license to
            any third party

In return, Merck KGaA:

          - has made research support payments to us totaling $4.7 million

          - is required to make milestone payments to us of up to $22.5 million,
            of which $3 million has been received through March 15, 2000, based
            on milestones achieved in the product development of BEC2

          - 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

          Merck KGaA is responsible for conducting the clinical trials and
regulatory submissions outside North America, and we are responsible for
conducting those within North America. Costs worldwide to conduct a multi-site,
multinational 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 KGaA. 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 KGaA or us in our respective territories). If these expenses, including
such expenses of Merck KGaA, exceed DM17 million, such excess expenses will be
shared 60% by Merck KGaA and 40% by us. As of March 15, 2000, this expense level
had not yet been reached. We will negotiate with Merck KGaA the allocation of
costs for the conduct of additional clinical trials for other indications. We
are responsible for providing the supply of the active agent outside of North
America at the expense of Merck KGaA, and the parties intend 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 (1) the last to expire of
any patents issued and covered by the technology or (2) 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

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<PAGE>   12

terminated earlier by us in the event Merck KGaA 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 KGaA if
milestones are not achieved.

          In the year ended December 31, 1999, we recorded $533,000 in revenue
from Merck KGaA under this agreement, which consisted of research and support
payments.

          In connection with the December 1997 amendment to the agreement with
Merck KGaA for BEC2, Merck KGaA purchased from us 400,000 shares of our series A
convertible preferred stock (THE "SERIES A PREFERRED STOCK") for a total price
of approximately $40 million, of which 300,000 shares are currently outstanding.
In addition, Merck KGaA may nominate one member to our board of directors.

OTHER CORPORATE COLLABORATIONS

ABBOTT LABORATORIES

          We have licensed some of our diagnostic products and techniques to
Abbott Laboratories ("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 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. The Chiron branched
DNA diagnostic probe technology has recently been sold 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 million, 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 December 1999, a U.S.
patent was issued for the RCR technology for which we have received a $500,000
milestone payment from Abbott and are entitled to receive royalties on sales for
a two-year period from initiation of U.S. sales by Abbott for products using the
RCR technology. In February 2000, a Japanese patent was issued on this
technology and as a result we became entitled to a $250,000 milestone payment.
The agreement terminates upon the later of (1) the last to expire of any patents
issued covered by the technology or (2) if no patents are granted, twenty years,
subject to certain earlier termination provisions contained in the agreement. We
have an exclusive world-wide license to the RCR technology and the patents
issued with respect to it.

          For the year ended December 31, 1999 we earned a total of $805,000 in
fees pursuant to our strategic alliance with Abbott which consisted of milestone
payments and royalties.

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.

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<PAGE>   13

          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 Products Corporation ("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 the period by which American Home was required to have filed an
IND application to initiate clinical trials with a vaccine candidate. In October
1999, this milestone was achieved, and American Home has made a $500,000 payment
to us.

          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. American Home
is required to pay royalties to us in connection with sales of the vaccines, if
any.

          In the year ended December 31, 1999 we recorded revenues of $725,000
under the American Home agreements which consisted of milestone payments and
research and support payments.

IMMUNEX CORPORATION

          We are the exclusive licensee of a family of patents and patent
applications covering the FLK-2/FLT-3 receptor. FLK-2/FLT-3 growth factor is a
protein that binds to and activates the FLK-2/FLT-3 receptor. The FLK-2/FLT-3
growth factor is owned by Immunex.

          In December 1996, we entered into a non-exclusive license and supply
agreement with Immunex Corporation ("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 growth factor. Immunex is currently
testing the growth factor 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
growth factor for use in our ex vivo research on stem cells. In addition,
Immunex has granted us a world-wide non-exclusive license to use and sell the
FLK-2/FLT-3 growth factor, manufactured by Immunex, for ex vivo stem cell
expansion, together with an exclusive license to distribute the growth factor
with our own proprietary products for ex vivo expansion. Immunex will also
supply FLK-2/ FLT-3 growth factor 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, 1999, we recorded revenues of $75,000
under this agreement which consisted of a licensing fee.

SMITHKLINE BEECHAM

          In February 2000, we licensed to SmithKline Beecham certain patents
and patent applications to meningitis antigens along with related know-how and
materials, exclusively for the purpose of developing meningitis vaccines. In
return we will receive license fees, as well as milestone fees should an antigen
or antigens based on our claims be included in its vaccine candidate, and
royalties on sales of such vaccine.

MANUFACTURING

          Under each of our IMC-C225 and BEC2 agreements with Merck KGaA we are
required to supply to Merck KGaA and Merck KGaA is required to obtain from us
IMC-C225 and BEC2, respectively, for clinical trials and commercial supply.

          We own and operate a manufacturing facility for biologics in
Somerville, New Jersey for the manufacture of clinical trial materials. At this
facility we manufacture a portion of the IMC-C225 utilized for clinical trials
and are developing the purification process for IMC-1C11 and are in the early
stages of its production for clinical trials. This facility is operated in
accordance with current Good Manufacturing Practices ("CGMP"), which is a
requirement for product manufactured for use in clinical trials and for
commercial sale.

          We are building a new manufacturing facility adjacent to our current
manufacturing facility in Somerville, New Jersey. This new facility will contain
three 10,000 liter fermenters and will be
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<PAGE>   14

dedicated to the commercial production of IMC-C225. Under our agreement with
Merck KGaA for IMC-C225, Merck KGaA will provide to us, if we so choose, subject
to certain terms, a $30 million guaranty to apply toward the build-out of this
new facility. The facility will cost approximately $45 million and is being
built on a lot adjacent to our Somerville, New Jersey facility, which we
recently purchased for $700,000. The facility will be dedicated to the
production of IMC-C225 and will have an area of approximately 80,000 square
feet. We have incurred approximately $3,318,000 in engineering and other
preconstruction costs associated with the new manufacturing facility through
December 31, 1999.

          To date, Boehringer Ingelheim Pharma KG ("BI") has supplied us with
quantities of IMC-C225 required for our clinical trials that exceed the capacity
of our current facility under an April 1999 development agreement. The total
cost under this agreement was approximately DM11,440,000. This material has been
provided to Merck KGaA for use in trials in Europe and we have invoiced Merck
KGaA for the majority of this amount pursuant to the terms of our agreement with
Merck KGaA.

          In December 1999, we entered into a development and manufacturing
services agreement with Lonza Biologies PLC ("LONZA"). Under the agreement,
Lonza is engaging in process development and scale-up for the manufacture of
IMC-C225. These steps are being taken to assure that its process will produce
bulk material that conforms with our reference material. Under this agreement,
Lonza will manufacture four 5,000 liter production runs under cGMP conditions of
material that may be used for clinical and/or commercial supply. We also have
agreed in principle with Lonza to the material terms of a three-year commercial
supply agreement for which the definitive agreement is being completed.

          We intend to continue to utilize the services of a contract
manufacturer to provide a supplemental supply of IMC-C225 for both clinical
trials and commercial supply. If we obtain FDA approval of IMC-C225 prior to FDA
approval of our proposed manufacturing facility, we will need to obtain
commercial-scale quantities of IMC-C225 from contract manufacturers in order to
have sufficient quantities of IMC-C225 for product launch.

MARKETING AND SALES

          We intend to develop the capacity to market our cancer therapeutic
products directly in the U.S. and Canada. As part of this strategy, in our
agreement with Merck KGaA for IMC-C225, we have retained all rights to
commercialize IMC-C225 in the U.S. and Canada. We also have co-promotion rights
for commercialization of our BEC2 cancer vaccine in North America pursuant to
our BEC2 agreement with Merck KGaA. We intend to build an internal sales force
and establish the appropriate promotional campaigns and infrastructure.

          In 1998, we hired a Vice-President of Marketing and Sales and have
recently hired directors of marketing, field sales and sales operations, each
with experience in the commercial launch of a monoclonal antibody cancer
therapeutic, to develop our internal marketing and sales capabilities. We are
preparing for the marketing and sale of IMC-C225 in the U.S. and Canada, and in
that regard, will be hiring regional sales managers and approximately 40 sales
people prior to the commencement of IMC-C225 sales. We believe that a sales
force of this size can adequately address the North American oncology market for
this drug, because a manageable number of oncologists are responsible for
prescribing most of the cancer therapeutics in North America. Other functions
related to commercialization will be outsourced, especially those requiring
considerable manpower and infrastructure resources such as inventory control,
distribution, accounts receivable and reimbursement. We are currently designing
our campaign to elicit the active involvement of leaders in the oncology field
to broaden the knowledge of the potential significance of IMC-C225.

          We intend that the sales capability we will build for IMC-C225 will
allow us to directly market other cancer therapeutics that we may develop,
including IMC-1C11, when and if we receive such regulatory approval.

          We expect that with respect to other cancer therapeutics that we may
develop, we may enter into development agreements with third parties that may
include co-marketing or co-promotion arrangements. In the alternative, we may
grant exclusive marketing rights to our corporate partners in return for
up-front fees, milestone payments, and royalties on sales.

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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
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:

          - obtain patents to protect our own products

          - obtain licenses to use the technologies of third parties, which may
            be protected by patents

          - protect our trade secrets and know-how

          - operate without infringing the intellectual property and proprietary
            rights of others

PATENT RIGHTS; LICENSES

          We currently have exclusive licenses or assignments to 64 issued
patents worldwide that relate to our proprietary technology in the United States
and foreign countries, 38 of which are issued United States patents. In
addition, we currently have exclusive licenses or assignments to approximately
43 families of patent applications.

          IMC-C225.  We have an exclusive license from the University of
California at San Diego to an issued U.S. patent for the murine form of
IMC-C225, our EGF receptor antibody product. We believe that this patent covers
IMC-C225 under the patent law doctrine of equivalents. Under this doctrine, the
subject matter of a claim is deemed to cover variations that do substantially
the same thing, in substantially the same way, to achieve the same result,
especially if the variation is known and routine. We believe, in this instance,
the doctrine of equivalents would extend protection to IMC-C225. Our licensor
did not obtain patent protection outside the U.S. for this antibody. While this
patent covers only our antibody and would not block third parties from obtaining
patents covering other antibodies to the EGF receptor, we are pursuing
additional patent protection that may limit the ability of third parties to
commercialize EGF receptor antibodies for the treatment of cancer. Specifically,
we are pursuing patent protection for the use of any antibody that inhibits the
EGF receptor in combination with chemotherapy or radiation therapy. We have
exclusively licensed, from Rhone-Poulenc Rorer Pharmaceuticals, now known as
Aventis, a family of patent applications seeking to cover the use of antibodies
to the EGF receptor in conjunction with chemotherapeutic agents. A Canadian
patent was issued in this family, and the patent examiner in Europe has
indicated an intent to issue a European patent. U.S. prosecution continues. We
have filed additional patent applications based on our own research that would
cover the use of IMC-C225 or any other EGF receptor inhibitor in conjunction
with radiation therapy, and the use of IMC-C225 or any other EGF receptor
inhibitor in refractory patients, either alone or in combination with
chemotherapy or radiation therapy. We have patent applications pending that
include claims on (1) the use of IMC-C225 to significantly inhibit the growth of
tumor cells, (2) humanized forms of the antibody and antibody fragments and (3)
chimeric and humanized forms of the antibody and fragments of the antibody used
with other drugs, including chemotherapeutic agents.

          Our exclusive license agreements with the University of California,
San Diego and Aventis require us to pay royalties on sales of IMC-C225 that are
covered by these licenses.

          We are aware of a U.S. patent issued to a third party that includes
claims covering the use, subject to certain restrictions, of antibodies to the
EGF receptor and cytotoxic factors to inhibit tumor growth. Our patent counsel
has advised us that in its opinion, subject to the assumptions and
qualifications set forth in such opinion, no valid claim of this third party
patent is infringed by reason of our manufacture or sale, or medical
professionals' use, of IMC-C225 alone or in combination with chemotherapy or
radiation therapy and, therefore, in the event of litigation for infringement of
this third party patent, a court should find that no valid claim of this third
party patent is infringed. Based upon this opinion, as well as our review, in
conjunction with our patent counsel, of other relevant patents, we believe that
we will be able to commercialize IMC-C225 alone and in combination with
chemotherapy and radiation therapy provided we successfully complete our
clinical trials and receive the necessary FDA approvals. This opinion of
counsel, however, is not binding on any court or the U.S. Patent and Trademark
Office. In addition, there can

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<PAGE>   16

be no assurance that we will not in the future, in the U.S. or any other
country, be subject to patent infringement claims, patent interference
proceedings or adverse judgments in patent litigation.

          IMC-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
IMC-C225. Some of these licenses have already been obtained. We cannot be
certain that we will be able to obtain the rest of such licenses in the
territories where we want to commercialize IMC-C225, 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 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 KGaA, 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
BEC2 in North America with Merck KGaA, however, we cannot be certain that we
could obtain such licenses on commercially acceptable terms, if at all.

