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, 1996

                                       OR

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


                         Commission file number 0-19612

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

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

180 VARICK STREET, NEW YORK, NY                                    10014
(Address of principal executive offices)                         (Zip Code)

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

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  stock  held by  non-affiliates  of the
registrant as of March 27, 1997 was $154,961,887.

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

Class                                       Outstanding as of March 27, 1997
-------------------------------             --------------------------------
Common Stock, par value $.001                             23,693,199

Documents Incorporated by Reference: The registrant's definitive Proxy Statement
for the Annual Meeting of  Stockholders  scheduled to be held on June 3, 1997 to
be filed  with the  Commission  not later  than 120 days  after the close of the
registrant's  fiscal year, has been  incorporated  by reference,  in whole or in
part, into Part III, Items 10, 11, 12 and 13 of this Annual Report on Form 10-K.

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                          1996 Form 10-K Annual Report

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

                                     PART I

Item 1.  Business                                                           1
Item 2.  Properties                                                        14
Item 3.  Legal Proceedings                                                 14
Item 4.  Submission of Matters to a Vote of
         Security Holders                                                  14

                                     PART II

Item 5.  Market for the Registrant's Common Equity and
         Related Stockholder Matters                                       15
Item 6.  Selected Financial Data                                           16
Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                               17
Item 8.  Financial Statements and Supplementary Data                       25
Item 9.  Changes in and Disagreements With Accountants
         on Accounting and Financial Disclosure                            25

                                    PART III

Item 10. Directors and Executive Officers of the Registrant                25
Item 11. Executive Compensation                                            25
Item 12. Security Ownership of Certain Beneficial Owners
                  and Management                                           25
Item 13. Certain Relationships and Related Transactions                    25

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and
         Reports on Form 8-K                                               25

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

Those statements  contained herein that do not relate to historical  information
are  forward-looking  statements.  There  can be no  assurance  that the  future
results  covered by such  forward-looking  statements  will be achieved.  Actual
results may differ materially due to the risks and uncertainties inherent in the
Company's business,  including without  limitation,  the risks and uncertainties
associated  with  completing  preclinical  and clinical  trials of the Company's
compounds that demonstrate such compounds' safety and  effectiveness;  obtaining
additional  financing  to  support  the  Company's  operations;   obtaining  and
maintaining  regulatory  approval for such  compounds and  complying  with other
governmental regulations applicable to the Company's business; obtaining the raw
materials   necessary  in  the  development  of  such  compounds;   consummating
collaborative  arrangements  with  corporate  partners for product  development;
developing the capacity to manufacture,  market and sell the Company's 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
payors;  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."

                                      (i)
<PAGE>

Item 1. Business.

GENERAL

     ImClone   Systems   Incorporated   (the   "Company"  or   "ImClone")  is  a
biopharmaceutical  company engaged  primarily in the research and development of
therapeutic  products for the treatment of cancer and cancer-related  disorders.
The Company's product candidates include interventional  therapeutics for cancer
and cancer vaccines. The Company was incorporated in Delaware in 1984.

     The Company's  principal  executive offices and laboratories are located at
180 Varick Street,  New York,  New York 10014 and the telephone  number is (212)
645-1405.

DEVELOPMENT PROGRAMS

     C225 Cancer Therapeutic.  The Company's lead interventional therapeutic for
cancer is a chimerized (part mouse,  part human) antibody that acts to block the
Epidermal  Growth Factor receptor  ("EGFr").  EGFr is expressed in select normal
human  tissues  and  has  been  shown  to be  over-expressed  in  the  cells  of
approximately  one-third of all solid cancers.  Extensive in vivo animal studies
with  human   tumors  have  shown  that  C225  in   combination   with   various
chemotherapeutic  agents (doxorubicin,  cisplatin or paclitaxel)  demonstrates a
pronounced enhancement of the anti-tumor effect of the chemotherapeutic  agents,
resulting in the complete  destruction of human tumors in substantially  all the
animals in these studies.  The studies have  demonstrated  long-term  tumor-free
survival of animals.

     Since  December  1994,  the  Company has  initiated  several  Phase  Ib/IIa
clinical  trials of C225 at Memorial  Hospital (the patient care arm of Memorial
Sloan-Kettering   Cancer  Center)   ("Sloan-Kettering"),   Yale  Cancer  Center,
University  of  Virginia,  MD  Anderson  Cancer  Center and  the  University  of
Alabama.  The first study,  involving a single  injection of C225 at  escalating
doses in 13 patients,  was completed in March 1995. Subsequent studies have been
initiated with escalating  doses of C225 both with and without  chemotherapy.  A
multi-injection  study of C225 alone in 17 patients  was  completed  in November
1995. A study of the drug in conjunction  with cisplatin in head and neck cancer
patients  began in May 1995 and was completed in November 1996 with 22 patients.
No dose limiting  toxicities were  demonstrated  in these studies.  Studies with
doxorubicin in advanced  prostate  cancer patients and with paclitaxel in breast
cancer patients were initiated in January 1996 and March 1996, respectively. The
Company expects to commence enrollment shortly of patients in studies using C225
alone, with chemotherapy or with radiation in head and neck cancer patients. The
Company produces C225 for its clinical trials at its  manufacturing  facility in
Branchburg, New Jersey.

     105AD7 Cancer Vaccine.  105AD7 is a human monoclonal  antibody which mimics
an antigen  known as gp72  which is common in  cancers  of the  gastrointestinal
tract,  including colorectal carcinoma.  This human monoclonal antibody has been
shown to stimulate cellular immune anti-tumor responses in animal models and has
been  tested  in a Phase I human  clinical  study in the  United  Kingdom  in 13
patients with advanced colorectal carcinoma.  The results of that study indicate
that in a majority of patients 105AD7  stimulated a cellular immune response and
significantly  increased the overall mean survival time compared to patients not
immunized,  with no  discernible  toxicity  related to the drug.  Based on these
results,  late stage  colorectal  carcinoma  patients  have been enrolled in the
United  Kingdom in a  162-patient  Phase II clinical  trial.  The study has been
fully enrolled and patients are being evaluated for survival.



                                       1
<PAGE>

     BEC-2 Cancer Vaccine. BEC-2 is a monoclonal  anti-idiotypic  antibody which
the Company  believes  may be useful to prevent or delay the onset of  recurrent
primary tumors or metastatic disease. The antibody, which mimics the ganglioside
GD3,  has been tested since 1991 in Phase I clinical  trials at  Sloan-Kettering
against  certain  forms of  cancer,  including  small-cell  lung  carcinoma  and
melanoma.  BEC-2 has  shown  statistically  significant  prolonged  survival  of
patients with small-cell lung carcinoma in a pilot study at Sloan-Kettering. The
Company has granted  Merck KGaA,  formerly E. Merck  ("Merck"),  a  German-based
pharmaceutical company, rights to manufacture and market BEC-2 worldwide, except
in North America,  in return for research support,  potential milestone fees and
royalties on future  sales,  if any.  ImClone  expects that pivotal  studies for
BEC-2 for use in treatment of small cell lung carcinoma will commence within the
next 12 months.

     Interleukin-6  Mutein  ("IL-6m").  The Company has  developed a recombinant
molecular variant of Interleukin-6,  a naturally occurring  hematopoietic growth
factor.  IL-6m has been shown in animal  tests to  significantly  stimulate  the
production of platelets and has been shown by others in  pre-clinical  trials to
be a critical factor in liver cell regeneration. A pilot human clinical trial of
IL-6m was initiated at Hadassah  Hospital in Jerusalem,  Israel in early 1994 in
pre-chemotherapeutic  patients  with  ovarian  or lung  cancer  which  trial was
discontinued.   In  addition,  IL-6m  is  being  supplied  to  outside  academic
laboratories.

RESEARCH PROGRAMS

     In addition to concentrating on its products in clinical  development,  the
Company performs ongoing research in a number of related areas.

Interventional Therapeutics

     ImClone conducts an interventional  cancer therapeutic  research program in
the  development  of  inhibitors of tyrosine  kinase  receptors  (growth  factor
receptors) associated with tumor cell regeneration and support.

     Inhibitors of Angiogenesis

     The Company is seeking to develop inhibitors of angiogenesis,  which is the
formulation  of new blood vessels  necessary  for tumor growth.  The Company has
acquired  proprietary  rights to the  recombinant  mouse form of a key  tyrosine
kinase  receptor  involved  in  angiogenesis,  FLK-1.  The  receptor,  which was
discovered,  cloned and expressed by ImClone  scientists and  collaborators,  is
stimulated by the growth factor called Vascular  Endothelial  Cell Growth Factor
("VEGF").  The Company has developed  various  antibodies with high affinity for
the receptor and its human form,  which block the activation of the receptor and
thereby  inhibit  angiogenesis.  The  Company  has also  initiated  a program to
develop small molecule  inhibitors of angiogenesis  and to identify and validate
new targets for anti-angiogenic drug intervention. These inhibitors of the FLK-1
receptor may represent a future  treatment for inhibiting  tumor growth in those
cancers that use this molecular pathway to stimulate blood vessel development.

     FLK-2

     FLK-2 is a tyrosine kinase receptor which is expressed on a  sub-population
of human  hematopoietic  stem  cells,  acute  myeloblastic  leukemia  and  acute
lymphoblastic  leukemia,  and possibly human neural and neural-like  tumors. The
goals of the  FLK-2  monoclonal  antibody  


                                       2
<PAGE>

program are to develop  therapeutic  antibodies  that can be used to treat FLK-2
expressing tumors.

Hematopoiesis

     The Company is conducting research in hematopoiesis (growth and development
of blood cell elements)  aimed at discovering  factors to support  hematopoietic
stem cells and to control  the  proliferation,  differentiation  and  functional
deterioration of hematopoietic elements.

     The Company has obtained an exclusive license from The National  Institutes
of Health  ("NIH") to the  delta-like  ("DLK")  protein and gene for use in stem
cell and gene therapy.  DLK is a member of a family of proteins  which appear to
have the ability to maintain  cells in an  undifferentiated  state.  The Company
also has entered into a non-exclusive  license and supply agreement with Immunex
Corporation  ("Immunex")  for use of the  FLK-2/FLT-3  ligand  for ex vivo  cell
therapies. Immunex has a license from the Company to the FLK-2 receptor, limited
to the use by Immunex in the manufacture of the FLK-2/FLT-3 ligand.

Cancer Vaccines

     ImClone  seeks to discover  potential  cancer  vaccines as another route to
cancer  treatment.  Cancer vaccines would activate immune responses to tumors to
protect  against  local  spread,  distant  metastases  or  recurrence of cancer.
Choosing  appropriate  cancer  cell  targets  and  generating  effective  immune
responses  are the focus of  ImClone's  cancer  vaccine  program.  For  example,
research is being  conducted on a possible  melanoma  vaccine based on the tumor
associated antigen known as gp75.

LICENSED DIAGNOSTICS AND INFECTIOUS DISEASE VACCINES

     The Company has licensed its  diagnostic  and  infectious  disease  vaccine
product areas, based on its earlier research,  to corporate partners for further
development  and  commercialization.  The Company has granted the  Wyeth/Lederle
division of American Home  Products  Corporation  ("American  Home") a worldwide
license to manufacture and market its infectious disease vaccines,  which are in
development.  The Company has also entered into a strategic alliance with Abbott
Laboratories  ("Abbott")  pursuant to which the Company has licensed  certain of
its  diagnostic  products to Abbott on a worldwide  basis.  In mid-1995,  Abbott
launched in Europe its first DNA-based test, using the Company's technology, for
the diagnosis of the sexually transmitted disease chlamydia.  Abbott has advised
the Company  that it has added tests for  gonorrhea  and  mycobacteria,  and has
launched sales in the U.S. as well. The Company is entitled to receive potential
milestone  payments and  royalties in connection  with sales of such  diagnostic
products.  In December 1996,  the Company and Abbott  modified this agreement to
provide  for  an  exclusive   sublicensing  agreement  with  Chiron  Diagnostics
("Chiron")  for the  Company's  patented  DNA signal  amplification  technology,
AMPLIPROBE.  Under the terms of the agreement  all sales of Chiron  branched DNA
diagnostic  probe  technology  in countries  covered by Company  patents will be
subject to a royalty to Abbott to be passed through to the Company.

RESEARCH AND DEVELOPMENT

     ImClone  initiated  its in-house  research  and  development  in 1986.  The
Company has assembled a scientific staff with a variety of complementary  skills
in  a  broad  base  of  advanced  research  technologies,   including  oncology,
immunology,  cell biology and protein and synthetic  chemistry.  The Company has
also  recruited a staff of  technical  and  professional  employees to 


                                       3
<PAGE>

carry out  manufacturing  of clinical  trial  materials at its  Branchburg,  New
Jersey  manufacturing  facility.  In addition to its research  programs  pursued
in-house,  ImClone  collaborates  with certain academic  institutions to support
research in areas of ImClone's product development efforts. The Company has also
entered  into  collaborations  with major  pharmaceutical  companies in order to
obtain  funding and product  development  and  commercialization  assistance for
certain of its therapeutic  product  candidates in exchange for specific product
licensing  rights.  The Company intends to enter into  additional  agreements of
this nature with appropriate  pharmaceutical company partners with the resources
and experience to assist the Company  financially and in  successfully  bringing
its products to market, both in the U.S. and abroad.  There can be no assurance,
however,   that  the  Company  will  be  successful  in  consummating  any  such
arrangements.

     The Company has recorded expenses of approximately $11,482,000,  $8,768,000
and  $11,816,000  for research and  development  in the years ended December 31,
1996, 1995 and 1994, respectively.

ACADEMIC COLLABORATIONS

     The Company's  primary  academic  collaborations  which are non-clinical in
nature are the following.

     Princeton University.  The Company has entered into several agreements with
Princeton  University  pursuant to which ImClone has supported specific research
under the  direction  of certain  faculty  members.  The  Company  supports  the
research of Dr. Arnold Levine,  Chairman of Princeton's  Department of Molecular
Biology,  in the area of the p53  tumor  suppressor  gene.  The  Company  has an
exclusive  license to the results of this research,  which license is terminable
by the university if the Company does not meet certain  milestones in connection
with the development of the licensed technology.

     The Company has also funded  research of Dr. Ihor  Lemischka  of  Princeton
University on tyrosine kinase receptors, including FLK-2, antibodies and ligands
to such receptors,  and  hematopoietic  stem cells. The Company has an exclusive
license  from  Princeton  to the  results  of this  research,  which  license is
terminable by the university if the Company does not meet certain  developmental
milestones.

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

     The  University of North Carolina at Chapel Hill. The Company has supported
research  at The  University  of North  Carolina  at Chapel  Hill in a number of
areas,  including work of Dr. P. Frederick  Sparling in connection  with vaccine
candidates  for N.  gonorrhea  and N.  meningitidis,  the  results  of which are
exclusively licensed to the Company.

     Hadassah  Medical  Organization.  ImClone  has entered  into two  supported
research agreements with Hadasit Medical Research Services & Development,  Ltd.,
the organization  that licenses  research programs on behalf of Hadassah Medical
Organization.  Pursuant to one  agreement,  the  Company has funded  research at
Hadassah in the  development  of an inhibitor of  cytokines,  which  funding was
discontinued by the Company as of January 1993. ImClone has also funded research
at  Hadassah in the  development  of a  recombinant  form of  heparanase,  which
funding was  discontinued by the Company as of March 1994. Under each agreement,
the Company has an exclusive license to the proprietary rights of the research.

                                       4
<PAGE>

     Two additional  collaborations  which are not academic in nature, but which
have resulted in the transfer of intellectual property rights to the Company are
the following:

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

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

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

CLINICAL COLLABORATIONS

     The  Company's  principal  collaborations  that are related to its clinical
trials are the following:

     The Cancer  Research  Campaign  Technology,  Limited.  In April  1994,  the
Company  entered  into an  exclusive  worldwide  license  with  Cancer  Research
Campaign  Technology,  Limited  ("CRCT") for a human  monoclonal  anti-idiotypic
antibody called 105AD7, and its use as a cancer vaccine. CRCT licenses potential
products on behalf of Cancer  Research  Campaign  ("CRC").  CRC is  performing a
double-blind Phase II clinical study on 105AD7 in the United Kingdom. This study
focuses on  increased  survival  time of  patients  with  late-stage  colorectal
cancer.

