UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 1998

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

          For the transition period from ____________ to ______________

Commission file number  0-19612

                          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)

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

                                 Not Applicable
Former name, former address and former fiscal year, if changed since last report

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 ___

Applicable only to corporate issuers:

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 November 12, 1998
      -----------------------------      -----------------------------------
      Common Stock, par value $.001                24,453,647 Shares

<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                                     INDEX

                                                                        Page No.
                                                                        --------
PART I - FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Balance Sheets - September 30, 1998 (unaudited)
              and December 31, 1997                                          1

              Unaudited Statements of Operations and
              Comprehensive Loss - Three and nine
              months ended September 30, 1998 and 1997                       2

              Unaudited Statements of Cash Flows - Nine
              months ended September 30, 1998 and 1997                       3

              Notes to Financial Statements                                  4

     Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations                  6

     Item 3.  Quantitative and Qualitative Disclosures About
              Market Risk                                                   12

PART II - OTHER INFORMATION

     Item 2.  Changes in Securities and Use of Proceeds                     12

     Item 6.  Exhibits and Reports on Form 8-K                              12

              Signature                                                     13

<PAGE>

Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

                          IMCLONE SYSTEMS INCORPORATED

                                 Balance Sheets
                       (in thousands, except share data)

                                                     September 30,  December 31,
                        Assets                           1998          1997
                                                     -------------  ------------
                                                      (unaudited)
Current assets:
  Cash and cash equivalents .......................   $   2,599      $   2,558 
  Securities available for sale ...................      44,917         57,052
  Prepaid expenses ................................         214            596
  Other current assets ............................         909            589
                                                      ---------      ---------
                  Total current assets ............      48,639         60,795
                                                      ---------      ---------
Property and equipment:                                             
  Land ............................................         340            340
  Building and building improvements ..............      10,498          8,969
  Leasehold improvements ..........................       4,832          4,832
  Machinery and equipment .........................       7,766          6,315
  Furniture and fixtures ..........................         629            550
  Construction in progress ........................          31          2,159
                                                      ---------      ---------
                  Total cost ......................      24,096         23,165
    Less accumulated depreciation and                               
       amortization ...............................     (12,528)       (11,294)
                                                      ---------      ---------
                  Property and equipment, net .....      11,568         11,871
                                                      ---------      ---------
Patent costs, net .................................       1,112            944
Deferred financing costs, net .....................          48             55
Other assets ......................................       1,412          2,115
                                                      ---------      ---------
                                                      $  62,779      $  75,780
                                                      =========      =========
                                                                    
         Liabilities and Stockholders' Equity                       
                                                                    
Current liabilities:                                                
  Accounts payable ................................   $   1,302      $   1,731
  Accrued expenses and other ......................       2,463          1,440
  Interest payable ................................         106             68
  Deferred revenue ................................         358            208
  Current portion of long-term liabilities ........         598            677
                                                      ---------      ---------
                  Total current liabilities .......       4,827          4,124
                                                      ---------      ---------
Long-term debt ....................................       2,200          2,200
Other long-term liabilities, less                                   
  current portion .................................       1,267          1,118
Preferred stock dividends payable .................       1,907            112
                                                      ---------      ---------
                  Total liabilities ...............      10,201          7,554
                                                      ---------      ---------
                                                                    
Commitments and contingencies                                       
                                                                    
Stockholders' equity:                                               
  Preferred stock, $1.00 par value;                                 
     authorized 4,000,000 shares; issued                            
     and outstanding Series A Convertible:                          
     400,000 at September 30, 1998 and                              
     December 31, 1997 (preference in                               
     liquidation $41,907 and $40,112,                               
     respectively) ................................         400            400
  Common stock, $.001 par value; authorized                         
     45,000,000 shares; issued 24,489,933                           
     and 24,265,072 at  September 30, 1998 and                      
     December 31, 1997, respectively;                               
     outstanding 24,439,116, and 24,214,255                         
     at September 30, 1998 and December 31, 1997,                   
     respectively .................................          24             24
  Additional paid-in capital ......................     184,882        185,706
  Accumulated deficit .............................    (131,411)      (117,464)
  Treasury stock, at cost; 50,817 shares                            
     at September 30, 1998                                          
     and December 31, 1997 ........................        (492)          (492)
  Note receivable - officer and stockholder .......        (139)          --
  Accumulated other comprehensive income (loss):                    
     Unrealized (loss) gain on securities                           
        available for sale ........................        (686)            52
                                                      ---------      ---------
                  Total stockholders' equity ......      52,578         68,226
                                                      ---------      ---------
                                                      $  62,779      $  75,780
                                                      =========      =========
                                                                  
                See accompanying notes to financial statements.


