SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, DC 20549
                                
                            FORM 10-K
                                
(Mark One)

X    Annual report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934
     For the fiscal year ended December 31, 1997 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 number 0-12081
                                
                 AQUILA BIOPHARMACEUTICALS, INC.
     (Exact Name of Registrant as Specified in Its Charter)
                                
     Delaware                    (508) 797-5777               04-3307818
(State or Other Jurisdiction of  (Registrant's telephone     (IRS Employer 
Incorporation or Organization)  number, including area code) Identification No.)

                   365 Plantation Street, Worcester, MA  01605
               (Address of Principal Executive Offices)  (Zip Code)

Securities registered pursuant to Section 12(b) of the Act:  None
                                
   Securities registered pursuant to Section 12(g) of the Act:
                  Common Stock, $.01 par value
                        (Title of Class)
                                
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.
X    YES            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.     X

The aggregate market value of 5,466,710 shares of voting stock
held by non-affiliates of the registrant as of March 16, 1998
was approximately 42,025,333 based on the last sale price of
such stock on such date.

Indicated by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
X YES          NO

Common Stock Outstanding as of March 13, 1998:  5,828,671 shares.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement in connection with the
annual meeting of shareholders to be held May 20, 1998 are
incorporated by reference into Part III of Form 10-K.

           FIGHTING DISEASE THROUGH IMMUNE MODULATION

PART I

Item 1. Business

Aquila Biopharmaceuticals, Inc. ("Aquila" or the "Company")
creates and commercializes products which modulate the immune
system to control, prevent or treat infectious diseases and
cancers.

Background

Aquila's technology and product development programs are based on
enhancement of the immune system using the Stimulon(TM) family of
adjuvants.  Advances in biotechnology and immunology have enabled
scientists to develop a new generation of products which contain
disease specific agents and components which specifically
modulate the immune system so that an effective immune response
is achieved.  Traditional vaccines can prevent infection through
antibody based immune responses.  While antibodies alone can be
effective in preventing or eliminating pathogen infection in
certain diseases, scientists now recognize that the cell mediated
response, where cytotoxic T lymphocytes ("CTL") are activated, is
probably necessary to eliminate intracellular pathogens.  By
stimulating a CTL response it may be possible to develop
therapeutic products to treat diseases involving herpes,
hepatitis and HIV infections or cancers.

The Stimulon(TM) family of adjuvants have been shown to enhance the
quality and the quantity of the immune response to a variety of
antigens, both in pre-clinical studies and in a number of human
clinical trials.  Aquila believes that the Stimulon(TM) adjuvants
will allow scientists to design products which can activate
specific T cell responses and result in a new highly effective
class of vaccines for both therapeutic and prophylactic
applications.  The market potential of such products is high
since this new understanding of the immune system will allow
expansion of the market to address new areas and the development
of safer, more effective substitutions for older products.  New
applications include diseases involving poorly immunogenic
antigens such as polysaccharides or populations, such as the
elderly, whose immune systems have deteriorated so that they do
not respond to traditional approaches.  New therapeutic products
for treating people with diseases such as chronic hepatitis
infection, malaria, acquired immune deficiency syndrome ("AIDS")
or various cancers where a CTL response is thought to be
essential may be possible using the StimulonT adjuvants.

Aquila's product development programs include the Quilimmune(TM)
human health products and the Quilvax(TM) products for animal
health.  Phase I clinical trials of the Company's lead product,
Quilimmune-P(TM) for preventing S. pneumonia infections in people
over the age of 65 years, have been completed.  Phase II trials
have been initiated.   Aquila's lead animal health product,
Quilvax-M(TM) for controlling bovine mastitis has undergone
extensive testing in bovine immunogenicity and challenge trials.
The Company plans to initiate formal United States Department of
Agriculture ("USDA") licensing trials shortly.  A third potential
product, to help control malaria infections incorporating the
antigen SPf66 and QS-21 is in Phase I clinical trials.  The
Company's corporate partners are SmithKline Beecham p.l.c.
("SB"), Wyeth-Lederle Vaccines and Pediatrics ("Wyeth-Lederle"),
a business group of Wyeth-Ayerst International, Inc., a
subsidiary of American Home Products Corporation, Pasteur Merieux
Connaught ("PMC"), Progenics Pharmaceuticals, Inc. ("Progenics"),
VaxGen, Inc ("VaxGen"), Virbac S.A. and NABI.

Scientific Background

The human immune system is made up of several different cell
types including antigen presenting cells ("APCs"), B cells and T
cells.  In general, the role of APCs is to process protein
antigens from pathogens such as viruses, bacteria or parasites
into smaller fragments and to present the resulting peptides to T-
cells.  Antigens can be processed by APC's through one of two
pathways, the Class I or Class II pathway.  Peptide fragments
from antigens processed through the Class I pathway are displayed
on the surface of the APC by an immune system protein called the
MHC Class I protein and typically result in a cellular immune
response.  Those processed by the Class II pathway are displayed
by MHC Class II proteins and typically result in a humoral
response.  When a humoral response is stimulated, B cells are
activated by a specific type of T cell, called a helper T cell,
to produce antibodies which are specific for the antigen
encountered.  Two populations of T-helper cells have been
identified, Th-1 and Th-2.  T-helper cells secrete biologically
active molecules called cytokines, which mediate the effects of
immune system cells.  Th-1 and Th-2 T-helper cells secrete
different types of cytokines and promote the synthesis of
different classes of antibodies.  The antibodies produced by B
cells will bind to and can neutralize the pathogens - bacteria,
parasites and viruses - which have invaded the body.  In the
cellular response, a second type of T cell, called a cytotoxic T
lymphocyte (CTL) is activated.  These cells recognize and kill
cells containing pathogens.  T-helper cells and the cytokines
they produce are also important in generating a CTL response.
The specific activation of cytotoxic T cells, called a CTL
response, is thought to be very important in products designed to
treat or prevent diseases such as herpes, hepatitis, HIV and
malaria.  It is also thought to be critical for many
immunotherapeutic approaches to the treatment of cancer.

Traditional approaches for developing immune protection from
infection in humans involved the use of animal viruses, or the
use of attenuated or killed pathogens as vaccines.  For example,
the injection of cowpox virus protects humans against smallpox
infection.  Vaccines to protect against polio have been developed
using either attenuated or killed polio viruses.  While these
approaches are effective, there is a small but significant risk
of disease developing in people receiving these types of
vaccines.  With the advent of recombinant technology, scientists
realized that safer products could be created, using specific
components of an organism rather than the whole organism.  For
example, the genes for the surface antigens from a pathogen can
be cloned using genetic engineering and used to make recombinant
proteins.  The recombinant proteins are then used in a vaccine,
to make a so called sub-unit vaccine.  Other specific components
have been used to stimulate disease specific responses, including
proteins  isolated from the pathogen itself, synthetic peptides,
carbohydrates and lipoproteins.

When these newer technologies were first used, it was found that
while a pathogen specific immune response was stimulated, often
this response was not of the right quality or strong enough to
provide protection from infection or disease.  As a result,
immune modulation technologies have been developed that are
coupled with pathogen specific antigen approaches.  These methods
for modulating the immune system include conjugation of the
antigen to a carrier protein, the use of viral or bacterial
vectors to carry specific genes, the use of cytokines or
lymphokines to stimulate the immune system and the use of
adjuvants.  Carrier proteins such as keyhole limpet hemocyanin
(KLH) or the toxoids from diphtheria, tetanus and cholera have
been used effectively.  An example of this type of vaccine is the
Haemophilus influenzae type b conjugate vaccine, such as
HibTITER(TM) sold by Wyeth-Lederle Vaccines and Pediatrics, where
the antigen is conjugated to a diphtheria protein.  Viral vectors
such as vaccinia, canary pox, or the bacteria BCG are under
evaluation as carriers of disease specific genes to determine
whether they stimulate a protective immune response.  Adjuvants
that have been used or which are in development include aluminum
hydroxide (Alum); MF59, a product of Chiron Corporation and its
affiliates ("Chiron"); monophosphoryl lipid A (MPL), a product of
Ribi ImmunoChem Research, Inc. ("Ribi"); LeIF, a product of
Corixa Corporation ("Corixa"); and saponins from Quillaja
saponaria such as QS-21.  These adjuvant technologies are not all
the same, affecting the humoral and cell mediated pathways
differently.  Some approaches result in general immune
stimulation.  Others are more specific.  Aquila is developing the
Stimulon(TM) family of saponin adjuvants (QS-21, QS-7) as an immune
modulation technology.  The Company uses biotechnology approaches
for the creation of specific antigens, and combines these with
the Company's proprietary Stimulon(TM) adjuvants to develop safe and
effective products.

With the advent of new technology, changes are occurring in the
market for immune modulating agents.  Because development of
these new products involves a high rate of technological
innovation, it is possible to protect new products through
patenting, which can result in increased profit margins.  While
product liability costs are high for traditional vaccines
(because of the safety concerns), product liability costs for
products using the new technology are comparable to those for
therapeutic products.  Manufacturing costs can be lower for new
immune modulation products than for other therapeutic products.
In the manufacturing of recombinant therapeutic enzymes it is
often difficult to retain the enzymatic activity, and this can
limit the choice of manufacturing methods.  The limitations are
not so stringent for products used to modulate the immune system.
Historically, vaccines were generally low priced because the
products were used to prevent disease in healthy people
(prophylaxis) and, due to the lack of product differentiation,
companies generally competed on price.  However, in today's
approaches to disease management and with the new proprietary
innovations, immune stimulation products have been recognized as
very effective contributors to controlling the total medical
costs of certain diseases.  Therapeutic products involving immune
stimulation are in development for a number of intractable
diseases, as are products for populations beyond infancy - young
adults and the elderly.

The Use of Adjuvants: Technology to Enhance the Immune System

Adjuvants are agents which are added to a product to improve or
adjust the immune response.  Alum is the only adjuvant currently
used in human vaccines licensed by the United States Food and Drug
Administration ("FDA").  This adjuvant probably acts by a depot effect,
which means that the addition of alum to a vaccine causes the
antigen to remain at the site of injection for a longer period of
time, which seems to increase the humoral immune response.
Another adjuvant under development by Ribi is a mixture of
lipopolysaccharides derived from bacterial cell walls, and is
called MPL.  Its use can increase the level of antibodies that
are produced in response to an antigen, but additional components
are often required to stimulate a significant CTL response.
Chiron is developing an adjuvant called MF59 which is an emulsion
of three lipids and water.  It is a general, broad immune
stimulant which will activate the immune system in the absence of
an antigen.  Oil/water emulsions have been used in older vaccines
and also act by a depot effect.  Corixa is developing LeIF, a
protein produced by the parasite Leishmania, which is believed to
stimulate certain APCs.  Aquila's Stimulon(TM) family of adjuvants,
QS-21 and QS-7, are purified, defined molecules, isolated from
natural sources.  They stimulate antigen specific responses and
have been shown to promote both antibody and CTL immune responses
in animals.

Aquila's Core Technology

Aquila and its corporate partners are developing new products
based on two core technologies: (1) the Stimulon(TM) family of
adjuvants that specifically enhance antibody and CTL responses;
and (2) proprietary antigens that are specific for the target
disease.

The StimulonT Family of Adjuvants

QS-21 is the lead Stimulon(TM) adjuvant.  It is a natural product,
purified from the bark of a tree which grows in South America,
called Quillaja saponaria.  Up to 10% of the bark from Quillaja
is composed of saponins of which QS-21 is typically one of the
more prominent.  The bulk bark extract is available in the United
States.  The Company believes QS-21 is well-suited to
pharmaceutical development and formulation because it has good
stability as a dried powder (at least 3 years), is water soluble,
and, when rehydrated, is a clear liquid that mixes easily with
other vaccine components.  QS-21 is compatible with alum and
microparticles which are used in many experimental product
formulations.  QS-21 is  well-characterized with a known
molecular structure - distinguishing it from competing adjuvant
candidates, which are typically emulsions or biologicals.
Because QS-21 is currently regulated by the FDA as a "constituent
material" used in drug preparation, the FDA does not require
licensure of facilities used for its manufacture.  A second
Stimulon(TM) molecule, QS-7, which has a slightly different safety
and activity profile, is in development.  Patents have issued to
Aquila with composition of matter claims covering QS-7 and QS-21,
as well as two other identified saponins, QS-17 and QS-18.  The
Company has also been issued a patent for chemically modified
saponins.  All patents include the use of all of these molecules
as adjuvants.  See "Patents and Proprietary Rights".

The use of Stimulon(TM) adjuvants improves the quality of the immune
response.  Addition of QS-21 to antigens will generally broaden
the type of antibody produced and stimulate cell mediated
responses.  The quality of these responses is important for the
development of effective products.  QS-21 also produces a strong
quantitative response; that is, higher antibody levels are
achieved.  It is potent and active at microgram doses.

QS-21 increases the titer, or amount, of antibodies produced by
the immune system in response to vaccination with many types of
antigens, including recombinant proteins derived from viruses and
bacteria and free polysaccharide antigens from bacterial
pathogens.  An unusual property of QS-21 not shared by other
adjuvants is its ability both to increase significantly the
antibody response to free polysaccharide antigens and to boost
the titer further with a subsequent vaccination.

QS-21 broadens the antibody profile by promoting both Th-1 and Th-
2 dependent immune responses.  The type of protective immunity
elicited by an infection with a virus or bacterium typically
includes antibodies of several isotypes (also called classes and
subclasses).  Some of these isotypes can be more important than
others in mediating protection against viral or bacterial
pathogens.  Vaccination with a recombinant antigen typically
stimulates only a few isotypes.  Some adjuvants, such as alum,
also only stimulate a narrow range of antibody isotypes.  Hence,
alum may stimulate a high quantity, but a lower quality,
antibody.  In contrast, QS-21 stimulates high quantities of a
broad range of antibody isotypes, enabling the antigen-induced
antibody response to resemble natural protective immune
responses.

QS-21 also stimulates cell-mediated immune responses and induces
the production of cytotoxic T-lymphocytes.  The CTL response is a
critical means of natural defense against viral infections and,
is believed to eliminate abnormal cells that might otherwise
develop into cancer.  Until recently, it was generally thought
that recombinant antigens could not be used to elicit CTL
responses. Alum and simple oil/water emulsions typically fail to
induce CTL responses.  However, Company scientists discovered
that the simple addition of QS-21 to these antigens stimulates
the production of a CTL response to the recombinant antigens in
animal studies.  Other investigators have also reported that CTL
responses induced by recombinant vaccines adjuvanted with QS-21
can mimic the protective CTL responses induced by viral
infection.