     The license agreement  provides that ImClone shall  manufacture  105AD7 for
CRC to be used in the clinical  trials other than the current  Phase II trial in
the United Kingdom, which is supported wholly by CRC and is being performed with
CRC material.  As licensee,  ImClone has commercial  development  obligations in
connection with the product, based on sound clinical results.  ImClone is to pay
CRCT  licensing  fees,   milestone  fees  and  royalties  on  the  sale  of  the
commercialized  product.  The license can be terminated by CRCT if ImClone fails
to carry out its obligation to develop and commercialize the product.

     In July 1996, the Company,  CRCT and the  University of Nottingham  entered
into a research  agreement  pursuant  to which the  Company  agreed to support a
one-year  renewable  research  program  at the  University  of  Nottingham,  the
objective of which is to elucidate the mechanism of action of 105AD7 in order to
interpret the results of the clinical  trial and to guide  ImClone's  commercial
development of 105AD7.

     Memorial  Sloan-Kettering Cancer Center. In March 1990, the Company entered
into an agreement  with  Sloan-Kettering  to support  research in several areas,
including the study of potential  cancer  vaccine  products  BEC-2 and gp75. The
Company has an  exclusive  license to the  results of the  research in the areas
covered by the agreement. The BEC-2 antibody has been tested since 1991 in Phase
I clinical trials at Sloan-Kettering against certain forms of cancer,  including
small cell lung carcinoma and melanoma.

                                       5
<PAGE>

     The Company also has  agreements  with certain  institutions  by which such
institutions  serve as sites for certain of the Company's  clinical trials.  For
example,  for its C225 trials, the Company has entered into such agreements with
Yale  Cancer  Center,  Sloan-Kettering,  and  the  University  of  Virginia,  MD
Anderson Cancer Center and the University of Alabama.

CORPORATE COLLABORATIONS

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

     Merck KGaA (Darmstadt, Germany)

     The Company  entered  into a research and license  agreement  with Merck in
December  1990,  which was  extended  and  modified  in May 1996.  The  original
agreement  provided  Merck  the  exclusive  license  to  manufacture,  sell  and
distribute  in Europe,  Australia and New Zealand,  if developed,  the Company's
BEC-2  product,  and its  recombinant  gp75 antigen,  for all  indications.  The
modified  agreement  expands  Merck's  rights  to the  world,  except  for North
America.

     The Company reserves the right in the agreement to sell and distribute such
products in North America.  The modified  agreement also requires the Company to
give Merck the opportunity to seek to acquire North American distribution rights
for the  licensed  products if the  Company  intends to grant such rights to any
third  party.  Each party is  responsible  for  conducting  clinical  trials and
obtaining  regulatory  approvals in order to market the licensed products in the
territory under which such party has marketing rights under the agreement. Merck
will  also  share  in the  development  costs  for the  United  States,  Europe,
Australia  and New  Zealand  and will  pay all  development  costs in all  other
territories.

     The  modified  agreement  requires  Merck  to  make  research  support  and
milestone  payments to ImClone  based on  milestones  achieved  in the  licensed
products'  development,  and to make royalty payments to ImClone on all sales of
the licensed products, if any, with a portion of the earlier funding received by
the Company under the agreement being creditable against the amount of royalties
due to the Company.  Such  research  support and  milestone  payments  under the
modified agreement may total up to $11.7 million.  ImClone will owe no royalties
to Merck on any sales by  ImClone  of the  licensed  products  in North  America
unless Merck significantly  enhances the product, in which case compensation may
be  negotiated.  The modified  agreement  also provides that it is the intent of
ImClone and Merck that ImClone be the  manufacturer  for the product  worldwide.
The  agreement  terminates  upon the later of the last to expire of any  patents
issued and covered by the technology or fifteen years from the date of the first
commercial  sale, after which such license shall survive without further royalty
payment and is irrevocable.  The agreement may be terminated  earlier by ImClone
in the event Merck fails to pursue in a timely  fashion  regulatory  approval or
sale of a  licensed  product in a country in which it has the right to do so. It
also may be terminated earlier by Merck if milestones are not achieved.

     In the year ended December 31, 1996, the Company  recorded no revenue under
the Merck agreement.


                                       6
<PAGE>

     Abbott Laboratories

     The Company  entered into a research and license  agreement  with Abbott in
December  1992,  which  provides  Abbott  an  exclusive   worldwide  license  to
manufacture  and  distribute  diagnostic  products  arising  out of  certain  of
ImClone's research in diagnostics, including but not limited to ImClone's Repair
Chain Reaction and p53  technologies  for cancer  detection and prognosis.  This
agreement requires Abbott to exercise its best reasonable efforts to develop and
commercialize  products  incorporating  the Repair  Chain  Reaction  technology,
failing which it can lose its exclusive  license to this technology.  Abbott has
the right on 30 days  notice to  ImClone  to  terminate  a product  license in a
particular country.  In mid-1995,  Abbott launched in Europe its first DNA-based
test,  using  the  Company's  technology,  for  the  diagnosis  of the  sexually
transmitted disease chlamydia.  Abbott has advised the Company that it has added
tests for  gonorrhea  and  mycobacteria,  and has launched  sales in the U.S. as
well.  Under the  agreement  Abbott has paid ImClone  up-front fees and research
support,  and is obligated in the future to pay milestone  fees and royalties on
sales.  The  agreement  terminates  upon the  later of the last to expire of any
patents issued  covered by the technology or, if no patents are granted,  twenty
years,  subject to  certain  earlier  termination  provisions  contained  in the
agreement.

     In December 1996, the Company and Abbott modified this agreement to provide
for an exclusive  sublicensing  agreement with Chiron for the Company's patented
DNA  signal  amplification  technology,  AMPLIPROBE.  Under  the  terms  of  the
agreement  all sales of Chiron  branched  DNA  diagnostic  probe  technology  in
countries  covered by Company  patents will be subject to a royalty to Abbott to
be passed through to the Company.

     In the year ended December 31, 1996, the Company recorded revenue under the
Abbott agreement in the amount of $225,000.

     American Home Products

     In  December  1987,  the Company  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 Common Stock of the Company.
During the three-year research period of the agreement,  which period expired in
December 1990, the Company developed two vaccine candidates,  the first of which
was for N. gonorrhea based on recombinant proteins,  and the second of which was
for Herpes Simplex Virus based on recombinant glycoproteins B and D.

     In September  1993,  the Company and Cyanamid,  through its  Lederle-Praxis
Biologicals division,  entered into a research collaboration  agreement which by
its  terms  supersedes  the  earlier   agreement  as  to  N.  gonorrhea  vaccine
candidates, but not as to Herpes Simplex Virus vaccine candidates. The successor
to Cyanamid,  American Home, has the responsibility  under this agreement to pay
research  support to the  Company,  as well as milestone  fees and  royalties on
sales of any N. gonorrhea vaccine that might arise from the collaboration.

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



                                       7
<PAGE>

     In the year ended  December  31,  1996,  the Company  recorded  revenues of
$300,000 under the American Home agreements.

Immunex Corporation

     In December  1996,  the Company  entered  into  technology  cross-licensing
agreements with Immunex relating to FLK-2/FLT-3  ligand and its receptor.  FLT-3
ligand is a hematopoietic growth factor. Under the terms of the agreements,  the
Company has granted to Immunex an  exclusive  worldwide  license to the receptor
for use in the manufacture of the ligand. In return, the Company will receive an
initial  payment  and a royalty  based on the sales of the ligand by Immunex and
its sub-licensees.  In addition, Immunex has granted the Company a non-exclusive
license in the United States and Canada to use its patented  FLK-2/FLT-3 ligand,
manufactured  by  Immunex,  for ex-vivo  stem cell  expansion  together  with an
exclusive license to distribute the ligand with its own proprietary products for
ex-vivo  expansion.  Immunex  has  agreed to seek to obtain  the  consent of its
parent  company,  American  Home,  to expand the  territory  of this  license to
include the world outside North  America.  Immunex will also supply  FLK-2/FLT-3
ligand to ImClone.  The Company has been  advised that Immunex has begun Phase I
studies with FLK-2/FLT-3  ligand for stem cell mobilization in vivo.  Subject to
earlier  termination  provisions contained in the agreements,  ImClone's 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,  1996,  the  Company  recorded  $75,000 as
license fee revenue from Immunex under this agreement.

Cadus Pharmaceutical Corporation

     In  January  1992,  the  Company  participated  in the  founding  of  Cadus
Pharmaceutical  Corporation ("Cadus") with scientists from Princeton University.
Prior to founding Cadus,  ImClone had funded research at Princeton University in
the field of yeast-based drug screening systems. The Company also had identified
at  Princeton  research  related to  chemical  compounds  shown to block  signal
transduction events within cells. The Company determined that these technologies
were   sufficiently   significant  and  distinct  from  its  own   protein-based
technologies to merit the founding of a separate company.

     The Company  supported the initial  growth and  development  of Cadus,  and
until  December  1994 owned  approximately  28% of Cadus'  common and  preferred
stock. In December 1994, an agreement was reached for the Company to sell 50% of
its total Cadus stock to High River Limited Partnership ("High River") for total
consideration of $3,000,000. Following this transaction the Company's investment
in Cadus was accounted for under the cost method, as the Company's investment in
Cadus had fallen  below 20%. At  December  31,  1994 and  December  31, 1993 the
Company had approximately a 14% and 28% investment in Cadus,  respectively.  The
gain in 1994  on sale of the  Cadus  shares  is  recorded  in the  Statement  of
Operations  as other  income  for the year ended  December  31,  1994.  The cash
consideration was received by the Company on January 4, 1995.

     In April 1995, the Company completed the sale of the remaining  one-half of
its shares of capital stock of Cadus for  $3,000,000 to High River.  The Company
had a right to repurchase  all such  remaining  shares of Cadus anytime prior to
October 27, 1996 for $5.25 per share which it did not exercise.  In exchange for
such right,  the Company granted to High River two options to purchase shares of
the Company's common stock, $.001 par value (the "Common Stock").  One option is
to purchase 150,000 shares at a price of $2.00 per share,  subject to adjustment
under certain circumstances,  and the other option is to purchase 300,000 shares
at  a  price  of  $0.69 per


                                       8
<PAGE>

share,  subject to adjustment under certain  circumstances.  Both options became
exercisable on April 27, 1995 and will expire on April 26, 2000.

CLINICAL MANUFACTURING

     For the Company to support its ongoing  research  and  development  it must
maintain,  supply and staff a facility to support the preparation,  analysis and
distribution of clinical supplies to various study centers. Toward that end, the
Company has  operations  in  Branchburg,  New Jersey that include  laboratories,
storage areas,  mechanical systems and qualified staff for the production of and
analysis of parenteral materials according to the appropriate Federal, state and
local regulations. At this facility the Company is currently producing C225, the
EGFr antibody to supply its clinical trials.

     In addition,  ImClone has established relationships with qualified contract
vendors  to  perform  specialized  testing  and  manufacturing   operations  not
performed  by  ImClone.  The  Company has in the past and expects to continue to
establish defined  development and  manufacturing  arrangements with third party
qualified  contract  vendors to perform bulk and final product  development  and
production to support ImClone clinical program needs.

     The materials that are used to manufacture the Company's  products  include
qualified  cell lines  developed  by the Company  and  specially  qualified  raw
materials and components  which the Company can obtain from a number of sources.
ImClone maintains necessary Quality Control and Quality Assurance  oversights of
all materials used in the manufacture of the Company's clinical supplies.

PATENTS AND TRADE SECRETS

     The Company seeks patent  protection  for its  proprietary  technology  and
products,  both 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.

     The  Company  currently  is  exclusive  licensee  or  assignee of 42 issued
patents  world-wide,  24 of which are issued United States patents.  The Company
has the exclusive right to develop  certain  anti-EGF  receptor  antibodies with
potential  anti-tumor  activity  under  a  United  States  patent  owned  by the
University of California.  Nine of the Company's U.S.  patents are licensed from
Princeton  University.  Six of the  Princeton  patents  relate to  hematopoietic
receptor  genes  and the  proteins  they  encode,  such as the  tyrosine  kinase
receptors  FLK-1 and FLK-2.  The other three  Princeton  patents relate to a DNA
signal amplification system and p53 detection systems.

     To date, the Company is the assignee or exclusive licensee of approximately
35  families  of United  States  and  foreign  patent  applications.  The patent
applications  relate  to a  number  of  technologies  including  the use of EGFr
antibodies with chemotherapeutic agents;  anti-idiotypic antibodies for treating
cancer, such as BEC-2 and 105AD7;  antibodies to receptor tyrosine kinases, such
as FLK-1 and FLK-2; methods for amplifying and detecting DNA, such as the Repair
Chain Reaction; and hematopoietic factors.

     With respect to C225, the Company's EGFr cancer  inhibiting  antibody,  the
Company is the  exclusive  licensee of an issued  patent from the  University of
California  covering certain  monoclonal  antibodies that inhibit epidermal cell
growth. The Company is also the exclusive licensee from 


                                       9
<PAGE>

Rhone-Poulenc  Rorer  of a  family  of  patent  applications  seeking  to  cover
antibodies to EGFr used in conjunction with certain chemotherapeutic agents. The
EGFr  antibodies  being  developed  by the Company are  "chimerized"  monoclonal
antibodies.   Chimerized   monoclonal  antibodies  are  the  subject  of  patent
applications and patents held by third parties.

     ImClone  also has pending  patent  applications  covering  the chimeric and
humanized  form  of  the  antibody  and  fragments  thereof,   in  synergy  with
anti-neoplastic  agents,  such  as  doxorubicin  and  cysplatin.   Additionally,
humanized forms of the antibody and antibody fragments,  are claimed, as well as
methods of inhibiting human tumors with C225 alone.

     With  respect  to cancer  vaccine  candidate  105AD7,  the  Company  is the
exclusive  licensee  from  CRCT of a  family  of  patent  applications  claiming
anti-idiotypic monoclonal antibodies, including 105AD7.

     The Company's  proprietary  position with respect to its  anti-tumor  BEC-2
monoclonal  anti-idiotypic  antibody is based on a patent  application  filed by
Sloan-Kettering  and exclusively  licensed to the Company.  The Company is aware
that patents  have been issued in the United  States and Europe to a third party
covering anti-idiotypic antibodies and/or their use in the treatment of tumors.

     With respect to the Company's  research on inhibitors to angiogenesis based
on the FLK-1  receptor,  the  Company is the  exclusive  licensee of a family of
patents and patent  applications  covering  the FLK-1  receptor  and  antibodies
thereto, and is also the assignee from Company scientists of patent applications
covering antibodies to the FLK-1 receptor that inhibit angiogenesis.

     A patent has been granted by the United States Patent and Trademark  Office
for the Company's IL-6 molecular variant, IL-6m. A U.S. Patent has been received
from the U.S. Patent and Trademark Office for a patent application  covering the
DNA that encodes IL-6m.  The patent and patent  applications are co-owned by the
Company and the  University  of North  Carolina.  The  Company is the  exclusive
licensee of the university's rights to such patent and patent  application.  The
Company is aware of  patents  issued to a third  party in the United  States and
Europe covering cysteine depleted proteins. In addition, the Company is aware of
a third-party  patent for recombinant  IL-6 and methods for its production.  The
Company is aware of a European Patent for the DNA encoding for human recombinant
IL-6 and methods for its production,  which has been exclusively  licensed.  The
Company is aware of third-party  patents for native recombinant IL-6 and methods
for its  production.  The  Company  is aware of a  European  patent  for the DNA
encoding for human  recombinant  IL-6 and methods for its production,  which has
been exclusively licensed on a worldwide basis to a pharmaceutical  company. The
Company has entered into a Settlement Agreement with the pharmaceutical  company
whereby the pharmaceutical  company has agreed to not enforce its patent against
the  Company  based  on  the  Company's  use  of  its  IL-6m  patent  or  patent
applications.

     The Company is also aware of U.S.  patents  that cover  various  aspects of
IL-6. The U.S.  patents are licensed to the same  pharmaceutical  company as the
European patent  mentioned  above.  They may be construed to cover the Company's
IL-6m.

     The  Company's   diagnostics  program  has  been  licensed  for  commercial
development to Abbott.  The program includes target  amplification and detection
methods,  such as Repair Chain Reaction,  signal amplification  methods, such as
AMPLIPROBE,  and p53 mutation  detection for assisting in cancer diagnosis.  The
Company's  proprietary position with respect to its diagnostics program is based
on numerous  families of patents and patent  applications,  of which  ImClone is
either the assignee or exclusive licensee.  The Company has been notified of the
European Patent  Office's intent to issue a patent to the Company's  licensor to
the Repair Chain Reaction target amplification technology. The Company currently
is  exclusive  licensee of an issued  patent


                                       10
<PAGE>

assigned to Princeton  University  related to the underlying  technology for its
AMPLIPROBE DNA  amplification  and detection  system.  The Company is aware that
patent  applications  have been filed by, and that  patents have been issued to,
third  parties  in  the  fields  of  signal  amplification  technology  and  PCR
technology  for DNA assays.  Patent  applications  have also been filed by third
parties for p53 gene mutations.