          Our license from Sloan Kettering requires us to pay royalties on sales
of BEC2.

          Angiogenesis Inhibitors.  With respect to our research on inhibitors
to angiogenesis based on the FLK-1 receptor, we are the exclusive licensee from
Princeton University 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 patents and patent applications filed by our
scientists covering angiogenesis-inhibiting antibodies to receptors that bind
VEGF. One of the patents licensed from Princeton University claims the use of
FLK-1/KDR receptor antibodies to isolate cells expressing the FLK-1/KDR receptor
on their cell surfaces. 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 surfaces. At
present, we are seeking exclusive rights to this invention from the co-owners.

          Our license from Princeton University requires us to pay royalties on
sales that would otherwise infringe the licensed patents, which cover antibodies
to the FLK-1/KDR receptor including IMC-1C11.

          VE Cadherin.  We have an assignment of 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 from our own scientists or exclusive license from academic
institutions 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 signal 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 Abbott's ability to commercialize
our diagnostic products, and our ability to collect royalties for such
commercialization.

          There has been significant litigation in the biopharmaceutical
industry over patents and other proprietary rights. The defense and prosecution
of intellectual property suits and related legal and administrative proceedings
can be both costly and time consuming. Litigation and interference proceedings
could result in substantial expense to us and significant diversion of effort by
our technical and management personnel. An adverse determination in any such
interference or litigation, particularly with respect to IMC-C225, to which we
may

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become a party could subject us to significant liabilities to third parties or
require us to seek licenses from third parties. If required, the necessary
licenses may not be available on acceptable terms or at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us, in whole or in part, from commercializing
our products, which could have a material adverse effect on our business,
financial condition and results of operations.

          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. We cannot be certain 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
that 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
therapeutic 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 (including testing in animals
and in humans) and the testing, manufacturing, handling, labeling, storage,
record keeping, approval, advertising and promotion of the products that we are
developing. Noncompliance with applicable requirements can result in refusal to
approve product licenses 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 (1) the
successful conclusion of pre-clinical laboratory and animal tests, if
appropriate, to gain preliminary information on the product's safety, (2) filing
with the FDA of an Investigational New Drug ("IND") Application to conduct human
clinical trials for drugs or biologics, (3) 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 (4) 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 the evaluation of the product in the
laboratory and in 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 application to support the evaluation of
the product in human subjects or patients.

          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 (1) determine the biological or clinical activity of the product
for specific, targeted indications, (2) determine dosage tolerance and optimal
dosage, and (3) identify possible adverse effects and safety risks. If Phase II
evaluations indicate that a product is effective and has an acceptable
benefit-to-risk relationship, Phase III trials may be undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population.
                                       14
<PAGE>   18

          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 the product candidate exposes clinical subjects to an unacceptable
health risk. Investigational products used in clinical studies must be produced
in compliance with cGMP pursuant to FDA regulations.

          On November 21, 1997, President Clinton signed into law the Food and
Drug Administration Modernization Act. That act codified the FDA's policy of
granting "fast track" approval for cancer therapies and other therapies intended
to treat severe or life threatening diseases and having potential to address
unmet medical needs. Previously, the FDA approved cancer therapies primarily
based on patient survival rates or data on improved quality of life. The FDA
considered evidence of partial tumor shrinkage, while often part of the data
relied on for approval, insufficient by itself to warrant approval of a cancer
therapy, except in limited situations. Under the FDA's new policy, which became
effective on February 19, 1998, the FDA has broadened authority to consider
evidence of partial tumor shrinkage or other clinical outcomes for approval.
This new policy is intended to facilitate the study of cancer therapies and
shorten the total time for marketing approvals. We intend to take advantage of
this policy; however, it is too early to tell what effect, if any, these
provisions may have on the approval of our product candidates.

          Some of our cancer treatments require the use of in vitro diagnostic
products to test patients for particular traits. In vitro diagnostic products
are generally regulated by the FDA as medical devices. In general, the FDA must
approve a new diagnostic product that is not "substantially equivalent" to a
legally marketable product much in the way it must approve drugs and biological
products. Specifically, the device must be tested under an investigational
device exemption ("IDE") and receive FDA approval under a premarket approval
application ("PMA") before it can be commercially marketed. Substantially
equivalent devices go through a clearance process at the FDA that is generally
less onerous than the PMA process but also can require data submission and other
rigorous review.

          Under current law, each domestic and foreign drug and device
product-manufacturing establishment must be registered with the FDA before
product approval. Domestic and foreign manufacturing establishments must meet
strict standards for compliance with cGMP regulations and licensing
specifications after the FDA has approved an NDA, BLA or PMA. The FDA and
foreign regulatory authorities periodically inspect domestic and foreign
manufacturing facilities 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, if the FDA has
not approved a product for sale in the United States the product may be exported
for sale outside of the United States only if it has been approved in any one of
the following countries: the European Union, Canada, Australia, New Zealand,
Japan, Israel, Switzerland and South Africa. There are specific FDA regulations
that govern this process.

          Our ability to earn sufficient returns on our products may depend in
part on the extent to which government health administration authorities,
private health coverage insurers and other organizations will provide
reimbursement for the costs of such products and related treatments. 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.

ENVIRONMENTAL AND SAFETY MATTERS

          We use hazardous materials, chemicals, viruses and various radioactive
compounds in our research and development activities. Accordingly, we are
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 have in
place safety procedures for storing, handling and disposing of these materials.
However, we cannot completely eliminate the risk of contamination or injury. We
could be held liable for any resulting damages, injuries or civil penalties, and
our trials could be suspended. In addition, environmental laws or regulations
may impose liability for the clean-up of contamination at properties we own or
operate, regardless of fault.

                                       15
<PAGE>   19

          These environmental laws and regulations do not currently materially
adversely affect our operations, business or assets. However, these laws may
become more stringent, other facts may emerge, and our processes may change, and
therefore the amount and timing of expenditures in the future may vary
substantially from those currently anticipated.

COMPETITION

          Competition in the biopharmaceutical industry is intense and based
significantly on scientific and technological factors. These factors include the
availability of patent and other protection for technology and products, the
ability to 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, and (4) 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.

          We expect that our products under development and in clinical trials
will 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 179 full-time
personnel on March 15, 2000, 79 were employed in our product development,
clinical and manufacturing programs, 52 in research, and 48 in administration.
Our staff includes 21 persons with Ph.D.s and three with M.D.s.

ITEM 2.  PROPERTIES

RESEARCH FACILITY -- NEW YORK, NEW YORK

          We have occupied two contiguous leased floors at 180 Varick Street in
New York City since 1986. The current lease for the two floors was effective as
of January 1, 1999 and expires in December 2004. The rent under the lease
increases by 3% per year. Rent expense for the New York facility was
approximately $817,000, 574,000, and $554,000 for the years ended December 31,
1999, 1998 and 1997, respectively. We are in the process of renovating the
facility to better fit our needs. The renovation is expected to cost
approximately $2.0 million and is substantially complete.
                                       16
<PAGE>   20

          The original acquisition, construction and installation of our New
York research and development facilities were financed principally through the
sale of Industrial Development Agency Revenue Bonds (THE "IDA BONDS") issued by
the New York Industrial Development Agency ("NYIDA"). Equipment at these
facilities purchased with the proceeds of the bond secure the payment of debt
service on the outstanding IDA Bond.

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 $5.4 million.

          We currently operate the facility to develop and manufacture materials
for our clinical trials. Under certain circumstances, we also may use the
facility for the manufacturing of commercial products. 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.

          We recently purchased for $700,000 a lot adjacent to our Somerville,
New Jersey facility on which we have broken ground for the building of a new
manufacturing facility for commercial supply of IMC-C225.

ITEM 3.  LEGAL PROCEEDINGS

          There are currently no material legal proceedings pending against us
or any of our property.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Not applicable.

                                       17
<PAGE>   21

                                    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.
------------------------------------------------------

<TABLE>
<CAPTION>
                               HIGH    LOW
<S>                            <C>     <C>
-----------------------------
Year ended December 31, 1999
  First Quarter..............  $16 15/16 $ 8 3/4
  Second Quarter.............  $26     $15 1/2
  Third Quarter..............  $39 1/2 $21 5/16
  Fourth Quarter.............  $43 3/4 $16 1/4
</TABLE>

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

<TABLE>
<CAPTION>
                               HIGH    LOW
<S>                            <C>     <C>
-----------------------------
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
</TABLE>

STOCKHOLDERS

          As of the close of business on March 15, 2000, there were
approximately 369 holders of record of our common stock. We estimate that there
are approximately 23,000 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
stock was issued on December 15, 1997. Dividends on the outstanding series A
preferred stock are payable in cash on December 31st of each year beginning on
December 31, 1999, or at the time of conversion, whichever is sooner. The series
A preferred stock is of senior rank to all shares of common stock with respect
to payment of dividends. Accrued dividends of approximately $4,894,000 were paid
in December 1999 with respect to the 100,000 shares of series A preferred stock
that were converted in December 1999 and the 300,000 shares of series A
preferred stock that remained outstanding at December 31, 1999.

RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES

          In 1999, we issued an aggregate of 494,220 shares of unregistered
common stock to holders of warrants upon exercise of such warrants for a total
purchase price of $1,243,502, which were consummated as private sales under
Section 4(2) of the Securities Act of 1933, as amended.

                                       18
<PAGE>   22

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                             1999       1998       1997       1996      1995
                                           --------   --------   --------   --------   -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................   $  2,143   $  4,193   $  5,348   $    600   $   800
Operating expenses:
Research and development................     30,027     21,049     16,455     11,482     8,768
General and administrative..............      9,354      7,145      5,356      3,961     3,739
Net interest and other income(1)........     (2,627)    (2,619)      (972)       (95)   (2,066)
                                           --------   --------   --------   --------   -------
Loss before extraordinary item..........    (34,611)   (21,382)   (15,491)   (14,748)   (9,641)
Extraordinary loss on extinguishment of
  debt..................................         --         --         --      1,267        --
                                           --------   --------   --------   --------   -------
Net loss................................    (34,611)   (21,382)   (15,491)   (16,015)   (9,641)
Preferred dividends.....................      3,713      3,668        163         --        --
                                           --------   --------   --------   --------   -------
Net loss to common stockholders.........   $(38,324)  $(25,050)  $(15,654)  $(16,015)  $(9,641)
                                           ========   ========   ========   ========   =======
Basic and diluted net loss per common
  share.................................   $  (1.51)  $  (1.03)  $  (0.67)  $  (0.83)  $ (0.72)
                                           ========   ========   ========   ========   =======
Weighted average shares outstanding.....     25,447     24,301     23,457     19,371    13,311
</TABLE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                          --------------------------------------------------------
                                            1999        1998        1997        1996        1995
                                          ---------   ---------   ---------   ---------   --------
                                                               (IN THOUSANDS)
<S>                                       <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and securities.....................  $ 119,368   $  46,739   $  59,610   $  13,514   $ 10,207
Working capital.........................     97,064      35,073      56,671       7,695      3,735
Total assets............................    145,694      62,252      75,780      25,885     22,803
Long-term obligations...................      3,335       3,746       3,430       2,775      4,235
Accumulated deficit.....................   (173,457)   (138,846)   (117,464)   (101,973)   (85,958)
Stockholders' equity....................  $ 112,298   $  45,174   $  68,226   $  16,589   $ 11,823
</TABLE>

---------------
(1) Net interest and other income is presented net of interest income, interest
    expense and realized gains and losses on securities available for sale.

                                       19
<PAGE>   23

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 advancing oncology care by
developing a portfolio of targeted biologic treatments, which address the unmet
medical needs of patients with a variety of cancers. Our three programs include
growth factor blockers, cancer vaccines and anti-angiogenesis therapeutics.
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 not derived any commercial revenue from product
sales. As a result of our substantial research and development costs, we have
incurred significant operating losses and we have generated a cumulative net
loss of approximately $173 million for the period from our inception to December
31, 1999. We expect to incur significant additional operating losses.

          Substantially all of our revenues were generated from license and
research arrangements with collaborative partners. Such revenues, as well as our
results of operations, have fluctuated and are expected to continue to fluctuate
significantly from period to period due to:

          - the status of development of our various products

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

          - whether or not we achieve specified research or commercialization
            milestones

          - timely payment by our corporate partners of amounts payable to us

          - the addition or termination of research programs or funding support

          - variations in the level of expenses related to our proprietary
            products during any given period

          Before we can commercialize our products and begin to sell them to
generate revenues, they will need additional development and clinical testing,
which will require significant additional funds. 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.