The Company believes that the performance of QS-21 will vary
depending upon the nature of the antigen and the target
population.  Initial human studies conducted by the Company's
licensees and collaborators have focused on proving the safety of
QS-21 and experimenting with different formulations and dose
levels.  Aquila and its collaborators have completed 24 studies
to date; an additional 24 studies are underway and over 1300
subjects have received QS-21 in various different formulations.
These studies have shown that the addition of QS-21 to product
formulations improves the immune response to certain antigens, as
evidenced by increased antibody titer.  No serious adverse events
attributed to QS-21 have occurred thus far in the clinical
studies.  Some local reactogenicity which is thought to be due to
the enhanced immune response and some pain on injection have been
seen in certain vaccine formulations.  The Company has recently
completed initial human clinical trials of a new formulation of
QS-21 which it believes will reduce the pain on injection seen in
these particular vaccine formulations.

Disease Specific Antigens

Aquila's ability to develop and produce proprietary disease
specific antigens allows it to develop products targeted at
specific applications and populations.  Company scientists have
scientific expertise in: (1) recombinant DNA cloning methods; (2)
mammalian, insect and bacterial cell expression; (3) extraction
and purification of compounds from natural sources and (4)
carbohydrate and polysaccharide production.  Furthermore, Company
scientists have demonstrated their expertise with a variety of
antigens from both viral and bacterial pathogens including those
that require high level biocontainment (i.e. BL-3).  These
antigens include the envelope protein from feline leukemia virus,
two outer surface proteins from Borellia burgdorferi, fibronectin
binding proteins from Stapholococcal aureus, and a variety of
cell surface proteins from granulocytic Ehrlichia.

The typical development pathway for a disease specific antigen
includes antigen identification, preparation of research
quantities of the antigen, demonstration of a biological effect
of a product containing the antigen and development of commercial
scale antigen production procedures.  These developmental efforts
can include those primarily accomplished within the Company or
technology licensed by the Company from outside sources, or a
combination of both approaches.  This pathway has been completed
for the feline leukemia virus and B. burgdorferi antigens, is
nearing completion for the S. aureus antigen and is at an early
antigen identification stage for those from Ehrlichia.  The
Company has research ongoing on the production of S. pneumonia
polysaccharide antigens by fermentation and purification.

The Company attempts to protect its antigen technology either
through maintenance of trade secrets or filing of patent
applications.  U.S. patents have been issued covering the
company's FeLV(TM) and S. aureus antigen technology as well as its
baculovirus expression system.  In addition, patents have been
filed which address antigens from B. burgdorferi and Ehrlichia.
However, there can be no assurance that patents will issue from
the patent applications or that if issued such patents will not
be challenged or that the rights granted under any issued patents
will provide adequate proprietary protection.  In certain cases
the Company has licensed proprietary technology covering specific
antigens from third parties.  See "Patents and Proprietary
Information."

Aquila's Strategy

Aquila's objective is to create and commercialize products which
modulate the immune system to prevent, control or treat
infectious diseases and cancers.  The Company's strategy is to
exploit its expertise in adjuvant and antigen research, to create
products and develop them through FDA or USDA licensure, to
support its corporate partner's product development programs, to
develop its manufacturing capacity, and to in-license and develop
related technology.

Exploit Expertise in Adjuvant and Antigen Research

Aquila has developed unique expertise in understanding the role
of adjuvants in stimulating and tuning the immune response to
specific antigens to allow the development of safe and effective
therapeutic and prophylactic products.  The Company intends to
continue to integrate its proprietary core technologies and to
identify targeted applications of its technology.  In addition,
the Company plans to broaden its expertise in research and
development involving different antigens including recombinant
proteins, peptides, polysaccharides and other classes of
antigenic molecules.  Aquila's strategy is to acquire related
products and technologies to supplement its scientific expertise,
its capabilities and its product portfolio.

Create and Develop its Own Products

Aquila has established a large number of corporate partnerships
and a significant number of products are being developed through
these partnerships.  However, Aquila believes that it can develop
and retain significant value through its own product development
efforts.  The Company has three products in clinical development:
(i) Quilimmune-P(TM) for preventing pneumococcal infections in the
elderly for which Phase I trials have been completed and Phase II
commenced; (ii) Quilvax-M(TM) to control bovine mastitis for which
immunogenicity and challenge trials have been completed; and
(iii) Quilimmune-M(TM) for controlling malaria, which is in Phase I
trials.  Aquila has research ongoing with other potential
adjuvants and on the discovery and development of antigens for
tick borne diseases.  The Company has completed the development
and licensure of one product, Quilvax-FeLV(TM) for preventing
leukemia in cats.  See "Aquila's Product Development Programs".

Aquila has a large number of academic collaborations ongoing
involving other antigens.  A number of these are cancer vaccines.
In certain cases the Company has options to license related
technology should it wish to accelerate the development of these
products.  The Company intends to develop human products
primarily but will exploit unique, significant product
opportunities in animal health.

Support Corporate Partners Programs

Aquila has entered into collaboration agreements with SB, PMC,
Wyeth-Lederle, VaxGen, NABI and Progenics as well as a number of
other biotechnology companies.  Aquila intends to leverage these
partnerships to speed discovery and development of certain
products which the Company does not have the resources or skills
to develop.  These collaborations allow the Company to focus its
own efforts on products which have different markets than those
of interest to large pharmaceutical companies.  The Company has a
number of potential licensing discussions underway and intends to
continue to selectively license its technology.  See "Corporate
Partner Programs".

Continue Developing Manufacturing Capacity

Aquila has retained rights to the manufacture of QS-21 on a
worldwide basis in all of its licensing agreements, and has been
producing QS-21 for clinical trials for all of its partners and
its product programs. In addition, the Company operates a small
manufacturing facility to supply FeLV antigens and vaccine to its
corporate partner Virbac S.A.  Aquila has produced commercial
scale quantities of its canine lyme product and has the capacity
to produce specific commercial requirements of its Quilvax-M(TM)
product for bovine mastitis.  Aquila intends to continue to
develop manufacturing expertise and capacity to allow it to
retain value from the products which it develops.

In-license Related Technology

Aquila has been and will continue to be opportunistic in
licensing in products and technology related to immune modulation
to supplement its product pipeline.  In addition to expanding the
product portfolio, this strategy will allow the Company to
capitalize on newly developed technologies which are synergistic
with the Company's existing technology base.

Aquila's Product Development Programs

Aquila's strategy is to develop products itself and in
partnership with other companies. The Company has six products in
development or commercialized.

          Quilimmune(TM) & Quilvax(TM) Product Development

Product             Market         Status             Partner

Quilimmune-P(TM)   Adults >= 50   Phase I complete.  Aquila,
Product to         years 34 mil.  Phase II trials    worldwide
prevent             people in      ongoing.           rights.
pneumococcal        U.S.
infections

Quilvax-M(TM)      30 million     Immunogenicity     Aquila, N.
Product to control milk cows in   and challenge      America
bovine mastitis    the U.S. &     trials complete.   Virbac S.A.
(S. aureus & E.    Europe.        Licensing trials   Europe.
coli)                             anticipated to
                                  start in 1998.

Quilimmune-M(TM)   1-2 billion    Phase I ongoing.   Collaboration
(SPf66) Product to persons at                         with
control malaria     risk.                             World
(Plasmodium                                           Health
falciparum)                                           Organization.
                                                      
Quilvax-FeLV(TM)    ~ 15 million   On market,         Virbac S.A.
Product to prevent  cats           Leucogen(R),       Worldwide.
feline leukemia     vaccinated     (Europe);
                    per year.      Genetivac(R),
                                   (U.S.).

Quilimmune-T(TM)    Persons at     Pre-clinical       Aquila
Product to prevent  risk for tick  research.          worldwide
Lyme and            bites.                            rights.
Ehrlichiosis
diseases

Quilvax-L(TM)       10 million     Licensing          Schering-
Product to prevent  dogs at risk   efficacy and       Plough.
canine Lyme         in endemic     safety trials
diseases            areas.         completed.

Quilimmune-P(TM) for the Prevention of Pneumococcal Infections

Infections by Streptococcus pneumoniae ("S. pneumoniae") cause
serious disease in young children and in the elderly. Healthy
adults are not typically at risk for developing disease following
exposure to S. pneumoniae.  There are over 80 recognized
serotypes of pneumococci, each with varying geographic and age-
group prevalence.  The resulting diseases and serotypes involved
are different between the young and the elderly, and as a
consequence, separate vaccine products for the young and the
elderly are appropriate. Quilimmune-P(TM) is intended to be used to
prevent pneumococcal infections in the elderly.

There are approximately 34 million people over the age of 65 in
the United States, and an additional 36 million adults with
immune compromising conditions who are at risk for developing
disease caused by S. pneumoniae.   Various strains of S.
pneumoniae are responsible for most community-acquired cases of
pneumonia (500,000 cases per year) and are the second most common
cause of bacteria (50,000 cases per year, with 25% mortality). It
is estimated that S. pneumoniae  causes 40,000 deaths in the
elderly and immunocompromised adults each year.

The currently available vaccines, which were developed and
approved in the early 1980s, cover the 23 serotypes which cause
about 90% of infections in the United States and Europe.  The two
vaccines approved in the U.S. are composed of purified capsular
polysaccharides from each of the 23 serotypes.  Vaccination rates
in the U.S. elderly population are currently running at about
30%.  These vaccines are underutilized by the elderly for a
number of reasons.  Reports in the medical literature indicate
that the current vaccines are effective in the elderly in only 50-
60% of the recipients.  A number of side effects are caused by
the current vaccines, including pain on injection, a sore arm,
fever, and a general feeling of malaise for a few days.  Because
of these side effects, these traditional vaccines have not been
licensed for repeat use, resulting in a misconception in the
market that these vaccines give lifetime protection.  In
addition, the antibody titers drop over a number of years.
Typically after 3 or more years, the effective levels of
antibodies in vaccines is quite low.  Furthermore, data has
recently been presented suggesting that the ability to elicit
functional antibodies particularly decreases with age.  Another
reason these vaccines are poorly utilized is because physicians
have an option of treating patients who develop pneumonia with
antibiotics. However, strains of S. pneumonia that are resistant
to several classes of antibiotics have been isolated with
increasing frequency over the past few years.  With increased
antibiotic resistance, the option of using antibiotics may not be
as effective, and physicians are moving towards prevention as a
therapeutic choice.  As a result there is an urgent need for a
more effective and safe pneumococcal vaccine for the elderly.

S. pneumoniae also causes half of childhood otitis media, the
most frequent reason (one out of three) for visits to
pediatricians.  In some developing countries, pneumococcal
pneumonia kills approximately 10% of the children under the age
of five, making it the single leading cause of death. Compared to
the elderly, a smaller number of S. pneumonia serotypes is
responsible for most of the disease seen in children.
Development efforts are underway by several companies to improve
the immune response to S. pneumoniae capsular polysaccharides by
conjugating the polysaccharides to immunogenic carrier proteins.
This approach was used in developing the successful Hib
(Hemophilus influenzae type b) vaccines.  The companies
developing conjugate vaccines have chosen to focus on the ten or
eleven strains most prevalent in infants and young children.

A different approach is required for development or an improved
S. pneumoniae vaccine for the elderly. The pediatric conjugate
vaccine, if successfully developed, would likely not be
appropriate for immunization of adults and the elderly because it
would address only the limited number of strains that are
problematic in children rather than the broader range required in
the elderly. It would also be difficult to include all 23 of the
strains in the currently available vaccine as conjugates because
of the overall manufacturing expense and cumulative mass of the
conjugated components. There is also some evidence that
conjugation does not improve the performance of polysaccharide
vaccines in the elderly.

In animal studies Aquila scientists have shown that the use of
Quilimmune-P(TM), which contains 23 different capsular
polysaccharides and QS-21, improves the immune response over that
seen with the current approved vaccine.  For instance, many
polysaccharides to which mice do not typically respond become
immunogenic with Quilimmune-P(TM).  In addition, antibody titers to
many strains increase.  The effect may make the use of a lower
antigen dose feasible, which could make the product less
expensive and also reduce side effects.  Finally, mice re-
vaccinated with Quilimmune-P(TM) experience a booster effect for
many strains, a response not seen with existing vaccines.  This
effect may allow the administration of periodic booster shots to
maintain immunity levels.

Aquila has completed a Phase I clinical trial in healthy young or
middle aged adult volunteers.  The study was carried out in
collaboration with and supported by the National Institutes of
Health (NIH).  The primary end point of the study was to evaluate
safety; a secondary goal was to evaluate immune responses.  The
study was designed as a dose response study, evaluating several
different dosage levels of the polysaccharide antigens and
adjuvant.  The control group received the marketed vaccine.

Quilimmune-P(TM) was generally well tolerated after intramuscular
injection.  Transient pain on injection was seen in some subjects
but in most cases the pain was mild or moderate.  Otherwise,
local and systemic reactogenicity was infrequent and similar to
the control licensed product.  No serious adverse events or
clinically significant abnormal laboratory values were
encountered in any study subject.

Quilimmune-P(TM) was immunogenic in all subjects in a fashion similar
to the control recipients.  This included subjects who received
Quilimmune-P(TM) formulated with lower than normal doses of antigen.
Because healthy adults, not elderly people, were used as subjects
for the study, these results were expected.  The small number of
subjects in each of the groups limited the Company's ability to
draw conclusions about the relative immunogenicity of the
different formulations.  However, formulations of Quilimmune-P(TM)
containing a full dose of pneumococcal polysaccharides induced a
higher level of total IgG and nasal wash IgA for some but not all
polysaccharide types than the control vaccine.

In Phase II studies which began recently, Aquila is evaluating
Quilimmune-P(TM) formulations that were shown to be well tolerated in
Phase I studies.  This study will be a prospective, randomized,
double blind comparison of Quilimmune-P(TM) to the currently licensed
vaccine product in an elderly population, the target population
for the product.  The study is expected to involve about 400
subjects with clinical endpoints of safety, quality and quantity
of the immune response.

Quilvax-M(TM) for the Control of Bovine Mastitis

Bovine Mastitis is an inflammation of a dairy cow's udder.  Two
pathogens cause the vast majority of infections resulting in
mastitis: Staphylococcus aureus ("S. aureus") and Escherichia
coli ("E. coli").  Mastitis is the most costly disease affecting
the dairy industry.  The economic impact in the United States of
bovine mastitis is estimated to be between $1-2 billion per year.
According to the National Mastitis Council, the value of the
losses per cow per year are $184 (there are about 9.5 million
dairy cows in the U.S.).  The principal losses occur from reduced
milk production, from milk that is of poor quality and thus has a
lower economic value, from milk which has to be discarded, and
from animal replacement costs.  Many times when an animal
develops mastitis, it is simply culled from the herd. There are
also extra labor costs, treatment, and veterinary services to
cope with this disease.

There are a number of bovine mastitis vaccines on the market, but
these are directed towards E. coli only. Aquila's Quilvax-M(TM) 
bovine mastitis product is bivalent, containing antigens for both
S. aureus and E. coli, and is expected to provide broader control
of mastitis.