                                     Page 1
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

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

<TABLE>
<CAPTION>
                                                       Three Months Ended        Nine Months Ended
                                                          September 30,            September 30,
                                                       ------------------       -------------------
                                                         1998      1997          1998        1997
                                                       --------   -------       -------    --------
<S>                                                    <C>         <C>         <C>         <C>     
Revenues:
  Product development milestone revenues ...........   $   --      $   --      $  1,000    $  2,500
  Research and development funding from third
     parties and other .............................        819         742       2,434       1,513
                                                       --------    --------    --------    -------- 
             Total revenues ........................        819         742       3,434       4,013
                                                       --------    --------    --------    -------- 

Operating expenses:
  Research and development .........................      6,423       3,320      15,269      11,972
     General and administrative ....................      1,215       1,039       4,174       3,394
                                                       --------    --------    --------    -------- 
             Total operating expenses ..............      7,638       4,359      19,443      15,366
                                                       --------    --------    --------    -------- 

Operating loss .....................................     (6,819)     (3,617)    (16,009)    (11,353)
                                                       --------    --------    --------    -------- 

Other:
  Interest and other income ........................       (773)       (414)     (2,382)     (1,099)
  Interest expense .................................        120         131         320         471
                                                       --------    --------    --------    -------- 
             Net interest and other income .........       (653)       (283)     (2,062)       (628)
                                                       --------    --------    --------    -------- 
Net loss ...........................................     (6,166)     (3,334)    (13,947)    (10,725)

Preferred dividends (including assumed
  incremental yield of $317 for the three
  months ended September 30, 1998 and
  $952 the nine months ended
  September 30, 1998) ..............................        922        --         2,747        --
                                                       --------    --------    --------    -------- 

Net loss to common stockholders ....................   $ (7,088)   $ (3,334)   $(16,694)   $(10,725)
                                                       ========    ========    ========    ======== 

Net loss ...........................................   $ (6,166)   $ (3,334)   $(13,947)   $(10,725)

Other comprehensive income (loss):
  Unrealized gain on securities
     available for sale:
        Unrealized holding gain (loss)
           arising during the period ...............       (910)         20        (704)         37
        Less: Reclassification adjustment
           for realized gain (loss)
           included in net income ..................         32           1          34          (2)
                                                       --------    --------    --------    -------- 
             Total other comprehensive income (loss)       (942)         19        (738)         39
                                                       --------    --------    --------    -------- 

Comprehensive loss .................................   $ (7,108)   $ (3,315)   $(14,685)   $(10,686)
                                                       ========    ========    ========    ======== 

Basic and diluted net loss per common share ........   $  (0.29)   $  (0.14)   $  (0.69)   $  (0.46)
                                                       ========    ========    ========    ======== 

Weighted average shares outstanding ................     24,328      24,123      24,277      23,193
                                                       ========    ========    ========    ======== 
</TABLE>

                See accompanying notes to financial statements.


                                     Page 2
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED

                            Statements of Cash Flows
                                 (in thousands)
                                   (unaudited)

                                                            Nine Months Ended
                                                               September 30,
                                                          ----------------------
                                                            1998          1997
                                                          --------      --------

Cash flows from operating activities:
   Net loss ..........................................    $(13,947)    $(10,725)
   Adjustments to reconcile net loss to net
          cash used in operating activities:
      Depreciation and amortization ..................       1,341        1,286
      Expense associated with issuance
          of options and warrants ....................         416        2,681
      (Gain) loss on sale of investments .............         (34)           2
      Changes in:
         Prepaid expenses ............................         382         (215)
         Other current assets ........................        (320)      (1,320)
         Due from officer ............................        --             19
         Other assets ................................         (47)          (8)
         Interest payable ............................          38           39
         Accounts payable ............................        (429)         194
         Accrued expenses and other ..................       1,023         (749)
         Deferred revenue ............................         150         --
                                                          --------     --------
               Net cash used in
                 operating activities ................     (11,427)      (8,796)
                                                          --------     --------

Cash flows from investing activities:
      Acquisitions of property and equipment .........        (812)      (1,570)
      Proceeds from sale of equipment ................        --            280
      Purchases of securities available for sale .....     (38,322)     (61,318)
      Sales of securities available for sale .........      50,503       47,629
      Additions to patents ...........................        (248)        (180)
                                                          --------     --------
               Net cash provided by (used in)
                  investing activities ...............      11,121      (15,159)
                                                          --------     --------

Cash flows from financing activities:
      Net proceeds from issuance of common stock .....        --         23,154
      Proceeds from exercise of stock
        options and warrants .........................         404        1,526
      Proceeds from issuance of common stock
        under the employee stock purchase plan .......          12         --
      Purchase of treasury stock .....................        --           (323)
      Proceeds from equipment and building
        improvement financings .......................         593         --
      Payments of other liabilities ..................        (662)      (1,361)
                                                          --------     --------
               Net cash provided by
                  financing activities ...............         347       22,996
                                                          --------     --------

Net increase (decrease) in cash and
      cash equivalents ...............................          41         (959)

Cash and cash equivalents at beginning of period .....       2,558        2,734
                                                          --------     --------
Cash and cash equivalents at end of period ...........    $  2,599     $  1,775
                                                          ========     ========

                See accompanying notes to financial statements.