     With  respect to  certain  aspects  of its  technology,  such as 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 ImClone, the Company currently relies on, and intends to continue
to rely on,  trade  secrets,  unpatented  proprietary  know-how  and  continuing
technological  innovation to protect its competitive  position.  There can be no
assurance that others will not independently  develop  substantially  equivalent
proprietary information or techniques.

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

GOVERNMENT REGULATION

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

     The process of  obtaining  requisite  FDA approval  has  historically  been
costly and time  consuming.  Current FDA  requirements  before a new human drug,
biological  product  or new  diagnostic  product  (a  medical  device  for which
efficacy  must be proven) may be marketed in the United  States  include (i) the
successful   conclusion  of   pre-clinical   laboratory  and  animal  tests,  if
appropriate,  to gain  preliminary  information  on the product's  safety,  (ii)
filing with the FDA of an IND  (Investigational New Drug) application to conduct
human clinical trials for drugs or biologics, (iii) the successful completion of
adequate and  well-controlled  human  clinical  investigations  to establish the
safety and  efficacy of the product for its  recommended  use,  (iv) filing by a
company  and  approval by the FDA of a New Drug  Application  ("NDA") for a drug
product or a Product License Application  ("PLA") for a biological product,  and
(v) filing by a company  and  approval  by the FDA of an  Establishment  License
Application  ("ELA") or  amendment,  if the facility is  FDA-licensed,  to allow
commercial  manufacturing  of the drug or  biologic.  An  establishment  license
cannot be issued  unless a company's  manufacturing  procedures  and  facilities
comply with strict FDA standards and a PLA has been filed.  The FDA is currently
modifying  regulations  that  would  consolidate  the PLA and the ELA  into  one
application for defined biological products,  the Biological License Application
("BLA").  Other  modifications  that would  affect this  industry are also under
consideration.

                                       11
<PAGE>

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

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

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

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

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

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

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

                                       12
<PAGE>

COMPETITION

     Competition  in  the  biopharmaceutical   industry  is  intense  and  based
significantly  on scientific and  technological  factors,  the  availability  of
patent  and other  protection  for  technology  and  products,  the  ability  to
commercialize  technological developments and the ability to obtain governmental
approval for testing,  manufacturing  and marketing.  The Company  competes 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, and
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 the
Company in recruiting and retaining  highly qualified  scientific  personnel and
consultants.  The Company's 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 the Company.

     The Company is aware of certain 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.  Various
companies are developing  biopharmaceutical  products that potentially  directly
compete with the Company's  product  candidates,  including in areas such as the
use of small molecules to EGFr or antibodies to those receptors to treat cancer,
the use of anti-idiotypic  antibody or recombinant  antigen approaches to cancer
vaccine therapy,  the development of inhibitors to angiogenesis,  and the use of
hematopoietic growth factors to treat blood system disorders to or for stem cell
or gene therapy.  Some of these  product  candidates  are in advanced  stages of
clinical trials.

     The  Company's  products  under  development  and in  clinical  trials  are
expected  to address  major  markets  within the cancer  sector.  The  Company's
competition  will be determined in part by the potential  indications  for which
the Company's  compounds are  developed  and  ultimately  approved by regulatory
authorities.  Additionally,  the  timing of market  introduction  of some of the
Company's  potential  products or of  competitor's  products may be an important
competitive factor.  Accordingly,  the relative speed with which the Company 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.  The Company  expects  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

     ImClone  initiated  its in-house  research  and  development  in 1986.  The
Company has assembled a scientific staff with a variety of complementary  skills
in  a  broad  base  of  advanced  research  technologies,   including  oncology,
immunology,  cell biology and protein and synthetic  chemistry.  The Company has
also  recruited a staff of  technical  and  professional  employees to carry out
manufacturing  of  clinical  trial  materials  at  its  Branchburg,  New  Jersey
manufacturing  facility.  Of the  Company's 93 full-time  personnel on March 14,
1997, 38 were employed in its product  development,  clinical and  manufacturing
programs, 29 in research and 26 in administration.  The Company's staff includes
15 persons with Ph.D.s and 2 with M.D.s.

                                       13
<PAGE>

Item 2. Properties.

RESEARCH FACILITY--NEW YORK, NEW YORK

     The Company  currently  occupies two contiguous leased floors at 180 Varick
Street in New York City,  in which it is using  approximately  30,000 of a total
available  40,000 square feet on the two floors.  The Company's  leases on these
premises extend into 1999.

     The  acquisition,  construction  and installation of the Company's New York
research and development  facilities were financed  principally through the sale
of Industrial  Development  Revenue Bonds issued by the New York City Industrial
Development Agency. These facilities secure the payment of debt service on these
outstanding Industrial Development Revenue Bonds.

MANUFACTURING FACILITY--BRANCHBURG, NEW JERSEY

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

     Currently  the  facility  is being  operated  to  develop  and  manufacture
materials for the Company's clinical trials.  Under certain  circumstances,  the
Company also intends to use the facility  for the  manufacturing  of  commercial
products.  The timing and any  additional  costs of adapting  the  facility  for
commercial  manufacturing  depend on several factors,  including the progress of
products through clinical trials.

Item 3.  Legal proceedings.

     There is no material legal proceeding pending against the Company or any of
its property,  nor was any such proceeding  terminated during the fourth quarter
of the year ended December 31, 1996.

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

     None.


                                       14
<PAGE>

                                     PART II

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

     The  Company's  Common Stock is traded in the  over-the-counter  market and
prices are  reported  on the NASDAQ  National  Market  tier of The NASDAQ  Stock
Market under the symbol "IMCL".

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

                                                        High            Low
                                                        ----            ---
  Year ended December 31, 1996
     First Quarter..................................  $  9 3/8        $  6
     Second Quarter.................................  $ 17 3/8        $  7 1/4
     Third Quarter..................................  $  9 7/8        $  5 3/4
     Fourth Quarter.................................  $ 11            $  6 7/8
     


                                                        High             Low
                                                        ----             ---
  Year ended December 31, 1995
     First Quarter..................................  $  1 1/8         $ 5/16
     Second Quarter.............................      $  2 3/8         $ 3/8
     Third Quarter.................................   $  4 7/16        $ 1 11/16
     Fourth Quarter...................................$  9 1/16        $ 2 15/16


     As of the close of  business on March 14,  1997,  there were 207 holders of
record of the  Company's  Common  Stock.  The Company  estimates  that there are
approximately 4,700 beneficial owners of its Common Stock.

     The Company has never  declared cash  dividends on its Common Stock and has
no present intention of declaring such cash dividends in the foreseeable future.


                                       15
<PAGE>

Item 6. Selected Financial Data.

<TABLE>
<CAPTION>
                                                                                                               
                                                                                                               
                                                                   Year Ended December 31,                     
                                                -------------------------------------------------------------  
(In thousands, except per share data)             1996         1995         1994         1993         1992     
                                                ---------    ---------    ---------    ---------    ---------  
<S>                                             <C>          <C>          <C>          <C>          <C>        
Statements of Operations Data:                                                                                 
Operating revenues .........................    $     600    $     800    $     950    $   5,403    $   2,142  
Operating expenses:                                                                                            
   Research and development ................    $  11,482    $   8,768    $  11,816    $  13,876    $   9,948  
   General and administrative ..............    $   3,961    $   3,739    $   3,348    $   4,375    $   4,659  
Interest and other income ..................    $    (918)   $  (3,120)   $  (3,186)   $    (573)   $  (1,169) 
Interest and other expense .................    $     823    $   1,054    $     821    $     587    $     321  
Equity in loss of affiliate ................    $    --      $    --      $     342    $   1,140    $     526  
                                                ---------    ---------    ---------    ---------    ---------  
Loss before extraordinary item .............    $ (14,748)   $  (9,641)   $ (12,191)   $ (14,002)   $ (12,143) 
Extraordinary loss on extinguishment of debt    $   1,267    $    --      $    --      $    --      $    --    
                                                ---------    ---------    ---------    ---------    ---------  
Net loss ...................................    $ (16,015)   $  (9,641)   $ (12,191)   $ (14,002)   $ (12,143) 
                                                =========    =========    =========    =========    =========  
                                                                                                               
Net loss per common share:                                                                                     
Loss before extraordinary item .............    $   (0.76)   $   (0.72)   $   (1.12)   $   (1.58)   $   (1.58) 
Extraordinary loss on extinguishment of debt    $    0.07    $    --      $    --      $    --      $    --    
                                                ---------    ---------    ---------    ---------    ---------  
Net loss per common share ..................    $   (0.83)   $   (0.72)   $   (1.12)   $   (1.58)   $   (1.58) 
                                                =========    =========    =========    =========    =========  
Weighted average shares outstanding ........       19,371       13,311       10,903        8,879        7,700  
</TABLE>                                            

<TABLE>
<CAPTION>
                                                                         December 31,
                                                --------------------------------------------------------------
(In thousands)                                    1996         1995         1994         1993         1992
                                                ---------    ---------    ---------    ---------    --------- 
<S>                                             <C>          <C>          <C>          <C>          <C>      
Balance Sheet Data:
Cash and securities (1) .....................   $  13,514    $  10,207    $   3,032    $   7,301    $  13,331
Working capital .............................   $   7,695    $   3,735    $  (1,470)   $   1,215    $  11,988
Total assets ................................   $  25,885    $  22,803    $  17,467    $  24,208    $  24,591
Long-term obligations .......................   $   2,775    $   4,235    $   4,487    $   3,636    $   4,601
Accumulated deficit .........................   $(101,973)   $ (85,958)   $ (76,317)   $ (64,126)   $ (50,124)
Stockholders' equity ........................   $  16,589    $  11,823    $   8,176    $  14,812    $  18,646

</TABLE>

(1)  Includes $532 and $821 as of December 31, 1993 and December 31, 1992,
     respectively, which was restricted for use only for construction and
     equipping the Company's New York City facility under the terms of certain
     industrial development bonds. As of the year ended December 31, 1996
     none of the cash of the Company was so restricted.


                                       16
<PAGE>

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

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

Overview and Risk Factors

     The  Company  is a  biopharmaceutical  company  engaged  primarily  in  the
research and  development of therapeutic  products for the treatment of selected
cancers and  cancer-related  disorders.  The products under development  include
cancer therapeutics and cancer vaccines.  Since its inception in April 1984, the
Company has devoted  substantially  all of its efforts and resources to research
and  development  conducted  on its own behalf and through  collaborations  with
corporate partners and academic research and clinical institutions.  The Company
has generated a cumulative net loss of approximately $101,973,000 for the period
from  its  inception  to  December  31,  1996.  The  Company  expects  to  incur
significant additional operating losses over each of the next several years. The
major  sources of the  Company's  working  capital have been the proceeds of its
initial public  offering in November 1991, a second public offering in May 1993,
overseas  offerings  in 1994,  the sale of its Cadus stock  holdings in December
1994 and April 1995,  the debt and equity  transaction  with the Oracle Group in
August 1995,  public  offerings  completed in November  1995,  February 1996 and
March 1997, private equity financings, license fees and research and development
fees from  corporate  partners,  and income  earned on the  investment  of these
funds.  See  "Liquidity  and Capital  Resources".  Since its  inception  through
December 31, 1996,  the Company also has  incurred  indebtedness  of  $6,313,000
($2,000,000  of which was repaid  March 31, 1992) under  Industrial  Development
Revenue  Bonds,  the  proceeds  of which  have  been  used for the  acquisition,
construction and installation of the Company's research and development facility
in New York City.  The Company also has a remaining  obligation  to Pharmacia at
December 31, 1996 in the amount of $1.9 million.  See Note 6(a) to the Financial
Statements.

     Substantially  all of the  Company's  products  are in the early  stages of
development,  clinical  studies or  research.  Substantially  all the  Company's
revenues were  generated from license and research  arrangements  with corporate
sponsors.  The Company's revenues under its research and license agreements with
corporate  sponsors have fluctuated and are expected to fluctuate  significantly
from period to period.  Similarly,  the  Company's  results of  operations  have
fluctuated  and are expected to fluctuate  significantly  from period to period.
These  variations  have been,  and are  expected to be,  based  primarily on the
timing of entering into supported research and license agreements, the status of
the Company's various  products,  the timing and level of revenues from sales by
its  partner  in  diagnostics,   Abbott,   of  products  bearing  the  Company's
technology, the addition or termination of research programs or funding support,
performance  by the  Company's  corporate  collaborators  of their  funding  and
marketing    obligations,    the   achievement   of   specified    research   or
commercialization milestones and variations in the level of expenditures for the
Company's  proprietary  products during any given period. The Company's products
will  require  substantial  additional  development  and  clinical  testing  and
investment prior to  commercialization.  To achieve profitable  operations,  the
Company,  alone or with others, must successfully develop,  introduce and market
its  products.  No  assurance  can be given  that any of the  Company's  product
development  efforts will be successfully  completed,  that required  regulatory
approvals  can  be  obtained  or  that  any  products,  if  developed,  will  be
successfully manufactured or marketed or achieve customer acceptance.

                                       17
<PAGE>

Results of Operations

Years Ended December 31, 1996 and December 31, 1995

     Revenues  for the years ended  December 31, 1996 and December 31, 1995 were
$600,000 and $800,000,  respectively.  Revenues for both years included $300,000
from the Company's corporate partnership with the Wyeth/Lederle Vaccine division
of American Home in infectious disease vaccines.  In addition,  revenues for the
years ended  December 31, 1996 and December  31, 1995  included  royalty fees of
$225,000  and  contract  research  fees  of  $500,000,  respectively,  from  the
Company's strategic alliance with Abbott in diagnostics. Finally, the year ended
December  31,  1996  included   $75,000  in  license  fees  from  the  Company's
cross-licensing agreement with Immunex for novel hematopoietic growth factors.

     Total operating expenses for the years ended December 31, 1996 and December
31,  1995  were   $15,443,000  and  $12,507,000,   respectively.   Research  and
development expenses for the years ended December 31, 1996 and December 31, 1995
were $11,482,000 and $8,768,000,  respectively. Such amounts for the years ended
December 31, 1996 and December 31, 1995  represented 74% and 70%,  respectively,
of total operating expenses. The $2,714,000 increase in research and development
expenses is primarily  attributable  to costs  incurred for C225,  the Company's
lead  therapeutic  product  candidate.  This  includes  additional  staffing and
expenditures in the functional areas of product  development,  manufacturing and
clinical and  regulatory  affairs to support the  manufacture  of C225 for human
clinical trials and travel-related expenses to pursue strategic partnerships for
C225 (and other product  candidates).  The remaining increase reflects growth in
the area of discovery research for future product candidates.

     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 the Company's technology and products. Such expenses for the year
ended  December 31, 1996 were  $3,961,000  compared to  $3,739,000  for the year
ended December 31, 1995. The $222,000  increase  primarily  reflects  additional
staffing  to  support  the  expanding   research,   clinical,   development  and
manufacturing  efforts of the Company,  particularly  with its lead  therapeutic
product candidate, C225. The Company expects general and administrative expenses
to  increase  in future  years to support  planned  increases  in  research  and
development.

     Interest and other income was $918,000 for the year ended December 31, 1996
as compared to $3,120,000 for the year ended December 31, 1995. Other income for
the year ended December 31, 1995 included the sale of the remaining  one-half of
its  shares  of  capital  stock of  Cadus  for  $3,000,000  to High  River.  See
"Liquidity and Capital Resources". The greater interest income earned during the
year ended December 31, 1996 reflects the Company's  improved cash position from
the November  1995 and February 1996 public sales of shares of its Common Stock.
See "Liquidity and Capital  Resources".  Interest and other expense was $823,000
and  $1,054,000  for the years ended  December  31, 1996 and  December 31, 1995,
respectively.  Such expense for both years  primarily  includes  interest on two
outstanding  Industrial  Development  Revenue Bonds with an aggregate  principal
amount of  $4,313,000,  interest  recorded on the liability to Pharmacia for the
reacquisition of the worldwide  rights to IL-6m and the contract  manufacture of
clinical  material,  and interest  accrued and the  amortization of the non-cash
debt discount  recorded in connection  with the Company's  August 1995 financing
with the Oracle Group. See "Liquidity and Capital  Resources" and Notes 6(a) and
6(b) to the Financial Statements.