The S. aureus component of Quilvax-M(TM) is based on a patented cell
surface protein from S. aureus called fibronectin binding
protein.  Fibronectin binding protein is primarily responsible
for attachment of S. aureus to host tissue, in this case the
epithelium of the bovine mammary gland.  It is believed that this
attachment is a critical step in the disease process and results
in the inflammation and tissue destruction that characterizes
mastitis.  In the Company's Quilvax-M(TM) program, fibronectin
binding protein is used as the target antigen for development of
a beneficial immune response.  Antibodies directed against
fibronectin binding protein may block the attachment of S. aureus
to mammary gland tissue or play a role in antibody dependent
opsonophagocytic activity.

The Company has been making use of the ability to experimentally
cause S. aureus mastitis by direct challenge of dairy cattle with
bacteria deposited in the mammary gland.  In a typical challenge
experiment, the response of several groups of animals, both
treated and non-treated controls, to a S. aureus challenge are
compared.  Recent studies indicate that Quilvax-M(TM) is safe and
that it reduces the inflammatory response that develops upon
infection.  Measurement of parameters that determine milk quality
and the price dairy producers would receive for their milk
indicates that milk from animals vaccinated with Quilvax-M(TM) would
have a higher value than that from non-treated controls.

The E. coli portion of Quilvax-M(TM) is modeled after the E. coli
mastitis products currently on the market.  The marketed products
make use of a mutant strain of E. coli that has slightly altered
surface carbohydrate structure.  Quilvax-M(TM) makes use of a similar
E. coli mutant.  Immunogenicity studies in dairy cattle indicate
that the amount of anti-E. coli antibody generated by Quilvax-M(TM)
is similar to the amount generated by a marketed E. coli mastitis
product.

In order to receive authorization from the USDA to market Quilvax-
M(TM), the Company must conduct formal efficacy trials for both the
S. aureus and E. coli components of the product.  Following
successful completion of these studies, a formal safety study
using the product on working dairy farms is required.  The
Company believes it could add a streptococcal component in a next
generation product.

The research and development costs are 50% funded by Virbac.  The
Company has retained exclusive marketing rights in North America.
Virbac has exclusive marketing rights in Europe.  The parties
share marketing rights in the rest of the world.

Quilimmune-M(TM) for the Control of Malaria

According to estimates in published reports, over two billion
people reside in malaria-infected areas.  The yearly incidence of
malaria is estimated by the World Health Organization at 300 to
500 million cases, with a death toll of 1.5 to 3 million persons.
While anti-malarial drugs have been in use for decades, they are
expensive and resistant malarial strains are becoming
increasingly common.  The World Health Organization has
identified malaria as a priority vaccine target in developing
countries.

Aquila is involved in a number of development programs to develop
products to control malaria.  One of the programs is a
collaboration with SB (see "Corporate Partner Programs").

In addition to this program, Aquila has a collaboration with the
World Health Organization (WHO) on another malaria product
involving the antigen SPf66.  SPf66, a polymerized synthetic
peptide developed by Dr. Manuel Patarroyo of the Institute de
Inmunologia in Columbia, contains sequences from proteins
expressed during several stages of the parasite's life cycle. The
antigen has been tested with an alum adjuvant in three large
clinical trials in humans.  Protection was achieved from malaria
in two of the trials in about 30% of the adults and children.  In
the third trial there was no protection.  These mixed results are
thought to be the result of several factors:  different
manufacturing processes were used for the SPf66; the design of
the trials was different; the clinical definition of malaria
varied between studies; and the study populations were different.

Aquila has investigated the effectiveness of a Quilimmune-M(TM)
product containing QS-21 and SPf66.  In a study in Aotus monkeys,
57% of the animals were protected from malaria on challenge after
vaccination with SPf66 plus QS-21.  In this study, a control
vaccine of SPf66 alum (the product that was used in the human
studies) gave only 25% protection, comparable to the results
obtained previously in humans.

A human clinical trial of this malaria product containing SPf66
and QS-21 has been initiated.  In this Phase I trial,
approximately 90 volunteers enrolled in five groups received the
SPf66 product formulated with the QS-21 adjuvant, alum or various
doses of QS-21 adjuvant with alum.  Treatment with three
sequential subcutaneous injections will be used to determine the
safety and immunogenicity of the potential product.  The study is
expected to be completed in approximately twelve months.

Quilvax-FeLV(TM) for the Prevention of Feline Leukemia

Aquila has developed a recombinant subunit vaccine against the
feline leukemia virus.  The product was approved in 1990 in the
U.S. and 1991 in Europe.  It is marketed by Virbac in Europe,
Australia and Japan under the tradename Leucogen(R) and was marketed
by Mallinckrodt Veterinary, Inc. ("MVI") prior to the sale of MVI
to SP in the U.S. under the tradename Genetivac(R).  Sales to Virbac
amount to greater than ten percent (10%) of the Company's total revenues.
FeLV(TM) is a highly contagious and commonly fatal disease of cats.  Aquila's
product was the first recombinant vaccine ever developed against
a tumor-causing virus in mammals.  A patent covering Quilvax-FeLV(TM)
has been issued in the U.S. and a number of other countries.
Aquila manufactures bulk formulated product for the United States
and Australian markets, and supplies Virbac with bulk antigen and
adjuvant for further manufacture for the European and Japanese
markets.  The product is the leading FeLV vaccine in Europe, and
in a recent independent study was found to be the most effective
of three leading FeLV products on the market.

Quilvax-L(TM) for the Prevention of Canine Lyme Disease

Aquila is developing a product for dogs pursuant to a 1991
agreement, currently with SP against Borellia burgdorferi
("Borellia"), the pathogen that causes Lyme disease.  There are
currently three Lyme disease vaccine products on the market.
During 1993-94, Aquila conducted efficacy trials of its canine
Lyme disease product using a protocol approved by the USDA.  SP
has conducted field safety studies and the results are under
review at the USDA.  Additional safety studies may be required.
The Company is unable to predict the timing of or whether this
product will reach the marketplace.

Quilimmune-T(TM) for the Prevention of Tick Borne Diseases

Ticks can transmit pathogens that cause a variety of diseases,
including Lyme disease, Rocky Mountain Spotted Fever and
Babesiosis.  In 1991 scientists reported the discovery of a new
disease, human granulocytic ehrlichiosis ("HGE"), caused by a
microorganism in the genus Ehrlichia transmitted by the bite of
the same tick that carries Lyme disease.  HGE's flu-like symptoms
include fever, headache and muscular aches, as well as joint
pain, nausea, vomiting and cough.  HGE is believed to have caused
several deaths in immune-compromised patients.  Aquila scientists
were the first to successfully cultivate the HGE organism in
tissue culture.  Patent applications on infected cell lines, the
methods of growing the organism, potential vaccine antigens and
their genes, and diagnostic reagents derived from the pathogen
have been filed.  Aquila has been working with the Centers for
Disease Control and Prevention to develop a blood test to be used
in epidemiological surveys that will determine how widespread the
disease may be.  In addition, Aquila Scientists have cloned and
characterized genes for the immunodominant protein and
immunogenic surface proteins.  Aquila's work in HGE may also have
applicability for animal health applications.  The HGE organism
appears to cause illness in dogs.

Corporate Partner Programs

In addition to Aquila's own product development programs, the
Company has six corporate partners who have licensed the Stimulon(TM)
adjuvants for a variety of human diseases.  The six corporate
partners are SB, Wyeth-Lederle, PMC, Progenics, VaxGen, and NABI.
Three of the world's four largest vaccine manufacturers are
partners using Aquila's adjuvants.  In return for rights to use
Stimulon adjuvants for specific diseases, the corporate partners
have agreed to pay Aquila license fees, milestone payments, and
royalties on product sales.  Aquila has retained worldwide
manufacturing rights for QS-21.  In addition to corporate
partners, the Company has developed a number of academic
collaborations to test potential vaccine formulations containing
QS-21.

PARTNER/COLLAB. CLINICAL DEVELOPMENT STATUS

                        Research  Preclinical  Phase I  Phase II  Phase III

Melanoma*         (Th)  ---------------------------------------------
HIV-1*            (Pr)  -----------------------------------------
Herpes II         (Th)  ------------------------------------
Hepatitis B       (Th)  ------------------------------------
Malaria*          (Pr)  ------------------------------------
Respiratory Virus (Pr)  -------------------------------
B Cell Lymphona*  (Th)  --------------------------
Colon Cancer*     (Th)  --------------------------
Pancreatic Cancer (Th)  --------------------------
Prostate Cancer*  (Th)  --------------------------
Lung Cancer       (Th)  --------------------------
Breast Cancer     (Th)  --------------------------
HPV               (Th)  --------------------------

*multiple programs, most advanced program shown
Th = Therapeutic; Pr= Prophylatic


    SmithKline Beecham, p.l.c. has licensed QS-21 for a number
  of different applications.  The world's leading manufacturer of
  hepatitis B vaccine, SB is aggressively marketing its existing
  portfolio of vaccines, while developing new and improved
  products.  SB has completed a number of Phase I clinical trials
  of potential products containing QS-21 and is also investigating
  the use of combinations of different adjuvants.  Sales to SB of QS-21
  amount to approximately ten percent (10%) of total revenues of the
  Company.


  SB in collaboration with the Walter Reed Army Institute of
  Research reported in the New England Journal of Medicine
  (Stoute et al., NEJM, January 9, 1997, pp. 86-91) results of a
  Phase I human challenge study involving the testing of a
  potential malaria product formulated with different adjuvants.
  The three different product formulations all contained a
  recombinant circumsporozoite malaria antigen fused to a
  hepatitis B surface antigen as a carrier protein.  The first
  formulation also contained MPL and alum; the second an
  emulsion of oil and water; and, the third was formulated with
  QS-21, MPL and the oil and water emulsion.  In the first
  formulation, with MPL and alum only, there was an
  immunological response, but following challenge with the
  malaria parasite after treatment, only one of the seven
  subjects in this group was protected from malaria.  In the
  second formulation, with the oil and water emulsion, the
  immune response was much stronger, but in the malaria
  challenge, only two of seven subjects were protected.  In the
  third product formulation, with the addition of QS-21, the
  immune response was the highest.  Most importantly, the
  quality of the immune response was significantly different, as
  six of seven subjects exposed to the challenge with malaria
  were protected.  These results demonstrate that the quality of
  the immune response is critical.  Aquila has been informed
  that SB is planning further clinical testing of this potential
  product.

    Pasteur Merieux Connaught has licensed QS-21 for use in its
  HIV vaccine programs.  PMC has ongoing pre-clinical work on two
  potential HIV products and has started a Phase I clinical trial
  to evaluate a third HIV vaccine candidate.  PMC also licensed QS-
  21 for use in influenza and completed two clinical trials.
  Recently PMC elected to continue influenza trials with another
  company's product and not to incur further development expenses
  with QS-21.  Aquila has exercised its option to cancel this
  agreement covering PMC's influenza license with QS-21.

    Wyeth-Lederle Vaccines and Pediatrics licensed QS-21 in 1992
  for use in five vaccines.  Wyeth-Lederle, formed as a result of
  the acquisition of American Cyanamid by American Home Products,
  is a leader in pediatric vaccines.  Wyeth-Lederle has completed a
  Phase I clinical trial using QS-21 and continues pre-clinical
  development of other candidate vaccines.

    Progenics Pharmaceuticals, Inc. licensed QS-21 in 1995 for
  use in certain therapeutic products for cancer.  Progenics' most
  advanced program involves the use of QS-21 with a ganglioside
  preparation called GM2 to treat melanoma.  Phase I/II clinical
  trials of this product, which was initially developed by
  physicians at Memorial Hospital for Cancer and Related Diseases,
  have been completed, and two pivotal Phase III studies have been
  initiated.  The first of these is being conducted in the U.S. by
  cooperative cancer research groups supported by the National
  Cancer Institute.  Another trial commenced in 1997 and is being
  conducted outside the U.S.  A third trial is expected to commence
  in 1998.  A second cancer product, GD2, is being developed for
  the treatment of various cancers.  Phase I/II clinical trials
  commenced in 1996.  Aquila has licensed Progenics to use QS-21 in
  exchange for a license fee, an equity interest in Progenics, and
  royalties.  Progenics recently entered into a collaboration with
  Bristol-Myers Squibb Company to develop and commercialize GM2 and
  GD2.

    VaxGen, Inc. (an early stage company whose major corporate
  shareholder is Genentech, Inc.) has licensed QS-21 for use in its
  HIV-1 vaccine program.  VaxGen has conducted Phase I clinical
  trials in healthy volunteers with a product formulated with QS-
  21, under the auspices of the National Institutes of Health.
  This trial was expanded in 1994 after improved neutralizing
  antibody responses were observed in volunteers receiving products
  containing QS-21.  Some volunteers in this study reported pain on
  injection.   Enrollment in a third trial has just been completed.
  Volunteers received very low doses of gp120 antigen combined with
  QS-21 and/or alum.  These product formulations were well
  tolerated and preliminary immunogenicity results are promising.

    NABI has licensed QS-21 for use in production of
  immunoglobulin for prevention and treatment of gram-negative and
  gram-positive bacterial infections.  NABI is currently evaluating
  its products in clinical trials without using adjuvants.  The
  Company is uncertain if or when NABI will commence clinical
  trials using QS-21.

Manufacturing and Scale-up

As part of each Stimulon(TM) adjuvant licensing agreement, the
Company has retained the right to be the exclusive supplier of
Stimulon(TM) adjuvants.  The license agreements stipulate the supply
prices, within certain ranges.  Pursuant to the license
agreements, the Company will also receive royalties on its
licensees' product sales.

The Company currently manufactures QS-21 for commercial animal
health use and for use in human clinical trials.  The Company
produces QS-21 with an average batch size sufficient for
approximately 200,000 doses.  The Company has scaled the critical
steps of the process to produce a batch size suitable for large
scale commercial production up to 2,000,000 doses.

QS-21 is currently classified by the FDA as a constituent
material used in vaccine preparation.  As a result, the FDA does
not require licensure of facilities used for its manufacture.
Aquila believes that classification of QS-21 as a constituent
material affords flexibility in the timing of investment in
commercial manufacturing facilities.  After the safety and
effectiveness of QS-21 has been demonstrated, Aquila expects to
be in a position to reasonably project the plant capacity and the
capital investment required and can adjust the scale of
manufacturing as additional products reach the market.

The Company also currently manufactures Quilvax-FeLV(TM) antigen and
vaccine, which were licensed for sale in the U.S. by the USDA in
1990 and for European sales in the European Community ("E.C.") in
1991.  The Company produces commercial quantities at the 400 L
fermentation scale in USDA and E.C. approved facilities.  Two
additional animal vaccines are under development and will also be
manufactured in these facilities.  Quilvax-M(TM) for the control of
bovine mastitis will begin licensing trials in 1998.  Quilvax-
L(TM), for prevention of canine lyme disease, has completed
licensing trials and has been scaled to commercial quantities.