                                     Page 3
<PAGE>

                          IMCLONE SYSTEMS INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

(1)  Basis of Presentation

      The financial statements of ImClone Systems Incorporated ("ImClone" or the
"Company")  as of  September  30, 1998 and for the three and nine  months  ended
September 30, 1998 and 1997 are unaudited.  In the opinion of management,  these
unaudited  financial  statements  include all  adjustments,  consisting  only of
normal recurring adjustments, necessary for a fair presentation. These financial
statements should be read in conjunction with the audited  financial  statements
and notes thereto  included in the Company's  Annual Report on Form 10-K for the
year  ended  December  31,  1997,  as filed  with the  Securities  and  Exchange
Commission.

      Results for the interim periods are not necessarily  indicative of results
for the full years.

(2) Financing Agreement

      In April,  the  Company  entered  into a  financing  agreement  (the "1998
Financing Agreement") with Finova Technology Finance, Inc. ("Finova").  The 1998
Financing  Agreement  allows the Company to finance the lease of  equipment  and
make  certain  building  and  leasehold   improvements  to  existing  facilities
involving amounts aggregating  approximately  $2,000,000.  Each lease has a fair
market  value  purchase  option at the  expiration  of a  48-month  term.  As of
September 30, 1998, the Company had entered into eight  individual  leases under
both the 1998  Financing  Agreement and a now expired 1996  financing  agreement
with Finova  aggregating a total cost of $2,478,000.  The Company has $1,267,000
available under the 1998 Financing Agreement.

(3) Commitments

      The Company has an  agreement in  principle  for  the supplemental further
development, production scale-up and manufacture of its lead therapeutic product
candidate,  C225, for use in human clinical  trials.  Services  pursuant to this
agreement  commenced in April 1998.  The total project cost is  DM8,490,000,  or
currently  approximately  $5,100,000.  As of September 30, 1998, the Company has
recorded  a  $1,875,000  liability  for  services  provided  to date  under this
agreement  which amount is classified  on the balance sheet in accrued  expenses
and other.

(4) Related Party Transactions

      In  January  1998,  the  Company   accepted  a  promissory  note  totaling
approximately  $131,000  from  its  President  and CEO in  connection  with  the
exercise of a warrant to purchase  87,305 shares of the Company's  common stock,
$.001 par value (the  "Common  Stock").  The note is due no later than two years
from issuance and is full recourse. Interest is payable on the first anniversary
date of the  promissory  note  and on the  stated  maturity  or any  accelerated
maturity at the annual rate of 8.5%. At September 30, 1998, the total amount due
the Company,  including interest, is approximately $139,000 and is classified in
the stockholders'  equity section of the balance sheet as a note receivable from
officer and stockholder.

      In October  1998,  the  Company  accepted  an  unsecured  promissory  note
totaling $100,000 from its Executive Vice President and COO. The note is payable
on demand including interest at the annual rate of 8.25% for the period that the
loan is  outstanding.  It is expected  that  payment of the note in full will be
made in November 1998.

(5)  Earnings Per Share

      Basic and diluted  Earnings Per Share  ("EPS") are  computed  based on the
weighted average number of shares outstanding.  Potentially dilutive securities,
including  convertible  preferred  stock,  options and  warrants,  have not been
included in the diluted EPS computation because they are anti-dilutive.


                                     Page 4
<PAGE>

(6)  Comprehensive Income (Loss)

      On January 1, 1998, the Company adopted Statement of Financial  Accounting
Standards  No.  130,  "Reporting   Comprehensive  Income"  ("SFAS  130"),  which
establishes  standards for reporting and display of comprehensive income and its
components.  In  accordance  with  SFAS  130,  the  Company  has  displayed  the
components of "Other  comprehensive  income  (loss)" and  "Comprehensive  income
(loss)" in the accompanying  Financial  Statements.  All prior-period  data have
been reclassified to conform with the provisions of SFAS 130.