                                       18
<PAGE>

     The  Company  had net  losses  of  $16,015,000  or  $0.83  per  share,  and
$9,641,000  or $0.72  per  share,  for the years  ended  December  31,  1996 and
December 31, 1995,  respectively.  The net loss for the year ended  December 31,
1996  included  a  $1,267,000  or $0.07  per share  extraordinary  loss on early
extinguishment  of debt through the May issuance of Common Stock in lieu of cash
repayment  of a $2,500,000  loan due the Oracle  Group and a $180,000  long-term
note owed to a Company Director. See "Liquidity and Capital Resources".

Years Ended December 31, 1995 and December 31, 1994

     Revenues  for the years ended  December 31, 1995 and December 31, 1994 were
$800,000 and $950,000,  respectively.  Revenues for the years ended December 31,
1995 and December 31, 1994  consisted of $300,000 from the  Company's  corporate
partnership with American Home in vaccines. In addition,  revenues for the years
ended December 31, 1995 and December 31, 1994 included contract research fees of
$500,000 and $400,000,  respectively, from the Company's strategic alliance with
Abbott in  diagnostics.  Finally,  license fees of $250,000 were recognized from
the Abbott alliance during the year ended December 31, 1994.

     Total operating expenses for the years ended December 31, 1995 and December
31,  1994  were   $12,507,000  and  $15,164,000,   respectively.   Research  and
development expenses for the years ended December 31, 1995 and December 31, 1994
were $8,768,000 and $11,816,000,  respectively. Such amounts for the years ended
December 31, 1995 and December 31, 1994  represented 70% and 78%,  respectively,
of total operating expenses.  The decrease in research and development  expenses
is  attributable  to the reduction in selected  personnel,  laboratory and third
party costs. Also, the Company incurred a one-time charge of $800,000 during the
year ended  December 31, 1994 for the  contract  manufacture  of IL-6m  clinical
material from Pharmacia.

     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 the Company's technology and products. Such expenses for the year
ended  December 31, 1995 were  $3,739,000  compared to  $3,348,000  for the year
ended December 31, 1994.  The increase is related  primarily to fees incurred in
connection  with the April 1995 Cadus stock sale, a loan  agreement  and related
financing  with the  Oracle  Group  completed  in August  1995,  a  contemplated
product-related  financing of C225 which the Company did not continue to pursue,
and transfer of the Company's patent representation to outside counsel.

     Interest and other income was  $3,120,000  for the year ended  December 31,
1995 as compared to $3,186,000 for the year ended  December 31, 1994.  Each year
included a gain from the sale of 50% of the Company's common and preferred Cadus
stock to an  unrelated  party for  $3,000,000.  Interest  and other  expense was
$1,054,000  and $821,000 for the years ended  December 31, 1995 and December 31,
1994,  respectively.  Such expense for both years primarily  reflect interest on
two outstanding Industrial Development Revenue Bonds with an aggregate principal
amount of  $4,313,000.  In addition,  interest and other  expense also  included
interest  recorded on the  liability to Pharmacia for the  reacquisition  of the
worldwide rights to IL-6m and the contract  manufacture of clinical material for
the Company's  trials of IL-6m.  See "Liquidity and Capital  Resources" and Note
6(a) to the  Financial  Statements.  Interest for the period ended  December 31,
1995 also includes accrued interest and the amortization of discounted  interest
incurred in connection with the August 1995 financing with the Oracle Group. See
Note 6(b) to the Financial Statements.

                                       19
<PAGE>

     The equity in the loss of affiliate of $342,000 for the year ended December
31, 1994 was  attributable to the Company's share in the losses of Cadus,  which
was  accounted for under the equity  method  during the year.  During 1994,  the
Company owned 28% of the common and preferred  stock of Cadus.  The terms of its
sale of 50% of its holdings in Cadus to High River for $3,000,000 were finalized
in December 1994; the cash  consideration was received by the Company on January
4, 1995.  On April 27, 1995,  sale of the  Company's  remaining  Cadus stock was
completed for $3,000,000 to High River.  See  "Liquidity and Capital  Resources"
and Note 2(e) to the Financial Statements.

     The  Company  had  net  losses  of  $9,641,000  or  $0.72  per  share,  and
$12,191,000  or $1.12 per  share,  for the years  ended  December  31,  1995 and
December 31, 1994,  respectively,  due to the factors discussed above. The lower
loss per share for the year ended  December 31, 1995 was primarily  attributable
to a lower net loss and an increase in the number of outstanding shares.

Liquidity and Capital Resources

     At December  31,  1996,  the Company  had a cash and cash  equivalents  and
securities available for sale balance of approximately $13.5 million,  virtually
all of  which  represents  the  remaining  balance  of the  proceeds  of  public
offerings of 3,000,000  shares of Common  Stock in November  1995 and  2,200,000
shares of Common Stock in February  1996.  Such balances  totaled  approximately
$32.6  million on March 14, 1997 which  reflects the proceeds  received from the
Company's public offering of 3,000,000 shares of Common Stock in March 1997.

     The Company has financed its operations  primarily  through the proceeds of
an initial public offering in November 1991,  which raised  approximately  $31.7
million,  net of expenses,  supported  research funding and license  agreements,
interest income, the issuance of industrial  development bonds and the following
described  additional  financings.  In May 1993, the Company  completed a second
public Common Stock offering which raised  approximately  $10.4 million,  net of
expenses. In 1994, the Company completed several private offerings of its Common
Stock,  including  offerings pursuant to regulations under the Securities Act of
1933,  as amended  (the "1993  Act").  The 1933 Act places  restrictions  on the
resale in the United States of shares  issued in a Regulation S offering.  These
various private offerings raised an aggregate of approximately $5.7 million.

     In December  1994 the Company  completed the sale of one-half of its shares
of capital stock of Cadus to High River for $3.0 million. During April 1995, the
Company  completed the sale of the  remaining  one-half of its shares of capital
stock of Cadus for $3.0 million, also to High River. In exchange for receiving a
now-expired  right to repurchase all the outstanding  shares of capital stock of
Cadus,  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.

     In August 1995, the Oracle Group purchased 1,000,000 shares of Common Stock
for a  purchase  price of $1.5  million  and made a loan to the  Company  in the
aggregate  amount of $2.5  million  with a  two-year  maturity,  but  subject to
mandatory  prepayment,  in whole or in part,  upon  the  occurrence  of  certain
events,  including the raising of certain  additional funds. The loan carried an
annual  interest rate of 8%. The Oracle Group includes  Oracle  Partners,  L.P.,
Quasar  International  Partners C.V.,  Oracle  Institutional  Partners L.P., Sam
Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants
exercisable at any time until 


                                       20
<PAGE>

August 10, 2000  entitling  the holders  thereof to purchase  500,000  shares of
Common Stock at a price of $1.50 per share and 500,000 shares of Common Stock at
a price of $3.00 per share. As a result of the Company's  offerings of shares of
its Common  Stock in  November  1995 and  February  1996,  the Oracle  Group was
entitled to require the Company to apply 20 percent of the gross proceeds of the
sale of the shares of Common Stock from the offerings to repay the loan.

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

     In November 1995, the Company  completed a public sale of 3,000,000  shares
of Common Stock at a per share price to the public of $3.75. Net proceeds to the
Company from this sale  totaled  approximately  $10.6  million  after  deducting
expenses  payable  by the  Company  in  connection  with  the  offering  and the
commission paid by the Company.

     In February 1996, the Company  completed a public sale of 2,200,000  shares
of Common Stock at a per share price to the public of $6.63. Net proceeds to the
Company from this sale  totaled  approximately  $13.6  million  after  deducting
expenses  payable  by the  Company  in  connection  with  the  offering  and the
commission paid by the Company.

     In May  1996,  the  Company  and  the  Oracle  Group  exchanged  the  notes
evidencing the 1995 loan in the aggregate  outstanding  principal amount of $2.5
million for 333,333  shares of Common Stock and the Company paid the accrued and
unpaid  interest  on the notes in the amount of  $143,000  in cash.  The Company
recorded an extraordinary  loss of $1,228,000 on the extinguishment of the debt.
The Company has  registered  such shares of Common Stock with the Securities and
Exchange  Commission  (the  "Commission")  under  a  registration  statement  in
accordance with the provisions of the 1933 Act.

     In May 1996,  the Company  extended  its  collaboration  with Merck for the
development of a therapeutic  cancer vaccine,  BEC-2, for use in small-cell lung
carcinoma and in malignant melanoma. The collaboration  continues a research and
license  agreement  between the two companies signed in December 1990. Under the
terms of the modified agreement,  the Company may receive up to $11.7 million in
license  fees,  research  and  development  support  and  milestone  payments in
addition to the monies  previously  received  under the original  agreement.  In
return,  Merck  will  receive  marketing  rights  to BEC-2  for all  therapeutic
indications outside North America.  Formerly,  the rights of Merck were confined
to Europe,  Australia and New Zealand.  Merck will also share in the development
costs for the United  States and  Europe and will pay all  development  costs in
other territories.  The Company will be entitled to royalties based upon product
sales outside North America.

     In June 1996,  the  Company  and the New York City  Industrial  Development
Agency (the  "NYIDA")  extended  the  maturity  of the  Company's  $2.1  million
repayment  obligation to the NYIDA for the 1986 Industrial  Revenue Bond,  which
was due on June 15, 1996, to December 15, 1997.


                                       21
<PAGE>

     In December  1996,  the Company  entered into a technology  cross-licensing
agreement with Immunex  relating to FLT-3/FLK-2  ligand and its receptor.  FLT-3
ligand is a hematopoietic growth factor.  Under the terms of the agreement,  the
Company  has  exclusively  licensed  the  receptor  to  Immunex  for  use in the
manufacture  of the  ligand.  In return,  the  Company  will  receive an initial
payment of  $150,000  and a royalty  based on the sales of the ligand by Immunex
and its sub-licensees.  Of the initial $150,000 payment, $75,000 was recorded as
license fee revenue for the year ended  December 31, 1996. In addition,  Immunex
has granted the Company a non-exclusive  license in the United States and Canada
to use its patented  FLT-3/FLK-2  ligand,  manufactured by Immunex,  for ex-vivo
stem cell expansion  together with an exclusive license to distribute the ligand
with its own proprietary  products for ex-vivo expansion.  Immunex has agreed to
seek to obtain the consent of its parent  company,  American Home, to expand the
territory of this license to include the world outside North America.

     In December  1996, the Company and Abbott  modified  their 1992  diagnostic
strategic  alliance  to provide for an  exclusive  sublicensing  agreement  with
Chiron  Diagnostics  for  the  Company's   patented  DNA  signal   amplification
technology,  AMPLIPROBE.  Under the terms of the agreement,  all sales of Chiron
branched DNA diagnostic probe technology in countries covered by Company patents
will be subject to a royalty to Abbott to be passed through to the Company.  The
initial  royalty payment of  approximately  $225,000,  which covered  AMPLIPROBE
sales from January 1992 through  September  1996, was included under the revenue
caption "research and development  funding from third parties and other" for the
year ended December 31, 1996. The Company  received the initial  royalty payment
from Abbott in late January 1997.

     In December  1996,  the Company  signed an agreement with Finova to finance
the lease of laboratory and computer-related equipment and make certain building
and leasehold improvements to existing facilities involving payments aggregating
approximately $2,500,000.  The first of multiple intended leases has been signed
at a cost of $421,000. Each lease has a fair market value purchase option at the
expiration of a 42-month term. Pursuant to the agreement,  the Company issued to
Finova a warrant expiring  December 31, 1999 to purchase 23,220 shares of Common
Stock at an exercise  price of $9.69 per share.  The Company has  registered the
resale of such shares of Common Stock underlying the warrant with the Commission
under a  registration  statement in accordance  with the  provisions of the 1933
Act. See Notes 6(a), 10 and 11 to the Financial Statements.

     In March 1997, the Company  completed a public sale of 3,000,000  shares of
Common  Stock at a per share price to the public of $7.875.  Net proceeds to the
Company  from the sale  totaled  approximately  $23.2  million  after  deducting
expenses  payable  by the  Company  in  connection  with  the  offering  and the
commission paid by the Company.

     The  Company  has  expended  and will  continue  to  expend  in the  future
substantial  funds to continue  the research and  development  of its  products,
conduct   pre-clinical  and  clinical  trials,   establish   clinical-scale  and
commercial-scale  manufacturing  in its own  facilities or in the  facilities of
others,  and  market  its  products.   In  addition,   $2.1  and  $2.2  million,
respectively,  in Industrial  Development  Revenue Bonds issued on behalf of the
Company in 1986 and 1990 become due in December 1997 and May 2004, respectively.
See Note 5 to the Financial Statements.

     In July  1993,  the  Company  entered  into a  termination  agreement  with
Erbamont, Inc., now a subsidiary of Pharmacia and UpJohn, Inc. ("Pharmacia"), to
acquire the worldwide  rights to IL-6m,  a blood cell growth  factor,  which had
been licensed to Pharmacia pursuant to a development and licensing agreement. In
consideration  of the return of rights and the transfer of certain  material and
information,  the Company has paid $1.4 million and has further  obligations  to
Pharmacia.  Such  obligations,  including  those to pay for IL-6 mutein material
manufactured 


                                       22
<PAGE>

and supplied by Pharmacia,  totaled $2.4 million at March 31, 1996. In addition,
the Company is required to pay  Pharmacia  $2.7 million in royalties on eventual
sales of IL-6m,  if any. In March,  1996,  the Company  entered into a Repayment
Agreement with Pharmacia (the "Repayment Agreement") pursuant to which it agreed
to pay the $2.4 million over 24 months  commencing in March 1996,  with interest
only payable  during the first six months.  At December  31, 1996 the  remaining
obligation to Pharmacia  totaled $1.9 million.  In connection with the Repayment
Agreement,  the Company  signed a Confession of Judgment,  which can be filed by
Pharmacia  with an  appropriate  court in the case of  default  by the  Company.
Pursuant  to a Security  Agreement  entered  into with  Pharmacia,  the  Company
pledged its  interests in patents  related to IL-6m and to  heparanase to secure
its obligations under the Repayment Agreement.

     The Company's future working capital and capital  requirements  will depend
upon numerous  factors,  including  the progress of the  Company's  research and
development  programs,  pre-clinical  testing and clinical trials, the Company's
corporate partners  fulfilling their obligations to the Company,  the timing and
cost of seeking  regulatory  approvals,  the level of resources that the Company
devotes to the development of manufacturing,  marketing and sales  capabilities,
technological advances, the status of competitors and the ability of the Company
to maintain  existing and establish new  collaborative  arrangements  with other
companies to provide funding to the Company to support these activities.

     The Company's budgeted cash expenditures for the twelve month period ending
December 31, 1997 total  approximately  $20.5  million.  Included in this budget
figure are $1.7 million of the  remaining  $1.9 million  obligation to Pharmacia
and the $2.1 million  Industrial  Revenue  Development  Bond debt payable to the
NYIDA in December  1997.  In  addition,  the budget  reflects  the  expansion of
operations to include  numerous new outside  research  agreements,  the proposed
hire of several  new  employees  during  1997 and  related  costs to support the
expansion of the  Company's  research and  development  programs,  including the
expanded clinical trials.  The Company's assumed budget for 1998 (which does not
take into account any extraordinary  expenditures) is $17.0 million. The Company
expects that its capital  resources,  including the ongoing  research support of
its  corporate  partners  will be  sufficient  to fund  its  operations  through
approximately  December  1998.  However,  the receipt of certain of such ongoing
research  support is subject to attaining  research and development  milestones,
certain  of which  have not yet been  achieved.  These  milestones  include  the
successful  completion of a pilot manufacturing run relating to the BEC-2 cancer
vaccine  and the  nonoccurrence  of third  party  opposition  filings  against a
currently  allowed  patent of the  Company  in  Europe  relating  to the  Abbott
strategic  alliance.  There can be no  assurance  that the Company  will achieve
these  milestones,  if at all. If difficulty is encountered  in attaining  these
milestones,  the Company may postpone the budgeted  expansion of  operations  to
allow for funding of its operations beyond 1998.  Accordingly,  in order to fund
its capital  needs after 1998,  the Company will require  significant  levels of
additional capital and intends to raise the necessary capital through additional
equity or debt financings,  arrangements  with corporate  partners or from other
sources.