Patents and Proprietary Rights

Aquila has pursued a policy of obtaining patent protection both
in the United States and in selected foreign countries for
patentable subject matter in its proprietary technologies.  The
Company has filed or has rights to a number of U.S. patents and
patent applications and their foreign counterparts.  Aquila also
relies on trade secrets, proprietary know-how, and continuing
technical innovation to develop and maintain its competitive
position.

Aquila's future success will depend, in part, upon its ability to
develop patentable products and technologies and obtain patent
protection for its products and technologies both in the United
States and Europe. There can be no assurance that patent
applications owned or licensed by the Company will issue as
patents, that patent protection will be secured for any
particular technology, or that, if issued, such patents will be
valid, or that they will provide the Company with meaningful
protection against competitors with a competitive advantage.
There can be no assurance that the patents will not be challenged
or designed around by others.  Proceedings brought against
Aquila's patents could expose it to significant expense and the
risk of adverse determinations.

Aquila is not aware of any issued third party patents which would
interfere with development of any of its products, but there can
be no assurance that it will not infringe on existing or future
patents owned by others, that third parties will not bring suit
against it for infringement of such patents, that the Company
could obtain necessary or desirable licenses on acceptable terms,
or that it could design around such patents.  Any litigation
instituted by third party patent holders could expose Aquila to
significant expense and the risk of adverse determination.

QS-21 and other Adjuvants

Aquila received U.S. Patent No. 5,057,540 in 1991, covering
purified QS-21, QS-7 and the other principal fractions of
Quillaja saponaria and methods of their use in vaccines.  The
Company believes that the standard of purity specified in the
patent for the saponin fractions is necessary to achieve a safety
profile acceptable for human use.  CSL International ACN ("CSL")
controls certain patents and patent applications covering ISCOMS
(immune stimulating complexes) prepared from crude saponin
fractions, lipids and various antigens.  The Company believes
that its products do not infringe CSL's U.S. patent due to
process differences and formulation techniques which avoid ISCOM
formation.  In Europe, CSL has a corresponding pending
application with published claims broader than those that issued
in the U.S.  Although the Company believes that the claims may be
narrowed during the European examination, if claims do issue as
published they may dominate QS-21 in combination with lipid
formulations.  In the event patents do issue to CSL or other
parties which dominate QS-21, there can be no assurance that
Aquila will be able to obtain licenses or obtain such licenses on
favorable terms.

CSL and Seed Capital Inc., another company with an interest in
ISCOM technology, have filed an opposition with the European
Patent Office ("EPO") on the issuance of the QS-21 patent in
Europe.  A hearing before the EPO is scheduled for October of
1998.  The Company has recently received correspondence from CSL
claiming that CSL will present information to the EPO prior to
the October hearing which will allow CSL to prevail in the
opposition, and in addition that it intends to challenge the
Company's U.S. patent.  The Company has carefully reviewed the
prior art with respect to both the European and U.S. patents and
does not believe that CSL's claims have merit or are likely to
succeed.  There can be no assurance, however, that Aquila will
prevail in any action taken to attack the validity of its QS-21
patents.

Mastitis

Aquila exclusively licensed from Alfa Laval Agri AB ("Alfa
Laval") certain base technology used in the mastitis program.
This technology includes patents and patent applications on
fibronectin binding proteins from S. aureus, E. coli and S.
dysgalactiae.  The Alfa Laval license calls for payment of an
initial license fee, royalties, and additional license fees as
additional patents issue and when Aquila commercializes the
vaccines.  As part of the joint development agreement with
Virbac, Aquila arranged for Alfa Laval to grant a direct license
to Virbac in certain territories.

To date seven patents have been issued in the U.S. related to
fibronectin binding proteins, the genes that encode these
proteins, related synthetic peptides and the use of these
materials for treating bovine mastitis.  These patents are U.S.
Patent Numbers 5,175,096; 5,189,015; 5,320,951; 5,416,021;
5,440,014; 5,571,514 and 5,652,217.

Lyme Disease

Aquila has filed a patent application on its vaccine formulation
of using both the A and the B outer surface proteins and QS-21;
animal data indicates this formulation induces group-specific
immune responses (important for protection against multiple
Borrelia strains) significantly better than vaccines containing
only one or two of these components.  There are several patents
pending in the United States and in Europe which, if issued in
their current form, may dominate Aquila's Lyme vaccine.  Aquila
believes that it is unlikely that any dominant claims will issue
because of the extensive prior art, but there can be no assurance
that the Company's position is correct and, if dominating patents
do issue, there can be no assurance that it will be able to
obtain the necessary licenses or obtain such licenses on
favorable terms.

Human Granulocytic Ehrlichiosis

Aquila believes that it was the first to successfully cultivate
the HGE organism in tissue culture.  The Company has filed patent
applications on infected cell lines, the methods of growing the
organism, and potential vaccine antigens and diagnostic reagents
derived from the cell line.  Other researchers in the field of
HGE have filed patent applications that might conflict with
Aquila's patent applications.  There can be no assurance that any
of Aquila's patent applications will issue.

Other Patents

Aquila holds U.S. patents on its Quilvax-FeLV(TM) vaccine and on drug
delivery compounds.  Patents on methods of expressing and
purifying proteins made in a baculovirus expression system have
issued.  Aquila also has a fully paid-up royalty-free license to
U.S. Patent No. 4,734,362 and foreign counterparts (protein
purification) in the vaccine, therapeutic and related research
fields; a fully paid-up royalty-free license to U.S. Patent No.
4,753,873 in the veterinary diagnostic field; and a non-exclusive
sublicense to U.S. Patent No. 4,725,669 and U.S. Patent No.
5,068,174 (HIV-gp120-p27) in the vaccine, therapeutic and related
research fields.

Competition

The biotechnology and pharmaceutical industries are subject to
rapid and significant technological change.  Competitors of
Aquila in the United States and abroad are numerous.  They
include, among others, major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and
other research institutions.  There can be no assurance that
Aquila's competitors will not succeed in developing technologies
and products that are more effective than any which have been
developed by the Company or may be developed by the Company in
the future or which would render the Company's technology and
products obsolete and noncompetitive.  Many of these competitors
have substantially greater financial and technical resources and
production and marketing capabilities than Aquila.  In addition,
some of Aquila's competitors have substantially greater
experience than the Company in preclinical testing and human
clinical trials of pharmaceutical products and in obtaining FDA
and other regulatory approvals of products for use in healthcare.
Accordingly, Aquila's competitors may succeed in obtaining FDA
approval for products more rapidly than could the Company.  There
can be no assurance that Aquila's products under development will
be able to compete successfully with existing products or
products under development by other companies, universities and
other institutions or that they will attain regulatory approval
in the United States or elsewhere.  If Aquila commences
significant commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing
capabilities, areas in which it may have less experience.  A
significant amount of research in the field is also being carried
out at academic and government institutions.  These institutions
are becoming increasingly aware of the commercial value of their
findings and are becoming more aggressive in pursuing patent
protection and negotiating licensing arrangements to collect
royalties for use of technology that they have developed.  These
institutions may also market competitive commercial products on
their own or in collaboration with competitors and will compete
with Aquila in recruiting highly qualified scientific personnel.

Aquila is aware of certain programs and products under
development by others which may compete with its programs and
products.  Several companies, including Ribi, Corixa Corporation,
Virus Research Institute and Chiron Corporation, are developing
adjuvants.

Merck Laboratories, Wyeth-Lederle, SB, PMC and possibly others
are in human clinical trials with conjugate pneumococcal vaccines
for the pediatric market, and have existing non-adjuvanted
products on the market.  Several companies market mastitis
vaccines for infections caused by E. coli, but these vaccines do
not protect against staphylococcal or streptococcal infections.
The existence of products developed by these and other
competitors, or other products of which Aquila is not aware or
which may be developed in the future, may adversely affect the
marketability of products developed by Aquila.

At least two of Aquila's adjuvant licensees are also licensees of
Ribi for certain diseases.  The USDA has licensed three canine
Lyme disease vaccines.  PMC and SB have completed successful
human trials with Lyme disease vaccines.

Government Regulation

The FDA, the USDA, the Environmental Protection Agency, and
comparable state and other agencies, including those in foreign
countries, impose requirements governing the development,
manufacture and marketing of certain of Aquila's products and
products under development.  The regulatory process can take
several years, involves lengthy and detailed laboratory and
clinical testing, and requires substantial expenditures.  U.S.
Government user fee legislation has recently been approved by
Congress and signed into law, which is expected to further reduce
review times at FDA.  Human biologicals and pharmaceuticals,
including vaccines, typically require three stages of clinical
trials: Phase I to determine the preliminary safety of the
product; Phase II, during which the efficacy of the product is
preliminary assessed and treatment regimens refined; and Phase
III (sometimes referred to as "pivotal trials") during which
final safety and efficacy data are generated.  Regulatory
approval is required prior to commencement of initial clinical
trials.  The clinical data, together with comprehensive
manufacturing and facility information, is filed with the FDA in
a Product License Application (PLA) and an Establishment License
Application (ELA), or in certain cases as a Biologics License
Application (BLA), on which the regulatory agencies base their
approval decisions.  In some instances, particularly in cases of
life-threatening diseases for which there is no effective
treatment, the clinical trial phases may be combined, or approval
may be sought after completion of an expanded Phase II trial.

Because QS-21 is currently classified by the FDA as a constituent
material used in drug preparation, the FDA does not require
licensure of facilities used in its manufacture.  Aquila believes
that this affords flexibility on investment in commercial
manufacturing facilities.  Aquila has filed Biologics Master
Files for QS-21 with the FDA, which its licensees can reference
as part of their own PLAs as they seek FDA approval.

There can be no assurance that, at the end of the regulatory
process, approval will be obtained or that product developments
by competitors in the interim will not have made Aquila's
products obsolete or economically unfeasible.  The extent of
regulation which may arise from future legislative or
administrative action cannot be predicted, nor can the potential
impact of such future regulation, or changes in existing
regulation, be predicted with any certainty.

Product Liability

Aquila has potential liability risks that are inherent in the
testing, manufacturing and marketing of medical products.  The
use of Aquila's products or conduct of clinical trials may expose
Aquila to product liability claims and possible adverse
publicity.  These risks also exist with respect to Aquila's
products, if any, that receive regulatory approval for commercial
sale.  The Company currently has limited product liability
coverage for the clinical research use of its products, which
management believes is customary for companies with products at
this stage of clinical development.  There can be no assurance
that Aquila will be able to maintain its existing insurance
coverage or obtain additional insurance coverage at acceptable
costs, if at all, or that a product liability claim would not
materially adversely affect the business or financial condition
of the Company.

If and when Aquila manufactures products that are recommended for
routine administration to children, it is possible that it will
be required to participate in the National Vaccine Injury
Compensation Program.  This program compensates children having
adverse reactions to certain routine childhood immunizations with
funds collected through an excise tax from the manufacturers of
these products.

Human Resources

As of February 10, 1998, Aquila employed 57 full-time employees.
The employees are not represented by any labor unions, and the
Company considers its relations with those employees to be good.
Aquila's scientific staff has expertise in many relevant areas
and these internal resources are augmented by consulting
agreements with research scientists located at various academic
institutions and commercial organizations.

Scientific Advisory Board

Aquila's Scientific Advisory Board consists of six individuals
with recognized expertise in immunology and oncology.  The
Scientific Advisory Board meets from time to time to discuss
matters relating to the Company's current and long-term
scientific planning and research and development, and the
individual members are available for consultation on an informal
basis.  All members of the Scientific Advisory Board are employed
by academic institutions, and may have commitments or consulting
or advisory obligations to other entities that may limit their
availability to Aquila.  These entities may be competitors of
Aquila.  In certain circumstances, the academic institutions
which employ the Scientific Advisory Board members may assert
ownership rights to inventions or other technology that may
result from advice provided to Aquila by such members.  In such
circumstances, Aquila could seek to negotiate licenses to such
inventions or technology, but there can be no assurance that the
Company would be able to obtain such licenses on commercially
reasonable terms.  No members of the Scientific Board are
expected to devote more than a small portion of their time to
Aquila's business.

The following persons are the current members of the Scientific
Advisory Board:
     
     Mary Lou Clements-Mann, M.D., M.P.H.
     Professor
     Department of International Health
     Johns Hopkins University
     Center for Immunization Research

     John R. David, M.D.
     Richard Pearson Strong Professor and Chairman of the
     Department of Tropical Public Health
     Professor of Medicine and Chief of the Division of Tropical
     Medicine
     Harvard Medical School

     Michael J. Hawkins, M.D.
     Associate Professor of Medicine
     Division of Medical Oncology
     Vincent T. Lombardi Cancer Research Center
     Georgetown University
     College of Medicine

     Arthur I. Hurwitz, D.V.M., Ph.D.
     Independent Consultant
     350 Westview Ave.
     Leonia, NJ  07605
     
     Takis S. Papas, Ph.D.
     Director, Center for Molecular and Structural Biology and
     Professor of Medicine
     CMSB/Hollings Oncology Center
     Medical University of South Carolina
     
     Richard J. Whitley, M.D.
     Professor of Pediatrics
     University of Alabama at Birmingham
     Children's Hospital

Item 2.  Properties

Aquila's operations are conducted in a leased manufacturing,
research and office facility in Worcester, Massachusetts under a
lease which has been extended until the earlier of twenty (20)
days from receipt by the Company of a notice of the sale of the
property or July 31, 1998.  The Company expects to relocate to
new leased facilities in Framingham, Massachusetts in 1998.  In
November 1997, the Company completed the sale of its real estate
in Rockville, Maryland which had been leased to third parties.

Item 3.  Legal Proceedings

Deloitte & Touche, LLP ("Deloitte") appealed the United States
Bankruptcy Court's July 18, 1996 order confirming the Plan of
Reorganization (the "Plan") of Cambridge Biotech Corporation
("CBC"), the Company's predecessor.  Deloitte contests the right
of counsel to Class 5 claimants to bring an action against
Deloitte on behalf of CBC as provided in the Plan.  The United
States District Court for the District of Massachusetts (the
"District Court") granted the motion of the Company (which was
substituted for CBC as appellee in the appeal) to dismiss this
appeal on the grounds that, among other things, the Plan has been
consummated.  Deloitte has brought a further appeal to the U.S.
Court of Appeals for the First Circuit of the District Court's
dismissal order.

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

No matter was submitted to a vote of the security holders of
Aquila during the fourth quarter of the fiscal year ended
December 31, 1997.

Item 4A. Executive Officers of the Registrant.