(7)  Employee Stock Purchase Plan

      In April  1998,  the  Company's  board of  directors  adopted  the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"),  subject to
shareholder  approval which was received in May 1998.  The ESPP allows  eligible
employees  to purchase  shares of the  Company's  Common Stock  through  payroll
deductions  at  the  end of  quarterly  purchase  periods.  To be  eligible,  an
individual must be employed for a period of not less than six months,  he or she
is  required  to work  more  than 20 hours  per  week for at least 5 months  per
calendar year and he or she may not own greater than 5% of the Company's  Common
Stock.  Pursuant to the ESPP, the Company has reserved  500,000 shares of Common
Stock for issuance.  On the first day of each quarterly  purchase  period,  each
eligible  employee  participating  in such  quarterly  purchase  period  will be
granted an option to purchase a number of shares of Common Stock  determined  by
dividing such employee's contributions  accumulated prior to the last day of the
quarterly  period by the purchase  price.  The purchase price is equal to 85% of
the market price per share on the last day of each quarterly purchase period. An
employee may purchase stock from the accumulation of payroll deductions of up to
a maximum of 15% of his or her compensation,  limited to $25,000 per year. As of
September  30, 1998,  participating  employees  have  purchased  1,594 shares of
Common Stock at an aggregate purchase price of $11,856. No compensation  expense
has been recorded in connection with the ESPP.

(8)  Reclassification

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


                                     Page 5
<PAGE>

Item 2 - 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.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1998 and 1997

Revenues

      Revenues  for the  nine-months  ended  September  30,  1998 and 1997  were
$3,434,000 and  $4,013,000,  respectively,  a decrease of $579,000,  or 14%. The
decrease in revenues for the nine-months  ended September 30, 1998 was primarily
attributable  to a decrease  in  milestone  revenue  which can vary  widely from
period  to  period  depending  upon the  timing of the  achievement  of  various
research and development milestones for products under development. Revenues for
the  nine-months  ended September 30, 1998 consisted of (i) $225,000 in research
support  from the  Company's  partnership  with the  Wyeth/Lederle  Vaccine  and
Pediatrics Division of American Home Products  Corporation  ("American Home") in
infectious  diseases,  (ii)  $1,000,000 in milestone  revenue and  $1,875,000 in
research and support payments from the Company's  research and license agreement
with Merck KGaA ("Merck") with respect to the Company's BEC2 product  candidate,
(iii)  $236,000 in royalty  revenue from the Company's  strategic  alliance with
Abbott Laboratories  ("Abbott") in diagnostics,  and (iv) $98,000 from a Phase I
Small Business  Innovation Research grant from the National Cancer Institute for
a program in  cancer-related  angiogenesis.  Revenues for the nine-months  ended
September  30, 1997  consisted  of (i)  $225,000 in  research  support  from the
Company's  partnership with American Home, (ii) $1,500,000 in milestone  revenue
and $1,042,000 in research and support payments from the Company's  research and
license  agreement  with Merck,  and (iii)  $1,000,000 in milestone  revenue and
$246,000 in royalty revenue from the Company's strategic alliance with Abbott.

Operating: Research and Development Expenses

      Total operating  expenses for the nine-months ended September 30, 1998 and
1997 were $19,443,000 and $15,366,000,  respectively, an increase of $4,077,000,
or 27%.  Research and development  expenses for the nine-months  ended September
30, 1998 and 1997 were $15,269,000 and $11,972,000, respectively, an increase of
$3,297,000 or 28%. Such amounts for the nine-months ended September 30, 1998 and
1997 represented 79% and 78%,  respectively,  of total operating  expenses.  The
increase  in  research  and  development  expenses  for  the  nine-months  ended
September 30, 1998 was partially  attributable  to the costs  associated with an
agreement in principle for the contract  manufacturing  of clinical  grade C225,
the Company's lead therapeutic product candidate,  to support ongoing and future
human clinical  trials.  Additionally,  the increase in research and development
expenses is due to expenditures  associated with additional staffing in the area
of discovery  research,  the initiation of new supported  research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development,  manufacturing,
clinical  and  regulatory  affairs  associated  with  C225.  This  increase  was
partially  offset  by the  one-time  $2,233,000  non-cash  compensation  expense
recorded for the  nine-months  ended  September 30, 1997 in connection  with the
extension  of the term of an  officer's  warrant to purchase  397,000  shares of
Common Stock.


