SECURITIES AND EXCHANGE COMMISSION
                           Washington, DC 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 June 30, 1996
                                     OR
           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from      to
                         ---------------------------
                         Commission File No. 0-15271
                         ---------------------------
                         CISTRON BIOTECHNOLOGY, INC.
            (Exact name of Registrant as specified in its Charter)

                        Delaware          22-2487972
        (State or other jurisdiction     (IRS Employer Identification No.)
      of incorporation or organization)  

       10 Bloomfield Avenue, Pine Brook, New Jersey              07058
        (Address of principal executive offices)               (zip code)

             Registrant's telephone number, including area code:
                                 201-575-1700
          Securities registered pursuant to Section 12(b) of the Act:
                                    None
          Securities registered pursuant to Section 12 (g) of the Act:
                                 Yes X  No
                                     -
                   Common Stock, $0.01 par value
  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 the voting stock (Common Stock, $0.01 par
 value) held by non-affiliates of the Registrant was $4,803,296 on August 30,
 1996 based on the average of the closing bid and asked prices of the Common
 Stock on such date.

  The aggregate number of Registrant's outstanding shares on August 30, 1996
 was 26,882,990 shares of Common Stock, $.01 par value.

                Documents incorporated by reference:
                               None
==============================================================================
<PAGE>

                                PART I

 Item 1. Business.

 General

  Cistron Biotechnology, Inc. ("Cistron" or the "Company") is a biotechnology 
 company that uses recombinant DNA and immunological techniques to
 manufacture a line of cytokine products which it sells to the research
 market worldwide.  Cytokines, consisting of lymphokines and monokines,
 are proteins that are regulators of the human immune response system
 released in the body by white blood cells.  Cistron's current products are
 sold to pharmaceutical companies, government agencies and academic
 institutions in the United States, Europe and Asia for cancer,
 arthritis and other autoimmune disease research.  Cistron has also
 initiated development of immune system related products which may have
 applications in the diagnostic markets.
	
  The Company's principal current products consist of Interleukin-1 beta ("IL-
 1"), a lymphokine which initiates the immune response, monoclonal and
 polyclonal antibodies to IL-1 ("IL-1 Antibodies"), and an assay kit that
 measures IL-1 levels (the "IL-1 Assay").  The Company's IL-1 products are
 based upon the technology derived from research funded by Cistron on
 Interleukin-1 beta, the predominant form of IL-1 in humans, at the New
 England Medical Center Hospitals, Inc., Tufts University, Massachusetts
 Institute of Technology and Wellesley College (the "Institutions"). 
 Cistron also manufactures and sells assays which measure tumor necrosis
 factor-alpha ("TNF"), which is a monokine that acts as a mediator of
 inflammation, and assays which incorporated both TNF and IL-1.  In addition,
 the Company distributes in North America and Asia assays that measure another 
 lymphokine, Interleukin-6, which is principally manufactured by another
 company. See Item 1 - Business - Products. 

  The Company's ability to produce and distribute its principal current
 products  is derived from the following licenses: (i) an exclusive license
 from the  Institutions to make, use, sell, and to sublicense to others,
 products based upon IL-1 under certain patents issued and pending in the
 United States and patent spending internationally (collectively, the
 "IL-1 Patents"), and (ii) an exclusive license from Rijksuniversiteit
 of Limburg (Holland) under which the Company is supplied TNF antibodies.
 The Company also has the following licenses under which no products have
 been developed to date: (i) a non-exclusive royalty free license from
 The DuPont Merck Pharmaceutical Company ("DuPont Merck") to certain IL-1
 mutants and related technology under certain patents pending in the U.S.
 and internationally and (ii) an exclusive license from the Institutions
 (part of the same license that relates to IL-1 products) to develop an
 inhibitor to tissue plasminogen activator, which may have clinical utility
 in treating some bleeding disorders or inflammatory conditions.
 See Item 1 - Business - Licenses.

  Cistron seeks strategic alliances with corporate or other partners to
 develop  or finance Cistron's development of therapeutic and diagnostic
 applications of cytokine products.  In that regard, in March 1992 Cistron
 entered into a license agreement with Genetic Therapy, Inc. ("GTI"), now
 owned by Sandoz, under which Cistron granted GTI an exclusive, worldwide
 sublicense under the IL-1 Patents to make, use and sell genetic therapy
 products incorporating IL-1 for the prevention or treatment of cancer in
 humans.  No products have been developed under this license agreement to
 date.  In May 1993, Cistron granted an exclusive sublicense to Biotech
 Australia Pty. Limited ("Biotech"), a jointly owned subsidiary of
 Hoechst A.G. and Hoecsht Australia Ltd., to make, use and sell plasminogen
 activator inhibitor ("PAI- 2") protein in the U.S. using technology
 contained in Cistron's PAI-2 DNA patent. Cistron has recently initiated
 development of a PAI-2 assay, using Biotech's reagents, which, if
 successfully developed, Cistron would sell to the North American research
 market.  In December 1994, Cistron granted a sublicense to another company
 for use of IL-1 in its pharmaceutical research program.  Cistron and Research
 and Diagnostic Systems, Inc. ("R&D Systems") entered into a license and
 supply agreement in March 1995 and a research and development agreement in
 April 1995.  Under these agreements, R&D Systems purchases Cistron's IL-1
 protein and may purchase IL-1 assay components for resale to the research
 market worldwide and funds some of Cistron's product development in return
 for certain co-marketing rights. See Item 1 - Business- Licenses.
 In March 1996, the Company entered into a non-exclusive license with another
 company under which the Company will use the company's reagents to attempt
 to develop an assay to measure interleukin converting enzyme ("ICE").
 If developed, the Company will sell this assay to the research market
 worldwide and pay royalties, based on sales, to the licensor.  See Item
 1 - Business - Product Development.
	