          In December 1998, we entered into an agreement with Merck KGaA, a
German-based drug company, relating to the development, marketing and sale of
IMC-C225. Under this agreement: we have retained the rights to develop and
market IMC-C225 within the United States and Canada; we have granted Merck KGaA
exclusive rights, except in Japan, to develop and market IMC-C225 outside of the
United States and Canada; we have agreed to supply Merck KGaA, and Merck KGaA
will purchase from us, IMC-C225 for the conduct of clinical trials and the
commercialization of the product outside of the United States and Canada; we
will co-develop and co-market IMC-C225 in Japan with Merck KGaA; and we have
granted Merck KGaA an exclusive license outside of the United States and Canada,
without the right to sublicense, to certain of our patents to apply to a
humanized antibody to the EGF receptor on which Merck KGaA has performed
preclinical studies.

          In return, Merck KGaA has agreed, subject to the terms of the
agreement, to (1) pay us $30 million in up-front fees and early cash-based
milestone payments based upon our achievement of the milestones set forth in the
agreement, (2) pay us an additional $30 million if further milestones are
achieved for which Merck KGaA 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, (3)
provide us, subject to certain terms, a guaranty of our obligations under a $30
million credit facility relating to the construc-
                                       20
<PAGE>   24

tion of a new IMC-C225 commercial manufacturing facility, (4) fund clinical
development of IMC-C225 outside of the United States and Canada, and (5) pay us
royalties on future sales of IMC-C225 in its territory, if any.

          This agreement may be terminated by Merck KGaA in various instances,
including (1) at its discretion on any date on which a milestone is achieved (in
which case no milestone payment will be made), (2) for a one-year period after
first commercial sale of IMC-C225 in Merck KGaA's territory, upon Merck KGaA's
reasonable determination that the product is economically unfeasible (in which
case Merck KGaA is entitled to receive back 50% of the cash-based milestone
payments then paid to date, but only out of revenues received, if any, based
upon a royalty rate applied to the gross profit from IMC-C225 sales or IMC-C225
license fees in the United States and Canada), or (3) in the event we do not
obtain certain collateral license agreements, in which case Merck KGaA also is
entitled to a return of all cash milestone payments to date, plus liquidated
damages of $500,000. Upon termination of the agreement, we would also be
required to use our best reasonable efforts to cause the release of Merck KGaA
as guarantor of the credit facility for our new manufacturing facility.

          Through December 31, 1999, Merck KGaA has paid us $20 million in
up-front and milestone fees and has confirmed that we have achieved additional
milestones with respect to which we are entitled to receive an additional $6
million in payments. The $20 million received through December 31, 1999 has been
recorded as fees potentially refundable from a corporate partner and revenue
recognition of all or a portion of such amounts will commence upon Merck KGaA's
agreeing on the production concept for the new IMC-C225 manufacturing facility
and our obtaining the necessary collateral license agreements. In April 1999,
the parties agreed on the production concept for the manufacturing facility and
are currently working toward securing Merck KGaA's guaranty of our obligations
under a $30 million credit facility. We are also in the process of negotiating
the necessary collateral license agreements. Merck has also agreed to reimburse
us for one-half of the outside contract service costs incurred with respect to
our Phase III clinical trial using C225 with radiation in head and neck cancer
patients.

          We have also granted Merck KGaA a license to develop and market BEC2
worldwide. We have retained the right to co-promote BEC2 with Merck KGaA within
North America and it is intended that we will be the bulk manufacturer of BEC2
for worldwide production. In return, Merck KGaA has made research support
payments to us totaling $4.7 million and is required to make milestone payments
to us of up to $22.5 million, of which $3 million has been received through
December 31, 1999. In addition, Merck KGaA is required to make royalty payments
to us on any sales of BEC2 outside North America, with a portion of the
milestone and research support payments received under the agreement being
creditable against the amount of royalties due.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1999 AND 1998

          Revenues.  Revenues for the years ended December 31, 1999 and 1998
were $2,143,000 and $4,193,000, respectively, a decrease of $2,050,000, or 49%.
Revenues for the year ended December 31, 1999 primarily consisted of (1)
$500,000 in milestone revenue and $225,000 in research support from our
partnership with American Home in infectious disease vaccines, (2) $533,000 in
research and support payments from our research and license agreement with Merck
KGaA for our principal cancer vaccine product candidate, BEC2, (3) $500,000 in
milestone revenue and $305,000 in royalty revenue from our strategic alliance
with Abbott in diagnostics, and (4) $75,000 in license fees from our
cross-licensing agreement with Immunex for novel hematopoietic growth factors.
Revenues for the year ended December 31, 1998 consisted of (1) $300,000 in
research support from our partnership with American Home in infectious disease
vaccines, (2) $1,000,000 in milestone revenue and $2,500,000 in research and
support payments from our agreement with Merck KGaA for BEC2, (3) $295,000 in
royalty revenue from our strategic alliance with Abbott in diagnostics and (4)
$98,000 from a Phase I Small Business Innovation Research grant from the NCI for
a program in cancer-related angiogenesis. The decrease in revenues for the year
ended December 31, 1999 was primarily attributable to the decrease in research
and support revenue as a result of the completion of all research and support
payments due from our research and license agreement with Merck KGaA for BEC2.

                                       21
<PAGE>   25

          Operating Expenses: Research and Development.  Total operating
expenses for the years ended December 31, 1999 and 1998 were $39,381,000 and
$28,194,000, respectively, an increase of $11,187,000, or 40%. Research and
development expenses for the years ended December 31, 1999 and 1998 were
$30,027,000 and $21,049,000, respectively, an increase of $8,978,000 or 43%.
Such amounts for the years ended December 31, 1999 and 1998 represented 76% and
75%, respectively, of total operating expenses. The increase in research and
development expenses for the year ended December 31, 1999 was primarily
attributable to (1) the costs associated with the initiation of two pivotal
Phase III clinical trials of IMC-C225 in treating head and neck cancer, one in
combination with radiation and one in combination with cisplatin, (2) the costs
associated with the initiation of two additional Phase II clinical trials of
IMC-C225, one in refractory head and neck cancer in combination with cisplatin
and one in refractory colorectal cancer in combination with irinotecan, (3)
expenditures in the functional areas of product development, manufacturing,
clinical and regulatory affairs associated with IMC-C225, (4) non-cash expenses
recognized in connection with the issuance of options granted to scientific
consultants and collaborators and (5) expenditures associated with additional
staffing in the area of discovery research. We expect research and development
costs to increase in future periods as we continue to expand our efforts in
product development and clinical trials.

          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, 1999 and 1998 were
$9,354,000 and $7,145,000, respectively, an increase of $2,209,000, or 31%. The
increase in general and administrative expenses primarily reflected (1)
additional support staffing for expanding our research, development, clinical,
manufacturing and marketing efforts, particularly with respect to IMC-C225 and
(2) 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, manufacturing and marketing and sales efforts.

          Interest and Other Income and Interest Expense.  Interest income was
$2,842,000 for the years ended December 31, 1999 compared with $3,016,000 for
the year ended December 31, 1998, a decrease of $174,000, or 6%. Interest
expense was $292,000 and $435,000 for the years ended December 31, 1999 and
1998, respectively, a decrease of $143,000 or 33%. Interest expense for both
periods primarily included (1) interest on an outstanding Industrial Development
Revenue Bond issued in 1990 (THE "1990 IDA BOND") with a principal amount of
$2,200,000 and (2) interest recorded on various capital lease obligations 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 decrease was primarily attributable to
capitalizing interest costs during the construction period of our new
manufacturing facility. The decrease was partially offset by entering into
additional capital leases. We recorded gains on securities available for sale
for the year ended December 31, 1999 in the amount of $77,000 as compared with
gains of $34,000 for the year ended December 31, 1998. The gain for the year
ended December 31, 1999 includes an $828,000 write-down of our investment in
CombiChem as a result of an other than temporary decline in the first quarter of
1999. In November 1999, CombiChem was acquired by E.I. du Pont de Nemours and
Company for cash consideration of $6.75 per share, which represented a financial
reporting gain to us of approximately $937,000 in the fourth quarter of 1999,
after considering the aforementioned write-down. The resulting net gain on the
investment in CombiChem was $109,000 for the year ended December 31, 1999.

          Net Losses.  We had net losses to common stockholders of $38,324,000
or $1.51 per share for the year ended December 31, 1999 compared with
$25,050,000 or $1.03 per share for the year ended December 31, 1998. The
increase in the net loss and per share net loss to common stockholders was due
primarily to the factors noted above.

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 (1) $300,000 in
research support from our partnership with American Home in infec-

                                       22
<PAGE>   26

tious disease vaccines, (2) $1 million in milestone revenue and $2.5 million in
research and support payments from our agreement with Merck KGaA for BEC2, (3)
$295,000 in royalty revenue from our strategic alliance with Abbott in
diagnostics and (4) $98,000 from a Phase I Small Business Innovation Research
grant from the NCI for a program in cancer-related angiogenesis. Revenues for
the year ended December 31, 1997 consisted of (1) $300,000 in research support
from our partnership with American Home in infectious disease vaccines, (2)
$2,000,000 in milestone revenue and $1,667,000 in research and support payments
from our agreement with Merck KGaA for BEC2 and (3) $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.

          Operating Expenses: Research and Development.  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 (1) the costs
associated with an agreement in principle for the supplemental further
development and manufacture of clinical grade IMC-C225 to support ongoing and
future human clinical trials, (2) expenditures associated with additional
staffing in the area of discovery research, (3) the initiation of new supported
research programs with academic institutions, (4) the establishment of corporate
in-licensing arrangements and (5) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with IMC-C225. This increase was partially offset by the one-time $2.2 million
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 (1)
additional support staffing for expanding our research, development, clinical
and manufacturing efforts, particularly with respect to IMC-C225 and (2)
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 with
$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 (1) interest on the 1990 IDA Bond, which has a
principal amount of $2.2 million, (2) interest recorded on capital lease
obligations and (3) 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 (1) December 1997 repayment of an IDA Bond issued in 1986
(THE "1986 IDA BOND") with a principal amount of $2.1 million and (2) 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

                                       23
<PAGE>   27

net loss 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 stock.

LIQUIDITY AND CAPITAL RESOURCES

          At December 31, 1999, our principal sources of liquidity consisted of
cash and cash equivalents and short-term securities available for sale of
approximately $119.4 million. This includes approximately $94.1 million in net
proceeds from our November 1999 public sale of 3,162,500 shares of common stock.
From inception through December 31, 1999 we have financed our operations through
the following means:

          - Public and private sales of equity securities in financing
            transactions have raised approximately $258.0 million in net
            proceeds

          - We have earned approximately $35.0 million from license fees,
            contract research and development fees and royalties from
            collaborative partners. Additionally, we have received $20.0 million
            in potentially refundable fees from our IMC-C225 development and
            license agreement with Merck KGaA. As of March 15, 2000, Merck KGaA
            has confirmed that we have achieved milestones, with respect to
            which we are entitled to receive an additional $6.0 million in
            payments. The amounts from Merck KGaA with respect to IMC-C225 have
            yet to be recognized as revenue because they are refundable under
            certain circumstances

          - We have earned approximately $11.3 million in interest income

          - The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
            aggregate of $6.3 million, 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 $2.2 million is
            currently outstanding

          We may from time to time consider a number of strategic alternatives
designed to increase shareholder value, including joint ventures, acquisitions
and other forms of alliances as well as the sale of all or part of the company.

          The 1990 IDA Bond in the outstanding principal amount of $2.2 million
becomes due in 2004. We will incur annual interest on the 1990 IDA Bond
aggregating approximately $248,000. In order to secure our obligations to the
New York Industrial Development Agency under the 1990 IDA Bond, we have granted
the NYIDA a security interest in facility equipment purchased with the bond
proceeds.

          In February 2000, we completed a private placement of $240 million in
convertible subordinated notes due March 1, 2005. We received net proceeds from
this offering of approximately $232.2 million, after deducting expenses
associated with the offering. The notes bear interest at an annual rate of 5.5%
payable semi-annually on September 1 and March 1 of each year, beginning
September 1, 2000. A holder may convert all or a portion of a note into common
stock at any time on or before March 1, 2005 at a conversion price of $110.18
per share, subject to adjustment if certain events affecting our common stock
occur. We may redeem some or all of the notes at specified redemption prices
prior to March 6, 2003 if specified common stock price thresholds are met. On or
after March 6, 2003, we may redeem some or all of the notes at specified
redemption prices.

          We signed a definitive agreement in April 1999 with BI for the further
development, production scale-up and manufacture of our lead therapeutic product
candidate, IMC-C225, for use in human clinical trials. This material has been
provided to Merck KGaA for use in trials in Europe and we have invoiced Merck
KGaA for this material pursuant to the terms of our agreement with Merck KGaA.
We did not hedge our exposure to the foreign currency risk associated with this
agreement.