The following is a list of management of the Company, their ages,
positions, offices and business experience, as of February 1,
1998:

     Alison Taunton-Rigby, Ph.D., 53, has served as President, Chief
     Executive Officer and Director since March of 1996.  Dr.
     Taunton-Rigby served as President and Chief Executive
     Officer and a member of the Board of Directors of the
     Company's predecessor, Cambridge Biotech Corporation ("CBC")
     from April 1995 until October of 1996.  From 1993 to 1994,
     she served as President and Chief Executive Officer of
     Mitotix, Inc., a biopharmaceutical company.  Prior to
     joining Mitotix, Dr. Taunton-Rigby was Senior Vice
     President, Biotherapeutics, of Genzyme Corporation, where
     she had overall responsibility for Genzyme's biotherapeutics
     business.  Dr. Taunton-Rigby is a member of the Board of
     Directors of BIO, the national trade organization, where she
     is also Chair of the Emerging Companies section.  She is
     also a member of the Board of Directors and a past President
     of the Massachusetts Biotech Council, the trade organization
     representing Massachusetts biotechnology companies.  Dr.
     Taunton-Rigby received her doctorate in Chemistry from the
     University of Bristol in England, and is a graduate of the
     Advanced Management Program of the Harvard Business School.
     She is a director of the CML Group, a specialty retailer,
     and of Synaptic Pharmaceutical Corporation.  She is also a
     member of the Bentley College Ethics Board.
     
     Gerald A. Beltz, Ph.D., 46, serves as Senior Vice President
     of Research and Development of the Company.  Dr. Beltz
     served as Vice President of Research and Development of CBC
     from 1993 to 1996.  For ten years prior to assuming these
     positions, Dr. Beltz held various scientific positions with
     CBC.  Dr. Beltz was responsible for the initial development
     of Aquila's FeLV feline leukemia vaccine and CBC's HIV-1
     diagnostic assays, and is the lead inventor on the patents
     covering these products.  Dr. Beltz received his B.S. from
     Beloit College, his M.A. and Ph.D. from Princeton
     University, and did his post-doctoral work at Harvard
     University.
     
     Deborah B. Grabbe, 46, is Vice President of Manufacturing
     Operations of the Company.  Ms. Grabbe served as Vice
     President of Manufacturing Operations for CBC from 1995
     until 1996.  She was Vice President of Regulatory Affairs
     and Product Quality for CBC from 1993 to 1994.  Prior to
     joining CBC in 1993, Ms. Grabbe was Director of Regulatory
     and Clinical Affairs and Director of Product Support for
     Behring Diagnostics, Inc.  From 1987 to 1988 she was Vice
     President of Operations at Biotechnica Diagnostics, Inc.
     Ms. Grabbe holds a B.A. from Oberlin College and an M.S.
     from John A. Burns School of Medicine, University of Hawaii.
     
     Robert B. Kammer, M.D., 57, is Vice President of Medical
     Affairs for the Company.  Dr. Kammer served as Vice
     President of Medical Affairs for CBC from 1993 until 1996.
     From 1988 to 1993, Dr. Kammer was employed at Schering-
     Plough Corporation as Director, Anti-Infective Clinical
     Research.  Before joining Schering-Plough, Dr. Kammer worked
     at Lilly Research Laboratories.  Dr. Kammer received his
     B.A. and M.D. degrees from the University of Iowa and did
     his internship, residency and fellowship at the Medical
     College of Virginia.

     Thomas H. Kelly, Jr., 46 is Vice President of Administration
     for the Company.  Mr. Kelly served as Director of
     Administration and Human Resources for CBC and the Company
     from 1995 until 1997.  He was manager of Human Resources
     from 1991 until 1995.  Prior to joining the Company, Mr.
     Kelly held Human Resources positions with Fidelity
     Investments, Serono Laboratories and Peat Marwick.  Mr.
     Kelly holds an A.B. from Boston College and an M.B.A. from
     Babson College.
     
     James L. Warren, 52, joined Aquila in January of 1998 as
     Vice President of Finance, Chief Financial Officer and
     Treasurer.  From 1991 to January 1998, Mr. Warren was Vice
     President and Corporate Controller of Genzyme Corporation, a
     multinational biotechnology and health care products
     company.  From 1984 to 1991, Mr. Warren was Vice President
     of Finance and Administration of Itek Graphics Corporation,
     Composition Systems Division, a supplier of composition
     software systems.  Mr. Warren holds a B.S. from the
     University of Tennessee and an M.B.A. from Boston
     University.

PART II

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

The Company's stock trades on the over-the-counter market and
prices are quoted on the NASDAQ National Market System ("Nasdaq")
under the symbol AQLA. For the last quarter of 1996 and 1997, the 
following table sets forth the high and low sale or bid prices for 
the Company's Stock as reported by Nasdaq.  The prices reported through 
the third quarter of 1996 represent bid prices for transactions reported by
brokers on the "OTC Bulletin Board" and in the so called "pink
sheets", and reflect interdealer prices without retail mark-up,
mark-down or commissions and may not necessarily represent actual
transactions.  The prices reported through the third quarter of
1996 represent transactions in the stock of CBC - restated to
give effect of an exchange of CBC stock at a ratio of one share
of Aquila for each 7.569 shares of CBC.  Aquila's stock was
deemed registered pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934 in October 1996 and began trading on Nasdaq
on October 24, 1996. As of March 13, 1998, there were 4,221 holders
of record of Aquila's Common Stock.

                            1997                1996
           Quarter       High    Low          High    Low
           
           1st          $ 7.50   $ 5.00       $12.31  $ 2.81
           2nd          $ 6.38   $ 3.75       $ 9.44  $ 3.75
           3rd          $ 5.75   $ 4.63       $ 6.13  $ 2.63
           4th          $ 5.25   $ 4.06       $ 6.75  $ 3.25
           

Item 6.  Selected Financial Data

                 Aquila Biopharmaceuticals, Inc.
                For the years ended December 31,
         (Dollars in thousands except per share amounts)

                                1997      1996     1995      1994
     Total revenues         $   6,928   $ 6,573  $ 5,728   $ 5,010
     Total expenses           (10,564)  (11,745) (12,242)  (16,109)
     Other income               4,370     5,777    2,162       360
     Total reorganization                                        
       items (1)                   --    (1,715)    (813)     (869)
                               ------   -------   ------    ------
     Income/(loss)            
      continuing operations       734   (1,110)    (5,165)  (11,608)   
     Income/(loss) discontinued                       
      operations (2)              191    9,109        223   (10,668)
     Income/(loss) before             
      extraordinary loss (3)      925     7,999    (4,942)  (22,276)   
     Extraordinary loss            --   (2,039)        --         --
                               ------    ------    ------     ------
     Net Income/(loss)     $      925  $  5,960 $ (4,942) $ (22,276)
                               ======    ======   ======     ======
                                                                 
Net Income/(loss) per                                            
  weighted average
  number of common                                            
  shares (diluted) (4)
                                                                 
  Continuing operations     $    0.14  $  (0.30) $ (1.50)  $  (3.40)
                                                                 
At year end:                                                     
-----------
  Cash and marketable     
    securities (5)          $  16,897  $ 17,675  $ 7,072   $  8,538            
  Working capital           $  16,029  $ 16,157  $ 7,977   $  8,886
  Total assets              $  20,667  $ 26,312  $23,045   $ 28,503
  Long term notes payable   $     139  $  4,056  $    --   $     --
  Total long term              
    obligations             $     364  $  4,281  $12,168   $ 12,413
  Stockholder's equity      $  17,887  $ 16,917  $ 3,946   $  8,668
                                                

There were no cash dividends paid.
____________
(1)  The Company recorded professional fee expense of $2.1
million, $1.2 million and $0.6 million, and interest earned on
cash resulting from Chapter 11 proceedings of $0.4 million, $0.4
million and $0.1 million in 1996, 1995 and 1994 respectively.  In
1994,  the Company recorded $0.4 million as a provision for
rejected executory contracts.

(2)  In 1996, the Company sold the enterics diagnostics business
for $5.7 million and the retroviral diagnostic business for $6.5
million, recording a combined gain of $7.6 million.  In 1997, a
gain of $0.2 million was recorded on the sale of inventory from
these businesses.  The Company's income from these businesses was
$1.5 million and $0.2 million in 1996 and 1995, respectively.  In
1994, the Company recorded a loss from operations of $3.2 million
and a loss of $7.5 million on the sale of its Irish subsidiary.

(3)  The Company recorded an extraordinary loss of $2.0 million
in 1996 upon its reorganization and emergence from Chapter 11
bankruptcy for issuance of shares valued at $5.6 million in
settlement of a shareholder class action suit offset by
forgiveness of debt of $3.8 million on pre-petition liabilities.

(4)  Per share amounts have been restated to reflect adoption of
SFAS 128 (see note 2 to the financial statements).

(5)  Cash and investments balances reflect proceeds
from the sale in 1996 of the Company's diagnostic businesses for
a combined $12.2 million proceeds, a paid up license fee of $3.3
million, and in 1997, net cash proceeds from the sale of the
Company's Rockville, Maryland property of $2.0 million.

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

This discussion contains forward looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended.  These forward-looking statements represent the
expectations of Aquila's management as of the filing date of this
Form 10-K.  The Company's actual results could differ materially
from those anticipated by the forward-looking statements due to
risks and uncertainties such as general economic conditions;
risks in product and technology development; delays in the
regulatory process; difficulties in obtaining raw materials for
the Company's products; failure of corporate partners to
commercialize successfully products using the Company's
technology; competition;  the costs of acquiring additional
technology; failure to obtain additional funding for planned
activities; and other risks and uncertainties identified in this
report on Form 10-K and in Aquila's Security and Exchange
Commission filings and the exhibits thereto.

Results of Operations.

The operating results of Aquila reflect its biopharmaceutical
business.  The businesses operated by Aquila's predecessor, CBC,
are presented as Discontinued Operations in the Statements of
Operations.

1997 Compared to 1996

Revenues

Total revenues for 1997 were $6.9 million, an increase of 5% over
1996.  Product revenues were $1.3 million, an increase of 48%
over 1996.  Revenues from research and development were $5.6
million for 1997, a decrease of 1% from 1996.

Product revenues in 1997 increased as a result of a price
increase and higher unit sales of the Company's animal health
product to the Company's primary marketing partner, Virbac S.A.

Revenues from research and development for 1997 decreased due to
the completion of NIH contracts in 1996 offset by increased
shipments of the Company's proprietary Stimulon(TM) adjuvant, QS-21,
for use in clinical trials being conducted by the Company's
research partners.  One of the partners paid $3.5 million in each
of 1997 and 1996 to maintain its license for use of QS-21.  In
addition, the Company received $1.1 million in contract revenues
from its bovine mastitis development partner compared to $1.2
million in 1996.  The Company may experience lower future license
fee revenues due primarily to the completion of agreements with
its partners, one of which made a final payment in January 1998
described in "Subsequent Events".

Costs and Operating Expenses

Cost of sales was 78% and 165% in 1997 and 1996, respectively,
with the improvement resulting primarily from volume generated
operating efficiencies and to a price increase in one product.

Research and development expenses for 1997 were $5.0 million, a
decrease of 4% from 1996.  The decrease was due to lower spending
under contractual agreements with third parties for outside
research studies in the Company's bovine mastitis program.

General and administrative spending in 1997 was $4.5 million, a
decrease of 10% from 1996 due to a lower level of employment and
to the reduction in legal fees incurred in connection with the
Company's reorganization completed in 1996.

Other Income

Other income in 1997 was $4.4 million, a decrease of 24% from
1996.  In 1997, the Company recognized a $2.3 million gain on the
sale of its Rockville, Maryland real estate.  In 1996, the
Company received a $3.3 million license fee payment for
technology subsequently sold and $0.5 million in exchange for the
Company's interest in a joint venture.  Royalty income, which is
derived from agreements related primarily to discontinued
operations, declined to $0.9 million in 1997 from $1.4 million in
1996.

1996 Compared to 1995

Revenues

Total revenues for 1996 were $6.6 million, an increase of 15%
over 1995.  Product revenues were $0.9 million, an increase of
61% over 1995.  Revenues from research and development were $5.7
million for 1996, an increase of 10% from 1995.

Product revenues in 1996 increased as a result of higher unit
sales of the Company's animal health product to the Company's
marketing partner, Virbac S.A.

Revenues from research and development for 1996 increased 10% due
to increased shipments of the Company's proprietary Stimulon(TM)
adjuvant, QS-21, for use in clinical trials being conducted by
the Company's research partners, one of which paid $3.5 million
in each of 1996 and 1995 to maintain its license for use of QS-
21.  In 1996 the Company received $1.2 million in contract
revenues from its bovine mastitis development partner, compared
to $0.4 million in 1995.

Costs and Operating Expenses

Cost of sales was 165% and 174% of product sales in 1996 and
1995, respectively, the improvement resulting primarily from
improved operating efficiencies in manufacturing.

Research and development expenses for 1996 were $5.3 million
compared to $5.8 million, a decrease of 10% from 1995.  The
decrease was attributable to expenses recognized in 1995 related
to a milestone obligation on certain technology licensed by the
Company.

General and administrative spending in 1996 was $5 million, a
decrease of 8% from 1995 primarily due to a lower level of
employment.

Other Income

Other income in 1996 was $5.8 million, an increase of 167% from
1995.  The increase was due to income from a paid-up license fee
of $3.3 million from a third party and a $0.5 million payment in
exchange for the Company's interest in a joint venture.  Both of
these payments were nonrecurring transactions.  Royalty income in
1996 was $1.4 million compared to $1.6 million in 1995.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income" requires that all
components of comprehensive income and total comprehensive income
be reported on one of the following: (1) the statement of
operations or (2) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes
to stockholders' equity, except those due to investments by
owners (changes in paid-in capital) and distribution of owners
(dividends).  This statement is effective for fiscal years
beginning after December 15, 1997.  The implementation of SFAS
No. 130 will have no impact on the Company's financial position
or results of operations.

Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosure About Segments of an Enterprise and Related
Information" requires public companies to report certain
information about their operating segments in their annual
financial statements and quarterly reports issued to
stockholders.  It also requires public companies to report
certain information about their products and services, the
geographic areas in which they operate, and their major
customers.  This statement is effective for fiscal years
beginning after December 15, 1997.  Implementation of SFAS No.
131 will have no effect on the Company's financial position or
results of operations.  The Company is assessing the financial
disclosure statement footnote impact of SFAS No. 131.

Liquidity and Capital Resources

At December 31, 1997 Aquila had cash, cash equivalents and
marketable securities of $16.9 million compared with $17.7
million at the end of 1996.

In 1997, marketable securities increased by $1.0 million while
cash and cash equivalents ("cash") declined $1.8 million.
Operating activities in 1997 required $3.0 million.  Investing
activities generated cash from the sale of property of $6.1
million while financing activities reflected the cash payment of
$4.2 million to repay the mortgage on the property sold.

In 1996, cash increased by $2.3 million.  Operating activities
required cash of $1.1 million.  Investing activities provided
$3.4 million due to the sale of the diagnostic businesses for a
combined $12.2 million with investment of $8.6 million of the
proceeds.  Financing activities in 1996 were virtually nil.

In 1995, cash decreased by $1.7 million.  Operating activities
required $0.9 million due to deferred revenue of $4.1 million
with working capital providing $3.2 million.  Investing
activities required $0.8 million of which $0.6 million was for
capital expenditures for manufacturing capacity while as in 1996,
financing activities were virtually nil.