     The Company has entered into  preliminary  discussions  with several  major
pharmaceutical  companies regarding various alternatives  concerning the funding
of research and  development  for certain of its  products.  No assurance can be
given that the Company will be successful in pursuing any such alternatives.  In
addition, the Company may seek to enter into a significant strategic partnership
with a pharmaceutical company for the development of its lead product candidate,
C225. Such a strategic  alliance could include an up-front equity investment and
license fees plus milestone fees and revenue sharing.  There can be no assurance
that the Company will be successful in achieving  such an alliance,  nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.

                                       23
<PAGE>

     The Company has granted a security  interest in substantially  all facility
equipment located in its New York City facility to secure the obligations of the
Company to the NYIDA relating to the 1986  Industrial  Development  Revenue Bond
and the 1990 Industrial Development Revenue Bond, which were issued to finance a
portion of the cost of this facility.

     The Company has outfitted and purchased equipment for a certain property to
create a  clinical-scale  production  facility  that  complies with current Good
Manufacturing  Practices regulations.  To be successful,  the Company's products
must be  manufactured  in commercial  quantities in compliance  with  regulatory
requirements  and at  acceptable  costs.  Although  the  Company  has  developed
products in the laboratory and in some cases has produced sufficient  quantities
of materials for  pre-clinical  animal trials and early stage  clinical  trials,
production in late stage clinical or commercial  quantities may create technical
challenges for the Company. If it commercializes its products, the Company plans
to adapt this facility for use as its commercial-scale  manufacturing  facility.
However, the Company has limited experience in clinical-scale  manufacturing and
no experience in commercial-scale  manufacturing,  and no assurance can be given
that the Company will be able to make the  transition to late stage  clinical or
commercial  production.  The timing and any  additional  costs of  adapting  the
facility for commercial manufacturing will depend on several factors,  including
the progress of products through clinical trials, and are not yet determinable.

     Total  capital  expenditures  made during the year ended  December 31, 1996
were  $693,000.  Of the total  capital  expenditures  made during the year ended
December 31, 1996,  $421,000 has been reimbursed in accordance with the terms of
the Finova  agreement  mentioned  above  which  provides  for  improvements  and
equipping of the Company's  manufacturing facility in New Jersey. The balance of
capital additions was for equipment and computer-related  purchases for both the
New Jersey  facility and the corporate  office and research  laboratories in New
York.

     At December 31, 1996, the Company had net operating loss  carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000  through  2011.  At December  31, 1996 the Company had  research
credit  carryforwards of approximately  $1,883,000 which expire at various dates
between the years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended,  the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year  period.  The Company
believes  that one or more of such  ownership  changes may have  occurred  since
1986.  Therefore,  the Company may be significantly limited in utilizing its tax
net operating loss  carryforwards  arising  before such  ownership  change(s) to
offset future taxable income.  Similarly, the Company may be restricted in using
its research  credit  carryforwards  arising before such ownership  change(s) to
offset future federal income tax expense.

Recently Issued Accounting Standards

     In June 1996, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards ("SFAS") No. 125,  Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities.  SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of  liabilities  occurring  after  December  31,  1996  and  is  to  be  applied
prospectively.  This Statement provides  accounting and reporting  standards for
transfers and servicing of financial assets and  extinguishments  of liabilities
based on consistent application of a financial-components  approach that focuses
on control. It  distinguishes  


                                       24
<PAGE>

transfers of  financial  assets that are sales from  transfers  that are secured
borrowings.  Management of the Company does not expect that adoption of SFAS No.
125 will have a near-term material impact on the Company's  financial  position,
results of operations, or liquidity.

Item 8. Financial Statements and Supplementary Data.

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

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

     Not Applicable.

                                    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 the Company's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on June 3, 1997.

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

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

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

Exhibit No.                        Description

3.1A           Certificate of Incorporation, and all amendments thereto

3.2A           By-Laws of the Company

4.1A           Form of Warrant  issued to the  Company's  officers and directors
               under Warrant Agreements

4.2A           Stock Purchase  Agreement  between Erbamont Inc. and the Company,
               dated May 1, 1989

4.3A           Stock  Purchase   Agreement  between  American  Cyanamid  Company
               (Cyanamid) and the Company dated December 18, 1987

4.4A           Form of  Subscription  Agreement  entered into in connection with
               September 1991 private placement

4.5A           Form of Warrant issued in connection  with September 1991 private
               placement

                                       25
<PAGE>

10.1F          Company's 1986 Employee  Incentive  Stock Option Plan,  including
               form of Incentive Stock Option Agreement

10.2F          Company's 1986 Non-qualified Stock Option Plan, including form of
               Non-qualified Stock Option Agreement

10.3F          Company's 401(k) Plan

10.4B          Research  and  License  Agreement  between  Merck and the Company
               dated December 19, 1990

10.5B          Research,  License and  Manufacturing  Agreement between Cyanamid
               and the Company, made and effective as of July 31, 1989

10.6B          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

10.7B          Agreement  between  Cyanamid and the Company  dated  December 18,
               1987 and supplemental  letter agreement  between Cyanamid and the
               Company dated September 6, 1991

10.8B          Agreement   between   Hadasit   Medical   Research   Services   &
               Development, Ltd. and the Company

10.9B          Agreement   between   Hadasit   Medical   Research   Services   &
               Development, Ltd. and the Company dated September 21, 1989

10.10          A Supported Research  Agreement between Memorial  Sloan-Kettering
               Cancer Center (MSKCC) and the Company dated March 26, 1990

10.11B         License Agreement between MSKCC and the Company,  dated March 26,
               1990

10.12B         License Agreement between MSKCC and the Company,  dated March 26,
               1990

10.13B         License Agreement between MSKCC and the Company,  dated March 26,
               1990

10.14B         Research  Agreement between the Trustees of Princeton  University
               (Princeton) and the Company dated January 1, 1991

10.15B         Research Agreement between Princeton and the Company dated May 1,
               1991

10.16B         Research Agreement between Princeton and the Company dated May 1,
               1991

10.17B         License  Agreement  between Princeton and the Company dated March
               20, 1991

10.18B         License Agreement between Princeton and the Company dated May 29,
               1991

10.19B         License  Agreement  between  Princeton and Oncotech,  Inc.  dated
               September 3, 1987

10.20B         Supported  Research  Agreement  between The  University  of North
               Carolina at Chapel Hill (UNC) and the Company  effective  July 5,
               1988

10.21B         License Agreement between UNC and the Company dated July 5, 1988

10.22B         License Agreement between UNC and the Company dated July 27, 1988

                                       26
<PAGE>

10.23B         Supported   Research   Agreement  between  UNC  and  the  Company
               effective April 1, 1989

10.24B         License Agreement between UNC and the Company dated July 1, 1991

10.25B         Agreement  between Celltech Limited and the Company dated May 23,
               1991

10.26B         Research Agreement between New York University Medical Center and
               the Company dated April 1, 1989

10.27B         Consulting  Agreement  between  Thomas E.  Shenk and the  Company
               dated July 1, 1986

10.28B         Consulting  Agreement  between  Robert  Schneider and the Company
               dated July 1, 1986 and amendatory letter agreements dated May 23,
               1989 and May 16, 1990

10.29B         Consulting  Agreement  between  Robert  Schneider and the Company
               dated August 15, 1987

10.30A         Form of Non-disclosure and Discovery  Agreement between employees
               of the Company and the Company

10.31A         Industrial Development Bond Documents:

10.31.1A       Industrial   Development  Revenue  Bonds  (1985  ImClone  Systems
               Incorporated Project)

10.31.1.1A     Lease  Agreement,  dated as of October 1, 1985,  between  the New
               York City Industrial Development Agency (NYCIDA) and the Company,
               as Lessee

10.31.1.2A     Indenture of Trust,  dated as of October 1, 1985,  between NYCIDA
               and  United  States  Trust  Company  of New York (US  Trust),  as
               Trustee

10.31.1.3A     Company Sublease Agreement,  dated as of October 1, 1985, between
               the Company and NYCIDA

10.31.1.4A     Tax Regulatory Agreement,  dated October 9, 1985, from NYCIDA and
               the Company to US Trust, as Trustee

10.31.1.5A     Lessee Guaranty  Agreement,  dated as of October 1, 1985, between
               the Company and US Trust, as Trustee

10.31.1.6A     First  Supplemental  Indenture of Trust,  dated as of November 1,
               1985 from the NYCIDA to US Trust

10.31.1.7A     Third  Supplemental  Indenture of Trust,  dated as of October 12,
               1990 from NYCIDA to US Trust

10.31.2A       Industrial   Development  Revenue  Bonds  (1986  ImClone  Systems
               Incorporated Project)

10.31.2.1A     First  Amendment  to  Company  Sublease  Agreement,  dated  as of
               December 1, 1986, between the Company,  as Sublessor,  and NYCIDA
               as Sublessee

10.31.2.2A     First Amendment to Lease Agreement, dated as of December 1, 1986,
               between NYCIDA and the Company, as Lessee

10.31.2.3A     Second  Supplement  Indenture  of Trust,  dated as of December 1,
               1986 between NYCIDA and US Trust, as Trustee

                                       27
<PAGE>

10.31.2.4A     Tax Regulatory  Agreement,  dated December 31, 1986,  from NYCIDA
               and the Company to US Trust, as Trustee

10.31.2.5A     First  Amendment  to  Lessee  Guaranty  Agreement,  dated  as  of
               December 1, 1986, between the Company and US Trust, as Trustee

10.31.2.6A     Bond Purchase  Agreement,  dated as of December 31, 1986, between
               NYCIDA and New York Muni Fund, Inc., as Purchaser

10.31.2.7A     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

10.31.3A       Industrial   Development  Revenue  Bonds  (1990  ImClone  Systems
               Incorporated Project)

10.31.3.1A     Lease Agreement,  dated as of August 1, 1990,  between NYCIDA and
               the Company, as lessee

10.31.3.2A     Company Sublease  Agreement,  dated as of August 1, 1990, between
               the Company, as Sublessor, and NYCIDA

10.31.3.3A     Indenture of Trust,  dated as of August 1, 1990,  between  NYCIDA
               and US Trust, as Trustee

10.31.3.4A     Guaranty Agreement,  dated as of August 1, 1990, from the Company
               to US Trust, as Trustee

10.31.3.5A     Tax Regulatory Agreement,  dated August 1, 1990, from the Company
               and NYC.IDA to US Trust, as Trustee

10.31.3.6A     Agency Security  Agreement,  dated as of August 1, 1990, from the
               Company, as Debtor, and the NYCIDA to US Trust, as Trustee

10.31.3.7A     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

10.32A         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

10.33A         License  Agreement  between  The Board of  Trustees of the Leland
               Stanford Junior University and the Company effective May 1, 1991

10.34A         License Agreement between  Genentech,  Inc. and the Company dated
               December 28, 1989

10.35B         License  Agreement  between  David  Segev and the  Company  dated
               December 28, 1989

10.36B         License   Agreement   between   Gesellschaft    Biotechnologische
               Forschung GmbH and the Company dated September 12, 1989

10.37A         License Agreement between The Texas A&M University System and the
               Company dated March 31, 1988

10.38A         License   Agreement  between  The  University  of  Iowa  Research
               Foundation and the Company dated March 31, 1988

                                       28
<PAGE>

10.39A         Letter  Agreement  dated June 27,  1991  between  the Company and
               Miles Inc.

10.40C         Letter of Intent  between the  Company and Dr.  David Segev dated
               November 18, 1991

10.41C         Research  Agreement  between  the Company and the State of Oregon
               acting by and through the Oregon State Board of Higher  Education
               on Behalf of the Oregon Health Sciences University dated February
               26, 1992

10.42C         Agreement  between the Company and Celltech  Limited  dated March
               11, 1992

10.43C         Supported  Research  Agreement  between the Company and The Johns
               Hopkins University dated March 9, 1992

10.44C         Letter Agreement  between the Company and Fred Hutchinson  Cancer
               Research Center Foundation dated April 8, 1992

10.45D         Agreement  of Sale dated June 19,  1992  between  the Company and
               Korsch Tableting Inc.

10.46E         Research  and  License  Agreement,  having an  effective  date of
               December 15, 1992, between the Company and Abbott Laboratories

10.47E         Research  and  License  Agreement  between the Company and Chugai
               Pharmaceutical Co., Ltd. dated January 25, 1993

10.48G         License  Agreement  between  the  Company  and the Regents of the
               University of California dated April 9, 1993

10.49H         Contract  between  the  Company  and John  Brown,  a division  of
               Trafalgar House, dated January 19, 1993

10.50G         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.

10.51H         Termination Agreement between the Company and Erbamont Inc. dated
               July 21, 1993

10.52G         Research and License  Agreement  between the Company and Cyanamid
               dated September 15, 1993

10.53H         Clinical  Trials  Agreement  between the Company and the National
               Cancer Institute dated November 23, 1993

10.54G         License  Agreement  between the Company and UNC dated December 1,
               1993

10.55H         Notice of Termination for the research  collaboration between the
               Company and Chugai  Pharmaceutical  Co., Ltd.  dated December 17,
               1993

10.56I         License  Agreement  between the Company and  Rhone-Poulenc  Rorer
               dated June 13, 1994

10.57I         Offshore  Securities   Subscription   Agreement  between  ImClone
               Systems  Incorporated and GFL Ultra Fund Limited dated August 12,
               1994

10.58I         Offshore  Securities   Subscription   Agreement  between  ImClone
               Systems Incorporated and GFL Ultra Fund Limited dated November 4,
               1994 10.59I Offshore  Securities  Subscription  Agreement between
               ImClone  Systems   Incorporated  and  Anker  Bank  Zuerich  dated
               November 10, 1994

                                       29
<PAGE>

10.60J         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

10.61J         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

10.62J         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

10.63J         Stock  Purchase  Agreement,  dated as of August 10, 1995,  by and
               between  ImClone  Systems  Incorporated  and the  members  of the
               Oracle Group

10.64J         Form of Warrant issued to the members of the Oracle Group

10.65J         Loan  Agreement,  dated as of August  10,  1995,  by and  between
               ImClone Systems Incorporated and the members of the Oracle Group

10.66J         Security  Agreement,  dated as of August 10, 1995, by and between
               ImClone Systems Incorporated and the members of the Oracle Group

10.67J         Mortgage,   dated  August  10,  1995,  made  by  ImClone  Systems
               Incorporated for the benefit of Oracle Partners, L.P., as Agent

10.68K         Financial Advisory Agreement entered into between the Company and
               Genesis Merchant Group Securities dated November 2, 1995

10.69K         Repayment  Agreement (with  Confession of Judgment,  and Security
               Agreement)  entered into between the Company and Pharmacia,  Inc.
               on March 6, 1996

10.70K         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

10.71K         Amendment of September 1993 to the Research and License Agreement
               between the Company and Merck of April 1, 1990

10.72K         Amendment of October  1993 to the Research and License  Agreement
               between the Company and Merck of April 1, 1990

10.73L         Employment  agreement  dated May 17, 1996 between the Company and
               Carl S. Goldfischer

10.74L         Financial  Advisory Agreement dated February 26, 1997 between the
               Company and Hambrecht & Quist LLC

10.75L         Exchange  Agreement  exchanging debt for Common Stock dated as of
               April 15, 1996 among the Company and members of The Oracle Group.

                                       30
<PAGE>

21.1           Subsidiaries - None

23.1L          Consent of KPMG Peat Marwick LLP

(b)            Reports on Form 8-K

     On February  26,  1997,  the Company  filed with the  Commission  a Current
Report on Form 8-K dated  February  25,  1997  relating  to its filing  with the
Commission  of a  registration  statement  to  register  the public  offering of
3,000,000 shares of Common Stock (Item 5).

     On February  28,  1997,  the Company  filed with the  Commission  a Current
Report on Form 8-K dated  February 25, 1997  containing  the  Company's  audited
financial   statements  for  the  year  ended  December  31,  1996.   (Item  5).

----------
A    Previously  filed  with  the  Commission;   incorporated  by  reference  to
     Registration Statement on Form S-1, Registration No. 33-43064.

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

C    Previously  filed with the  Commission;  incorporated  by  reference to the
     Registration Statement on Form S-1, Registration 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,  filed March 30, 1993.  Confidential
     treatment was granted for a portion of this Exhibit.

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

G    Previously  filed with the  Commission;  incorporated  by  reference to the
     Company's  Annual Report on Form 10-K,  filed April 15, 1994.  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, filed April 15, 1994.