                                     Page 6
<PAGE>

General and Administrative Expenses

      General  and  administrative  expenses  include  administrative  personnel
costs,  costs incurred in connection with pursuing  arrangements  with corporate
partners and technology  licensors,  and expenses  associated  with applying for
patent protection for the Company's  technology and products.  Such expenses for
the  nine-months   ended  September  30,  1998  and  1997  were  $4,174,000  and
$3,394,000,  respectively,  an increase of  $780,000,  or 23%.  The  increase in
general and administrative  expenses primarily  reflected (i) additional support
staffing for the expanding  research,  clinical,  development and  manufacturing
efforts of the Company,  particularly  with respect to C225,  and (ii)  expenses
associated with the pursuit of strategic corporate alliances and other corporate
development expenses. The Company expects general and administrative expenses to
increase in future periods to support planned  increases in research,  clinical,
development and manufacturing efforts of the Company.

Interest and Other Income and Interest Expense

      Interest  and  other  income  was  $2,382,000  for the  nine-months  ended
September 30, 1998 compared to $1,099,000 for the  nine-months  ended  September
30,  1997,  an increase of  $1,283,000,  or 117%.  The  increase  was  primarily
attributable  to the increased  interest income earned from higher cash balances
in the Company's  investment  portfolio  resulting  from a private  placement of
Series A Convertible Preferred Stock (the "Series A Preferred Shares" or "Series
A Preferred  Stock")  completed in December 1997.  Interest expense was $320,000
and  $471,000  for  the   nine-months   ended   September  30,  1998  and  1997,
respectively,  a decrease of $151,000 or 32%.  Interest expense for both periods
primarily  included interest on an outstanding  Industrial  Development  Revenue
Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of $2,200,000,
interest  recorded on capital  lease  obligations,  and  interest  recorded on a
liability to Pharmacia and UpJohn Inc.  ("Pharmacia"),  for the reacquisition of
the worldwide  rights to a recombinant  mutein form of  Interleukin-6 as well as
clinical  material  manufactured  and supplied by Pharmacia to the Company.  The
decrease was primarily  attributable  to the December  1997  repayment of an IDA
Bond issued in 1986 (the "1986 IDA Bond") with a principal  amount of $2,113,000
and the February 1998 repayment of the remaining liability to Pharmacia.

Net Losses

      The Company had net losses to common  stockholders of $16,694,000 or $0.69
per share for the nine-months ended September 30, 1998 compared with $10,725,000
or $0.46 per share for the nine-months ended September 30, 1997. The increase in
the net losses and per share net loss to common  stockholders  was due primarily
to the accrued dividends to preferred  stockholders and to the factors mentioned
in the preceding paragraphs.

Three Months Ended September 30, 1998 and 1997

Revenues

      Revenues  for the  three-months  ended  September  30,  1998 and 1997 were
$819,000  and  $742,000,  respectively,  an  increase of  $77,000,  or 10%.  The
increase in revenues for the three-months ended September 30, 1998 was primarily
attributable to increased royalty revenue from the Company's  strategic alliance
with Abbott. Revenues for the three-months ended September 30, 1998 consisted of
(i) $75,000 in research  support from the  Company's  partnership  with American
Home, (ii) $625,000 in research and support payments from the Company's research
and license agreement with Merck, and (iii) $119,000 in royalty revenue from the
Company's  strategic  alliance with Abbott.  Revenues for the three-months ended
September  30,  1997  consisted  of (i)  $75,000 in  research  support  from the
Company's  partnership with American Home, (ii) $625,000 in research and support
payments from the Company's research and license agreement with Merck, and (iii)
$42,000 in royalty revenue from the Company's strategic alliance with Abbott.


                                     Page 7
<PAGE>

Operating: Research and Development

      Total operating expenses for the three-months ended September 30, 1998 and
1997 were $7,638,000 and $4,359,000,  respectively, an increase of $3,279,000 or
75%. Research and development  expenses for the three-months ended September 30,
1998 and 1997 were  $6,423,000  and  $3,320,000,  respectively,  an  increase of
$3,103,000 or 93%. Such amounts for the  three-months  ended  September 30, 1998
and 1997 represented 84% and 76%, respectively, of total operating expenses. The
increase  in  research  and  development  expenses  for the  three-months  ended
September 30, 1998 was primarily  attributable  to the costs  associated with an
agreement in principle for the contract  manufacturing  of clinical  grade C225,
the Company's lead therapeutic product candidate,  to support ongoing and future
human clinical  trials.  Additionally,  the increase in research and development
expenses is due to expenditures  associated with additional staffing in the area
of discovery  research,  the initiation of new supported  research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development,  manufacturing,
clinical and regulatory affairs associated with C225.