Aquila currently occupies an office, research and manufacturing
facility under a lease which was extended to the earlier of 20
days from receipt by the Company of a notice of the sale of the
property or July 31, 1998.  The Company plans to move to a new
leased facility in Framingham, Massachusetts in 1998.  There can
be no assurance that the new facility will be ready for occupancy
at the end of the existing lease or that the Company will be able
to obtain another extension of the existing lease.  The Company
plans to make capital expenditures of $3 - $4 million to make the
new facility ready for use and expects to borrow the required
funds.  There can be no assurance that financing will be obtained
on terms acceptable to the Company, and that the Company will not
have to expend its cash to pay some or all of such expenses.

The Company has conducted a review of its computer systems to
identify the systems that could be affected by the "Year 2000"
issue and is implementing its plan to resolve the issue.  The
Year 2000 problem is a result of computer programs being written
using two digits (rather than four) to define the applicable
year.  Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could result in a major system failure
or miscalculations.  The Company presently believes that, with
relatively minor modifications to existing software and
conversion to new financial software in early 1998, the Year 2000
problem will not pose significant operational problems for the
Company's computer systems as so modified and converted.

Aquila expects that its available cash, investments, cash flow
from research contracts and product sales will be sufficient to
finance its planned operations and capital requirements for the
next two years.  Thereafter, Aquila must raise significant
additional capital in order to continue operations at current
levels and to complete the commercialization of its proprietary
programs.  Capital requirements could differ materially from
those currently anticipated by management.  There can be no
assurance that Aquila will be successful in raising additional
capital.

Subsequent Events

In January 1998, Aquila received the final payment of $3.0
million under a license agreement for the use of the Company's
proprietary Stimulon(TM) adjuvant, QS-21, in numerous vaccines.

In February 1998, Aquila completed a private placement of 769,000
shares of Common Stock receiving proceeds of approximately $3.6
million.  Proceeds from the sale will be used for general
corporate purposes.

Item 8.  Financial Statements and Supplementary Data

The financial statements filed as part of this Annual Report on
Form 10-K are listed under Item 14 below.

Item 9.  Changes and Disagreements with Accountants on Accounting
and Financial Disclosure.

None.

PART III

Item 10.  Directors and Executive Officers of the Registrant.

Incorporated by reference to the Company's definitive proxy
statement, "Proposal 1, Election of Directors", to be filed
pursuant to Regulation 14A, in connection with the 1998 Annual
Meeting of Shareholders.  Information concerning executive
officers of the Registrant is included in Part I of this Report
as Item 4A - Executive Officers of the Registrant.

Item 11.  Executive Compensation.

Incorporated by reference to the Company's definitive proxy
statement, "Proposal 1, Election of Directors - Executive
Compensation", to be filed pursuant to Regulation 14A, in
connection with the 1998 Annual Meeting of Shareholders.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management.

Incorporated by reference to the Company's definitive proxy
statement, "Proposal 1, Election of Directors - Security
Ownership of Certain Beneficial Owners and Management", to be
filed pursuant to Regulation 14A in connection with the 1998
Annual Meeting of Shareholders.

Item 13.  Certain Relationships and Related Transactions.

Incorporated by reference to the Company's definitive proxy
statement, "Proposal 1, Election of Directors", to be filed
pursuant to Regulation 14A in connection with the 1998 Annual
Meeting of Shareholders.

Part IV

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

     (a)  1.   Financial Statements.

     The following documents are filed as part of this report:

          i.   Report of Independent Auditors.

         ii.  Statements of Operations for each of the
               three years in the period ended December 31, 1997.

          iii. Balance Sheets as of December 31, 1997 and 1996

          iv.  Statements of Cash Flows for each of the
               three years in the period ended December 31, 1997.

          v.   Statements of Shareholders' Equity for each
               of the three years in the period ended December
               31, 1997.

          vi.  Notes to Financial Statements.

          2.   Financial Statement Schedules.

               None required.

          3.   Exhibits.

           2.   Confirmed Reorganization Plan
               (consisting of Reorganization Plan, dated May 20,
               1996, and modification date of July 15, 1996)
               (incorporated by reference to Exhibit 2 to current
               report on Form 8-K, dated  July 18, 1996, File No.
               0-12081).

          3.1  Amended and Restate Certificate of
               Incorporation, effective July 25, 1996
               (incorporated by reference to Exhibit 2 to Form 8-
               K, dated July 18, 1996, File No. 0-12081).

          3.2  Certificate of Amendment of Amended and
               Restated Certificate of Incorporation, effective
               March 24, 1997 (incorporated by reference to
               Exhibit 3.2 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1996, File No. 0-
               12081).

          3.3  By-laws (incorporated by reference to
               Exhibit 2 to Form 8-K, dated July 18, 1996, File
               No. 0-12081).

          4.1  Specimen Certificate representing common
               stock of the Company Incorporated by reference to
               Exhibit 4.1 to From 8-K, dated October 21, 1996,
               File No. 0-12081).

          4.5  Long Term Debt.  No instrument which
               defines the rights of holders of long term debt of
               the Company is filed herewith.  The Company hereby
               agrees to furnish a copy of any such instrument to
               the SEC upon request.

     *10.1     Contract Research and License
               Agreement with Virbac Laboratories, S.A. dated
               July 6, 1983 (incorporated by reference to Exhibit
               10.31 to Annual Report on Form 10-K for fiscal
               year ended December 31, 1983, File No. 0-12081).

     *10.1.1   Amendment to Agreement with Virbac
               Laboratories, S.A. (incorporated by reference to
               Exhibit 10.10.1 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1988, File No. 0-
               12081).

     *10.2     Lease for Worcester Massachusetts
               facility (incorporated by reference to Exhibit 10.
               13 to Annual Report on Form 10-K for fiscal year
               ended December 31, 1986, File No. 0-12081).

     10.2.1    Amendment to Lease Agreement for
               Worcester Massachusetts facility (incorporated by
               reference to Exhibit 10.18 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1992,
               File No. 0-12801).

     *10.3     License, Development and Supply
               Agreement with SmithKline Beecham, p.l.c., dated
               as of September 11, 1992, as amended by Agreement
               dated as of March 31, 1993 (incorporated by
               reference to Exhibit 10-17 to Annual Report of
               Form 10-K for fiscal year ended December 31, 1992,
               File No. 0-12081).

     tm10.4    Employment Agreement with Alison
               Taunton-Rigby, dated April 6, 1995 (incorporated
               by reference to Exhibit 10.17 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.5    Employment Agreement with Gerald A.
               Beltz, dated August 21, 1995 (incorporated by
               reference to Exhibit 10.18 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.6    Employment Agreement with Deborah
               Blackburn Grabbe, dated August 21, 1995
               (incorporated by reference to Exhibit 10.19 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1995, File No. 01-12081).

     tm10.7    Employment Agreement with Robert B.
               Kammer, dated August 21, 1995 (incorporated by
               reference to Exhibit 10.19 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.8    Employment Agreement with Stephen
               J. DiPalma, dated March 1, 1996 (incorporated by
               reference to Exhibit 10.8 to Annual Report on Form
               10-K for fiscal year ended December 31, 1996, File
               No. 01-12081).

          10.9 Master Acquisition Agreement by and
               among bioMerieux Vitek, Inc., Aquila
               Biopharmaceuticals, Inc. and Cambridge Biotech
               Corporation, dated as of April 4, 1996
               (incorporated by reference to Exhibit 10.1 to
               quarterly report on Form 10-Q for quarter ended
               June 30, 1996, File No. 0-12081).

     10.10     Asset Purchase Agreement between
               Meridian Diagnostics, Inc. and Cambridge Biotech
               Corporation, dated as of June 24, 1996
               (incorporated by reference to Exhibit 2.1 to
               current report on Form 8-K, dated June 24, 1996,
               File No. 0-12081).

     10.11     1996 Stock Award and Option Plan
               (incorporated by reference to Exhibit 10.12 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1996, File No. 01-12081).

     10.12     1996 Directors Stock Award and
               Option Plan (incorporated by reference to
               Exhibit 10.13 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1996, File No.
               01-12081).

     10.13     1996 Employee Stock Purchase Plan
               (incorporated by reference to Exhibit 10.14 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1996, File No. 01-12081).

    tm10.14    1996 Employee Retention
               Agreement (incorporated by reference to
               Exhibit 10.2 to Quarterly Report on Form 10-Q for
               fiscal quarter ended September 30, 1997, File No.
               01-12081).

   tmo10.15    Employment Agreement with James L.
               Warren, dated January 17, 1998.

          o11. Computation of Earnings Per Share.

          o23.1  Consent of Independent Accountants.

          o27. Financial Data Schedule.

     (b)  Reports on Form 8-K filed in the last quarter of 1996.

          None.
____________________________
o    Filed herewith as part of this Annual Report on Form 10-K
*    Confidential treatment previously granted.
tm   Management contract or compensatory plan.


Report of Independent Accountants

We have audited the accompanying balance sheets of Aquila
Biopharmaceuticals, Inc. as of December 31, 1997 and 1996, and
the related statements of operations, cash flows and
shareholders' equity for each of the three years in the period
ended December 31, 1997.  These financial statements are the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Aquila Biopharmaceuticals, Inc. as of December 31, 1997 and
1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.

                                        /s/ Coopers & Lybrand
                                        Coopers & Lybrand L.L.P.
                                        Boston, Massachusetts
                                        February 25, 1998


                 AQUILA BIOPHARMACEUTICALS, INC.
                                
                    Statements of Operations
                For the Years Ended December 31,
                                
                                     1997              1996              1995
Revenue:
     Product Sales            $  1,319,260      $    890,180       $   553,846
     Research and development    5,608,977         5,682,932         5,173,870
                              ------------      ------------       ----------- 
                                6,928,237         6,573,112         5,727,716
Cost and expenses:
     Cost of Sales               1,023,268         1,467,820           960,943
     Research and development    5,019,775         5,250,502         5,826,429
     General and administrative  4,521,035         5,027,190         5,454,835
                              ------------      ------------       ----------- 
                                10,564,078        11,745,512        12,242,207
                              ------------      ------------       -----------
Other income, net 
   (Notes 6 and 14)              4,370,107         5,777,032         2,162,396
                              ------------      ------------       -----------
Income/(loss) from continuing 
   operations before 
   reorganization items and 
   income tax benefit              734,266           604,632        (4,352,095)

Reorganization items (Note 1):
     Professional fees                 --         (2,109,050)       (1,200,188)
     Interest earned on 
       accumulated cash resulting 
       from Chapter 11 proceedings     --            394,272           387,407
                                ----------        -----------       ----------
     Total reorganization items        --         (1,714,778)         (812,781)
                                ----------        -----------       ----------
Income/(loss) from continuing 
    operations                     734,266        (1,110,146)       (5,164,876)

Discontinued operations (Note 3):
     Income from operations             --         1,452,810           223,330
     Gain on sale                  191,250         7,656,683                --
                                ----------        ----------         ---------
Income/(loss) before 
  extraordinary loss               925,516         7,999,347        (4,941,546)

Extraordinary loss on 
  reorganization (Note 12)              --        (2,039,816)               --
                                ----------        ----------         ---------
Net Income/(loss)              $   925,516    $    5,959,531      $ (4,941,546)
                                ==========        ==========         =========
Income/(loss) per weighted average
     number of common shares:
Basic earnings per share:
     Income/(loss) from 
      continuing operations    $       .15    $        (0.30)     $      (1.50)
     Net Income/loss)          $       .18    $         1.60      $      (1.44)
Diluted earnings per share:
     Income/(loss) from 
      continuing operations    $       .14    $        (0.30)     $      (1.50)
     Net Income/(loss)         $       .18    $         1.60      $      (1.44)

Weighted average number of common
     shares outstanding:  Basic  5,003,703         3,717,441         3,442,305
                         Diluted 5,141,815         3,717,441         3,442,305

 The accompanying notes are an integral part of these financial
                           statements.

                 AQUILA BIOPHARMACEUTICALS, INC.
                         Balance Sheets
                       As of December 31,

                                                 1997                   1996
Assets
Current Assets:
     Cash and cash equivalents                $7,352,450            $9,112,091
     Marketable securities (Notes 2 and 4)     8,551,591             8,562,730
     Accounts receivable - trade
      (less allowance for doubtful accounts
      of $77,698 and $178,565, respectively)   1,253,145             1,545,612
     Other receivables                           372,000               820,307
     Inventories (Note 5)                        678,591               451,074
     Prepaid expenses and other current assets   237,973               778,927
                                              ----------            ----------
     Total current assets                     18,445,750            21,270,741
Marketable securities (Notes 2 and 4)            993,151                    --
Investments (Note 6)                             394,500               394,500
Property, Plant, and Equipment, Net (Note 7)     613,730             4,308,457
Patents and Purchased Technology, Net (Note 8)   199,418               295,620
Other Assets                                      20,912                43,032
                                             -----------           -----------
Total Assets                                 $20,667,461           $26,312,350
                                             ===========           ===========

Liabilities & Shareholders' Equity
Current Liabilities:
     Accounts Payable                        $   289,952           $   943,924
     Accrued Royalties                           149,572               642,959
     Accrued professional fees                   177,500               383,557
     Other accrued expenses (Note 9)           1,730,716             2,097,326
     Deferred revenue (Note 19)                       --               917,600
     Current maturities of long-term debt
        (Note 10)                                 69,339               129,103
                                               ---------             ---------
     Total current liabilities                 2,417,079             5,114,469
                                               
Deferred Revenue (Note 6)                        225,000               225,000
Long Term Debt (Note 10)                         138,678             4,055,564
                                               ---------             ---------
Total Liabilities                              2,780,757             9,395,033
                                               ---------             ---------
Commitments and Contingencies (Note 15)

Shareholders' Equity (Note 16):
     Preferred stock, authorized:
          5,000,000 shares, none issued               --                    --
     Common stock, par value: $.01 per share,
          authorized:  30,500,000 shares
          issued:  5,007,527 and 5,000,000 shares
          in 1997 and 1996, respectively          50,075                50,000
     Additional paid in capital              127,558,019           127,514,223
     Treasury stock at cost:  10,526 shares      (47,367)              (47,367)
     Accumulated deficit                    (109,674,023)         (110,599,539)
                                            -------------         -------------
Total Shareholders' Equity                    17,886,704            16,917,317
                                            -------------         -------------

Total Liabilities and Shareholders' Equity  $ 20,667,461         $  26,312,350
                                            ============         =============
 The accompanying notes are an integral part of these financial
                           statements.