  The Company is a development stage company, has not generated significant
 revenues and none of its products have been submitted to or received
 approval by the Food and Drug Administration ("FDA") for the sale of such
 products to the diagnostic or therapeutic markets.

                                 2
<PAGE>

  The Company was incorporated in Delaware in 1983 under the name Cistron 
 Technology, Inc. and commenced operations in May 1984 as successor to a
 research and development partnership organized in 1982.  From May 1988 to
 April 1990, the Company operated as a debtor in possession under Chapter 11
 of the Federal Bankruptcy Code due principally to an unsuccessful attempt to
 effect a leveraged acquisition. In April 1990, the Company's motion for 
 dismissal of its Chapter 11 petition was granted.  The executive offices of
 the Company are located at 10 Bloomfield Avenue, Pine Brook, New Jersey
 07058 (Telephone No. 201-575-1700).

 Products

  Cistron is a biotechnology company that uses recombinant DNA and
 immunological techniques to manufacture a line of cytokine products which it
 sells to the research market worldwide.  Cytokines, consisting of lymphokines
 and monokines, are proteins that are regulators of the human immune response
 system released in the body by white blood cells.  The function of the immune
 system is to protect the body against infectious agents, including viruses,
 bacteria, parasites and malignant (cancer) cells.  The normal immune system
 is finely tuned and imbalances may lead to a variety of diseases.

  Two classes of white blood cells, macrophages and monocytes (the surveillance 
 system) and lymphocytes (the antibody producing cells), are primarily
 responsible for immunity.  It is generally believed that the activities of
 macrophages and lymphocytes are controlled, to a large extent, by a specific
 group of regulators called lymphokines; the lymphokines, in turn, are released
 by the class of white blood cells which constitute the surveillance system.
 The lymphokines attach to specific sites, called receptors, on the surface of
 cells that constitute the immune system, and impart their "messages" through
 these contact points, controlling the growth and maturation of the cells and
 thereby primes the immune system for response following infection or exposure
 to noxious agents.

  An important feature of the immune response is the detection of noxious 
 agents by macrophages and monocytes which thereupon release IL-1.  The IL-1
 then activates a subset of secondary cells, the T-lymphocytes, which have two
 functions.  T-lymphocytes can attack foreign cells and can augment the
 antibody response of a second type of lymphocytic cell, the B-lymphocyte.  The
 B-lymphocytes secrete antibodies which, if effective, inactivate the invading
 bacteria, viruses or other noxious agents.  The interplay among macrophages,
 B-cells and T-cells determines the strength and breadth of the body's response
 to infection.
 
  Insufficient production of lymphokines may lead to immune
 deficiency states.  Over-production of lymphokines may promote severe
 allergies and autoimmune diseases such as rheumatoid arthritis.

  Cistron's current products are sold to pharmaceutical companies, government 
 agencies and academic institutions in the United States, Europe and Asia for
 cancer, arthritis and other autoimmune disease research.  For the fiscal year
 ended June 30, 1996 ("Fiscal 1996"), 50% of Cistron's gross sales were made to
 three major customers, Genzyme, Merck, Frosst and VWR Scientific.  The loss
 of any of these companies, if a comparable new customer is not found,  would
 have a material adverse effect on the Company's business.

	IL-1 Related Products

  The Company's principal current products consist of IL-1, IL-1 Antibodies
 and the IL-1 Assay and are sold principally to university or commercial
 research groups that use such products in connection with their own
 immunological research and development.  In the Spring of 1994, Cistron
 introduced to the research market, recombinant IL-1 precursor and an IL-1
 precursor ELISA.  Both products are exclusively manufactured by the Company.
 The focus of these products is to provide the researcher with an additional
 tool for a clearer understanding of the IL-1 molecule.  The sale of IL-1
 products accounted for approximately 66% of Cistron's gross sales for Fiscal
 1996 (which included sales of TNF/IL-1 assays). See Item 7 - Management's
 Discussion and Analysis of Financial Condition and Results of Operations.

  The Company is in the process of developing additional products that may
 adapt the IL-1 Assay for diagnostic purposes.  See Item 1 - Business -
 Product Development.

 	Tumor Necrosis Factor-alpha
	
  Since June 1989, the Company has been manufacturing and selling through the 
 same distribution network as used for sales of its IL-1 product line, an
 assay to measure TNF.   The sale of TNF assays and TNF/IL-1 assays accounted
 for approximately  35% of gross sales for Fiscal 1996. See Item 7- 
 Management's Discussion and Analysis of results of operations and financial
 conditions.