General and Administrative

      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  three-months  ended  September  30,  1998  and  1997  were  $1,215,000  and
$1,039,000,  respectively,  an  increase of  $176,000  or 17%.  The  increase in
general and administrative  expenses primarily  reflected (i) additional support
staffing for the expanding  research,  clinical,  development and  manufacturing
efforts of the  Company,  particularly  with  respect to C225 and (ii)  expenses
associated with the pursuit of strategic corporate alliances and other corporate
development expenses. The Company expects general and administrative expenses to
increase in future periods to support planned  increases in research,  clinical,
development and manufacturing efforts of the Company.

Interest and Other Income/Expense

      Interest  and  other  income  was  $773,000  for  the  three-months  ended
September 30, 1998 compared to $414,000 for the three-months ended September 30,
1997, an increase of $359,000,  or 87%. The increase was primarily  attributable
to the  increased  interest  income  earned  from  higher  cash  balances in the
Company's  investment  portfolio  resulting from a private placement of Series A
Preferred  Stock completed in December 1997.  Interest  expense was $120,000 and
$131,000 for the three-months ended September 30, 1998 and 1997, respectively, a
decrease of $11,000 or 8%. Interest and other expense for both periods primarily
included  interest on the 1990 IDA Bond with an  aggregate  principal  amount of
$2,200,000 and interest recorded on capital lease obligations.  The decrease was
primarily  attributable to the December 1997 repayment of the 1986 IDA Bond with
a principal amount of $2,113,000.

Net Losses

      The Company had net losses to common  stockholders  of $7,088,000 or $0.29
per share for the three-months ended September 30, 1998 compared with $3,334,000
or $0.14 per share for the  three-months  ended September 30, 1997. The increase
in the net  losses  and  per  share  net  loss to  common  stockholders  was due
primarily to the accrued dividends to preferred  stockholders and to the factors
mentioned in the preceding paragraphs.


                                     Page 8
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      At  September  30,  1998,  the  Company's  principal  sources of liquidity
consisted of cash and cash equivalents and short-term  securities  available for
sale of approximately $47,516,000. The Company has financed its operations since
inception  primarily through the public and private sales of equity  securities,
the sale of three issues of IDA bonds  (collectively,  the "IDA Bonds")  through
the New York City Industrial Development Agency (the "NYIDA"),  license fees and
contract  research and development fees and royalties  received under agreements
with collaborative partners and interest earned on these funds. Since inception,
public and private  sales of equity  securities in financing  transactions  have
raised approximately  $163,799,000 in net proceeds. The sale of the IDA Bonds in
each of 1985,  1986 and 1990 raised an aggregate of $6,313,000,  the proceeds of
which have been used for the  acquisition,  construction and installation of the
Company's  research  and  development  facility  in New York City,  and of which
$2,200,000 is currently  outstanding.  Since  inception,  the Company has earned
approximately  $32,096,000 from license fees,  contract research and development
fees  and  royalties  from  collaborative   partners,   including  approximately
$3,434,000  earned  during the  nine-months  ended  September  30,  1998.  Since
inception the Company has earned  approximately  $7,796,000 in interest  income,
including approximately $2,349,000 earned during the nine-months ended September
30, 1998.

      In October 1997,  the Company  entered into a  Collaborative  Research and
License  Agreement with CombiChem,  Inc.  ("CombiChem")  to discover and develop
novel small  molecules  against  selected  targets for the  treatment of cancer.
Concurrent  with  the  execution  of  the  Collaborative  Research  and  License
Agreement, the Company entered into a Stock Purchase Agreement pursuant to which
the Company purchased 312,500 shares of common stock of CombiChem,  as adjusted,
for aggregate consideration of $2,000,000. The investment has been classified as
a long-term  asset.  During the nine months ended September 30, 1998 the Company
recorded an unrealized loss of $750,000 on this investment due to a reduction in
the market value of the stock.  The Company deems this reduction in market value
to be temporary.

      The Company  has  obligations  under  various  capital  leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily  under a  December  1996  financing  agreement  (the  "1996  Financing
Agreement")  and  an  April  1998  financing   agreement  (the  "1998  Financing
Agreement") with Finova Technology Finance, Inc. ("Finova").  The 1996 Financing
Agreement allowed the Company to finance the lease of equipment and make certain
building and leasehold  improvements to existing  facilities  involving  amounts
aggregating  approximately  $2,500,000.  Each  lease  has a  fair  market  value
purchase  option at the  expiration  of a 42-month  term.  Pursuant  to the 1996
Financing  Agreement,  the Company issued to Finova a warrant expiring  December
31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69
per share.  The  Company  recorded a non-cash  debt  discount  of  approximately
$125,000 in connection  with this  financing,  which discount is being amortized
over the 42-month term of the first lease.  The 1996  Financing  Agreement  with
Finova  expired  in  December  1997 and the  Company  did not  utilize  the full
$2,500,000 under the agreement. In April 1998, the Company entered into the 1998
Financing Agreement with Finova aggregating approximately $2,000,000.  The terms
of the 1998  Financing  Agreement are  substantially  similar to the now expired
1996  Financing  Agreement  except  that each lease has a 48-month  term.  As of
September 30, 1998, the Company had entered into eight  individual  leases under
both the 1996 Financing Agreement and the 1998 Financing Agreement aggregating a
total cost of $2,478,000 and had $1,267,000  available  under the 1998 Financing
Agreement.