                 AQUILA BIOPHARMACEUTICALS, INC.
                    Statements of Cash Flows
                For the Years Ended December 31,
                                              1997           1996          1995
Cash Flows From Operating Activities:
Net Income/(loss)                         $  925,516  $   5,959,531 $(4,941,546)
Adjustments to reconcile net income/(loss)
 to net cash used in operating activities:
  Depreciation and amortization              402,555      3,448,192   4,736,689
  Provision (recovery) for doubtful accounts (25,000)        50,000      61,065
  Non cash compensation expense               10,000         50,000     219,381
  Gain on sale of property, plant
    and equipment                         (2,340,983)            --          --
  Gain on sale of discontinued businesses   (191,250)    (7,423,020)         --
  Loss from bankruptcy consummation               --      2,039,816          --
  Issuance of common shares                   15,871             --          --
  Receipt of investments                          --       (169,500)   (216,162)
  Loss on disposition and write down of
    investments                                   --         11,164     110,586
  Changes in assets and liabilities, net
    of effects of businesses sold:
     Accounts and other receivables          765,774        347,936     143,316
     Inventories                            (448,440)     1,262,592    (402,163)
     Deferred revenue                       (917,600)    (1,780,454) (4,090,520)
     Prepaid and other current assets        540,954        (83,472)    140,830
     Accounts payable and other accrued
       expenses                           (1,720,026)    (1,033,690)  3,349,347
     Settlement of liabilities subject
       to Chapter 11                              --     (3,757,436)         --
     Minority interest                            --         (8,989)      8,989
                                          ----------     ----------    --------
     Net cash used by operating activities(2,982,629)    (1,087,330)   (880,188)
Cash Flows From Investing Activities:
     Purchases of marketable securities  (12,163,261)    (8,562,730)         --
     Proceeds from sale of marketable
       securities                                 --        204,998          --
     Proceeds from maturities of
       marketable securities              11,181,249             --          --
     Other noncurrent assets                  22,120         62,391         368
     Purchases of property, plant and
       equipment                            (371,176)      (309,627)   (593,551)
     Proceeds from the sale of property,
          plant & equipment, net           6,100,583             --          --
     Patents and purchased technology             --       (227,968)   (204,927)
     Proceeds from the sale of discontinued
       businesses                            412,123     12,201,000          --
                                           ---------     ----------    --------
     Net cash (used)/provided by investing
       activities                          5,181,638      3,368,064    (798,110)
Cash Flows From Financing Activities:
     Exercise of stock options                18,000             --          --
     Proceeds from line of credit            208,017             --          --
     Payment on long-term obligations     (4,184,667)       (24,394)     (3,742)
                                        ------------    ----------- ------------
     Net cash used by financing activities(3,958,650)       (24,394)     (3,742)
                                        ------------    ----------- -----------
Net increase/(decrease) in cash and cash
  equivalents                             (1,759,641)     2,256,340  (1,682,040)
                                        ------------    ----------- -----------
Cash and cash equivalents at the
  beginning of the year                    9,112,091      6,855,751   8,537,791
                                        ------------    ----------- -----------
Cash and cash equivalents at the end
  of the period                          $7,352,450     $ 9,112,091 $ 6,855,751
                                         ==========     =========== ===========
Supplemental disclosures:
Income taxes paid/(refunded)             $       --     $     4,231 $        --
Interest paid                               397,776          98,541          --
Stock received for Unearned License Fee          --         225,000          --
Conversion of Chapter 11 liabilities
 into long term debt                             --       4,021,220          --
Stock issued under incentive plan                --         503,055          --
Stock issued to creditors pursuant to
  Reorganization Plan                            --         881,582          --
Stock issued in settlement of class action
  lawsuit                                        --       5,625,000          --

 The accompanying notes are an integral part of these financial statements.

 <TABLE>

                         AQUILA BIOPHARMACEUTICALS, INC.
<CAPTION>                                        
                       Statements of Shareholders' Equity
              For the Years Ended December 31, 1997, 1996 and 1995

<S>                            <C>               <C>         <C>              <C>           <C>        <C>              <C>
                                                                Additional
                                          Common Stock           Paid-In      Unearned      Treasury
                                     Shares         Amount       Capital      Compensation     Stock        Deficit        Total
                                 
BALANCE, DECEMBER 31, 1994        26,057,006      $260,570    $120,211,479    $(186,844)           0   $(111,617,524)   $ 8,667,681
                                  ----------       -------     -----------     --------     --------    ------------      ---------
Compensation expense recognized           --            --         170,625       48,756           --              --        219,381
Net loss                                  --            --              --           --           --      (4,941,546)    (4,941,546)
                                  ----------       -------     -----------     --------     --------    ------------      ---------
BALANCE, DECEMBER 31, 1995        26,057,006       260,570     120,382,104     (138,088)           0    (116,559,070)     3,945,516
                                  ----------       -------     -----------     --------     --------    ------------      ---------
Stock exchanged with former
  shareholders pursuant to
  Reorganization plan            (22,614,701)     (226,147)        226,147           --           --              --             --
Stock issued in settlement of class
  action shareholder lawsuit       1,250,000        12,500       5,612,500           --           --              --      5,625,000
Stock issued under incentive plan    111,790         1,118         501,937           --           --              --        503,055
Stock issued to creditors pursuant
     to Reorganization plan          195,905         1,959         879,623           --           --              --        881,582
Compensation expense recognized           --            --          50,000           --           --              --         50,000
Forfeiture of discounted stock options    --            --        (138,088)     138,088           --              --             --
Stock held in Treasury related to disputed
     Chapter 11 claim                     --            --              --           --      (47,367)             --        (47,367)
Net income                                --            --              --           --           --       5,959,531      5,959,531
                                  ----------       -------     -----------      -------      --------   ------------     ----------
BALANCE, DECEMBER 31, 1996         5,000,000        50,000     127,514,223            0      (47,367)   (110,599,539)    16,917,317
                                  ----------       -------     -----------      -------      --------   ------------     ----------
Exercises of Options                   4,000            40          17,960           --           --              --         18,000
Stock issued to creditors
 pursuant to Reorganization plan       3,527            35          15,836           --           --              --         15,871
Compensation expense recognized           --            --          10,000           --           --              --         10,000
Net income                                                                                                   925,516        925,516
                                  ----------       -------    ------------   ----------      -------    ------------     ----------
BALANCE, DECEMBER 31, 1997         5,007,527       $50,075    $127,558,019   $        0     $(47,367)  $(109,674,023)   $17,886,704
                                  ==========       =======    ============   ==========      =======    ============     ==========
                                        
   The accompanying notes are an integral part of these financial statements.


                 AQUILA BIOPHARMACEUTICALS, INC.
                                
           Notes to Consolidated Financial Statements

1.  Organization and Business

Aquila Biopharmaceuticals, Inc. (the "Company" or "Aquila") is in
the business of developing, manufacturing and marketing products
that modulate the immune system to control or prevent infectious
diseases and cancer.  Aquila, organized in 1996 as a Delaware
corporation, became the successor to Cambridge Biotech
Corporation ("CBC") pursuant to the terms of a Reorganization
Plan (the "Plan") that was confirmed by the Bankruptcy Court in
July 1996 and consummated in October 1996.  The Company is
subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the
Company or its competitors of new technological innovations,
dependence on key personnel, protection of proprietary
technology, and compliance with FDA government regulations.

2.   Summary of Significant Accounting Policies

Principles of Consolidation - All of the Company's former
subsidiaries, which were Biotech Research Laboratories, Inc.,
FSC, Cambridge Affiliated Corporation, (collectively "the
Subsidiaries"), were disposed of or dissolved by the Company
during the period from 1995 through 1996.  Results of operations
of the Subsidiaries are included in the accompanying financial
statements as discontinued operations.

Nature of Operations - The Company develops, manufactures and
markets products for modulating the immune system to control or
prevent infectious diseases and cancer.

Basis of Presentation - Certain prior year amounts have been
reclassified to conform with current year presentation.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period.  Such estimates include, but are not
limited to, valuation allowance against deferred tax assets and
accounts receivable and the charge for excess space (see Note 9).
Actual results could differ from those estimates.

Cash and Cash Equivalents - The Company considers all highly-
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.  Cash equivalents include money
market accounts, certificates of deposit, commercial paper and
short-term investments.

Marketable Securities -  The Company has classified its
marketable securities  in accordance with the Statement of
Financial Accounting Standards No. 115 ("SFAS 115") "Accounting
for Certain Investments in Debt and Equity Securities".  At
December 31, 1997 and 1996, all marketable were classified as
"held to maturity" and carried at amortized cost.

Concentrations of Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist
primarily of cash investments and accounts receivable.  The
Company restricts cash investments to financial institutions and
corporations with high credit standings.  Credit risk on accounts
receivable is minimized by the strong financial position of the
entities from which accounts receivable are due.  Additionally,
the Company maintains reserves for potential credit losses.
Write-offs for 1997, 1996 and 1995 were $76,000, $34,000 and
$51,000, respectively.  The Company is dependent on one marketing
partner for sales of its only commercial product and on corporate
collaborators for reimbursement for the supply of its adjuvant
for use in their clinical trials and for research revenues (see
Note 20).

Inventories - Inventories are stated at the lower of cost or
market.  Cost has been determined using standard costs which
approximate the first-in, first-out method.

Property, Plant and Equipment - Property, plant and equipment are
recorded at cost.  Depreciation for financial accounting purposes
is computed  by the straight-line method over their estimated
useful lives.  The estimated useful lives of the assets are as
follows:


                                               Useful Life
                                               -----------
         Buildings                                      30
         Furniture, fixtures and equipment         3 -  10
         Leasehold and building improvements   Lesser of Useful Life
                                              or the Term of the Lease

Maintenance and repairs are charged to operations as incurred,
whereas additions and improvements are capitalized.  Upon
retirement or disposal of assets, the cost and the related
accumulated depreciation are removed from the balance sheet and
any gain or loss is reflected in earnings.

Patents and Purchased Technology - Purchased technology related
to the acquisition of assets is recorded at fair market value at
acquisition date.  Capitalized patent costs include product
registrations and costs incurred for the support and protection
of existing patents.  Purchased technology and patents are
amortized on a straight-line basis over periods ranging from
three to seven years.

Revenue Recognition - Revenue from product sales is recognized at
the time of the product shipment.  Revenue from research and
development contracts is deferred and recognized over the
contractual periods as services are performed or as distinct
milestones are met.  The initial fee in alliance agreements is
recognized as revenue when a definitive agreement is reached and
no contingent factors are present.

Research and Development Costs - Research and development costs
are charged to operations as incurred.

Income Taxes - The Company uses the asset and liability method of
accounting for income taxes.  Under this method, deferred tax
assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities using
current statutory tax rates.

Net Income/(Loss) Per Share - In February 1997, the Financial
Accounting Standards Board ("FASB")issued Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per
Share" which establishes standards for computing and presenting
earnings per share.  The new standard replaces the presentation
of primary earnings per share prescribed by Accounting Principles
Board Opinion No. 15 ("APB 15"), "Earnings per Share" with a
presentation of basic earnings per share and also requires dual
presentation of basic and diluted earnings per share on the face
of the statement of operations for all entities with complex
capital structures.  Basic earnings per share excludes dilution
and is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period.  Diluted earnings per share is
computed similarly to fully-diluted earnings per share pursuant
to APB 15.  The Company adopted SFAS No. 128 in the fourth
quarter of fiscal 1997 and has restated all prior periods in its
financial statements.

Basic earnings per share are based on the weighted-average number
of shares of common stock outstanding at year end, which were as
follows: 5,003,703 in 1997, 3,717,441 in 1996 and 3,442,305 in
1995.

Diluted earnings per share are based on the weighted-average
number of shares of common stock and common stock equivalents
outstanding at year end, which were as follows: 5,141,815 in
1997, 3,717,441 in 1996 and 3,442,305 in 1995.  Weighted-average
share figures for 1997 include common stock equivalents of
138,112.  Common stock equivalents have been excluded from
weighted-average shares in 1996 and 1995 as inclusion would be
anti-dilutive.  Options to purchase 712,655 shares of common
stock in 1996 were outstanding at year end but were not included
in the computation of diluted earnings per share because the
inclusion would be anti-dilutive.  There were no common stock
equivalents in 1995.  In February 1998, the Company completed the
sale of 769,000 shares of the Company's stock (see Note 22).

Basic and diluted earnings per share from discontinued operations
were $0.04, $2.45 and $0.06 for 1997, 1996 and 1995,
respectively.  Basic and diluted earnings per share from the
extraordinary items in 1996 were $0.55.

3.   Discontinued Operations

During 1996, the Company disposed of two separate diagnostics
businesses encompassing the Company's diagnostic assets and
operations.  In June, 1996, the enterics business was sold to
Meridian Diagnostics, Inc., for approximately $5.7 million in
cash.  Accordingly, the accompanying financial statements include
a gain from the disposal of the enterics business of $5.2 million
in 1996 and income from discontinued operations of $0.6 million
and $0.4 million in 1996 and 1995, respectively.  Net revenue
from discontinued operations was $4.7 million and $3.9 million in
1996 and 1995, respectively.

In October, 1996, the Company sold its retroviral diagnostic
business to bioMerieux Vitek, Inc. for approximately $6.5 million
in cash.  Accordingly, the accompanying financial statements
include a gain from the disposal of the retroviral business of
$0.2 million in 1997 and $2.4 million in 1996.  Income from
discontinued operations of the retroviral business was $0.9
million in 1996 and a loss from discontinued operations of $0.2
million in 1995.  Net revenue from discontinued operations was
$0.4 million, $9.8 million and $16.4 million  in 1997, 1996 and
1995, respectively.

4.   Marketable Securities

Marketable securities are held at amortized cost, which
approximates fair value, based on quoted market prices.  At
December 31, 1997, marketable securities consist of corporate
debt securities, government-backed obligations, and certificates
of deposit.  Amortized cost of each is $7.5 million, $1.0
million, and $1.0 million, respectively.  Contractual maturities
of marketable securities are within 360 days, except for one
corporate debt security which has a maturity term of 390 days.
Amortized cost of this security is $1.0 million.  At December 31,
1996 marketable securities consisted entirely of commercial paper
with maturities of less than 360 days.

5.   Inventories

Inventories consist of the following at December 31:

                                         1997            1996
                                         ----            ----
                                         (Dollars in thousands)
Finished goods                          $ 478           $ 260
Work in process                           127             150
Raw materials and supplies                 74              41
                                          ---             ---
                                        $ 679           $ 451
                                          ===             ===
6.   Investments

During 1996, the Company received 270,000 shares of MicroGeneSys,
Inc. stock as payment for a paid up license and for royalties due
and payable under terms of a technology sublicense agreement.
The Company recorded research and development revenue of $0.1
million based upon an estimated fair market value of $.35 per
share.

During 1996, the Company received 60,000 shares of restricted
Progenics common stock as partial payment of a license fee
subject to the achievement of milestones under a license
agreement executed in 1995 between the Company and Progenics.
Based upon an estimated fair market value of $5 per share for
Progenics common stock, in 1996 the Company recorded an
investment of $0.3 million and deferred revenue of $0.3 million
until the achievement of milestones defined in the agreement.
During 1996 the Company recorded revenue of $0.1 million upon the
achievement of the first milestone under this agreement.  The
balance of $0.2 million is included in deferred revenue at
December 31, 1997 and 1996.