                                    3
<PAGE> 

  TNF, like IL-1, is a cytokine in the immune system.  TNF is a mediator
of inflammation and may also play a role in the destruction of cancer cells.
The assay was developed under a license from Rijksuniversiteit of Limburg,
a Dutch university, which developed certain antibodies used in this product.
See Item 1 - Business - Licenses.

 	Other Products

  The Company distributes another lymphokine assay which measures Interleukin-6 
("IL-6") to the North American and Asian research markets.  This product, 
however, is substantially manufactured by another company, and accounted for
less than 5% of the Company's gross sales in Fiscal 1996.

   Product Development

  In Fiscal 1994, Fiscal 1995, and Fiscal 1996 the Company incurred research
and development expenses of $64,000, $62,500, and $111,500 respectively,
which amounts do not include project expenses incurred by the manufacturing
group, included under cost of sales.  

  Cistron's product development strategy with respect to its present line of 
products has been to contact university or commercial research groups that
have achieved results in the identification and production of cytokines and
for antibodies to those proteins and to fund short-term, highly focused
developmental research aimed at providing the Company with protein and
antibody supply.  Once a supply level is obtained, the Company's in-house 
scientists screen the materials and then develop assays for sale to the
research market.

  Cistron has attempted to broaden its development strategy to include 
development of cytokine-based therapeutic and diagnostic products for sale
to the therapeutic and diagnostic markets.  The Company is seeking corporate
partners to develop, or to finance Cistron's development of, cytokine-based
therapeutic and diagnostic products.

  	Cancer Therapeutics

  Tests on animals and isolated cancer cell preparations have indicated that
IL-1 has potential utility as an anti-cancer agent and that it may also
serve as an adjunct for use in combination with other cancer therapeutics to
kill cancer cells.  In furtherance of the Company's broader development
strategy, Cistron, in March 1992, entered into a license agreement with GTI
under which Cistron granted GTI an exclusive, worldwide sublicense under the
IL-1 Patents to make, use and sell genetic therapy products incorporating
IL-1 for the prevention or treatment of cancer in humans.  The term of the
sublicense is coterminous with Cistron's license from the Institutions. 
Sandoz Ltd. has acquired GTI.  It is not known what effect, if any, such
acquisition, will have on the Company's license to GTI. No products have
been developed for testing in clinical trials under this license. 
Additionally, in May 1993, Cistron granted a license to the PAI-2 Patents to
Biotech to make, use and sell PAI-2 protein.  PAI-2 is a protein synthesized
by white blood cells which acts to inhibit plasmin, an enzyme which dissolves
blood clots, but also promotes tumor metastasis.  Thus it is felt that PAI-2
could be useful in treating cancer.  For a discussion of the Company's
marketing strategy for products to be developed under the GTI and Biotech
license agreements, See Item 1 - Business - Marketing and Distribution
below.

 	IL-1 Measurement
	
  Elevated levels of IL-1 have been associated with rheumatoid arthritis, 
periodontal disease and other autoimmune diseases.  The IL-1 Assay is being
adapted as a diagnostic product for the detection of periodontal disease, a 
condition which affects more than 75% of the adult population over the age of
35 in the United States.  In October 1991, Cistron received a Phase I
research grant from the SBIR Program to initiate development of such a
product (the "Periodontal Assay"), adapting Cistron's IL-1 Assay for
in-office use by dentists and periodontists to detect and monitor periodontal
disease.  A 132-patient study, which was funded under the grant, was
completed in August 1992 and was conducted by Cistron and the University of
Medicine and Dentistry of New Jersey. Under its April 1995 research and
development agreement with Cistron, R&D Systems will fund additional
periodontal studies and assay development conducted by Cistron.  To this
end, Cistron entered into a one-year sponsored research agreement with a
dental school in August 1995.  Patient enrollment in this study was not
completed before January 1996 and therefore, the completion date of this
agreement has been extended, informally, without additional funding from
the Company.

  The Company believes that its IL-1 Assay also has potential diagnostic 
application in assessments of immune competence in individuals with
alterations in immune function, including cancer patients, immunocompromised
individuals (such as persons receiving high doses of steroids) and the
elderly.  The IL-1 Assay may also have potential utility in identifying
patients that may develop septicemia, such as post-surgery patients.  The
addition of the IL-1

                                   4
<PAGE>

precursor ELISA is expected to aid these studies by providing researchers
with a more comprehensive view of the total IL-1 synthesis. The Company
filed a U.S. patent application with respect to its IL-1 Assay in May 1987
and in December 1995, U.S. Patent No. 5,474,899 was issued.

 	Inhibitors of the Immune Response

  Recombinant DNA technology enables the Company to produce human IL-1 in
large quantities and to conduct research on modifying the molecule in such
a way as to act as a reversible, non-toxic inhibitor of the immune response.
Research sponsored by the Company has led to the discovery of a molecule
which, in preliminary experiments, has shown to have the same ability to bind
receptor sites as natural IL-1, but with greatly diminished IL-1 activity. 
Theoretically, such a molecule would compete with natural IL-1 for binding
sites and would, therefore, reduce the effects of the resulting IL-1 biologic
response.  Significant further research will be needed to discover if this
molecule will have any clinical utility as an immune response inhibitor. 
The Company is seeking a partner to develop this technology and after
obtaining the necessary regulatory approvals, to market the resulting
products.