I    Previously  filed with the  Commission;  incorporated  by  reference to the
     Company's Annual Report on Form 10-K, filed April 14, 1995.

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

k    Previously  filed with the  Commission,  incorporated  by  reference to the
     Company's Annual Report on Form 10-K, filed March 28, 1997.

L    Filed herewith.

                                       31
<PAGE>

                                   SIGNATURES

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

                                   IMCLONE SYSTEMS INCORPORATED



        March 27, 1997             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 dated indicated.

                                                                     
        Signature                         Title                        Date
                                               
/s/ ROBERT F. GOLDHAMMER       Chairman of the Board and          March 27, 1997
---------------------------    Director
(Robert F. Goldhammer)
                                                                  March 27, 1997
/s/ SAMUEL D. WAKSAL           President, Chief Executive
---------------------------    Officer and Director
(Samuel D. Waksal)             (Principal Executive Officer)
                                                                  March 27, 1997
/s/ HARLAN W. WAKSAL           Executive Vice President,
---------------------------    Chief Operating Officer
(Harlan W. Waksal)             and Director
                                                                  March 27, 1997
/s/ CARL S. GOLDFISHCER        Vice President, Financial
---------------------------    and Strategic Planning
(Carl S. Goldfischer)          and Chief Financial Officer
                               (Principal Financial Officer)
                                                                  March 27, 1997
/s/ RICHARD BARTH              Director
---------------------------  
(Richard Barth)              
                                                                  March 27, 1997
/s/ JEAN CARVAIS               Director
---------------------------  
(Jean Carvais)               
                                                                  March 27, 1997
/s/ VINCENT T. DEVITA, JR.     Director
---------------------------  
(Vincent T. DeVita, Jr.)     
                                                                  March 27, 1997
/s/ DAVID M. KIES              Director
---------------------------  
(David M. Kies)              
                                                                  March 27, 1997
/s/ PAUL B. KOPPERL            Director
---------------------------  
(Paul B. Kopperl)            
                             
 /s/ WILLIAM R. MILLER                                            March 27, 1997
---------------------------    Director
(William R. Miller)        


                                       32
<PAGE>

                              FINANCIAL STATEMENTS

Index to Financial Statements

Financial Statements

Independent Auditors' Report.................................. ...........   F-2

Balance Sheets at December 31, 1996 and 1995..............................   F-3

Statements of Operations for the 
  Years Ended December 31, 1996, 1995, and 1994...........................   F-4

Statements of Stockholders' Equity for the 
  Years Ended December 31, 1996, 1995, and 1994...........................   F-5

Statements of Cash Flows for the 
  Years Ended December 31, 1996, 1995, and 1994...........................   F-6

Notes to Financial Statements.............................................   F-7



                                      F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
ImClone Systems Incorporated:

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

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of ImClone Systems Incorporated
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

     As  discussed  in Note 2(h) to the  financial  statements,  the Company has
adopted  Statement of Financial  Accounting  Standards No. 123,  Accounting  for
Stock-Based Compensation, in 1996.

     
                                           /s/ KMPG Peat Marwick LLP
                                           KPMG Peat Marwick LLP

New York, New York
February 18, 1997


                                      F-2
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                                 Balance Sheets
                        (in thousands, except share data)

                                                  December 31,     December 31,
                  Assets                            1996               1995
                                                  ------------    -------------
Current assets:
 Cash and cash equivalents .....................   $   2,734       $  10,207 
 Securities available for sale .................      10,780            --
 Prepaid expenses ..............................         122             115
 Amount due from officer and stockholder .......         101             132
 Other current assets ..........................         479              26
                                                   ---------       ---------
      Total current assets .....................      14,216          10,480
                                                   ---------       ---------
Property and equipment:                                            
  Land .........................................         340             340
  Building and building improvements ...........       8,969           8,969
  Leasehold improvements .......................       4,832           4,832
  Machinery and equipment ......................       5,159           4,796
  Furniture and fixtures .......................         536             526
  Construction in progress .....................         320            --
                                                   ---------       ---------
      Total cost ...............................      20,156          19,463
    Less accumulated depreciation                                  
        and amortization .......................      (9,606)         (7,984)
                                                   ---------       ---------
      Property and equipment, net ..............      10,550          11,479
                                                   ---------       ---------
Patent costs, net ..............................         977             707
Deferred financing costs, net ..................          65              74
Other assets ...................................          77              63
                                                   ---------       ---------
                                                   $  25,885       $  22,803
                                                   =========       =========
           Liabilities and Stockholders' Equity                    
                                                                   
Current liabilities:                                               
 Accounts payable ..............................   $   1,059       $     992
 Accrued expenses and other ....................       1,366             826
 Interest payable ..............................         238             343
 Current portion of long-term liabilities ......       3,858           4,584
                                                   ---------       ---------
      Total current liabilities ................       6,521           6,745
                                                   ---------       ---------
Long-term debt .................................       2,200           2,200
Long-term notes payable, net ...................        --             1,928
Other long-term liabilities,                                       
  less current portion..........................         575             107
                                                   ---------       ---------
      Total liabilities ........................       9,296          10,980
                                                   ---------       ---------
Commitments and contingencies                                      
Stockholders' equity :                                             
  Preferred stock, $1.00 par value;                                
    authorized 4,000,000 shares;                                   
    none issued and outstanding ................         --              --
  Common stock, $.001 par value;                                   
    authorized 30,000,000 shares;                                  
    issued 20,248,122 and 16,819,622                               
    at  December 31, 1996 and                                      
    December 31, 1995, respectively;                               
    outstanding 20,233,699 and                                     
    16,806,919 at December 31, 1996 and                            
    December 31, 1995, respectively ............          20              17
  Additional paid-in capital ...................     118,760          97,914
  Accumulated deficit ..........................    (101,973)        (85,958)
  Treasury stock, at cost; 14,423                                  
    and 12,703 shares at December 31, 1996                         
    and December 31, 1995, respectively ........        (169)           (150)
  Unrealized loss on securities                                    
    available for sale .........................         (49)           --
                                                   ---------       ---------
      Total stockholders' equity ...............      16,589          11,823
                                                   ---------       ---------
                                                   $  25,885       $  22,803
                                                   =========       =========    

                 See accompanying notes to financial statements.

                                       

                                      F-3
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                            Statements of Operations
                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                             Year Ended December 31,
                                                       ---------------------------------
                                                          1996         1995        1994
                                                       ---------    ---------   --------
<S>                                                     <C>         <C>         <C>     
Revenues:
     License fees from third parties ................   $     75    $   --      $    250
     Research and development funding from third
        parties and other ...........................        525         800         700
                                                        --------    --------    --------
                   Total revenues ...................        600         800         950
                                                        --------    --------    --------
Operating expenses:
     Research and development .......................     11,482       8,768      11,816
     General and administrative .....................      3,961       3,739       3,348
                                                        --------    --------    --------
                  Total operating expenses ..........     15,443      12,507      15,164
                                                        --------    --------    --------
Operating loss ......................................    (14,843)    (11,707)    (14,214)
                                                        --------    --------    --------
Other (income) expense:
     Interest and other income ......................       (918)     (3,120)     (3,186)
     Interest and other expense .....................        823       1,054         821
     Equity in loss of affiliate ....................       --          --           342
                                                        --------    --------    --------
                 Net interest and other income ......        (95)     (2,066)     (2,023)
                                                        --------    --------    --------
Loss before extraordinary item ......................    (14,748)     (9,641)    (12,191)
Extraordinary loss on extinguishment of debt.........      1,267        --          --
                                                        --------    --------    --------
Net loss ............................................   $(16,015)   $ (9,641)   $(12,191)
                                                        ========    ========    ========
Net loss per common share:
        Loss before extraordinary item ..............   $  (0.76)   $  (0.72)   $  (1.12)
        Extraordinary loss on extinguishment of debt.       0.07        --          --
                                                        --------    --------    --------
        Net loss per common share ...................   $  (0.83)   $  (0.72)   $  (1.12)
                                                        ========    ========    ========
Weighted average shares outstanding .................     19,371      13,311      10,903
                                                        ========    ========    ========
</TABLE>


                 See accompanying notes to financial statements

                                      F-4
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                       Statements of Stockholders' Equity
                  Years Ended December 31, 1994, 1995, and 1996
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                             
                                                                    Additional                                    
                                             Common Stock             Paid-in        Accumulated      Treasury     
                                       --------------------------
                                          Shares         Amount       Capital          Deficit         Stock       
                                       --------------   ---------  --------------  ----------------  -----------   
                                       
<S>                                        <C>          <C>        <C>             <C>               <C>           
Balance at December 31, 1993 .......       9,510,183    $     10   $      79,497   $       (64,126)  $     (150)   
                                       --------------   ---------  --------------  ----------------  -----------   
Issuance of common stock ...........       3,067,502           3           5,133                                   
Advances to officer and                
    stockholder ....................                                                                               
Amortization of deferred               
    compensation ...................                                                                               
Net loss ...........................                                                       (12,191)                
                                       --------------   ---------  --------------  ----------------  -----------   
Balance at December 31, 1994 .......      12,577,685    $     13   $      84,630   $       (76,317)  $     (150)   
                                       --------------   ---------  --------------  ----------------  -----------   
Issuance of common stock ...........       4,000,000           4          11,998                                   
Options exercised ..................         156,750                         162                                   
Warrants exercised .................          15,300                          23                                   
Payment of promissory notes ........          57,184                          36                                   
Proceeds from promissory notes .....                                           2                                   
Debt discount ......................                                       1,063                                   
Net loss ...........................                                                        (9,641)                
                                       --------------   ---------  --------------  ----------------  -----------   
Balance at December 31, 1995 .......      16,806,919    $     17   $      97,914   $       (85,958)  $     (150)   
                                       --------------   ---------  --------------  ----------------  -----------   
Issuance of common stock ...........       2,200,000           2          13,560                                   
Options exercised ..................         266,275                         846                                   
Warrants exercised .................         604,892           1           2,960                                   
Options granted to non-employees....                                          95
Extinguishment of debt .............         357,333                       3,260                                   
Debt discount ......................                                         125                                   
Treasury shares ....................          (1,720)                                                       (19)   
Changes in unrealized loss on          
    securities available for sale ...                                                                              
Net loss ............................                                                     (16,015)                
                                       --------------   ---------  --------------  ----------------  -----------   
Balance at December 31, 1996 ........     20,233,699    $     20   $     118,760  $      (101,973)  $     (169)   
                                       ==============   =========  ==============  ================  ===========   
                                  
<CAPTION>
                                                                              Unrealized                            
                                             Amount                             Loss on                      
                                             Due from                          Securities                    
                                           Officer and        Deferred        Available                      
                                           Stockholder      Compensation       for Sale           Total      
                                          --------------  -----------------  -------------   ----------------
                                                                                                             
<S>                                       <C>             <C>                <C>             <C>                                   
Balance at December 31, 1993 ........     $        (398)  $            (21)  $          -    $        14,812                       
                                          --------------  -----------------  -------------   ----------------
Issuance of common stock ............                                                                  5,136 
Advances to officer and                                                                                      
    stockholder .....................               398                                                  398 
Amortization of deferred                                                                                     
    compensation ....................                                   21                                21 
Net loss ............................                                                                (12,191)
                                          --------------  -----------------  -------------   ----------------
Balance at December 31, 1994 ........     $           -   $              -   $          -    $         8,176 
                                          --------------  -----------------  -------------   ----------------
Issuance of common stock ............                                                                 12,002 
Options exercised ...................                                                                    162 
Warrants exercised ..................                                                                     23 
Payment of promissory notes .........                                                                     36 
Proceeds from promissory notes ......                                                                      2 
Debt discount .......................                                                                  1,063 
Net loss ............................                                                                 (9,641)
                                          --------------  -----------------  -------------   ----------------
Balance at December 31, 1995 ........     $           -   $              -   $          -    $        11,823 
                                          --------------  -----------------  -------------   ----------------
Issuance of common stock ............                                                                 13,562 
Options exercised ...................                                                                    846 
Warrants exercised ..................                                                                  2,961 
Options granted to non-employees....                                                                      95
Extinguishment of debt ..............                                                                  3,260 
Debt discount .......................                                                                    125 
Treasury shares .....................                                                                    (19)
Changes in unrealized loss on                                                                         
    securities available for sale ...                                                 (49)               (49)
Net loss ............................                                                                (16,015)
                                          --------------  -----------------  -------------   ----------------
Balance at December 31, 1996 ........     $           -   $              -   $        (49)   $        16,589 
                                          ==============  =================  =============   ================
</TABLE>
                 See accompanying notes to financial statements



                                      F-5
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                            Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                 Year Ended December 31,
                                                           ----------------------------------
                                                               1996       1995       1994
                                                           -----------  ---------- ----------
<S>                                                        <C>         <C>         <C>      

 Net loss ..............................................   $(16,015)   $ (9,641)   $(12,191)
 Adjustments to reconcile net loss to net
      cash used in operating activities:
  Depreciation and amortization ........................      1,704       1,789       1,844
  Expense associated with issuance
      of options .......................................         95        --            21
  Equity in loss of affiliate ..........................       --          --           342
  Loss on sale of investments ..........................       --          --            23
  Fees associated with commercialization
     and license agreement rights ......................       --          --           117
  Extraordinary loss on early
     extinguishment of debt ............................      1,267
  Discounted interest amortization .....................        156         222        --
  Write-off of fixed assets ............................       --             2        --
  Write-off of patent costs ............................       --           126          29
  Changes in:
   Prepaid expenses ....................................         (7)        (37)         19
   Other current assets ................................       (453)         42          (4)
   Due from officer ....................................         31          24        (111)
   Other assets ........................................        (14)        115        (110)
   Interest payable ....................................       (105)        328          (1)
   Accounts payable ....................................         67        (624)        780
   Accrued expenses and other ..........................        540         421         434
                                                            --------    --------    --------
     Net cash used in operating activities .............    (12,734)     (7,233)     (8,808)
                                                           --------    --------    --------
Cash flows from investing activities:
  Acquisitions of property and equipment ...............       (693)        (36)       (434)
  Proceeds from sale of equipment ......................        421        --          --
  Purchases of securities available for sale ...........    (32,665)       --          --
  Sales of securities available for sale ...............     21,836        --         5,350
  Additions to patents .................................       (343)       (186)       (176)
  Investment in and advances to affiliate ..............       --          --           405
                                                           --------    --------    --------
     Net cash (used in) provided by investing activities    (11,444)       (222)      5,145
                                                           --------    --------    --------
Cash flows from financing activities:
  Issuance of common stock .............................     13,562      12,002       5,534
  Proceeds from exercise of stock options and warrants .      3,807         185        --
  Purchase of treasury stock ...........................        (19)       --          --
  Proceeds from long-term notes payable ................       --         2,680        --
  Proceeds from short-term notes payable ...............       --           100         220
  Repayment of short-term notes payable ................       --          (284)       --
  Repayment of long-term debt ..........................       --          --          (400)
  Payments of other liabilities ........................       (645)        (53)        (55)
                                                           --------    --------    --------
     Net cash provided by financing activities .........     16,705      14,630       5,299
                                                           --------    --------    --------
Net (decrease) increase in cash and cash equivalents ...     (7,473)      7,175       1,636
Cash and cash equivalents at beginning of period .......     10,207       3,032       1,396
                                                           --------    --------    --------
Cash and cash equivalents at end of period .............   $  2,734    $ 10,207    $  3,032
                                                           ========    ========    ========
</TABLE>

                 See accompanying notes to financial statements



                                      F-6
<PAGE>

ImClone Systems Incorporated
NOTES TO FINANCIAL STATEMENTS

(1)  Organization and Basis of Preparation

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

     The Company  expects  that its  capital  resources,  including  the ongoing
research  support of its  corporate  partners,  will be  sufficient  to fund its
operations through 1997. If, however, difficulty is encountered in attaining the
milestones  necessary for continued research support, the Company would postpone
the budgeted  expansion  of  operations  to allow for funding of its  operations
beyond 1997.  Accordingly,  in order to fund its capital  needs after that time,
the Company will require significant levels of additional capital and intends to
raise the  necessary  capital  through  additional  equity  or debt  financings,
arrangements  with  corporate  partners or from other  sources.  The Company has
entered into preliminary discussions with several major pharmaceutical companies
regarding   various   alternatives   concerning  the  funding  of  research  and
development  for certain of its  products.  No  assurance  can be given that the
Company will be successful in pursuing any such alternatives.  In addition,  the
Company  may seek to  enter  into a  significant  strategic  partnership  with a
pharmaceutical company for the development of its lead product candidate,  C225.
Such a strategic  alliance  could  include an  up-front  equity  investment  and
license fees plus milestone fees and revenue sharing.  There can be no assurance
that the Company will be successful in achieving  such an alliance,  nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.