          In December 1999, we entered into a development and manufacturing
services agreement with Lonza. Under the agreement, Lonza is engaging in process
development and scale-up for the manufacture of IMC-C225. These steps are being
taken to assure that its process will produce bulk material that conforms with
our reference material. Under this agreement, Lonza will manufacture four 5,000
liter production runs under cGMP conditions of material that may be used for
clinical and/or commercial supply. We also have agreed in princi-

                                       24
<PAGE>   28

ple with Lonza to the material terms of a three-year commercial supply agreement
for which the definitive agreement is being completed.

          We have obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under the 1996 Financing Agreement and the 1998 Financing Agreement
with 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 totaling approximately $2.5 million. 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 due to
expire in December 31, 2000 to purchase 23,220 shares of our common stock at an
exercise price of $9.69 per share which they exercised in November 1999. 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 $1.7 million of the full $2.5 million under the agreement.
In April 1998, we entered into the 1998 Financing Agreement with Finova totaling
approximately $2 million. 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, 1999, we had entered into
twelve individual leases under both the 1996 Financing Agreement and the 1998
Financing Agreement aggregating a total cost of $3.7 million. The 1998 Financing
Agreement expired in May 1999. In January and February 2000, we entered into
financing arrangements with Finova and Transamerica Business Credit Corporation
under which we may obtain at our option up to an aggregate of $25,000,000 for
our utilization primarily in connection with the build-out of our new commercial
manufacturing facility. The funds may be obtained through multiple leases for
not less than specified minimum amounts. Each lease contains a balloon purchase
option at the end of a 48-month term. The Company paid $100,000 in application
fees associated with these agreements, which may be applied against future
principal and interest payments.

          We rent our New York City facility under a lease that 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 are in the process of renovating the
facility to better fit our needs. The renovation is expected to cost
approximately $2.0 million and is substantially complete.

          Under our agreement with Merck KGaA for IMC-C225, we developed, in
consultation with Merck KGaA, a production concept for a new manufacturing
facility for the commercial production of IMC-C225. Merck KGaA is to provide us,
if we so choose, subject to certain conditions, with a guaranty under a $30
million credit facility for the build-out of this facility. We have determined
to erect this facility adjacent to our current manufacturing facility in New
Jersey, which supplies IMC-C225 to support our clinical trials. We broke ground
on the facility in January 2000 and estimate that the total cost will be
approximately $45 million. We are currently in the process of negotiating the
terms of the loan agreement and guaranty. We expect to fund the remaining cost
of this facility through a combination of cash on hand, proceeds from our
February 2000 private placement of convertible notes and equipment financing
transactions.

          In 1998, we hired a Vice-President of Marketing and Sales and have
recently hired directors of marketing, field sales and sales operations, each
with experience in the commercial launch of a monoclonal antibody cancer
therapeutic, to develop our internal marketing and sales capabilities. We are
preparing for the marketing and sale of IMC-C225 in the U.S. and Canada, and in
that regard, we are hiring regional sales managers and approximately 40 sales
people prior to the commencement of IMC-C225 sales.

          Total capital expenditures made during the year ended December 31,
1999 were $7,650,000, of which $532,000 have been reimbursed in accordance with
the terms of the 1998 Financing Agreement with Finova. Of the total capital
expenditures made during the year ended December 31, 1999, $3,020,000 related to
the purchase of equipment for and costs associated with the retrofit of our
corporate office and research laboratories in New York and other capital
expenditures relating to our New York facility. We incurred $4,002,000 for the
purchase of land, engineering and other pre-construction costs associated with
the build-out of the commercial manufacturing facility to be erected adjacent to
our current manufacturing facility in New Jersey. The remaining $628,000 is
related to
                                       25
<PAGE>   29

improving and equipping our existing manufacturing facility.

          The holders of the series A preferred stock 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 stock and are payable on the
outstanding series A preferred stock 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 stock on which the dividend is to be paid, whichever is
sooner. In December 1999, we paid the dividend then accrued on the series A
preferred stock equal to $4,894,000.

          We believe that our existing cash on hand including the proceeds from
our February 2000 private placement of convertible notes and amounts expected to
be available under our credit facilities should enable us to maintain our
current and planned operations through at least 2002. We are also entitled to
reimbursement for certain research and development expenditures and to certain
milestone payments, including $10 million in cash-based milestone payments and
$30 million in equity-based milestone payments from our IMC-C225 development and
license agreement with Merck KGaA, which are to be paid subject to our attaining
research and development milestones, certain of which have recently been
attained, and certain other conditions. There can be no assurance that we will
achieve the unachieved milestones. Additionally, the termination of the
agreement due to our failure to obtain the necessary collateral license
agreements would require us to return all milestone payments made to date, plus
$500,000 in liquidated damages. Our future working capital and capital
requirements will depend upon numerous factors, including, but not limited to:

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

          - our corporate partners fulfilling their obligations to us

          - timing and cost of seeking and obtaining regulatory approvals

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

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

          - costs involved in filing, prosecuting and enforcing patent claims

          - technological advances

          - status of competitors

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

          - 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 2002, 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 may be required to
significantly curtail our planned operations.

          At December 31, 1999, we had net operating loss carryforwards for
United States federal income tax purposes of approximately $151 million, which
expire at various dates from 2000 through 2019. At December 31, 1999 we had
research credit carryforwards of approximately $7.7 million, which expire at
various dates from 2009 through 2019. Under Section 382 of the Internal Revenue
Code of 1986, as amended, a corporation's ability to use net operating loss and
research credit carryforwards may be limited if the corporation experiences a
change in ownership of more than 50 percentage points within a three-year
period. Since 1986, we have experienced at least two such ownership changes. As
a result, we are only permitted to use in any one year approximately $5.2
million of our available net operating loss carryforwards that relate to periods
before these ownership changes. Similarly, we are limited in using our research
credit carryforwards. It has not been determined whether the November 1999
public common stock offering and the February 2000 private placement of
convertible notes resulted in additional ownership

                                       26
<PAGE>   30

changes that would further limit the use of our net operating losses and
research credit carryforwards.

YEAR 2000 READINESS

          In order to ready our systems for the Year 2000 (Y2K), we incurred
aggregate expense in 1999 and 1998 of approximately $350,000. This included
costs for general systems improvements. Year 2000 preparations were completed as
planned, and no major impacts on us were experienced.

RECENTLY ISSUED ACCOUNTING STANDARDS

          In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements, including the recognition of non-refundable
fees received upon entering into arrangements. We are in the process of
evaluating this SAB and the effect it will have on our financial statements and
current revenue recognition policies.

                                       27
<PAGE>   31

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          Our holdings of financial instruments comprise a mix of any 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. Generally, 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 investment grade 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 invest in
securities which have a range of maturity dates. Typically, those with a
short-term maturity are fixed-rate, highly liquid, debt instruments and those
with longer-term maturities are debt instruments with periodic interest rate
adjustments. We also have certain foreign exchange currency risk. See footnote 2
of the financial statements. The table below presents the principal amounts and
related weighted average interest rates by year of maturity for our investment
portfolio as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                                      2005 AND
                           2000          2001         2002      2003      2004       THEREAFTER        TOTAL        FAIR VALUE
                        -----------   ----------   ----------   ----   ----------    -----------    ------------   ------------
<S>                     <C>           <C>          <C>          <C>    <C>           <C>            <C>            <C>
Fixed Rate............  $21,611,000   $1,887,000   $1,452,000    $--   $       --    $        --    $ 24,950,000   $ 24,933,000
Average Interest
  Rate................         5.04%        5.50%         8.0%   --            --             --            5.25%            --
Variable Rate.........           --           --           --    --     5,922,000(1) $76,459,000(1) $ 82,381,000   $ 82,419,000
Average Interest
  Rate................           --           --           --    --          5.86%          6.44%           6.40%            --
                        -----------   ----------   ----------    --    ----------    -----------    ------------   ------------
                        $21,611,000   $1,887,000   $1,452,000    --     5,922,000    $76,459,000(1) $107,331,000   $107,352,000
                        ===========   ==========   ==========    ==    ==========    ===========    ============   ============
</TABLE>

---------------
(1) These holdings consist of U.S. corporate and foreign corporate floating rate
    notes. Interest on the securities is adjusted at fixed dates using
    prevailing interest rates. 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.

          None.

                                       28
<PAGE>   32

                                    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 31, 2000.

                                    PART IV

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

<TABLE>
<S>              <C>
(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>

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
 3.1        Certificate of Incorporation, as amended through December
            31, 1998....................................................  O (3.1)
 3.1A       Amendment dated June 4, 1999 to the Company's Certificate of
            Incorporation, as amended...................................  U (3.1A)
 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 dated December 18, 1987..........  A (4.3)
 4.4        Form of Subscription Agreement entered into in connection
            with September 1991 private placement.......................  A (4.4)
 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 (4.6)
 4.7        Certificate of Designations, Preferences and Rights of
            Series A Convertible Preferred Stock........................  P (4.7)
10.1        Company's 1986 Employee Incentive Stock Option Plan,
            including form of Incentive Stock Option Agreement..........  F (10.1)
10.2        Company's 1986 Non-qualified Stock Option Plan, including
            form of Non-qualified Stock Option Agreement................  F (10.2)
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, dated May 1, 1989, and
            Supplemental Amendatory Agreement between Erbamont, N.V. and
            the Company dated September 28, 1990........................  B (10.6)
10.6        Agreement between Cyanamid and the Company dated December
            18, 1987 and supplemental letter agreement between Cyanamid
            and the Company dated September 6, 1991.....................  B (10.7)
</TABLE>

                                       29
<PAGE>   33

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
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 dated September 21,
            1989........................................................  B (10.9)
10.9        Supported Research Agreement between Memorial Sloan
            Kettering Cancer Center (MSKCC) and the Company dated March
            26, 1990....................................................  A (10.10)
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)
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") and the Company effective
            July 5, 1988................................................  B (10.20)
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)
</TABLE>

                                       30
<PAGE>   34

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
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)
</TABLE>

                                       31
<PAGE>   35

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
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)
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 January 19, 1993.....................  H (10.49)
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 November 23, 1993...........  H (10.53)
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 Pharmaceutical Co., Ltd. dated
            December 17, 1993...........................................  H (10.55)
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 Ultra Fund Limited dated August
            12, 1994....................................................  I (10.57)
10.46       Offshore Securities Subscription Agreement between ImClone
            Systems Incorporated and GFL Ultra Fund Limited dated
            November 4, 1994............................................  I (10.58)
10.47       Offshore Securities Subscription Agreement between ImClone
            Systems Incorporated and Anker Bank Zuerich dated November
            10, 1994....................................................  I (10.59)
</TABLE>

                                       32
<PAGE>   36

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
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 High River Limited
            Partnership relating to 150,000 shares common stock of
            ImClone Systems Incorporated................................  J (10.62)
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 and the members of the Oracle
            Group.......................................................  J (10.65)
10.54       Security Agreement, dated as of August 10, 1995, by and
            between ImClone Systems Incorporated and the members of the
            Oracle Group................................................  J (10.66)
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 Merck of April 1, 1990....  K (10.71)
10.60       Amendment of October 1993 to the Research and License
            Agreement between the Company and Merck of April 1, 1990....  K (10.72)
10.61       Employment agreement dated May 17, 1996 between the Company
            and Carl S. Goldfischer.....................................  L (10.73)
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 Company and members of The
            Oracle Group................................................  L (10.75)
10.64       Collaborative Research and License Agreement between the
            Company and CombiChem, Inc. dated October 10, 1997..........  M (10.76)
10.65       Amendment of May 1996 to Research and License Agreement
            between the Company and Merck of April 1, 1990..............  P (10.65)
10.66       Amendment of December 1997 to Research and License Agreement
            between the Company and Merck of April 1, 1990..............  P (10.66)
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)
</TABLE>

                                       33
<PAGE>   37

<TABLE>
<CAPTION>
 EXHIBIT                                                                  INCORPORATION
   NO.                              DESCRIPTION                           BY REFERENCE
 -------                            -----------                           -------------
<S>         <C>                                                           <C>
10.69       Lease dated as of December 15, 1998 for the Company's
            premises at 180 Varick Street, New York, New York...........  T (10.69)
10.70       Engagement Agreement, as amended between the Company and
            Diaz & Altschul Capital LLC.................................  T (10.70)
10.71       Amendment dated March 2, 1999 to Development and License
            Agreement between the Company and Merck KGaA................  T (10.71)
10.72       Agreement for Supply of Material dated as of January 1, 1997
            between the Company, Connaught Laboratories Limited, a
            Pasteur Merieux Company and Merck KGaA......................  U (10.72)
10.73       Development and Supply Agreement dated as of April 30, 1999
            between the Company and Beohringer Ingelheim Pharma KG......  V (10.73)
10.74       Indenture dated as of February 29, 2000 by and between the
            Company and The Bank of New York, as Trustee................  W
10.75       Form of 5 1/2% Convertible Subordinated Notes Due 2005......  W
21.1        Subsidiaries................................................  T (21.1)
23.1        Consent of KPMG LLP.........................................  W
27.1        Financial Data Schedule.....................................  W
99.1        1996 Incentive Stock Option Plan, as amended................  X (99.1)
99.2        1996 Non-Qualified Stock Option Plan, as amended............  X (99.2)
99.3        ImClone Systems Incorporated 1998 Non-Qualified Stock Option
            Plan........................................................  X (99.3)
99.4        ImClone Systems Incorporated 1998 Employee Stock Purchase
            Plan........................................................  W
99.5        Option Agreement, dated as of September 1, 1998, between the
            Company and Ron Martell.....................................  S (99.3)
99.6        Option Agreement, dated as of January 4, 1999, between the
            Company and S. Joseph Tarnowski.............................  X (99.4)
</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.