  Inhibitors of the immune response have potential application in the
treatment  of arthritis, periodontal disease, other autoimmune diseases,
severe allergies, septic shock and bleeding disorders although the Company
has not yet developed the related products.

  Arthritis and Periodontal Disease. As overproduction of IL-1 promotes the
bone demineralization, cartilage degradation and joint inflammation
associated with rheumatoid arthritis and loss of attachment of the teeth to 
the jaw in periodontal disease, compounds which inhibit IL-1 may be useful
in the treatment of these diseases.  The therapeutic agents currently
available for treatment of these diseases may have serious side effects
which may limit their utility.

  Other Autoimmune Diseases. There are a number of other diseases in which,
it is believed, the body's immune system reacts to its own tissue as if it
were an antigen (foreign body) and against which it mounts an immune
response.  Such diseases, termed autoimmune diseases, include (in addition
to rheumatoid arthritis) myasthenia gravis and lupus.  Therapeutics
developed from IL-1 inhibitors may be of use in treating these diseases.

  Severe Allergies. Persistent severe allergies, such as bronchial asthma,
may be resistant to conventional therapy or require such high doses of
antihistamines and/or corticosteroids as to burden patients with damaging
side effects.  Mutant forms of IL-1 or chemical inhibitors of the actions of
IL-1 on T-lymphocytes may block the hyperimmune response that results in
intractable allergic symptoms.

  Septic Shock. It is estimated that approximately 100,000 people die
annually in the U.S. as the result of septicemia (commonly referred to as
septic shock).  Increased levels of cytokines, especially IL-1, TNF, and
IL-6, have been indicated as mediators of septic shock.  Neutralizing
monoclonal antibodies or inhibitors of IL-1 may prove useful, perhaps in
conjunction with other therapeutics, in treating sepsis patients.

  Bleeding Disorders. The Company's license from the Institutions includes an
exclusive license to certain issued U.S. patents and associated technology
related to PAI-2 which may have clinical utility in treating some bleeding
disorders or as an anti-inflammatory agent.  The Company has not yet
commenced any research in this area, and in May 1993, Cistron granted a
sublicense to the PAI-2 DNA Patents to Biotech to make, use and sell PAI-2
protein for therapeutic products in the U.S.

  Treatment of Immune Deficiency States
	
  Insufficient production of cytokines may prove to be involved in some immune
deficiency states.  Such conditions can occur at birth, be induced 
following viral infection or be induced as a side effect of treatment for a
primary clinical condition.  The Company believes that administration of
IL-1 may be effective in treating some immune deficiency states, but has not
yet commenced any research in this area.

  Marketing and Distribution

  The Company's President and his Administrative Assistant devote
substantial time to marketing, as the Company does not have a
marketing department.  The  marketing effort consists of direct
mail and trade journal advertising to the  research market and personal
solicitation of potential marketing partners.  Cistron also uses
distributors in the United Kingdom, Europe, Japan, and  Taiwan to sell the
current product line outside of North America.

  In June 1993, Cistron and Genzyme entered into a sponsored research and
supply agreement under which Genzyme co-markets certain of Cistron's
current research products, under Genzyme's label, and received co-marketing

                                     5

<PAGE>

rights to new IL-1 based research products which might have been developed by
Cistron under funding from Genzyme.  No such products were developed to the
state of marketing readiness under this agreement.  In July 1996, Cistron
and Genzyme entered into a two year Supply Agreement to continue that
portion of the 1993 agreement.  In March 1995, Cistron entered into a
license and supply agreement with R&D Systems under which R&D Systems 
will purchase Cistron's IL-1 protein and may purchase certain IL-1 assay
components for resale, under R&D System's label, to the research market. 
R&D Systems has not commenced sales of assays using Cistron's components and
is not obligated to do so.  Under the April 1995 research and development
agreement, R&D Systems will have exclusive co-marketing rights to 
additional cytokine research products and to the  IL-1 periodontal assay
that Cistron may develop with funding by R&D Systems. 

  The Company's strategy has been to avoid costly selling and marketing 
expenses, and to concentrate its resources on research and product development,
and it is anticipated that the Company's clinical and therapeutic products,
if developed, will be distributed through pharmaceutical and diagnostic
companies under licensing or joint venture arrangements.  The Company has
entered into the GTI license agreement, under which the Company will receive
royalties on net sales of all genetic therapy products incorporating IL-1
for the prevention or treatment of cancer in humans ("Licensed Products")
sold by GTI.  Additionally, in May 1993 Cistron entered into the Biotech
agreement under which Cistron will receive royalties on the net sales of
therapeutic PAI-2 products sold by Biotech or its affiliates in the U.S.
Cistron obtained a cross license from Biotech for development of PAI-2
diagnostic products.  Cistron has been advised by Biotech that it opened an
Australian manufacturing facility in October 1994, has conducted anti-
inflammatory animal studies, and initiated a Phase I  human clinical
trial in  Australia in August 1996. 