     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 which are
being  developed by the Company or which 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.



                                      F-7
<PAGE>

(2)  Summary of Significant Accounting Policies

(a)  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.

(b)  Investments in Securities

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

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
Held-to-maturity  securities  are recorded at amortized  cost,  adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings.  Unrealized holding gains
and losses,  net of related tax effect,  on  available-for-sale  securities  are
excluded from earnings and are reported as a separate component of stockholders'
equity   until   realized.   Realized   gains  and  losses   from  the  sale  of
available-for-sale securities are determined on a specific identification basis.

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

     At December 31, 1996,  all  investments  in securities  were  classified as
available-for-sale.

(c) Property and Equipment

     Property and  equipment are stated at cost.  Depreciation  of furniture and
equipment 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 (including optional renewal periods (Note 10)) or the service
lives of the improvements, whichever is shorter.

(d) Patent Costs

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

(e) Deferred Financing Costs

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

                                      F-8
<PAGE>

(f)  Investment in and Advances to Affiliate

     Cadus Pharmaceutical Corporation ("Cadus") was incorporated in January 1992
to develop  novel  classes  of  therapeutics  that  target  signal  transduction
pathways.  The  Company  held a 50%  investment  in the  capital  stock of Cadus
through  November  1994.  In December  1994,  an  agreement  was reached for the
Company to sell  one-half of its shares of capital  stock of Cadus to High River
Limited Partnership ("High River") for total consideration of $3.0 million.  The
gain in 1994 on sale of the  Cadus  shares  was  recorded  in the  Statement  of
Operations  as other  income  for the year ended  December  31,  1994.  The cash
consideration was received by the Company on January 4, 1995.

     During April 1995, the Company completed the sale of the remaining one-half
of its shares of capital stock of Cadus for $3.0 million, also to High River. In
exchange for receiving a now-expired  right to  repurchase  all the  outstanding
shares of capital stock of Cadus,  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.

 (g) Revenue Recognition

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

     Research and  development  funding  revenue is derived  from  collaborative
agreements  with third parties and is recognized in accordance with the terms of
the respective  contracts.  Revenue from certain  agreements is recognized using
the  percentage of completion  method based on contract  costs  incurred to date
compared with total estimated contract costs.

     Revenue  recognized  in the  accompanying  statements  of operations is not
subject to repayment.  Revenue  received  that is related to future  performance
under such contracts is deferred and recognized as revenue when earned.

(h)  Stock Option Plan

     Prior to January 1, 1996,  the Company  accounted for its stock option plan
in accordance with the provisions of Accounting  Principles  Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,  and related  interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying  stock  exceeded the exercise  price.  On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, which permits
entities to recognize  as expense over the vesting  period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the  provisions  of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share  disclosures  for employee
stock  option  grants made in 1995 and future  years as if the  fair-value-based
method  defined in SFAS No. 123 had been  applied.  The  Company  has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.

(i)  Research and Development

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


                                      F-9
<PAGE>

(j)  Income Taxes

     Effective January 1, 1993 the Company adopted SFAS No. 109,  Accounting for
Income  Taxes.  SFAS No.  109  requires  a change  from the  deferred  method of
accounting for income taxes to the asset and liability  method of accounting for
income taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities  are recognized for the expected future tax  consequences
of events that have been recognized in the Company's financial statements or tax
returns.

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

(l)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company  adopted the  provisions  of SFAS No. 121,  Accounting  for the
Impairment of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996.  This  statement  requires that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets  exceeds  the fair value of the  assets.  Adoption  of this
Statement did not have a material  impact on the Company's  financial  position,
results of operations, or liquidity.

(m)  Net Loss Per Share

     Net loss per share is  computed  based on the  weighted  average  number of
shares outstanding. Common stock equivalents are not included in the computation
of average shares outstanding because they are anti-dilutive.

(n)  Reclassification

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


                                      F-10
<PAGE>

(3) Securities Available-For-Sale

     Securities available-for-sale of $10,780,000 at December 31, 1996 consisted
of  mortgage-backed  debt securities.  The amortized cost of such securities was
$10,829,000  and the net unrealized  holding losses were $49,000 at December 31,
1996. These securities  available-for-sale  have maturities ranging from 1997 to
1999.

(4) Accrued Expenses and Other

     The following items are included in accrued expenses and other:

                                               December 31,      December 31,
                                                  1996              1995
                                               ------------      ------------
Salaries and other
  payroll related expenses .................    $  782,000         $206,000
Legal and accounting fees ..................       217,000          145,000
Other ......................................       367,000          475,000
                                                ----------         --------
                                                $1,366,000         $826,000
                                                ==========         ========

(5) Long-term Debt

     Long-term debt is comprised of the following:

                                               December 31,         December 31,
                                                  1996                 1995
                                               ------------         ------------
10.75% Bond due 1997 .................         $ 2,113,000          $ 2,113,000
11.25% Bond due 2004 .................           2,200,000            2,200,000
Less current portion .................          (2,113,000)          (2,113,000)
                                               -----------          -----------
                                               $ 2,200,000          $ 2,200,000
                                               ===========          ===========

     On December 31, 1986, the New York City Industrial  Development Agency (the
"NYIDA")  issued an  Industrial  Development  Revenue  Bond (the "1986 Bond") on
behalf of the Company in the amount of  $2,113,000.  During  December  1994, the
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 proceeds from the sale of
this  Bond  were  used by the  Company  for the  acquisition,  construction  and
installation  of the  Company's  research and  development  facility in New York
City.

     In August 1990, the NYIDA issued  another  Industrial  Development  Revenue
Bond (the "1990 Bond") in the amount of $2,200,000. The Bond is due May 1, 2004.
The  proceeds  from  the  sale of the  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 substantially all equipment
located in its New York City facility to secure the  obligations  of the Company
to the NYIDA relating to the 1986 Bond and the 1990 Bond.


                                      F-11
<PAGE>

(6) Long-term Liabilities and Notes Payable

     (a) Other Long-term Liabilities

     Other long-term liabilities is comprised of the following:

                                                  December 31,    December 31,
                                                     1996            1995
                                                  ------------    ------------
Liability to reacquire IL-6m rights ............  $ 1,917,000     $ 2,400,000
Liability under capital lease  obligations .....      354,000         125,000
Liability under license agreement ..............       49,000          53,000
Less current portion ...........................   (1,745,000)     (2,471,000)
                                                  -----------     -----------
                                                  $   575,000     $   107,000
                                                  ===========     ===========

     In July 1993, the Company  entered into an agreement  with Erbamont,  Inc.,
now a subsidiary of Pharmacia  and Upjohn,  Inc.  ("Pharmacia"),  to acquire the
worldwide  rights to IL-6m, a blood cell growth factor,  which had been licensed
to Pharmacia pursuant to a development and licensing agreement. In consideration
of the return of rights and the transfer of certain  material  and  information,
the Company has paid $1.4 million and has further obligations to Pharmacia. Such
obligations,  including those to pay for IL-6 mutein material  manufactured  and
supplied by Pharmacia,  totaled $2.4 million at March 31, 1996. In addition, the
Company is required to pay Pharmacia $2.7 million in royalties on eventual sales
of IL-6m, if any. In March, 1996, the Company entered into a Repayment Agreement
with Pharmacia (the  "Repayment  Agreement")  pursuant to which it agreed to pay
the $2.4 million over 24 months  commencing  in March 1996,  with  interest only
payable  during  the  first six  months.  At  December  31,  1996 the  remaining
obligation to Pharmacia  totaled $1.9 million.  In connection with the Repayment
Agreement,  the Company  signed a Confession of Judgment,  which can be filed by
Pharmacia  with an  appropriate  court in the case of  default  by the  Company.
Pursuant  to a Security  Agreement  entered  into with  Pharmacia,  the  Company
pledged its  interests in patents  related to IL-6m and to  heparanase to secure
its obligations under the Repayment Agreement.

     During fiscal 1992, the Company  entered into a capital lease agreement for
laboratory  equipment  which was recorded as an asset in the amount of $262,000.
The lease extends over a five-year  period and has a bargain  purchase option at
the end of the lease term. At December 31, 1996, the accumulated depreciation on
this equipment totaled $180,000. See also Note 10.

     In December 1996,  the Company  signed an agreement with Finova  Technology
Finance, Inc. ("Finova") to finance the lease of laboratory and computer-related
equipment  and make certain  building  and  leasehold  improvements  to existing
facilities involving payments aggregating approximately $2,500,000. The first of
multiple  intended  leases was signed in December 1996 at a cost of $421,000 and
related to  equipment  previously  purchased by the Company  during  1996.  This
capital lease has been treated as a  sale-leaseback  transaction  and no gain or
loss was  recognized  on the sale.  Each lease has a fair market value  purchase
option at the expiration of a 42-month  term. At December 31, 1996,  accumulated
depreciation  on these assets totaled  $6,000.  Pursuant to the  agreement,  the
Company issued to Finova a warrant expiring December 31, 1999 to purchase 23,220
shares of Common  Stock at an  exercise  price of $9.69 per share.  The  Company
recorded a non-cash debt discount of  approximately  $125,000 in connection with
this financing,  which discount is being amortized over the 42-month term of the
first lease. See also Notes 10 and 11.

     In  connection  with the  Company's  production  and eventual  marketing of
certain  products,  the Company entered into a license  agreement which 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>

           (b) Long-term Notes Payable, net

         Long-term notes payable is comprised of the following:

                                                 December 31,    December 31,
                                                     1996           1995
                                                 ------------    ------------
Liability for director
  promissory note, including interest ........   $     --        $   186,000
Liability for long-term loan,
  including interest .........................         --          2,583,000
Less loan discount ...........................         --           (841,000)
                                                 ----------      -----------
                                                 $     --        $ 1,928,000
                                                 ==========      ===========

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

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

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


                                      F-13
<PAGE>

(7)  Research Agreements

     The Company has entered into several  research and  development  agreements
with third parties. Generally, the agreements provide for the Company to receive
research and development funding, milestone payments, royalties, or license fees
or a combination  thereof.  In return, the Company has granted licenses to these
third  parties to market or  manufacture  and market  certain of its products in
specified fields of use and in specified geographic areas.

     Revenues  for the years ended  December 31,  1996,  December 31, 1995,  and
December 31, 1994 were $600,000,  $800,000, and $950,000 respectively.  Revenues
for each year  consisted of $300,000  from its  corporate  partnership  with the
Wyeth-Lederle Vaccine Division of American Home Products Corporation  ("American
Home") in infectious disease vaccines. In addition,  revenues for the year ended
December 31, 1996 included royalty fees of $225,000 from the Company's strategic
alliance with Abbott  Laboratories  ("Abbott") in diagnostics.  Revenues for the
years ended December 31, 1995, and December 31, 1994 included  contract research
fees of $500,000 and $400,000,  respectively, also from the Abbott alliance. The
year ended  December  31, 1996 also  included  $75,000 in license  fees from the
Company's  cross-licensing  agreement with Immunex  Corporation  ("Immunex") for
novel  hematopoietic  growth  factors.  Finally,  license fees of $250,000  were
recognized from the Abbott alliance during the year ended December 31, 1994.

     Revenues for all three years were derived from United States sources.

(8)  Capital Stock

     (a) Stock Option Plans:

     In February 1986, the Company  adopted an Incentive Stock Option Plan and a
Nonqualified  Stock  Option Plan (the "86 Plans").  On February  25,  1996,  the
Company adopted an additional  Stock Option Plan and  Nonqualified  Stock Option
Plan (the "96 Plans") which were approved by  shareholders at its Annual Meeting
held June 3, 1996.  Combined,  the 86 and 96 Plans  provide for the  granting of
options to purchase up to 3,000,000  shares of Common Stock to key employees and
advisors.  Incentive  stock  options may not be granted at a price less than the
fair market value of the stock at the date of grant.  Options  under both the 86
and 96 Plans expire ten years from the date of grant.  Certain  options  granted
under these plans vest over three- to five-year  periods.  At December 31, 1996,
options  to  purchase  2,103,577  shares of Common  Stock were  outstanding  and
525,625 shares were available for grant.

     A summary of stock option activity follows:

                                                               Weighted average
                                                   Number of     exercise price 
                                                    shares          per share
                                                   ----------      ----------
Balance at December 31, 1993 ................         969,321        $8.75
1994 activity
     Granted ................................         254,500         3.94
     Exercised ..............................            --
     Canceled ...............................        (331,742)       10.21
                                                   ----------        
Balance at December 31, 1994 ................         892,079         6.83
1995 activity
     Granted ................................         752,000         1.91
     Exercised ..............................        (156,750)        1.04
     Canceled ...............................        (120,375)        1.45
                                                   ----------        
Balance at December 31, 1995 ................       1,366,954         2.34
1996 activity
     Granted ................................       1,077,875         9.85
     Exercised ..............................        (266,275)        3.18
     Canceled ...............................         (74,977)        2.58
                                                   ----------        
Balance at December 31, 1996 ................       2,103,577         6.08
                                                   ----------        

                                      F-14
<PAGE>

     In June 1996, the Company granted options to purchase 116,000 shares of its
Common Stock to certain  Scientific  Advisory Board members in consideration for
future  services.  The fair  value of the grant was  approximately  $756,000  as
calculated using the Black-Scholes option pricing model. Compensation expense is
being recognized  ratably over the four year vesting period of the options.  See
Note 8(c) for weighted average  assumptions used. During the year ended December
31, 1996, the Company recognized  approximately  $95,000 in compensation expense
relating to the above grants.

     During April 1995, the Company completed the sale of the remaining one-half
of its  shares of capital  stock of Cadus for $3.0  million  to High  River.  In
exchange for receiving a now-expired  right to  repurchase  all the  outstanding
shares of capital stock of Cadus,  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.

     On February 2, 1995,  exercise  prices for certain  granted and outstanding
Incentive and Nonqualified Stock Options with original exercise prices in excess
of $1.25 per share were offered to be repriced to $1.25 per share,  by vote of a
Special  Subcommittee of the  Compensation  Committee of the Board of Directors.
Benefit of repricing  was  confined to  individuals  who  continued to serve the
Company as employees or  consultants,  and 645,000  options  were  repriced.  In
connection with the offer of repricing,  the vesting  schedule of those choosing
to accept  repriced  options was  extended to June 30, 1995 for options  already
vested or to vest  prior to June 30,  1995.  The  closing  trading  price of the
Company's common stock on February 2, 1995 was $0.69.

(b)  Warrants

     As of December 31, 1996, a total of 3,275,645  common  shares were issuable
under outstanding warrants.  Such warrants have been issued to certain officers,
directors and other employees of the Company,  certain Scientific Advisory Board
members,  certain  investors and certain credit providers and investors.  

     A summary of warrant activity follows:
                                                                 Weighted
                                              Number of      Average Exercise
                                               Shares         Price Per Share
                                              ---------      ----------------
Balance at December 31, 1993 ........         2,983,970          $ 9.47
1994 Activity                                 
     Granted ........................            24,600            0.69
     Exercised ......................              --               --
     Cancelled ......................          (536,003)           6.61
                                              ---------        
Balance at December 31, 1994 ........         2,472,567           10.01
                                              
1995 Activity                                 
     Granted ........................         1,434,300            3.03
     Exercised ......................           (15,300)           1.50
     Cancelled ......................              --               --
                                              ---------        
Balance at December 31, 1995 ........         3,891,567            3.15
                                             
1996 Activity                                
     Granted .......................             23,220            9.69
     Exercised .....................           (604,892)           4.89
     Cancelled .....................            (34,250)          12.92 
                                              ---------        
Balance at December 31, 1996 .......          3,275,645            2.41     
                                              =========
                                       
     During  September  1996,  the Company  repriced  certain  warrants  held by
investors to purchase  80,700  shares of Common Stock in order to promote  their
exercise  prior to pending  expiration.  The warrants were repriced to an amount
which was ten percent less than the average  closing  price for the Common Stock
for the thirty  days  leading up to and  including  the day prior to the date of
exercise.  The fair  market  value of the  warrant  was  reflected  as a cost of
capital.

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

     In December 1995, the Company  granted its President a ten-year  warrant to
purchase  350,000  common  shares at an exercise  price  determined by the $5.50
trading  price of the stock on the date of grant.  The grant of the  warrant was
approved by shareholders at its Annual Meeting held June 3, 1996.