                                       34
<PAGE>   38

(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.

(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) 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,
    1998.

(U) Previously filed with the Commission; incorporated by reference to the
    Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(V) Previously filed with the Commission; incorporated by reference to the
    Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
    Confidential Treatment has been granted for a portion of this exhibit.

(W) Filed herewith

(X) Previously filed with the Commission; incorporated by reference to the
    Company's Registration Statement on Form S-8; File No. 333-30172.

(b) Reports on Form 8-K

On October 7, 1999, the Company filed with the Commission a Current Report on
Form 8-K under Item 5.

                                       35
<PAGE>   39

                                   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, 2000
                                          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.

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

/s/ ROBERT F. GOLDHAMMER                               Chairman of the Board of         March 29, 2000
---------------------------------------------------    Directors
(ROBERT F. GOLDHAMMER)

/s/ SAMUEL D. WAKSAL                                   President, Chief Executive       March 29, 2000
---------------------------------------------------    Officer and Director (Principal
(SAMUEL D. WAKSAL)                                     Executive Officer)

/s/ HARLAN W. WAKSAL                                   Executive Vice President, Chief  March 29, 2000
---------------------------------------------------    Operating Officer and Director
(HARLAN W. WAKSAL)

/s/ CARL S. GOLDFISCHER                                Vice President, Finance and      March 29, 2000
---------------------------------------------------    Chief Financial Officer
(CARL S. GOLDFISCHER)                                  (Principal Financial Officer)

/s/ RICHARD BARTH                                      Director                         March 29, 2000
---------------------------------------------------
(RICHARD BARTH)

/s/ VINCENT T. DEVITA, JR.                             Director                         March 29, 2000
---------------------------------------------------
(VINCENT T. DEVITA, JR.)

/s/ DAVID M. KIES                                      Director                         March 29, 2000
---------------------------------------------------
(DAVID M. KIES)

/s/ PAUL B. KOPPERL                                    Director                         March 29, 2000
---------------------------------------------------
(PAUL B. KOPPERL)

/s/ JOHN MENDELSOHN                                    Director                         March 29, 2000
---------------------------------------------------
(JOHN MENDELSOHN)

/s/ WILLIAM R. MILLER                                  Director                         March 29, 2000
---------------------------------------------------
(WILLIAM R. MILLER)
</TABLE>

                                       36
<PAGE>   40

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
AUDITED FINANCIAL STATEMENTS:

Independent Auditors' Report................................  F-2
Consolidated Balance Sheets at December 31, 1999 and 1998...  F-3
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-4
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 1999, 1998 and 1997..............  F-5
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   41

                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
IMCLONE SYSTEMS INCORPORATED:

        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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.

                                          KPMG LLP

Princeton, New Jersey
March 3, 2000

                                       F-2
<PAGE>   42

                          IMCLONE SYSTEMS INCORPORATED

                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 12,016        $  3,888
  Securities available for sale.............................     107,352          42,851
  Prepaid expenses..........................................         158             470
  Other current assets......................................       7,599           1,196
                                                                --------        --------
         Total current assets...............................     127,125          48,405
                                                                --------        --------
Property and equipment:
  Land......................................................       1,087             340
  Building and building improvements........................      10,810          10,519
  Leasehold improvements....................................       4,891           4,846
  Machinery and equipment...................................       9,049           7,834
  Furniture and fixtures....................................         898             640
  Construction in progress..................................       5,209             115
                                                                --------        --------
         Total cost.........................................      31,944          24,294
  Less accumulated depreciation and amortization............     (14,729)        (12,877)
                                                                --------        --------
         Property and equipment, net........................      17,215          11,417
                                                                --------        --------
Patent costs, net...........................................       1,013             860
Deferred financing costs, net...............................          37              46
Other assets................................................         304           1,524
                                                                --------        --------
                                                                $145,694        $ 62,252
                                                                ========        ========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  3,987        $  1,109
  Accrued expenses..........................................       5,123           4,847
  Interest payable..........................................          45              45
  Deferred revenue..........................................          --              75
  Fees potentially refundable from corporate partner........      20,000           4,000
  Current portion of long-term liabilities..................         906             744
  Preferred stock dividends payable.........................          --           2,512
                                                                --------        --------
         Total current liabilities..........................      30,061          13,332
                                                                --------        --------
Long-term debt..............................................       2,200           2,200
Other long-term liabilities, less current portion...........       1,135           1,546
                                                                --------        --------
         Total liabilities..................................      33,396          17,078
                                                                --------        --------
Commitments and contingencies
Stockholders' equity :
  Preferred stock, $1.00 par value; authorized 4,000,000
    shares; issued and outstanding Series A Convertible:
    300,000 and 400,000 at December 31, 1999 and December
    31, 1998, respectively (preference in liquidation
    $30,000 and $42,512, respectively)......................         300             400
  Common stock, $.001 par value; authorized 60,000,000
    shares; issued 29,703,090 and 24,567,312 at December 31,
    1999 and December 31, 1998, respectively; outstanding
    29,652,273, and 24,516,495 at December 31, 1999 and
    December 31, 1998, respectively.........................          30              25
  Additional paid-in capital................................     286,038         184,853
  Accumulated deficit.......................................    (173,457)       (138,846)
  Treasury stock, at cost; 50,817 shares at December 31,
    1999 and December 31, 1998..............................        (492)           (492)
  Note receivable -- officer and stockholder................        (142)           (142)
  Accumulated other comprehensive income (loss):
    Unrealized gain (loss) on securities available for
     sale...................................................          21            (624)
                                                                --------        --------
         Total stockholders' equity.........................     112,298          45,174
                                                                --------        --------
                                                                $145,694        $ 62,252
                                                                ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-3
<PAGE>   43

                          IMCLONE SYSTEMS INCORPORATED

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues:
  License fees from third parties..........................  $  1,080    $  1,000    $  3,000
  Research and development funding from third parties and
     other.................................................     1,063       3,193       2,348
                                                             --------    --------    --------
          Total revenues...................................     2,143       4,193       5,348
                                                             --------    --------    --------
Operating expenses:
  Research and development.................................    30,027      21,049      16,455
  General and administrative...............................     9,354       7,145       5,356
                                                             --------    --------    --------
          Total operating expenses.........................    39,381      28,194      21,811
                                                             --------    --------    --------
                 Operating loss............................   (37,238)    (24,001)    (16,463)
                                                             --------    --------    --------
Other:
  Interest and other income................................    (2,919)     (3,054)     (1,523)
  Interest expense.........................................       292         435         551
                                                             --------    --------    --------
          Net interest and other income....................    (2,627)     (2,619)       (972)
                                                             --------    --------    --------
                 Net loss..................................   (34,611)    (21,382)    (15,491)
Preferred dividends (including assumed incremental yield
  attributible to beneficial conversion feature of $1,331,
  $1,268 and $51 for the years ended December 31, 1999,
  1998, and 1997, respectively)............................     3,713       3,668         163
                                                             --------    --------    --------
                 Net loss to common stockholders...........  $(38,324)   $(25,050)   $(15,654)
                                                             ========    ========    ========
Basic and diluted net loss per common share................  $  (1.51)   $  (1.03)   $  (0.67)
                                                             ========    ========    ========
Weighted average shares outstanding........................    25,447      24,301      23,457
                                                             ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-4
<PAGE>   44

                          IMCLONE SYSTEMS INCORPORATED

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                                                                                      NOTE
                                    PREFERRED STOCK       COMMON STOCK       ADDITIONAL                            RECEIVABLE
                                   -----------------   -------------------    PAID-IN     ACCUMULATED   TREASURY   OFFICER AND
                                    SHARES    AMOUNT     SHARES     AMOUNT    CAPITAL       DEFICIT      STOCK     STOCKHOLDER
                                   --------   ------   ----------   ------   ----------   -----------   --------   -----------
<S>                                <C>        <C>      <C>          <C>      <C>          <C>           <C>        <C>
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)
Preferred stock dividends........                                                 (112)
Comprehensive loss:
Net loss.........................                                                            (15,491)
Other comprehensive income (loss)
 Unrealized holding gain arising
   during the period.............
 Less: Reclassification
   adjustment for realized loss
   included in net loss..........
      Total other comprehensive
        income...................
Comprehensive loss...............
                                   --------   -----    ----------    ---      --------     ---------     -----        -----
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
Note receivable -- officer
 and stockholder.................                                                                                      (131)
Interest on note
 receivable -- officer and
 stockholder.....................                                                   11                                  (11)
Preferred stock dividends........                                               (2,400)
Comprehensive loss:
Net loss.........................                                                            (21,382)
Other comprehensive income (loss)
 Unrealized holding loss arising
   during the period.............
 Less: Reclassification
   adjustment for realized gain
   included in net loss..........
      Total other comprehensive
        loss.....................
Comprehensive loss...............
                                   --------   -----    ----------    ---      --------     ---------     -----        -----
Balance at December 31, 1998.....   400,000     400    24,567,312     25       184,853      (138,846)     (492)        (142)
                                   ========   =====    ==========    ===      ========     =========     =====        =====
Conversion of preferred stock....  (100,000)   (100)      800,000      1            99
Issuance of common stock.........                       3,162,500      3        94,122
Options exercised................                         671,305      1         5,315
Warrants exercised...............                         495,220                1,257
Issuance of shares through
 employee stock purchase plan....                           6,753                  177
Options granted to
 non-employees...................                                                2,411
Options granted to employees.....                                                  175
Interest received on note
 receivable -- officer and
 stockholder.....................                                                                                        11
Interest accrued on note
 receivable -- officer and
 stockholder.....................                                                   11                                  (11)
Preferred stock dividends........                                               (2,382)
Comprehensive loss:
Net loss.........................                                                            (34,611)
Other comprehensive income (loss)
 Unrealized holding gain arising
   during the period.............
 Less: Reclassification
   adjustment for realized gain
   included in net loss..........
      Total other comprehensive
        income...................
Comprehensive loss...............
                                   --------   -----    ----------    ---      --------     ---------     -----        -----
Balance at December 31, 1999.....   300,000   $ 300    29,703,090    $30      $286,038     $(173,457)    $(492)       $(142)
                                   ========   =====    ==========    ===      ========     =========     =====        =====

<CAPTION>
                                    ACCUMULATED
                                       OTHER
                                   COMPREHENSIVE
                                      INCOME
                                      (LOSS)        TOTAL
                                   -------------   --------
<S>                                <C>             <C>
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)
Preferred stock dividends........                      (112)
Comprehensive loss:
Net loss.........................                   (15,491)
Other comprehensive income (loss)
 Unrealized holding gain arising
   during the period.............        99              99
 Less: Reclassification
   adjustment for realized loss
   included in net loss..........        (2)             (2)
                                       ----        --------
      Total other comprehensive
        income...................       101             101
                                                   --------
Comprehensive loss...............                   (15,390)
                                       ----        --------
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
Note receivable -- officer
 and stockholder.................                      (131)
Interest on note
 receivable -- officer and
 stockholder.....................                        --
Preferred stock dividends........                    (2,400)
Comprehensive loss:
Net loss.........................                   (21,382)
Other comprehensive income (loss)
 Unrealized holding loss arising
   during the period.............      (638)           (638)
 Less: Reclassification
   adjustment for realized gain
   included in net loss..........        38              38
                                       ----        --------
      Total other comprehensive
        loss.....................      (676)           (676)
                                                   --------
Comprehensive loss...............                   (22,058)
                                       ----        --------
Balance at December 31, 1998.....      (624)         45,174
                                       ====        ========
Conversion of preferred stock....                        --
Issuance of common stock.........                    94,125
Options exercised................                     5,316
Warrants exercised...............                     1,257
Issuance of shares through
 employee stock purchase plan....                       177
Options granted to
 non-employees...................                     2,411
Options granted to employees.....                       175
Interest received on note
 receivable -- officer and
 stockholder.....................                        11
Interest accrued on note
 receivable -- officer and
 stockholder.....................                        --
Preferred stock dividends........                    (2,382)
Comprehensive loss:
Net loss.........................                   (34,611)
Other comprehensive income (loss)
 Unrealized holding gain arising
   during the period.............       722             722
 Less: Reclassification
   adjustment for realized gain
   included in net loss..........        77              77
                                       ----        --------
      Total other comprehensive
        income...................       645             645
                                                   --------
Comprehensive loss...............                   (33,966)
                                       ----        --------
Balance at December 31, 1999.....      $ 21        $112,298
                                       ====        ========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-5
<PAGE>   45