      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.  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
consummating any such  alternatives.  These discussions have included  potential
significant strategic alliances for the development and commercialization of the
Company's lead product candidate,  C225. Such strategic  alliances could include
up-front license fees plus milestone fees and revenue  sharing.  There can be no
assurance that the Company will be successful in achieving such  alliances,  nor
can the Company predict the amount of funds which might be available to it if it
entered  into  such  alliances  or the time at which  such  funds  would be made
available or the other terms of any such alliances.

      In January 1998, the Company  completed the construction and commissioning
of a new 1,750 square foot process  development  center at its  Somerville,  New
Jersey  facility  at a cost of  approximately  $1,650,000.  The Company has also
taken steps to complete a formal design concept for large scale manufacturing at
this facility. If the Company adapts this facility to large-scale  manufacturing
or does so at another location, it will incur substantial  additional costs. The
lease on the Company's New York City  facility  expires in March 1999,  however,
the Company  currently  expects to be able to extend the lease and  retrofit the
facility to better suit its needs,  although  there is no assurance that it will
be able to do so.


                                     Page 9
<PAGE>

      The  1990 IDA  Bond in the  outstanding  principal  amount  of  $2,200,000
becomes due in 2004.  If the lease on the  Company's  New York City  facility is
terminated,  the 1990 IDA Bond  provides  that it will become due and payable in
full 60 days prior to such  termination.  The Company will incur interest on the
1990 IDA Bond  aggregating  approximately  $250,000 during 1998. The Company has
granted the NYIDA a security  interest in substantially  all facility  equipment
located in the New York facility to secure the obligations of the Company to the
NYIDA under the 1990 IDA Bond.

      The  holders of the Series A  Preferred  Shares  are  entitled  to receive
cumulative  dividends at an annual rate of $6.00 per share.  Dividends accrue as
of the  issuance  date of the Series A  Preferred  Shares and are payable on the
outstanding  Series A  Preferred  Shares  in cash on  December  31 of each  year
beginning  December 31, 1999 or at the time of  conversion  or redemption of the
Series A  Preferred  Shares on which the  dividend is to be paid,  whichever  is
sooner. Accrued dividends were $1,907,000 at September 30, 1998.

      Total capital expenditures made during the nine-months ended September 30,
1998 were  $951,000.  Of such  expenditures,  $139,000  have been  reimbursed in
accordance  with the terms of the 1998 Financing  Agreement with Finova.  Of the
total capital expenditures made during the nine-months ended September 30, 1998,
$589,000 related to improving and equipping the Company's manufacturing facility
in  New  Jersey.  The  balance  of  capital  additions  was  for  equipment  and
computer-related purchases for the corporate office and research laboratories in
New York.

      The Company  anticipates that its existing capital resources should enable
it to maintain its current and planned  operations  through  September 2000. The
Company's  research and support  payments from  corporate  partners have defined
expiration dates during 1999. Under these existing corporate  partnerships,  the
Company expects to receive final research and support  payments of approximately
$1,458,000  which will be  recognized  during the  remainder of 1998 through the
third quarter of 1999.  Additionally,  certain milestone payments are subject to
attaining research and development  milestones,  many of which have not yet been
achieved.  There  can be no  assurance  that  the  Company  will  achieve  these
milestones.  The Company's future working capital and capital  requirements will
depend upon numerous factors, including, but not limited to, 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 and obtaining regulatory approvals,  the
timing  and  cost of  manufacturing  scale-up  and  effective  commercialization
activities and arrangements,  the level of resources that the Company devotes to
the  development  of marketing  and sales  capabilities,  the costs  involved in
filing,  prosecuting and enforcing patent claims,  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.  In order to fund its capital needs
after the end of the year 2000, the Company will require  significant  levels of
additional   capital  and  intends  to  raise  the  capital  through  additional
arrangements  with corporate  partners,  equity or debt financings or from other
sources.  There is no assurance the Company will be  successful in  consummating
any such arrangements.  If adequate funds are not available,  the Company may be
required to significantly curtail its planned operations.