   Licenses

  Cistron has an exclusive, worldwide license from the Institutions to make,
use and sell, and to sublicense to others, products adapting the IL-1
Patents and to make, use and sell products incorporating related technology.
The Company was granted this license in return for funding the research and
development resulting in the issuance to the Institutions of the IL-1 Patents.
The term of such license is the life of the IL-1 Patents, with respect to
the patents, and October 1, 2000, in the case of the related technology, in
each case excluding any time required for pre-market clearance that may be
required by a U.S. regulatory agency.  The Company pays a royalty on IL-1
sales to the Institutions.  If the Company enters into a joint venture with
another company to commercialize IL-1, the Company must pay a royalty to the
Institutions on sales to the joint venture partner and royalties received
from such partner.  If the Company enters into sublicense arrangements with
other companies which are not joint ventures, the Company must pay a royalty
of 50% of royalties received from the sublicensee.  Cistron has been involved
in litigation and a patent regulatory proceeding in order to protect its
rights to the IL-1 Patents from infringement.  See Item 1 - The Company -
Patent Protection.

  Cistron's ability to manufacture the TNF assays and TNF/IL-1 assays is
derived from its exclusive, worldwide license from Rijksuniversiteit of
Limburg (Holland), under which the university supplied Cistron with TNF
antibodies owned by the university.  The Company pays this university a
royalty on sales of such products.  The Company, at its sole discretion, may
expand its rights to use these antibodies in clinical diagnostic kits upon
the payment of a fee to Rijksuniversiteit of Limburg.  The license expires
in September 1998.

  The Company's license from the Institutions also includes an exclusive
license to certain issued U.S. patents and associated technology relating to
PAI-2 which may have clinical utility in treating cancer and some bleeding
disorders.  The Company entered into the Biotech Agreement in May 1993. 
Cistron has recently initiated development of a PAI-2 assay, using Biotech's
reagents, which, if successfully developed, Cistron would sell to the North
American research market.  See Item 1 - Business - Product Development -
Inhibitors of the Immune Response - Bleeding Disorders.

  In March 1996, the Company entered into a non-exclusive license with another
company under which the Company will use that company's reagents to try to
develop an assay to measure interleukin converting enzyme ("ICE").  If
developed, the company will sell such assay to the research market worldwide
and pay royalties, based on sales, to the licensor. 

  The Company currently sublicenses patents and related technology to others 
under the GTI, Biotech, and R&D Systems license agreements.  See Item 1 -
Business - Marketing and Distribution.

                                      6

<PAGE>

  Patent Protection

  Company investigators, both at universities and in-house, seek patent 
protection for technology when deemed appropriate and have filed
applications for U.S. and foreign patents relating to several different
products and processes. Between 1988 and 1996, five patent applications for
one of these products containing claims directed to various aspects of human
IL-1 and production of IL-1 and one directed to the PAI-2 DNA were issued to
the Institutions, from which the Company received an exclusive worldwide
license.  The European equivalent patent was issued in December 1993.   In
December 1995, a U.S. patent related to the Company's assay was issued.  In
addition to the issued IL-1 patents, a number of applications of the 
Institutions and Cistron are pending in the U.S. and foreign countries
covering an inhibitor to IL-1, IL-1 Antibodies, and additional claims for the
IL-1 Assay.  There can be no assurance that the pending applications will
result in the issuance of any patents or that the patents issued to date or
any future patents issued will provide substantial protection or be of
commercial benefit to the Company or to licensees of the technology.  The
Company is relying upon trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop its competitive position.
However, there can be no assurance that others may not acquire or
independently develop similar technology.

  In December 1991, the Company, together with the Institutions, filed suit 
in U.S. District Court in Newark, New Jersey against PeproTech, Inc.,
alleging infringement of the Institutions' patent covering the production of
recombinant IL-1, to which the Company holds an exclusive license.
The Company and the Institutions sought money damages for Cistron's lost
sales and an injunction against further infringement.  In September 1993,
the U.S. District Court, District of New Jersey, granted the Company's and
the Institutions' motion for summary judgment against PeproTech. In its
decision, the Court concluded that the scope of the Institutions' patent
encompasses not only the full-length precursor of the IL-1 protein, but the
protein's fragments as well.  Trial was held during November and December
1993, in the United States District Court, District of New Jersey. In 
August 1994, the Court entered judgment in favor of the Company and the 
Institutions.  In its decision, the Court rejected PeproTech's arguments
against the validity of the Institution's IL-1 patent and found that
PeproTech's manufacture and sale of IL-1 was an infringement of the IL-1
patent.  The Court ruled that PeproTech's infringement was willful and
awarded $2.7 million in damages, interest and attorneys' fees to Cistron
and the Institutions in October 1994.  PeproTech filed a motion to stay
execution of the judgment pending appeal and Cistron and the Institutions
filed a motion to add PeproTech's president as a defendant.  In July 
1995, the Court denied both motions.  PeproTech then filed an amended notice
of appeal from the finding of patent validity and enforceability,
infringement and the damages award and also in July 1995, PeproTech filed a
petition under Chapter 11 of the Bankruptcy Code.