                          IMCLONE SYSTEMS INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1999        1998        1997
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(34,611)   $(21,382)   $(15,491)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................     1,968       1,769       1,797
    Expense associated with issuance of options and
      warrants..............................................     2,586         690       2,729
    Write-off of patent costs...............................        86         235         146
    Loss (gain) on securities available for sale............       (77)        (38)          2
    Changes in:
      Prepaid expenses......................................       312         126        (474)
      Other current assets..................................    (6,505)       (607)       (110)
      Due from officers and stockholders....................       102          --         101
      Other assets..........................................      (128)        (62)        (37)
      Interest payable......................................        --         (23)       (170)
      Accounts payable......................................     2,878        (622)        672
      Accrued expenses......................................       276       3,407          75
      Deferred revenue......................................       (75)       (133)        208
      Fees potentially refundable from corporate partner....    16,000       4,000          --
                                                              --------    --------    --------
         Net cash used in operating activities..............   (17,188)    (12,640)    (10,552)
                                                              --------    --------    --------
Cash flows from investing activities:
    Acquisitions of property and equipment..................    (7,118)       (472)     (1,657)
    Purchases of securities available for sale..............  (105,520)    (62,779)   (241,623)
    Sales and maturities of securities available for sale...    40,980      76,996     195,450
    Sale (purchase) of investment in CombiChem, Inc.........     2,109          --      (2,000)
    Additions to patents....................................      (346)       (254)       (212)
                                                              --------    --------    --------
         Net cash (used in) provided by investing
           activities.......................................   (69,895)     13,491     (50,042)
                                                              --------    --------    --------
Cash flows from financing activities:
    Net proceeds from issuance of preferred stock...........        --          --      39,997
    Net proceeds from issuance of common stock..............    94,125          --      23,154
    Proceeds from exercise of stock options and warrants....     6,573         682       1,581
    Proceeds from issuance of common stock under the
      employee stock purchase plan..........................       177          33          --
    Purchase of treasury stock..............................        --          --        (323)
    Proceeds from equipment and building improvement
      financings............................................        94         594          --
    Repayment of long-term debt.............................        --          --      (2,113)
    Payment of preferred stock dividends....................    (4,893)         --          --
    Payments of other liabilities...........................      (876)       (830)     (1,878)
    Interest received on note receivable -- officer and
      stockholder...........................................        11          --          --
                                                              --------    --------    --------
         Net cash provided by financing activities..........    95,211         479      60,418
                                                              --------    --------    --------
         Net increase (decrease) in cash and cash
           equivalents......................................     8,128       1,330        (176)
Cash and cash equivalents at beginning of year..............     3,888       2,558       2,734
                                                              --------    --------    --------
Cash and cash equivalents at end of year....................  $ 12,016    $  3,888    $  2,558
                                                              ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-6
<PAGE>   46

                          IMCLONE SYSTEMS INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND BASIS OF PREPARATION

        ImClone Systems Incorporated (the "Company") is a biopharmaceutical
company advancing oncology care by developing a portfolio of targeted biologic
treatments, which address the unmet medical needs of patients with a variety of
cancers. The Company's three programs include growth factor blockers, cancer
vaccines and anti-angiogenesis therapeutics. A substantial portion of the
Company's efforts and resources are devoted to research and development
conducted on its own behalf and through collaborations with corporate partners
and academic research and clinical institutions. The Company has not derived any
commercial revenue from product sales. The Company is managed and operated as
one business. The entire business is comprehensively managed by a single
management team that reports to the Chief Operating Officer. The Company does
not operate separate lines of business or separate business entities with
respect to any of its product candidates. In addition, the Company does not
conduct any of its operations outside of the United States. Accordingly, the
Company does not prepare discrete financial information with respect to separate
product areas or by location and does not have separately reportable segments as
defined by SFAS No. 131. 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.

                                       F-7
<PAGE>   47

(C) INVESTMENTS IN SECURITIES

        The Company classifies its investment in debt and equity securities as
available-for-sale.

        Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of accumulated comprehensive (income) 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 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. Dividend and interest income is
recognized when earned.

(D) LONG-LIVED ASSETS

        Property and equipment are stated at cost. Equipment under capital
leases is 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 are written down to fair
value if expected associated undiscounted 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 when the Company executes license agreements
with third parties that provide for the payment of non-refundable fees 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 consolidated 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 from corporate partner; revenue recognition of such
amounts will commence 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.

        In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements and specifically addresses revenue recognition in the biotechnology
industry for non-refundable technology access fees and other non-refundable
fees. SAB 101 is effective for fiscal years beginning after December 15, 1999.
The Company is evaluating SAB 101 and the effect it may have on the consolidated
financial statements and its current revenue recognition policies.

                                       F-8
<PAGE>   48

(G) FOREIGN CURRENCY TRANSACTIONS

        Gains and losses from foreign currency transactions, such as those
resulting from the translation and settlement of receivables and payables
denominated in foreign currencies, are included in the consolidated statements
of operations. The Company does not currently use derivative financial
instruments to manage the risks associated with foreign currency fluctuations.
The Company recorded losses on foreign currency transactions of approximately
$7,000, $153,000 and $24,000 for the years ended December 31,1999, 1998 and
1997, respectively.

(H) 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 of an option only if the market price of the underlying stock on
the date of grant exceeded the exercise price. The Company provides the pro
forma net income and pro forma earnings per share disclosures for employee and
director 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.

(I) RESEARCH AND DEVELOPMENT

        Research and development expenditures are expensed as incurred.

(J) 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.

(K) 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 consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

(L) NET LOSS PER COMMON SHARE

        Basic and diluted loss per common share is based on the net loss for the
relevant period, adjusted for series A convertible preferred stock ("series A
preferred stock") dividends and the assumed incremental yield attributable to
the beneficial conversion feature aggregating $3,713,000, $3,668,000 and
$163,000 for the years ended December 31, 1999, 1998 and 1997, 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, 1999, 1998
and 1997, the Company had approximately 9,750,000, 10,933,000 and 9,444,000,
respectively, potential common shares outstanding including shares underlying
convertible preferred stock, stock options and stock warrants. The potential
shares of common stock into which the series A preferred stock is convertible
are based on the future market price of the Company's common stock. The
potential common stock outstanding relating to series A preferred stock
conversion for the years ended December 31, 1999, 1998 and 1997 has been
estimated based on the respective closing prices of the common stock at December
31, 1999, 1998 and December 31, 1997.
                                       F-9
<PAGE>   49

(M) COMPREHENSIVE INCOME (LOSS)

        SFAS No. 130, "Reporting Comprehensive Income," 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 stockholders' equity.

(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, 1999 and 1998 were as follows:

        At December 31, 1999:

<TABLE>
<CAPTION>
                                                         GROSS            GROSS
                                      AMORTIZED       UNREALIZED        UNREALIZED
                                         COST        HOLDING GAINS    HOLDING LOSSES     FAIR VALUE
                                     ------------    -------------    --------------    ------------
<S>                                  <C>             <C>              <C>               <C>
U.S. Government debt...............  $    997,000       $    --          $     --       $    997,000
U.S. corporate debt................    30,710,000        57,000            (9,000)        30,758,000
Foreign corporate debt.............    68,215,000        29,000           (56,000)        68,188,000
Foreign government/agency
  guaranteed debt..................     7,409,000            --                --          7,409,000
                                     ------------       -------          --------       ------------
                                     $107,331,000       $86,000          $(65,000)      $107,352,000
                                     ============       =======          ========       ============
</TABLE>

        At December 31, 1998:

<TABLE>
<CAPTION>
                                                          GROSS            GROSS
                                        AMORTIZED      UNREALIZED        UNREALIZED
                                          COST        HOLDING GAINS    HOLDING LOSSES    FAIR 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>

        Maturities of debt securities classified as available-for-sale were as
follows at December 31, 1999:

        Years ended December 31,

<TABLE>
<CAPTION>
                                                   AMORTIZED          FAIR
                                                      COST           VALUE
                                                  ------------    ------------
<S>                                               <C>             <C>
     2000.......................................  $ 21,611,000    $ 21,599,000
     2001.......................................     1,887,000       1,881,000
     2002.......................................     1,452,000       1,453,000
     2003.......................................            --              --
     2004.......................................     5,922,000       5,925,000
     2005 and thereafter........................    76,459,000      76,494,000
                                                  ------------    ------------
                                                  $107,331,000    $107,352,000
                                                  ============    ============
</TABLE>

        Proceeds from the sale of investment securities available-for-sale were
$25,081,000, $35,604,000 and $9,115,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Gross realized gains included in income in the
years ended December 31, 1999, 1998 and 1997 were $33,000, $41,000 and $1,000,
respectively, and gross realized losses included in income in the years ended
December 31, 1999, 1998 and

                                      F-10
<PAGE>   50

1997 were $65,000, $3,000 and $3,000, respectively. Additionally, during 1999
the Company recognized a net gain of $109,000 on the sale of its investment in
CombiChem, Inc. ("CombiChem"). See Note 4.

(4) INVESTMENT IN AND COLLABORATION WITH COMBICHEM, INC.

        In October 1997, the Company 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
utilized 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 provided CombiChem with research
funding through October 1999 in the amount of $500,000 annually and will pay
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. This
investment was included in other assets. In March 1999, the Company recorded an
$828,000 write-down in its investment in CombiChem as a result of an other than
temporary decline in market value. In November 1999, CombiChem was acquired by
E.I. du Pont de Nemours and Company for cash consideration of $6.75 per share,
which represented a financial reporting gain to the Company of approximately
$937,000 in the fourth quarter of 1999, after considering the aforementioned
write-down. The resulting net gain on the investment in CombiChem was $109,000
for the year ended December 31, 1999.

(5) ACCRUED EXPENSES

        The following items are included in accrued expenses:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,    DECEMBER 31,
                                                                         1999            1998
                                                                     ------------    ------------
            <S>                                                      <C>             <C>
            Salaries and other payroll related expenses............   $1,558,000      $1,256,000
            Research and development contract services.............    2,291,000       2,032,000
            Other..................................................    1,274,000       1,559,000
                                                                      ----------      ----------
                                                                      $5,123,000      $4,847,000
                                                                      ==========      ==========
</TABLE>

(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 an 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.

        The Company has granted a security interest in all equipment located in
its New York City facility purchased with the proceeds from the 1990 bond to
secure the obligation of the Company to the NYIDA relating to the 1990 Bond.
Interest expense on the 1990 Bond was approximately $248,000 for each of the
years ended December 31, 1999, 1998 and 1997.

                                      F-11
<PAGE>   51

(7) OTHER LONG-TERM LIABILITIES

        Other long-term liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
               Liability under capital lease obligations....   $2,010,000      $2,253,000
               Liability under license agreement............       31,000          37,000
                                                               ----------      ----------
                                                                2,041,000       2,290,000
               Less current portion.........................     (906,000)       (744,000)
                                                               ----------      ----------
                                                               $1,135,000      $1,546,000
                                                               ==========      ==========
</TABLE>

        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 which was exercised in November 1999. 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, 1999, the Company
had entered into twelve individual leases under both the 1996 Financing
Agreement and the 1998 Financing Agreement aggregating a total cost of
$3,687,000. There are no covenants associated with these financing agreements
which materially restrict the Company's activities. See Notes 14 and 16.

        At December 31, 1999 and 1998, 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:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
               Laboratory, office and computer equipment....  $ 2,845,000      $2,407,000
               Building improvements........................      963,000         861,000
               Furniture and fixtures.......................      170,000          92,000
                                                              -----------      ----------
                                                                3,978,000       3,360,000
               Less accumulated depreciation and
                  amortization..............................   (1,209,000)       (643,000)
                                                              -----------      ----------
                                                              $ 2,769,000      $2,717,000
                                                              ===========      ==========
</TABLE>

        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.