     On February 2, 1995  exercise  prices for certain  granted and  outstanding
warrants  were  offered to be  repriced  to $1.50 per share.  The benefit of the
repricing  was  confined to  individuals  who  continued to serve the Company as
employees or consultants, and 2,048,217 warrants were repriced. In consideration
for the offer of repricing,  those choosing to accept the repriced  warrants are
to pay the  Company  the  difference  in value  before  and after  repricing  as
calculated by use of the Black-Scholes  model, which payment can be made through
promissory  notes to the Company.  The closing  trading  price of the  Company's
common stock on February 2, 1995 was $.69.


                                      F-15
<PAGE>

     The  outstanding  warrants  expire  and are  exercisable  for the number of
shares of Common Stock as shown below:

March 1997....................................................         728,500
December 1999.................................................          47,820
March 2000....................................................          12,300
July 2000.....................................................          72,000
August 2000...................................................         925,000
November 2000.................................................          12,720
March 2001....................................................           2,500
May 2001......................................................       1,112,805
June 2003.....................................................          12,000
December 2005.................................................         350,000
                                                                    ----------
Total.............................................                   3,275,645
                                                                    ==========

(c)  SFAS No. 123:

     Options and Warrants

     In 1996, the Company  adopted the  provisions of SFAS No. 123,  "Accounting
for Stock Based  Compensation".  The  following  table  summarizes  the weighted
average  fair value of stock  options and  warrants  granted  during years ended
December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                Option Plans                     Warrant Plans   
                                                   -----------------------------------   ----------------------------------
                                                           1996              1995             1996               1995
                                                   ------------------   --------------   -------------    -----------------
                                                     Shares      $       Shares    $     Shares    $        Shares      $ 
                                                   ----------  ------   -------- -----   ------  -----    ---------   -----
<S>                                                 <C>        <C>      <C>      <C>     <C>     <C>      <C>         <C>  
Exercise price equals market value at date 
 of grant .....................................     1,077,875  $5.56    602,000  $1.07   23,220  $5.39    1,434,300   $0.64
                                                                
Exercise price exceeds market value at date of     
 grant ........................................          --    $  --    795,000  $0.32      --   $  --    2,048,217   $0.29
</TABLE>


     The above table share amounts for 1995 reflect the impact of the re-pricing
as discussed in Notes 8(a) and (b).

     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,  the  expected  volatility  and the  dividend  yield of the
underlying  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                      Warrant Plans
                                         ---------------------------------  --------------------------------
                                              1996             1995             1996              1995
                                         ---------------  ----------------  --------------   ---------------
<S>                                           <C>              <C>              <C>               <C>
     Expected life (years)...............     3.5              2.5              2.0 (1)           2.0
     Interest rate.......................     5.00%            5.00%            5.00%             5.00%
     Volatility..........................    85.13%           85.13%           85.13%            85.13%

</TABLE>

(1)  The weighted average  expected life does not include the warrants  repriced
     in 1996 as they were exercised simultaneously.

     The estimated  volatility  reflects the performance of the Company's Common
Stock over the twelve-month period ended December 31, 1996. The expected life of
the options and  warrants  reflects  the  anticipated  holding  period  prior to
exercise.  The  estimated  risk-free  interest  rate used is based on  risk-free
investment products with similar terms.

     The  following  table  summarizes   information  concerning  stock  options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>

                                              Weighted
                                              Average       Weighted                    Weighted
                               Number         Remaining      Average      Number         Average
          Range of Exercise  Outstanding     Contractual     Exercise   Exercisable      Exercise
               Price         at 12/31/96        Term          Price     at 12/31/96       Price
          -----------------  -----------     -----------     --------   -----------      --------

<S>                               <C>             <C>          <C>         <C>             <C> 
       $ 0.33 - 0.69........      337,500         3.3          0.66        335,250       $ 0.66
         1.03 - 1.91........      387,800         5.7          1.21        275,825         1.24
         2.00...............      150,000         3.3          2.00        150,000         2.00
         3.19 - 3.88........       47,250         8.8          3.80         11,813         3.77
         4.00 - 5.69........      136,750         7.9          5.22         71,688         5.09
         6.38 - 7.88........      107,652         9.4          7.20          3,126         6.38
         8.33 - 9.75........       72,000         9.1          9.10         43,000         9.14
         10.88 - 12.88......      844,625         9.4         10.90        165,250        10.89
         13.33 - 16.00......       20,000         2.9         13.40         19,500        13.33
                                ---------                                ---------
                                2,103,577         7.1          6.08      1,075,452         3.49
                                =========                                =========
</TABLE>

                                      F-16
<PAGE>

     As of December 31, 1996,  the  outstanding  warrants to purchase  3,275,645
common shares were all exercisable.  The weighted average remaining  contractual
term at December 31, 1996 for the 12,300  outstanding  warrants  exercisable  at
$.63 per share is 3.2  years,  the 24,600  exercisable  at $.69 per share is 3.0
years,  the 2,285,525  exercisable at $1.50 per share is 3.6 years,  the 498,500
exercisable at $3.00 per share is 5.8 years, the 21,500 exercisable at $4.00 per
share is 0.2 years, the 350,000 exercisable at $5.50 per share is 9.0 years, the
12,000  exercisable at $7.00 per share is 6.5 years,  the 23,220  exercisable at
$9.69 per share is 3.0 years,  the 6,000  exercisable at $10.00 per share is 3.9
years, and the 42,000 exercisable at $13.33 per share is 4.3 years.

     Pro  forma net loss and loss per share  reflect  compensation  cost of $3.6
million and $2.1 million,  respectively,  for the years ended  December 31, 1996
and 1995. 

(Thousands of dollars, 
except per share amounts)                             1996          1995
-------------------------                             ----          ----
Net loss                     As reported            $(16,015)      $ (9,641)
                             Pro forma              $(19,653)      $(11,728)
                           
Loss per share               As reported            $  (0.83)      $  (0.72)
                             Pro forma              $  (1.01)      $  (0.88)
                           
     The amounts  disclosed may not be representative of the effects on reported
net loss for future years.

(9)  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,
1996 and December 31, 1995 are presented below.
<TABLE>
<CAPTION>

                                                                      December 31,   December  31,
                                                                          1996           1995
                                                                      ------------   -------------
Deferred tax assets:
<S>                                                                      <C>        <C>         
    Liability to reacquire IL-6m rights and materials.............       $863,000    $  1,147,000
    Gain on sale of Cadus shares .................................           --         1,367,000
    Equity in loss of affiliate ..................................           --           917,000
    Research and development credit carryforward .................      1,883,000       1,757,000
    Compensation relating to the issuance of
     stock options and warrants ..................................      2,740,000       3,038,000
    Net operating loss carryforwards .............................     44,374,000      31,870,000
    Other ........................................................        958,000         540,000
                                                                     ------------    ------------
             Total gross deferred tax assets .....................     50,818,000      40,636,000
             Less valuation allowance ............................    (50,818,000)    (40,636,000)
                                                                     ------------    ------------
             Net deferred tax assets .............................   $       --      $       --
                                                                     ------------    ------------
Deferred tax liabilities:
   Property and equipment, principally due to
      depreciation and amortization...............................   $       --      $       --
                                                                     ------------    ------------
             Total gross deferred tax liabilities ................   $       --      $       --
                                                                     ============    ============
             Net deferred tax asset ..............................   $       --      $       --
                                                                     ============    ============
</TABLE>

     For the years ended  December 31, 1996 and  December 31, 1995,  the Company
established  an aggregate  valuation  allowance of $50,818,000  and  $40,636,000
respectively, to reflect management's belief that significant uncertainty exists
regarding the ultimate realization of its deferred tax assets.

     At December 31, 1996, the Company had net operating loss  carryforwards for
federal income tax purposes of approximately $97,350,000 which expire at various
dates from 2000  through  2011.  At December  31, 1996 the Company had  research
credit  carryforwards of approximately  $1,883,000 which expire at various dates
between  years 2001 and 2011.  Pursuant to Section 382 of the  Internal  Revenue
Code of 1986, as amended,  the annual utilization of the Company's net operating
loss and research credit carryforwards may be limited if the Company experiences
a change in ownership of more than 50% within a three-year  period.  The Company
believes  that one or more of such  ownership  changes may have  occurred  since
1986.  Therefore,  the Company may be significantly limited in utilizing its tax
net operating loss  carryforwards  arising  before such  ownership  change(s) to
offset future taxable income.  Similarly, the Company may be restricted in using
its research  credit  carryforwards  arising before such ownership  change(s) to
offset future federal income tax expense.


                                      F-17
<PAGE>

(10)  Commitments

Leases

     The Company leases  premises  under an operating  lease, a portion of which
expired in 1993 and a portion of which expires in 1999. The Company has extended
the 1993  expired  portion of the lease  through 1997 at 85% of each year's fair
market  rental  value and from 1997 to 1999 at 100% of each  year's  fair market
rental value, for a portion of the premises.  The rate for the remaining portion
of the  premises  is  $264,000  annually  through  March 31,  1997 and  $285,000
annually  through March 31, 1999.  The estimated  future lease payment  schedule
below is based on the exercise of the renewal options  described above,  using a
fair market  rental  value of $10.00 per square  foot.  Rent  expense for leased
premises was approximately $508,000,  $493,000, and $467,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

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

                                                    Capital         Operating
                                                    Leases            Leases
                                                 ------------       ------------
Years ending December 31,
-------------------------
1997 ...................................         $   203,000          $  516,000
1998 ...................................             142,000             513,000
1999 ...................................             141,000             291,000
2000 ...................................              71,000               8,000
2001 ...................................                --                 1,000
Thereafter .............................                --                  --
                                                 -----------          ----------
                                                 $   557,000          $1,329,000
Less interest expense ..................            (203,000)               --
                                                 -----------          ----------
                                                 $   354,000          $1,329,000
                                                 ===========          ==========

Supported Research

     The Company has entered into various  research and license  agreements with
certain  universities  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.


                                      F-18
<PAGE>

(11) Supplemental  Cash Flow  Information  and Non-cash  Investing and Financing
     Activities are as Follows:
<TABLE>
<CAPTION>

(In Thousands)                                               1996          1995         1994   
                                                             ----          ----         ----   
<S>                                                         <C>           <C>         <C>    
Supplemental Cash Flow Information 
  Cash paid during the period for:
     Interest.............................................  $ 817.0       $ 504.0     $ 504.0
                                                            -------       -------     -------
Supplemental Non-cash Investing and Financing Activities
   Finova capital asset and lease obligation additions....    421.0          --           --
   Fair value of Finova warrant...........................    125.0          --           --
   Extinguishment of Oracle Group debt for stock..........  2,500.0          --           --
   Extinguishment of director debt for stock..............    180.0          --           --
   Unrealized loss on securities available for sale.......     49.0          --           --
</TABLE>

(12)  Related Party Transactions

     The outstanding  balance of total  miscellaneous  noninterest-bearing  cash
advances to the  President  and CEO of the Company on December  31, 1994 totaled
approximately  $156,000.  The officer  has  provided  the Company  with a demand
promissory  note  pursuant to which the officer is  obligated  to repay the debt
over a twenty four month period ending April 30, 1997.

     During the year ended  December  31,  1995,  the  Company  made  additional
miscellaneous  noninterest-bearing cash advances to the officer totaling $7,000.
In addition, the officer repaid $31,000 of the demand promissory note during the
year ended  December 31, 1995.  This  brought the  outstanding  balance of total
miscellaneous   noninterest-bearing  cash advances to the officer of $132,000 at
December 31, 1995.

     During the year ended  December  31,  1996,  the  Company  made  additional
miscellaneous  noninterest-bearing cash advances to the officer totaling $8,000.
In addition, the officer repaid $39,000 of the demand promissory note during the
year ended  December 31, 1996.  This  brought the  outstanding  balance of total
miscellaneous  non-interest-bearing  cash advances to the officer of $101,000 at
December 31, 1996.

     In March 1995,  two  directors  (one of whom is an officer) each loaned the
Company  $20,000 in exchange for short-term  notes due sixty days from issuance.
As part of the  transaction,  the directors  were each granted  2,460  five-year
warrants to purchase  Company common stock at $.625 per share, the stock closing
price on the date of the  promissory  note.  Each lender could accept payment of
principal and interest at 15% in Company  shares in lieu of cash,  also at $.625
per share. In May 1995, one director  accepted payment of $20,493 which included
principal and interest at 15%. The second lender accepted principal and interest
totaling $15,493 and 8,000 shares of Company common stock at $.625 per share.



                                      F-19
<PAGE>

     Also in March 1995,  a director and a  shareholder  each loaned the Company
$30,000 in exchange for short-term notes due sixty days from issuance. As a part
of the  transaction,  the  director  and  shareholder  were each  granted  3,690
five-year  warrants to purchase  Company  common  stock at $.625 per share,  the
stock closing price on the date of the promissory note. Each lender could accept
payment of principal and interest at 15% in Company shares in lieu of cash, also
at $.625 per share.  During May 1995,  the director  accepted  payment of 49,184
shares of  Company  common  stock at $.625  per  share,  while  the  shareholder
accepted $30,740 which included principal and interest at 15%.

     In May 1995, the Company loaned an officer $20,000 in exchange for a demand
promissory  note.  The  officer was  obligated  to repay the debt over a sixteen
month period  ended  September  17, 1996.  The loan was paid in full in December
1995.

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

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


                                      F-20
<PAGE>

(13) Fair Value of Financial Instruments

     For the years ended December 31, 1996 and 1995,  the following  methods and
assumptions  were used to  estimate  the fair value of each  class of  financial
instrument:

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

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

Long-term debt and notes payable:

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

(14) Summary of Quarterly Results of Operations (Unaudited)

     The  following  unaudited  quarterly  financial  information  includes,  in
management's  opinion, all normal and recurring  adjustments necessary to fairly
present the Company's  results of  operations  and related  information  for the
periods  presented.  Net loss per share  has been  computed  using the  weighted
average shares outstanding  during each quarter.  Common stock equivalent shares
are excluded where the effect of their  inclusion would result in decreasing the
net loss per share.

<TABLE>
<CAPTION>
                                                                Quarter Ended
                                             ------------------------------------------------
(In thousands, except per share data)         3/31           6/30         9/30        12/31
                                             ---------    ---------     --------     --------
<S>                                          <C>           <C>          <C>          <C>    
Year ended December 31, 1996
Revenues .................................   $    75       $    75      $    75      $   375
Operating expenses .......................     3,066         3,438        3,714        5,225
                                             -------       -------      -------      -------
Operating loss ...........................    (2,991)       (3,363)      (3,639)      (4,850)
Net interest and other expense(income) ...       154           (61)         (97)         (91)
                                             -------       -------      -------      -------
Loss before extraordinary item ...........    (3,145)       (3,302)      (3,542)      (4,759)
Extraordinary loss on extinguishment
   of debt................................      --           1,267         --           --
                                             -------       -------      -------      -------
Net loss .................................   $(3,145)      $(4,569)     $(3,542)     $(4,759)
                                             =======       =======      =======      =======
Net loss per common share:
Loss before extraordinary item ...........   $ (0.18)      $ (0.17)     $ (0.18)     $ (0.25)
Extraordinary loss on extinguishment
   of debt ...............................      --            0.06         --           --
                                             -------       -------      -------      -------
Net loss per common share ................   $ (0.18)      $ (0.23)     $ (0.18)     $ (0.25)
                                             =======       =======      =======      =======

Year ended December 31, 1995
Revenues .................................   $    75       $    75      $   575      $    75
Operating expenses .......................     2,871         2,745        2,823        4,068
                                             -------       -------      -------      -------
Operating loss ...........................    (2,796)       (2,670)      (2,248)      (3,993)
Net interest and other expense(income) ...       218        (2,837)         267          286
                                             -------       -------      -------      -------
Net income (loss) ........................    (3,014)          167       (2,515)      (4,279)
                                             -------       -------      -------      -------
Net income (loss) per share ..............   $ (0.24)      $  0.01      $ (0.19)     $ (0.29)
                                             =======       =======      =======      =======
</TABLE>

(15) Events (Unaudited) Subsequent to the Date of the Independent Auditors'
     Report

     In March 1997, the Company completed a public sale of 3,000,000 shares
of Common Stock at a per share price of $7.875. Net proceeds to the Company from
the sale totaled approximately $23.2 million after deducting expenses of the
offering.

     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  $2.2
million.

                                      F-21