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


                                    Page 10
<PAGE>

      At December 31, 1997, the Company had net operating loss carryforwards for
federal  income tax  purposes  of  approximately  $115,000,000  which  expire at
various  dates from 2000  through  2012.  At  December  31, 1997 the Company had
research  credit  carryforwards  of  approximately  $2,303,000  which  expire at
various  dates  between  years 2001 and 2012.  Pursuant  to  Section  382 of the
Internal Revenue Code of 1986, as amended, the annual utilization of a company's
net  operating  loss and  research  credit  carryforwards  may be limited if the
Company  experiences  a change in  ownership of more than 50  percentage  points
within a three-year  period.  Since 1986, the Company  experienced two ownership
changes.  Accordingly,  the Company's net operating loss carryforwards available
to offset future federal  taxable  income arising before such ownership  changes
are limited to  $5,159,000  annually.  Similarly,  the Company is  restricted in
using its research credit carryforwards arising before such ownership changes to
offset future  federal  income tax expense.  There can be no assurance  that the
Company will ever  generate  income  which would enable it to utilize  these net
operating loss carryforwards.

Other Items

      The Company has completed a review of its business  systems  including its
research  and  development,  product  development,   manufacturing,   financial,
communication  and  administrative  operations.  Based on such  review,  systems
critical to its business  which have been  identified as non-year 2000 compliant
are either being replaced or corrected through  programming  modifications.  The
Company expects to have  identified and replaced or corrected all  non-compliant
systems by the end of the first  quarter of 1999.  This includes the purchase of
third party software and required hardware to support such software. The Company
estimates  the cost of its Year 2000 efforts to be  approximately  $300,000,  of
which  approximately  $162,000 has been incurred to date.  All costs of the Year
2000 project will be funded from the  Company's  cash  reserves.  The total cost
estimate is based on management's current assessment and is subject to change.

      In addition to the review of  internal  systems,  the Company has begun to
make  inquiries  about  Year 2000  readiness  to  vendors,  corporate  partners,
academic collaborators,  contract  manufacturers,  clinical study sites, service
suppliers,   communications   providers  and  banks  whose  system  failures  or
non-compliant products could have a significant impact on its operations.  There
can be no assurance  that the systems or products of such parties will be timely
converted.  The Company cannot accurately  predict the occurrence or the outcome
of any  such  problems,  nor can the  dollar  amount  of any  such  problems  be
estimated.

      The  failure to  identify  and remedy  Year 2000  problems  could  disrupt
important   operations  such  as  discovery   research,   product   development,
manufacturing  and ongoing  clinical trials.  Such disruptions  could affect the
development  and ultimate  marketing  of  potential  products as well as put the
Company at a competitive  disadvantage relative to companies that have corrected
such problems.  The Company has not yet developed  contingency  plans to address
these  potential  problems  with  internal  systems  and with the third  parties
mentioned earlier.  The Company intends to develop  preliminary plans during the
next several months,  which may need to be refined as more  information  becomes
available.


                                    Page 11
<PAGE>

Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement

      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 pre-clinical 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;
achieving  milestones under collaborative  arrangements with corporate partners;
developing the capacity and ability to  manufacture,  as well as 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; failing to remedy Year 2000 problems
by the Company or the failure by those entities associated with the Company; and
those  other  factors  set forth in  "Management's  Discussion  and  Analysis of
Financial  Condition and Results of  Operations--Overview  and Risk Factors," in
the Company's most recent Annual Report on Form 10-K.

Item 3  - Quantitative and Qualitative Disclosures About Market Risk

      Not applicable.

PART II - OTHER INFORMATION

Item 2. - Changes in Securities and Use of Proceeds

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   In July 1998, the Company issued 3,000 shares of unregistered Common
            Stock  to its  Vice  President,  Business  Development  and  General
            Counsel  upon  exercise  of   outstanding   warrants  for  aggregate
            consideration of $4,500.  Such issuance was consummated as a private
            sale  pursuant to Section  4(2) of the  Securities  Act of 1933,  as
            amended.

      (d)   Not applicable.

Item 6 - Exhibits and Reports on Form 8-K

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

            Exhibit No.                        Description
            -----------                        -----------

            27.1                               Financial Data Schedule

      (b)   Reports on Form 8-K

            None.


                                    Page 12
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  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
                                           (Registrant)

Date:  November 13, 1998              By   /s/ Samuel D. Waksal
                                           -------------------------------------
                                           Samuel D. Waksal
                                           President and Chief Executive Officer

Date: November 13, 1998               By   /s/ Carl S. Goldfischer
                                           -------------------------------------
                                           Carl S. Goldfischer
                                           Vice President, Finance and Chief 
                                           Financial Officer


                                    Page 13