                                      F-12
<PAGE>   52

(8) COLLABORATIVE AGREEMENTS

        In December 1990, the Company entered into a development and
commercialization agreement with Merck KGaA 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 KGaA a license, with the right to
sublicense, to manufacture and market BEC2 outside of North America for all
indications. Merck KGaA has also been granted a license, without the right to
sublicense, to 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 and has recognized research support payments totaling $4,700,000 as
of December 31, 1999. Merck KGaA is also required to make milestone payments up
to $22,500,000, of which $3,000,000 has been recognized as of December 31, 1999,
based on milestones achieved in the licensed products' development. Merck KGaA
is also responsible for worldwide costs up to DM17,000,000 associated with a
multi-site, multinational Phase III clinical trial for BEC2 in limited disease
small-cell lung carcinoma. Any expenses for this trial that exceed DM17,000,000
will be shared 60% by Merck KGaA and 40% by the Company. As of December 31,
1999, this expense level had not yet been reached. Merck KGaA 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 KGaA with respect to its lead interventional therapeutic
product candidate for cancer, IMC-C225. In exchange for exclusive rights to
market IMC-C225 outside of North America and co-development rights in Japan, the
Company can receive $30,000,000, of which $20,000,000 has been received as of
December 31, 1999, 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 KGaA
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, if the Company so chooses, Merck KGaA 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 IMC-C225. Merck KGaA will pay the Company a royalty on future
sales of IMC-C225 outside of North America, if any. Merck KGaA has also agreed
not to own greater than 19.9% of the Company's voting securities through
December 3, 2002. This agreement may be terminated by Merck KGaA in various
instances, including (1) at its discretion on any date on which a milestone is
achieved (in which case no milestone payment will be made), (2) for a one-year
period after first commercial sale of IMC-C225 in Merck KGaA's territory, upon
Merck KGaA's reasonable determination that the product is economically
unfeasible (in which case Merck KGaA is entitled to receive back 50% of the
cash-based milestone payments then paid to date, but only out of revenues
received, if any, based upon a royalty rate applied to the gross profit from
IMC-C225 sales or IMC-C225 license fees in the United States and Canada), or (3)
in the event the Company does not obtain certain collateral license agreements
in which case Merck KGaA also is entitled to a return of all cash amounts with
respect to milestone payments to date, plus liquidated damages of $500,000. In
April 1999, the parties agreed on the production concept for the manufacturing
facility and are currently working toward securing Merck KGaA's guaranty of the
Company's obligations under a $30 million credit facility relating to the
construction of the manufacturing facility. In the event of termination of the
agreement, the Company will be required to use its best reasonable efforts to
cause the release of Merck KGaA as guarantor. The $20,000,000 in payments
received through December 31, 1999 has been recorded as fees potentially
refundable from corporate partner and revenue recognition of such amounts will
commence upon the Company obtaining the defined collateral license agreements.

        In December 1999, the Company, with Merck KGaA, expanded the ongoing
Phase III clinical trial of IMC-C225 for the treatment of head and neck cancer
in combination with radiation into Spain. The Company and Merck KGaA plan to
expand this trial into other European countries and conduct additional European
IMC-C225 clinical trials. In order to support the clinical trials in Europe,
Merck KGaA has taken possession of and agreed to reimburse the Company for all
of the IMC-C225 manufactured under its contract manufacturing agreement with
Boehringer Ingelheim Pharma KG ("BI Pharma"). See Note 14. At

                                      F-13
<PAGE>   53

December 31, 1999, Merck KGaA is indebted to the Company in the amount of
$4,442,000 for these costs. Merck has further agreed to reimburse the Company
for one-half of the outside contract service costs incurred with respect to the
Phase III clinical trial of IMC-C225 for the treatment of head and neck cancer
in combination with radiation. Amounts due from Merck KGaA related to this
agreement totaled approximately $1,112,000 at December 31, 1999. The
aforementioned reimbursements due from Merck KGaA for manufacturing and clinical
trial costs were recorded as reductions to research and development expenses and
totaled $5,554,000 for the year ended December 31, 1999. The aforementioned
amounts due from Merck KGaA as of December 31, 1999 are included in other
current assets.

        Revenues for the years ended December 31, 1999, 1998 and 1997 were
$2,143,000, $4,193,000 and $5,348,000, respectively. Revenues for the year ended
December 31, 1999 primarily included (1) $500,000 in milestone revenue and
$225,000 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, (2) $533,000 in
research and support payments from the Company's research and license agreement
with Merck KGaA with respect to the Company's BEC2 product candidate, and (3)
$500,000 in milestone revenue and $305,000 in royalty revenue from the Company's
strategic alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues
for the year ended December 31, 1998 included (1) $300,000 in research support
from the Company's partnership with American Home in infectious disease
vaccines, (2) $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 with respect to the Company's BEC2 product candidate and (3) $295,000 in
royalty revenue from the Company's strategic alliance with Abbott in
diagnostics. Revenues for the year ended December 31, 1997 included (1) $300,000
in research support from the Company's partnership with American Home in
infectious disease vaccines, (2) $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 KGaA with respect to the Company's BEC2 product candidate,
and (3) $1,000,000 in milestone revenue and $381,000 in royalty revenue from the
Company's strategic alliance with Abbott in diagnostics.

        Revenues were derived from the following geographic areas:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1999          1998          1997
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
               United States...........................  $1,610,000    $  693,000    $1,681,000
               Germany.................................     533,000     3,500,000     3,667,000
                                                         ----------    ----------    ----------
                                                         $2,143,000    $4,193,000    $5,348,000
                                                         ==========    ==========    ==========
</TABLE>

(9) COMMON STOCK

        In May 1999, the stockholders approved the amendment of the Company's
certificate of incorporation to increase the total number of shares of common
stock the Company is authorized to issue from 45,000,000 shares to 60,000,000
shares.

        In November 1999, the Company completed a public sale of 3,162,500
shares of common stock for net proceeds of approximately $94,125,000.

(10) PREFERRED STOCK

        In connection with the December 1997 amendment to the Company's research
and license agreement with Merck KGaA, Merck KGaA purchased from the Company in
December 1997 400,000 shares of the Company's series A preferred stock for total
consideration of $40,000,000. The holders of the series A preferred stock are
entitled to receive annual cumulative dividends of $6.00 per share. Dividends
accrue as of the issuance date of the series A preferred stock and are payable
on the outstanding series A preferred stock 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 stock on which the dividend is to be paid, whichever
is sooner. In

                                      F-14
<PAGE>   54

December 1999, 100,000 shares of series A preferred stock were converted into
800,000 shares of common stock and an additional 100,000 shares of series A
preferred stock became convertible on January 1, 2000 into 249,610 shares of
common stock at a conversion price of $40.063 per share which was the average of
the closing prices for the common stock for the five trading days ended on
December 31, 1999. During the period from issuance through December 31, 1999,
the series A preferred stock was 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 stock is convertible at a price equal to $40.063 per share;
during the period from January 1, 2001 through December 31, 2001 the series A
preferred stock is 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 stock is 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 stock is 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 stock is outstanding exceeds
150% of the conversion price then in effect, the Company has the right to
require the holder of the series A preferred stock to convert all such shares
that may be convertible. The Company may also redeem in whole or in part any of
the series A preferred stock 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 stock 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 stock, such holders will receive a pro rata portion
thereof.

        In accordance with the terms of the series A preferred stock, the
Company calculated an assumed incremental yield of $5,455,000 at the date of
issuance 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. The assumed incremental yield and related amortization
for the period after the December 1999 conversion of the series A preferred
stock has been adjusted to reflect a decrease in the aggregate assumed
incremental yield of $709,000 as a result of the conversion of 100,000 shares of
series A preferred stock prior to the period in which the beneficial conversion
feature was available. Accrued dividends of approximately $4,894,000 were paid
in December 1999 with respect to the 100,000 shares of series A preferred stock
that were converted and the 300,000 shares of series A preferred stock that
remained outstanding at December 31, 1999. Additionally, the Company has
recognized an incremental yield attributable to the beneficial conversion
feature of $2,650,000 for the period from the date of issuance through December
31, 1999. The unamortized assumed incremental yield amounted to $2,096,000 at
December 31, 1999.

(11) 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, as amended provide for the
granting of options to purchase up to 8,500,000 shares of common stock to
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

                                      F-15
<PAGE>   55

terminated, expire ten years from the date of grant. Options granted under these
plans vest over one-to-five-year periods. At December 31, 1999, options to
purchase 7,193,301 shares of common stock were outstanding and 1,707,298 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:

<TABLE>
<CAPTION>
                                                                           WEIGHTED AVERAGE
                                                              NUMBER OF     EXERCISE PRICE
                                                               SHARES         PER SHARE
                                                              ---------    ----------------
<S>                                                           <C>          <C>
Balance at December 31, 1996................................  2,103,577         $ 5.80
     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
     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
     Granted................................................  3,514,260          24.44
     Exercised..............................................   (671,305)          7.92
     Canceled...............................................    (58,778)         10.77
                                                              ---------
Balance at December 31, 1999................................  7,193,301         $16.13
                                                              =========
</TABLE>

        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 has recorded
compensation expense of $150,000, $150,000 and $279,000 in the years ended
December 31, 1999, 1998 and 1997, respectively, as prescribed under APB Opinion
No. 25.

        In September 1998 and January 1999, the Company granted options to each
of its Vice President of Marketing and Vice President of Product and Process
Development to 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, 1999, 1998 and 1997, the Company
granted options to purchase 84,000, 124,000, and 32,000 shares, respectively, of
its common stock to certain Scientific Advisory Board 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 11(c) for
weighted average assumptions used. During the years ended December 31, 1999,
1998 and 1997, the Company recognized approximately $2,411,000, $540,000, and
$189,000, respectively, in compensation expense relating to the options granted
to Scientific Advisory Board members and outside consultants. During the years
ended December 31, 1999, 1998 and 1997, the Company granted options to outside
members of its Board of Directors to purchase approximately 155,000, 44,000 and
153,000 shares, respectively, of its common stock. No compensation expense was
recorded for these option grants.

        In May 1999, the Company's stockholders approved the grant of an option
to the President and Chief Executive Officer and Executive Vice President and
Chief Operating Officer to purchase 1,000,000 and 650,000 shares, respectively,
of common stock at a per share exercise price equal to $18.25, the last reported
sale price of the common stock on the date shareholder approval was obtained.
The original terms of the options provide that they vest in their entirety seven
years from the date of grant, but may vest earlier as to 20% of the shares
annually if certain targets in the Company's common stock price are achieved. In
December 1999, the Compensation and Stock Option Committee amended the options,
subject to shareholder approval, to provide that the tranches vest immediately
upon the target prices for each tranche being achieved.

                                      F-16
<PAGE>   56

        During April 1995, the Company completed the sale of the remaining
one-half of its shares of capital stock of Cadus Pharmaceutical Corporation
("Cadus") for $3.0 million to High River Limited Partnership ("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 is 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, 1999, a total of 1,768,370 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:

<TABLE>
<CAPTION>
                                                                           WEIGHTED AVERAGE
                                                              NUMBER OF     EXERCISE PRICE
                                                               SHARES         PER SHARE
                                                              ---------    ----------------
<S>                                                           <C>          <C>
Balance at December 31, 1996................................  3,276,845         $2.41
     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
     Granted................................................         --            --
     Exercised..............................................   (143,755)         1.39
     Canceled...............................................         --            --
                                                              ---------         -----
Balance at December 31, 1998................................  2,263,590          2.80
     Granted................................................         --            --
     Exercised..............................................   (495,220)         2.54
     Canceled...............................................         --            --
                                                              ---------         -----
Balance at December 31, 1999................................  1,768,370         $2.87
                                                              =========         =====
</TABLE>

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

<TABLE>
<CAPTION>

<S>                                                             <C>
March 2000..................................................        6,150
July 2000...................................................       72,000
August 2000.................................................      509,000
November 2000...............................................       12,720
March 2001..................................................        1,500
May 2001....................................................      792,700
June 2003...................................................       12,000
December 2004...............................................       12,300
December 2005...............................................      350,000
                                                                ---------
     Total..................................................    1,768,370
                                                                =========
</TABLE>

                                      F-17
<PAGE>   57

(C) SFAS NO. 123 DISCLOSURES:

        The following table summarizes the weighted average fair value of stock
options and warrants granted to employees and directors during the years ended
December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                               OPTION PLANS
                                       -------------------------------------------------------------
                                              1999                  1998                 1997
                                       -------------------   ------------------   ------------------
                                       SHARES(1)      $      SHARES(1)      $     SHARES(1)      $
                                       ---------    ------   ---------    -----   ---------    -----
<S>                                    <C>          <C>      <C>          <C>     <C>          <C>
Exercise price is less than market
  value at date of grant.............    100,000(2) $10.87          --    $  --         --     $  --
Exercise price equals market value at
  date of grant......................  3,330,260    $16.59     900,476    $5.52    424,194     $4.29
Exercise price exceeds market value
  at date of grant...................         --    $ 0.00   1,408,500    $6.28         --     $  --
</TABLE>

---------------
(1) Does not include 84,000 in 1999, 124,000 shares in 1998 and 32,000 shares in
    1997 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.

(2) The Company has recorded compensation expense of $25,000 in the year ended
    December 31, 1999 in connection with these grants as prescribed under APB
    Opinion No. 25.