  Cistron and the Institutions filed a cross-notice of appeal requesting that
if the Appellate Court reduces the amount of the damages award, then the
Appellate Court should treble the award, based on PeproTech's willful
infringement, up to a maximum of the originally awarded $2.7 million.
Briefing by both parties at the Appellate Court has been completed.  Oral
argument before the Appellate Court is scheduled for October 7, 1996.  It is
not known when the appeal might be decided.

  On April 11, 1996, a hearing was held in District Court to determine if 
PeproTech and its owners violated the Court's 1995 orders that enjoined
PeproTech from infringing the IL-1 patent in the United States and which
limited the transfer of assets from PeproTech during a certain period in
1995.  It is not known when the District Court will make its rulings.

  PeproTech is still operating under the protection of the Bankruptcy Court 
while the appeal is pending.  PeproTech has submitted a plan of
reorganization to the Bankruptcy Court, but the plan has not yet been
approved.

  Any damages collected by the Company and the Institutions, net of 
reimbursement of legal fees and costs incurred by them in this litigation,
will be paid to the Company, which, in turn, will pay the Institutions an
amount equal to 7% thereof, representing the Institutions' lost royalties. 
The Company has agreed to pay one-half of the legal fees incurred by the
Company and the Institutions in connection with this litigation.  

  In January 1992, the Company was notified by the Institutions that the U.S. 
Patent and Trademark Office (the "Patent Office") had declared an interference 
between a pending application owned by the Institutions and licensed to the
Company and a pending application owned by Immunex Corp.  The subject matter
of the interference, as defined by the Patent Office, is "a substantially
pure IL-1 beta protein."   In October 1993, the Company was notified that
the U.S. Patent and Trademark Office Board of Appeals and Interferences had
entered a judgment of "no interference in fact" in the interference declared
in January 1992 between pending patent claims licensed to the Company by the
Institutions and pending patent claims of Immunex Corp.  The pending claims
will be referred back to the original examiners for

                                       7

<PAGE>

 further review.  Claims in the application owned by the Institutions and 
 licensed to the Company that was the subject of the interference were allowed
 and issued a U.S. Patent No. 5,510,462 in April 1996.

  In January 1996, the Patent Office granted U.S. patent No. 5,484,887 (the
 `887 patent) owned by Immunex Corp.  The `887 patent includes claims to
 purified, mature human IL-1b protein (claims 8-12).  In March 1996, a
 request for reexamination of the `887 patent was filed in the Patent Office.
 An order granting the request for reexamination of the `887 patent was issued
 by the Patent Office in May 1996.  Reexamination was granted on the grounds
 that a "substantial new question of patentability affecting claims 8-12 of
 United States Patent Number 5,484,887 is raised by the request for
 reexamination."  At this time a decision concerning the patentability of the
 claims in the `887 patent has not been reached by the Patent Office in the
 reexamination.
	
  On September 28, 1993, the Company filed suit in the U.S. District Court, 
 District of New Jersey, against Immunex Corporation alleging
 misappropriation of trade secrets related to IL-1 and seeking damages
 therefor.  Later that day, Immunex filed suit against the Company in the
 U.S. District Court, District of Washington, seeking declaratory judgment
 that Immunex did not misappropriate trade secrets and an injunction against
 the Company from claiming rights in Immunex's pending or issued patents. 
 In December 1993, the U.S. District Court, District of New Jersey,
 transferred the Company's suit against Immunex to the District of
 Washington where Immunex's suit against the Company was pending. Immunex had
 asserted a counterclaim against the Company claiming that certain conduct by
 the Company constituted unfair competition and a violation of federal and
 the State of Washington's Consumer Protection Acts.  In January 1994, the
 Company and Immunex agreed to combine the two suits into a single action in
 the District of Washington.

  In March 1994, Immunex filed a motion for summary judgment based upon
 statute of limitations and other time bar arguments.  The Company submitted a
 brief opposing Immunex's motion in April 1994.  Also in March 1994, Immunex
 filed a motion to a) limit discovery solely to issues related to the time
 bar issues and b) separate the potential trial between determination of
 liability and damages.  In June 1994, the Judge denied Immunex's summary
 judgment motion as well as its motion to limit discovery. Also in October
 1994, Immunex filed a motion to amend its counterclaim against the Company
 seeking a declaration of non-infringement, invalidity and
 nonenforceability of the IL-1b patent to which the Company holds an
 exclusive license.  

  The Company submitted a motion to dismiss Immunex's counterclaim and a 
 declaration promising not to sue Immunex for infringement of the IL-1b patent
 for Immunex's past, current or future production and use of IL-1b in its
 own research program; Immunex's existing or past commercial products or
 processes based on the use or sale of IL-1b; and Immunex's anticipated
 production and marketing of an IL-1 receptor based on Immunex's research
 and development which involved production or use of IL-1b. On September 18,
 1995, Immunex withdrew its declaratory judgment counterclaim.