        The only warrant grant in 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 recorded compensation expense of $2,233,000 in the year
ended December 31, 1997 as prescribed under APB Opinion No. 25. The fair value
of this grant was approximately $2,346,000 or $5.91 per share.

        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:

<TABLE>
<CAPTION>
                                                                OPTION PLANS
                                                       ------------------------------    WARRANTS
                                                       1999         1998        1997       1997
                                                       ----         ----        ----     --------
<S>                                                    <C>      <C>             <C>      <C>
Expected life (years)................................    5.9         5.3          3.5       2.0
Interest rate........................................   5.47%       5.58%        6.00%     6.00%
Volatility...........................................  79.96%      76.03%       72.29%    72.29%
Dividend yield.......................................      0%          0%           0%        0%
</TABLE>

        The following table summarizes information concerning stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                                     WEIGHTED
                                                      AVERAGE
                                                     REMAINING    WEIGHTED     NUMBER      WEIGHTED
                                        NUMBER      CONTRACTUAL   AVERAGE    EXERCISABLE   AVERAGE
              RANGE OF                OUTSTANDING      TERM       EXERCISE       AT        EXERCISE
          EXERCISE PRICES             AT 12/31/99     (YEARS)      PRICE      12/31/99      PRICE
          ---------------             -----------   -----------   --------   -----------   --------
<S>                                   <C>           <C>           <C>        <C>           <C>
$0.563-5.97.........................   1,025,856       3.88        $ 3.12       997,358    $   3.04
6.00-10.875.........................   1,268,873       7.46          8.57       880,049        8.34
11.375-18.00........................   1,728,687       8.53         11.88       707,376       11.65
18.25...............................   1,650,250       9.39         18.25            --          --
19.00-38.00.........................   1,519,635       9.90         33.77            --          --
                                       ---------                              ---------
                                       7,193,301       8.16        $16.13     2,584,783    $   7.20
                                       =========                              =========
</TABLE>

                                      F-18
<PAGE>   58

        As of December 31, 1999, the outstanding warrants to purchase 1,768,370
common shares were all exercisable and have a weighted average remaining
contractual term of 2.0 years. The weighted average remaining contractual term
at December 31, 1999 for the 6,150 outstanding warrants exercisable at $.63 per
share is .2 years, the 12,300 exercisable at $.69 per share is 5.0 years, the
1,050,420 exercisable at $1.50 per share is 1.1 years, the 290,500 exercisable
at $3.00 per share is .6 years, the 350,000 exercisable at $5.50 per share is
6.0 years, the 12,000 exercisable at $7.00 per share is 3.5 years, the 6,000
exercisable at $10.00 per share is .9 years, and the 41,000 exercisable at
$13.33 per share is 1.3 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 to common stockholders and loss per
common share would have been increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------
                                                       1999            1998            1997
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
Net loss to common stockholders:
     As reported.................................  $(38,324,000)   $(25,050,000)   $(15,654,000)
     Pro forma...................................   (47,606,000)    (32,306,000)    (17,283,000)
Basic and diluted loss per common share:
     Basic and diluted
     As reported.................................  $      (1.51)   $      (1.03)   $      (0.67)
     Pro forma...................................         (1.87)          (1.33)          (0.74)
</TABLE>

        The pro forma effect on the loss for the years ended December 31, 1999,
1998 and 1997 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.

(12) 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, as amended,
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 an employee, work more than 20 hours per week
for at least five months per calendar year and not own greater than 5% of the
Company's common stock. Pursuant to the ESPP, the Company has reserved 500,000
shares of common stock for issuance. Prior to the first day of each quarterly
purchase period, each eligible employee may elect to participate in the ESPP.
The participant is granted an option to purchase a number of shares of common
stock determined by dividing the participants' contributions accumulated prior
to the last day of the quarterly period by the purchase price. The participant
has the ability to withdraw from the ESPP until the second to last day of the
quarter. 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. Participating employees have
purchased 6,753 shares of common stock at an aggregate purchase price of
$177,000 for the year ended December 31, 1999 and 4,388 shares of common stock
at an aggregate purchase price of $33,000 for the year ended December 31, 1998.
As of December 31, 1999, 488,859 shares were available for future purchases. No
compensation expense has been recorded in connection with the ESPP.

(13) 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,
1999 and December 31, 1998 are presented below.

                                      F-19
<PAGE>   59

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
Deferred tax assets:
  Research and development credit carryforward..............  $  7,714,000    $  3,642,000
  Compensation relating to the issuance of stock options and
     warrants...............................................     3,142,000         376,000
  Net operating loss carryforwards..........................    64,512,000      57,169,000
  Other.....................................................     8,542,000       3,424,000
                                                              ------------    ------------
Total gross deferred tax assets.............................    83,910,000      64,611,000
  Less valuation allowance..................................   (83,910,000)    (64,611,000)
                                                              ------------    ------------
  Net deferred tax assets...................................            --              --
                                                              ------------    ------------
Deferred tax liabilities:
  Total gross deferred tax liabilities......................            --              --
                                                              ------------    ------------
  Net deferred tax asset....................................  $         --    $         --
                                                              ============    ============
</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, 1999
and 1998 was an increase of $19,299,000 and $8,333,000, 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, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $150,600,000, which expire at
various dates from 2000 through 2019. At December 31, 1999, the Company had
research credit carryforwards of approximately $7,714,000, which expire at
various dates from 2009 through 2019. 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 at least 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 taxes. The Company has not yet determined
whether the November 1999 public common stock offering and the February 2000
private placement of convertible notes resulted in additional ownership changes
that would further limit the use of net operating loss and research credit
carryforwards.

(14) COMMITMENTS

LEASES

        The Company leases its New York City facility under an operating lease,
which expires in December 2004. The annual minimum rent for 1999 was $720,000
and increases 3% annually for each year thereafter. Rent expense for the New
York City facility was approximately $817,000, $574,000, and $554,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. See also Note 6.

                                      F-20
<PAGE>   60

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

<TABLE>
<CAPTION>
                                                       CAPITAL      OPERATING
                                                        LEASES        LEASES
                                                      ----------    ----------
<S>                                                   <C>           <C>
Years ending December 31, 2000......................  $1,031,000    $  780,000
     2001...........................................     702,000       794,000
     2002...........................................     431,000       815,000
     2003...........................................      61,000       823,000
     2004...........................................          --       835,000
                                                      ----------    ----------
                                                       2,225,000     4,047,000
Less interest expense...............................    (215,000)           --
                                                      ----------    ----------
                                                      $2,010,000    $4,047,000
                                                      ==========    ==========
</TABLE>

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 1999, the Company signed a definitive agreement with BI Pharma
for the further development, production scale-up and manufacture of the
Company's lead therapeutic product candidate, IMC-C225, for use in human
clinical trials. The total cost under the agreement was DM11,440,000 or
$6,283,000 based on the foreign currency rate on the dates of payment. Of this
amount, $4,451,000 has been paid through December 31, 1999. All of the material
manufactured under this agreement has been provided to Merck KGaA for use in
clinical trials in Europe and Merck KGaA has agreed to reimburse the Company
approximately $4,442,000. This amount has been accounted for as reduction to
research and development expense in the fourth quarter of 1999 and is included
as a component of other current assets on the accompanying consolidated balance
sheet as of December 31, 1999.

        In December 1999, the Company signed a development and manufacturing
services agreement with Lonza Biologies PLC ("Lonza"). Under the agreement,
Lonza is engaging in process development and scale-up for the manufacture of
IMC-C225. These steps are being taken to assure that its process will produce
bulk material that conforms with the Company's reference material. Under this
agreement, Lonza will manufacture four 5,000 liter production runs under cGMP
conditions of material that may be used for clinical and/or commercial supply.
The Company also has agreed in principle with Lonza to the material terms of a
three-year commercial supply agreement for which the definitive agreement is
being completed.

        The Company is building a new manufacturing facility adjacent to its
current manufacturing facility in New Jersey. This new facility will contain
three 10,000 liter fermentors and will be dedicated to the commercial production
of IMC-C225. The 80,000 square foot facility will cost approximately $45 million
and will be built on a lot of land purchased in December 1999 for $700,000. The
Company has incurred approximately $3,318,000 in engineering and other
pre-construction costs associated with the new manufacturing facility through
December 31, 1999.

                                      F-21
<PAGE>   61

(15) 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 $70,000 and
$47,000 to the plan for the years ended December 31, 1999 and 1998,
respectively. No such contributions were made to the plan during the year ended
December 31, 1997.

(16) SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
ACTIVITIES

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             1999        1998          1997
                                                           --------    ---------    ----------
<S>                                                        <C>         <C>          <C>
Cash paid during the year for:
  Interest, including amounts capitalized of $204,000 in
     1999................................................  $497,000    $ 422,000    $  707,000
                                                           ========    =========    ==========
Non-cash investing and financing activities:
  Finova capital asset and lease obligations additions...   532,000      731,000     1,324,000
                                                           ========    =========    ==========
  Other capital lease obligations........................        --           --        28,000
                                                           ========    =========    ==========
  Unrealized gain (loss) on securities
     available-for-sale..................................   645,000     (676,000)      101,000
                                                           ========    =========    ==========
  Warrant exercise paid with a note from officer and
     stockholder.........................................        --      131,000            --
                                                           ========    =========    ==========
  Accrued interest on note receivable -- officer and
     stockholder.........................................    11,000       11,000            --
                                                           ========    =========    ==========
</TABLE>

(17) 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, 1999, 1998 and 1997.

        Through March 1995, the Company made miscellaneous non-interest-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 ended 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 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, 1999, the total amount due the Company, including interest, was
approximately $142,000 and is classified in the stockholders' equity section of
the consolidated 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 was
payable on demand including interest at the annual rate of 8.25% for the period
that the loan is outstanding. In April 1999, the note, including all interest,
was paid in full.

                                      F-22
<PAGE>   62

        The Company uses Concord Capital Management International, a New
York-based money management firm, to manage the investment of a portion of the
Company's debt security portfolio. The Company's Chairman of the Board is a
limited partner of Concord Capital Management International. The Company has
paid investment fees to Concord Capital Management International of
approximately $60,000, $82,000 and $40,000 in the years ended December 31, 1999,
1998 and 1997, respectively.

        In January 1999, the Company accepted an unsecured promissory note
totaling $60,000 from its Vice President, Product and Process Development. The
note was payable upon the earlier of the Company's demand or July 28, 1999
including interest at an annual rate of 8.75% for the period that the loan was
outstanding. The loan was made in connection with the acceptance of employment
and the corresponding relocation of the officer. In July 1999, the note,
including all interest, was paid in full.

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS

        For the years ended December 31, 1999 and 1998, the following methods
and assumptions were used to estimate the fair value of each class of financial
instrument:

CASH AND CASH EQUIVALENTS, OTHER RECEIVABLES, 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.

(19) SUBSEQUENT EVENTS

        In February 2000, the Company completed a private placement of
$240,000,000 in convertible subordinated notes due March 1, 2005. The Company
received net proceeds from this offering of approximately $232,200,000, after
deducting costs associated with the offering. The notes bear interest at an
annual rate of 5.5% payable semi-annually on September 1 and March 1 of each
year, beginning September 1, 2000. The holders may convert all or a portion of
the notes into common stock at any time on or before March 1, 2005 at a
conversion price of $110.18 per share, subject to adjustment if certain events
affecting the common stock of the Company occur. The notes will be subordinated
to all existing and future senior indebtedness. The Company may redeem some or
all of the notes at any time prior to March 6, 2003, at a redemption price equal
to $1,000 per $1,000 aggregate principal amount of notes plus accrued and unpaid
interest to the redemption date if (1) the closing price of the common stock has
exceeded 150% of the conversion price for at least 20 trading days in any
consecutive 30-trading day period and (2) if the redemption would occur before
March 1, 2002, the shelf registration statement covering resales of the notes
and the common stock is effective and expected to remain effective and available
for use for the 30 days following the redemption date. If the notes are redeemed
under these circumstances, the Company will make an additional payment of
$152.54 per $1,000 aggregate principal amount of notes, minus the amount of any
interest actually paid on the note prior to the date the notice was mailed. On
or after March 6, 2003, the Company may redeem some or all of the notes at
specified redemption prices, plus accrued and unpaid interest to the day
preceding the redemption date.

        In January and February 2000, the Company entered into financing
arrangements with two financing companies under which the Company may obtain at
its option up to an aggregate of $25,000,000 for utilization primarily in
connection with the build-out of the Company's new commercial manufacturing
facility. The funds may be obtained through multiple capital leases for not less
than specified minimum amounts. Each lease contains a balloon purchase option at
the end of a 48-month term. The Company paid $100,000 in application fees
associated with these agreements which may be applied against future principal
and interest payments.

                                      F-23