  The Judge's order said that he will give consideration to having the same
 jury decide liability first, and then, if necessary,  decide damages issues
 following a short interval.  In October 1994, the Company filed a civil
 complaint in the U.S. District Court, Western District of Washington,
 against certain Immunex founders and former officers, alleging
 misappropriation of trade secrets, fraud, and violations of the civil RICO
 Act.  The Court granted the Company's motions to amend its complaint against
 Immunex to include a count alleging civil RICO Act violations and to
 consolidate its complaint against the Immunex founders with its complaint
 against Immunex.  The Company's RICO count was dismissed in April, 1996.  In
 November 1995, the Company filed to three additional causes of action
 against Immunex based on the same facts, for breach of duty of
 confidentiality, breach of contract/promissory estoppel, and unfair
 competition.  Immunex  moved for summary judgment on these counts in August
 1996.  In August 1996, Immunex also moved for summary  judgment  with 
 respect to trade secret misappropriation case because the Massachusetts 
 Institutions,  from  which  Cistron's  IL-1b  rights  were licensed,
 received NIH grants, and Immunex asserts that the Institutions cannot have
 trade secrets under the Bayh-Dole Act.   Immunex also filed two additional
 motions for summary judgment seeking to limit the Company's damages claims,
 and a motion to strike the Company's jury demand on damages.  The Company
 opposed each of those motions.  

  On September 4, 1996, Immunex filed a motion for voluntary dismissal of
 their unfair competition counterclaim.  The Court dismissed Immunex's
 counterclaim on September 24, 1996.

  In its answers to interrogatories, the Company indicated that it is 
 preliminarily seeking monetary damages of approximately $30 - $70 million
 from Immunex.  There can be no assurance as to what the final level of damages
 sought will be, or that the Company will be successful in receiving the amount
 sought either at trial or by settlement or that any award received might not
 be overturned or reduced after trial on appeal.

                                      8
<PAGE>

  On September 13, 1996, the District Court ruled on several motions for
 summary judgment in the Company's lawsuit against Immunex.  The Court denied
 Immunex's motion seeking a ruling that the Company's claims for trade secret
 misappropriation, breach of confidentiality, and breach of contract or
 promissory estoppel, were preempted by the federal Bayh-Dole Act, and entered
 summary judgment for the Company on the preemption issue, concluding that the
 Bayh-Dole Act does not preempt the Company's state tort and contract claims.
 The  Court also denied Immunex's motion for summary judgment on the Company's
 breach of confidentiality and breach of contract or promissory estoppel
 claims.

  The Court granted several of Immunex's motions for summary judgment on
 certain claims and measures of damages.  The Court granted Immunex's motion
 for summary judgment on the Company's unfair competition claim, and granted
 Immunex's motion for summary judgment on two means of measuring damages,
 holding that the Company may not measure damages by using the market price of
 Immunex stock, and holding that the Company may not seek damages at trial
 based on the interest calculation described in the parties' motion papers. 
 It was unclear from the Court's ruling whether the Company would be
 permitted to seek any sort of prejudgment interest or present value 
 component of damages at trial.

  Trial in the Immunex suit which had been scheduled for September 24, 1996 is 
 being rescheduled to November 1996 due to other scheduling conflicts of the
 Court.

  During fiscal years 1992 through 1996, the Company has incurred expenses 
 aggregating approximately $1.6 million in legal fees to protect the Company's
 patent position and will continue aggressive patent defense in the future.

  Government Regulation

  The manufacturing and marketing of pharmaceutical products requires the 
 approval of the FDA and comparable agencies in foreign countries.  The FDA
 has established mandatory procedures and safety standards which apply to the
 clinical testing, manufacture and marketing of pharmaceutical products.  The
 process of obtaining FDA approval for a new therapeutic drug may take
 several years and often involves the expenditure of substantial resources. 
 The steps required before a product can be produced and marketed for human use
 include preclinical studies, the filing of an Investigational New Drug
 ("IND") application, human clinical trials and the approval of a New Drug
 Application ("NDA"), a process which may take several years.

  Preclinical studies are conducted in the laboratory and in animal model 
 systems to gain preliminary information on the drug's efficacy and to
 identify major safety problems.  The results of these studies are submitted
 to the FDA as part of the IND application before approval can be obtained
 for the commencement of testing in humans.

  The human clinical testing program involves three phases.  Phase I studies
 are conducted on volunteers or, in the case of antitumor agents, on patients
 with terminal disease, to determine the maximum tolerated dose and any side
 effects of the product.  Phase II studies are conducted on patients having a
 specific disease to determine the product's efficacy and the most effective 
 doses and schedules of administration.  Phase III involves wide-scale studies
 on patients with the same disease in order to provide comparison with
 currently available drugs or biologics.  Data from Phase I, II and III trials
 are submitted in an NDA.  The NDA involves considerable data collection,
 verification and analysis, as well as the preparation of summaries of the
 manufacturing and testing processes, pre-clinical and clinical trials.  The
 FDA must approve the NDA before the drug may be marketed.

  The manufacture and marketing of in-vitro diagnostic products requires 
 compliance with regulations which, generally, are less difficult to comply
 with then those covering pharmaceuticals.  In the United States, many
 diagnostic products may be accepted by the FDA pursuant to a 510(k)
 application.  Such application must contain information which establishes
 that the product in question is "substantially equivalent" to similar
 diagnostic products already in general use.  The FDA has 90 days within
 which to respond to such application.  Failure to obtain acceptance 
 under the 510(k) application process would require an approval process
 involving lengthy and detailed laboratory and clinical testing, other
 costly and time-consuming procedures and extensive delays.

  The manufacture, marketing and sale of the products sold by the Company to
 the research market are not subject to FDA regulatory approval.

                                    9

<PAGE>

  The Company's business is also subject to regulation under the Occupational 
 Safety and Health Act, the Environmental Protection Act, the Nuclear Energy
 and Radiation Control Act, the Toxic Substance Control Act and the Resource
 Conservation and Recovery Act.

  The Company believes that it complies with the National Institutes of Health 
 guidelines for recombinant DNA research.

  Competition

  Many companies, including large pharmaceutical and biotechnology firms with 
 financial resources and research, development and marketing staffs and
 facilities substantially greater than those of Cistron, are engaged in
 researching and developing products similar to those under development by
 the Company.  The industry is characterized by rapid technological advances
 and competitors may develop comparable products more rapidly and/or
 effectively than those under development by Cistron. There can be no
 assurance that there will not be technological developments or break-through
 in the industry by others that would significantly reduce the
 competitiveness of the Company's products.

  Several companies have introduced IL-1 products to the research market in 
 competition to those of the Company.  The Company has notified others
 engaged in IL-1 products of the Company's license to IL-1 patents and the
 Company and the Institutions are reviewing competing IL-1 products for
 patent infringement.

  Manufacturing

   Although the Company's present manufacturing capacity is limited, it
  produces substantially all the products it is selling to the research
  market.

  Employees

  The Company has five full-time employees, consisting of its President, its 
 Vice President of Operations and Product Development, an Administrative
 Assistant, a senior scientist and a scientist.  In addition, the Chairman of
 the Board and Vice Chairman of the Board perform services on a part-time
 basis, each devoting approximately 10% of their time to the affairs of the
 Company. The Company also employs a part-time manufacturing worker and a
 scientist on a temporary basis.  None of the Company's employees are
 represented by a union or are covered by a collective bargaining agreement. 
 All employees of the Company have entered into agreements under which they are
 required to keep all information with regard to the business of the Company 
 confidential and to assign to the Company any inventions relating to the 
 Company's business made by them while in the Company's employment.  The
 Company believes its relations with its employees are excellent.

  Item 2. Properties.

  The Company leases approximately 12,500 square feet of combined laboratory
 and  office space at 10 Bloomfield Avenue, Pine Brook, New Jersey at a base 
 annual rental of approximately $123,000 (subject to increases based on the
 Consumer Price Index) plus utilities and taxes.  The lease agreement, as
 amended, is in effect through 1997, with a renewal option for five additional
 years.  The facility contains tissue culture, immunology, protein
 biochemistry, molecular biology and product development laboratories, all
 of which the Company believes are adequate for their present and anticipated
 future use.

  The Company owns all equipment required for its current operations; such 
 equipment is in satisfactory condition.

  Item 3. Legal Proceedings.

          See Item 1 - Business - Patent Protection.

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

          None.

                                   10

<PAGE>


                              PART II

 Item 5.  Market for the Registrant's Securities and Related Stockholder 
 Matters.

  The Company's Common Stock, par value $.01 per share (the "Common Stock") 
 is traded in the over-the-counter market through the National Association of
 Securities Dealers' Non-NASDAQ OTC Electronic Bulletin Board under the
 symbol "CIST".  The following table sets forth the high and low bid prices
 for the Common Stock, as reported by the National Quotation Bureau, Inc., 
 for each calendar quarter during the period from July 1, 1993.  The prices 
 reflect inter-dealer quotations without adjustment for retail markups,
 markdowns or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
<S>                                                                  <C>   
     Fiscal Year 1995                                  High             Low

 First Quarter  (July 1994 - Sept. 1994)...............1/20            1/100
 Second Quarter (Oct. 1994 - Dec. 1994)................1/16            1/100
 Third Quarter  (Jan. 1995 - March 1995)...............1/32            1/100
 Fourth Quarter (April 1995 - June 1995)...............1/14            1/50 

     Fiscal Year 1996                                  High             Low

 First Quarter  (July 1995 - Sept. 1995)...............1/14            2/33 
 Second Quarter (Oct. 1995 - Dec. 1995)................5/32            1/32 
 Third Quarter  (Jan. 1996 - March 1996)................7/8            1/20 
 Fourth Quarter (April 1996 - June 1996)...............7/16            7/32

      Fiscal Year 1997                                     
 First Quarter (through August 30, 1996)..............11/25            1/4



</TABLE>
  On August 30, 1996, the closing bid and asked prices for the Common Stock
 were $.35 and $.37.

  On August 30, 1996, there were approximately 784 holders of the Common
 Stock, excluding beneficial holders registered in nominee or street name.

  No cash dividends have been declared or paid on the Common Stock.  The
 Company does not anticipate paying dividends on the Common Stock in the
 foreseeable future.

  Item 6. Selected Financial Data.

  The following selected financial data are derived from the Company's
 financial statements and should be read in conjunction with and are
 qualified in their entirety by the financial statements, related notes and
 other financial information included elsewhere in this report.  Independent
 Auditors' Report includes an explanatory paragraph regarding certain
 conditions which raise substantial doubt about the Company's ability to
 continue as a going concern.  See - Independent Auditors' Report and Note 1
 to the  Financial Statements.


                                11