In August 1996, the Company sold its share of a joint venture
with BioNebraska, which had been written off in 1995, for $0.5
million in cash and reported the gain in Other Income.

7.   Property, Plant, and Equipment

Property, plant, and equipment consists of the following at
December 31:


                                                 1997           1996
                                                 ----           ----
                                                (Dollars in thousands)
Furniture, fixtures, and equipment             $ 6,191        $ 5,985
Leasehold and building improvements              6,124          5,993
Property leased to others                            -          5,761
                                                 -----         ------
Sub-total                                       12,315         17,739
Less accumulated depreciation and amortization (11,701)       (13,431)
                                                ------         ------
                                              $    614        $ 4,308
                                                ======         ======


Total depreciation expense during 1997, 1996 and 1995 was $0.3
million, $2.6 million and $3.5 million, respectively.
Accumulated amortization on leasehold improvements was $6.0
million at each of  December 31, 1997 and 1996, respectfully.
The property leased to others was sold in November 1997.  See
Footnote 14.  Accumulated depreciation on property leased to
others was $1.9 million at December 31, 1996.

8.   Patents and Purchased Technology

Purchased technology and intangibles consist of the following at
December 31:


                                   1997               1996
                                   ----               ----
                                   (Dollars in thousands)
Purchased technology           $   3,451           $  3,451
Patents and patent support           746                746
                                   -----              -----
Sub-total                          4,197              4,197
Less accumulated amortization     (3,998)            (3,901)
                                  ------             ------
                                $    199           $    296
                                  ======             ======

Total amortization expense was $0.1 million, $0.8 million and
$1.2 million in 1997, 1996 and 1995, respectively.

9.   Other Accrued Expenses

Accrued expenses consist of the following at December 31:

                                   1997         1996
                                   ----         ----
                                 (Dollars in thousands)
Contract obligations             $   906     $    747
Compensation                         419          760
Charge for excess space              163          361
Other                                243          229
                                   -----        -----
                                 $ 1,731      $ 2,097
                                   =====        =====

The Company recorded $0.2 million in general and administrative
expense and $0.4 million against gain on sale of discontinued
operations, in 1997 and 1996, respectively, representing the
Company 's estimate of minimum lease expense related to space in
the Company's Worcester facility determined to be permanently in
excess of the Company's needs from continuing operations.  The
space was previously utilized by the Company's diagnostic
businesses.

10.  Debt

At December 31, 1996, the Company had a mortgage note payable of
$4.2 million collateralized by land, buildings and improvements
with a net book value of $3.8 million.  The outstanding balance
on the mortgage note was paid in full upon the consummation of
the sale of the Aquila's Rockville, Maryland real estate in
November, 1997.  See Footnote 14.

In August 1997, Aquila entered into a three year $1 million
credit line fully collateralized by equipment purchased.
Interest on all unpaid principal is payable on the first day of
the month following the advance of any principal at a rate of
prime plus 1%.  Repayments are in equal quarterly installments
commencing the first quarter following the draw down and ending
on July 3, 2000, at which time all outstanding principal and
interest is due and payable in full.  At December 31, 1997 $0.2
million had been drawn down on the line and is repayable $69,000
in each of the years ended December 31, 1998, 1999 and 2000.  The
prime rate was 8.5% on December 31, 1997.

11.  Liabilities Subject to Chapter 11 Proceedings

As described in Note 1, the Company's predecessor filed for
Chapter 11 protection in July 1994 and had been operating as
debtor-in-possession at December 31, 1994 and 1995.  At those
dates, substantially all liabilities of the Company were subject
to settlement under the Plan.

In April, 1996 the Company filed the Plan with the Bankruptcy
Court which, among other matters, described the proposed
settlement of these liabilities.  The Bankruptcy Court confirmed
the Plan in July 1996, and it was consummated in October 1996.
Pursuant to the terms of the Plan, the collateralized debt was
restructured.  Priority liabilities were paid in cash at 100% of
the value of the claim.  Prepetition unsecured liabilities
included approximately $1.4 million in damages pursuant to
contracts under which the Company was in default, which damages
were paid in cash at 100% in order to cure the default and
continue the contracts.  Approximately $40,000 of the prepetition
unsecured liabilities were claims of less than $500 that were
aggregated into a "Convenience Class" and were paid in cash at
100% to facilitate the reorganization.  The balance of the
prepetition unsecured liabilities were paid either in cash at 51%
of the face value of the claim or in stock at 100% of the face
value of the claim.  For those claims paid in stock, the
Bankruptcy Court determined the value of the reorganized
company's stock to be $9.50 per common share.  For financial
statement purposes, the Company valued the common stock at $4.50
per share, the market price on the distribution date.

At December 31, 1997 and 1996, all claims previously identified
as Liabilities Subject to Chapter 11 Proceedings had been
satisfied except one, which remains in dispute.  A reserve for
the full amount of the claim has been established and is accrued
in Other Accrued Expenses.

12.   Extraordinary Loss on Reorganization

In October 1996, the Company recorded an extraordinary loss of
$2.0 million on its reorganization and emergence from Chapter 11
Bankruptcy.  The major components of this loss were as follows:

Recognition of expense related to issuance 
  of 1,250,000 shares insettlement of                (Dollars in thousands)
     shareholders class action                             $ 5,625
Recognition of costs incurred to restructure 
  mortgage on Rockville real estate                            193
Forgiveness of debt on pre-petition liabilities             (3,778)
                                                            ------
                                                           $ 2,040
                                                            ======
13.  Income Taxes

A reconciliation between the amount of reported income tax
expense/(benefit) and the amount computed using the U.S. federal
statutory rate of 34% is as follows for the years ended December
31:


                                             1997          1996           1995
Tax expense/(benefit) at federal
     statutory rates                        34.0%          34.0%         (34.0)%
Utilization of loss carryforwards          (34.0)%        (34.0)%         34.0%
                                            ----           ----           ----
Reported expense/(benefit) for income taxes  0.0%           0.0%           0.0%
                                            ====           ====           ====


The components of the deferred tax assets and liabilities at
December 31, 1997 and 1996 are as follows:


                                   1997               1996
                                   ----               ----
Current:                            (Dollars in thousands)
     Inventory                $      62           $    140
     Other                          500                620
                                    ---                ---
Total current                       562                760
Noncurrent:
     Capital Loss Carryover       4,077              4,691
     Depreciation & Amortization  2,334              2,383
     Other                        1,079              1,469
     Federal & State NOL's       24,919             27,132
     Federal tax credits          1,246              1,246
                                 ------             ------
Total noncurrent                 33,655             36,921
                                 ------             ------
Sub-total                        34,217             37,681
Less: valuation allowance       (34,217)           (37,681)
                                 ------             ------
Net deferred tax asset       $        0         $        0
                                 ======             ======

Management has assessed the evidence relating to recoverability
of the deferred tax asset and has determined that it is more
likely than not that the deferred tax benefit will not be
realized due to the uncertainty of future earnings.  Accordingly,
a valuation reserve has been established for the full amount of
the deferred tax asset.

As of December 31, 1997, the Company had federal net operating
loss (NOL) carryforwards of approximately $62.0 million.  These
loss carryforwards begin to expire in the year 2000 and expire
fully by the year 2012.  Utilization of these NOL's may be
limited pursuant to the provisions of Section 382 of the Internal
Revenue Code of 1986.

14.  Other Income, Net

At December  31, Other income, net consists of the following:

                                              1997        1996       1995
                                              ----        ----       ----
                                                 (Dollars in thousands)
Gain on sale of Rockville real estate      $ 2,332    $      -  $       -
Royalty income, net                            854       1,395      1,582
Interest income/(expense), net                 645         156        (12)
Rental income, net                             500         308        211
Miscellaneous income, net                       39         168        197
Paid up license fee                              -       3,250          -
Sale of joint venture                            -         500          -
Receipt of Allmerica stock                       -           -        184
                                             -----       -----      -----
                                            $4,370      $5,777     $2,162
                                             =====       =====      =====

In November, 1997, the Company sold the Rockville Maryland
facilities for $6.5 million and recorded a gain of $2.3 million.
Proceeds from the sale were used to retire the mortgage.  Royalty
income represents royalties earned under license and sublicense
agreements related primarily to diagnostic technologies, net of
expenses due to third-party licensors.  Rental income derived
from rental of the Company's real estate in Rockville, Maryland
ceased upon the sale of the Rockville facilities.  The income
from litigation in 1996 includes $3.3 million received from
Abbott Laboratories under an amendment to a sublicense agreement
which granted Abbott a fully paid-up sublicense for the non-
exclusive diagnostic use of certain HIV-related technology, and
$0.5 million received from BioNebraska in exchange for the
Company's share in a joint venture (see Note 6).

15.  Commitments and Contingencies

Leases - The Company has extended the lease for its Worcester
facility, housing its executive offices, research laboratories,
and manufacturing facilities to the earlier of 20 days from
receipt by the Company of a notice of the sale of the property
or July 31, 1998.
Costs incurred under the lease are recorded as rent expense and
totaled $1.2 million, $1.1 million and $1.2 million in 1997, 1996
and 1995, respectively.  The Company has entered into a new
operating lease agreement for its executive offices, research
laboratories and manufacturing facilities however, the lease is
not yet effective.  The effectiveness of the new lease is subject
to several contingencies, including the Landlord's obtaining the
financing for and commencement of construction of the facility.
The base lease period is twelve years and the lease contains
renewal options for two additional five year periods.  The lease
also contains escalation clauses with respect to real estate
taxes and operating expenses, and annual fixed rent increases in
the fifth and ninth year of the lease.  As of December 31, 1997,
the future minimum lease payments required under the existing
lease (through July 31, 1998) and the new operating leases are as
follows:

          Year Ending December 31,
          -----------------------
              (Dollars in thousands)
          1998       $    917
          1999            748
          2000            748
          2001            748
          2002            770
          Thereafter    6,284
                       ------
          Total       $10,215
                       ======
Employment and Consulting Agreements - The Company has agreements
with various consultants and key employees, with terms ranging
from one to three years.  These agreements provide for future
aggregate annual payments of approximately $1.0 million.  Costs
incurred and charged to operations under these contracts
aggregated $1.2 million, $1.3 million and $1.3 million in 1997,
1996 and 1995, respectively.

Other Agreements - The Company has licensed fibronectin binding
technology from a Swedish company, for use in mastitis research
and development.  In 1995, the Company recorded $0.7 million in
expenses for the granting of certain patents on this technology.
The agreement provides for additional payments upon the first
commercial sale of future vaccines at  $1.3 million per vaccine,
and up to $1.3 million upon the granting of additional patents in
the United States and Europe on the technology acquired.

Contingencies - In November 1993, five civil actions were
commenced in the United States District Court, District of
Massachusetts (the "District Court"), against CBC, certain of its
officers, and in three of the actions, CBC's former auditors.
The actions were instituted by persons alleging to be
shareholders of CBC and to be representative of a class of
shareholders claiming damages resulting from alleged violations
of securities laws by defendants in connection with the 1992
results of CBC and the restatement thereof.  The actions were
consolidated under the caption In Re: Cambridge Biotech
Corporation Securities Litigation, Civil Action No. 93-12486-REK.
In February, 1996 the plaintiffs agreed to settle all claims
against CBC and the individual defendants and pleadings were
filed with the District Court for the purpose of approving the
settlement.  The settlement was approved by the court in July,
1996.  Under the terms of the settlement, the class members
received 1,250,000 shares of Aquila common stock and are entitled
to receive 90% of any recoveries from prosecution of claims, if
any, against CBC's former auditors. Aquila is entitled to receive
10% of any recoveries from prosecution of such claims.
Prosecution of claims against CBC's former auditors is an ongoing
matter.

In March 1995, an Adversary Proceeding No. 95-4074 was commenced
in the United States Bankruptcy Court (the "Bankruptcy Court"),
by Institut Pasteur and Genetic Systems Corporation alleging
patent infringement and asking for damages and injunctive relief.
CBC filed an answer and counterclaim denying the plaintiff's
allegations and alleging a breach by Institute Pasteur of its
license agreement with CBC.  In September 1995, the Bankruptcy
Court issued a summary judgment upholding CBC's license under two
patents issued to Institut Pasteur to commercialize diagnostics
tests for the HIV-2 strain of the AIDS virus.  The Bankruptcy
Court also ruled that CBC's HIV-1 Western blot confirmatory test
infringed a third patent issued to Institut Pasteur, and enjoined
CBC from the manufacture and sale of the HIV-1 Western blot test.
In January 1996, the Bankruptcy Court lifted its injunction with
respect to CBC's production and sale of the HIV-1 Western blot
kits.  The Court ruled that CBC had a license for the HIV-1
patent and must pay a royalty on related sales. Institut Pasteur
appealed the Bankruptcy Court's rulings to the District Court
which affirmed the Bankruptcy Court's rulings.  Institut Pasteur
and Genetic Systems Corporation have appealed the rulings adverse
to them to the Federal Circuit Court of Appeals.  To protect its
rights, CBC has filed a cross-appeal in the First Circuit Court
of Appeals.  CBC has also filed a motion to dismiss Institut
Pasteur's and Genetic Systems Corporation's appeals, or, in the
alternative, to transfer them to the First Circuit Court of
Appeals.  While the final outcome of these patent issues cannot
be determined with certainty, the Company no longer practices the
technology that is the subject of these proceedings, as the
technology is part of the Retroviral business that was sold to
bioMerieux.  The Company has not indemnified bioMerieux against
any adverse decision on this appeal, other than any liability
arising out of the conduct of CBC prior to the sale of the
Retroviral business to bioMerieux.  Accordingly, based on the
information management currently possesses, management believes
any settlement of this appeal will not have a material adverse
effect on the Company's financial position or results of
operations.

Institut Pasteur and Pasteur Sanofi Diagnostics (together
"Pasteur") objected to the confirmation of the Plan, arguing that
the treatment under the Plan of certain technology cross-licenses
was improper. The Bankruptcy Court overruled the objection and
Pasteur appealed.  The District Court dismissed the appeal and
affirmed the Confirmation Order in September 1996.  Pasteur
appealed this judgment to the U.S. Court of Appeals for the First
Circuit.  By order dated January 17, 1997, the Court of Appeals
affirmed the judgment of the District Court (affirming the
Confirmation Order).  Pasteur filed a writ of certiorari with the
Supreme Court of the United States appealing the First Circuit
Court of Appeals' decision which was denied by the Supreme Court
by an order dated June 27, 1997.

Deloitte & Touche, LLP ("Deloitte") appealed the 
Bankruptcy Court's order confirming the Plan.  Deloitte contests
the right of counsel to Class 5 claimants to bring an action
against Deloitte on behalf of CBC as provided in the Plan.  The
District Court granted the motion of the Company (which was
substituted for CBC as appellee in the appeal) to dismiss this
appeal on the grounds that, among other things, the Plan has been
consummated.  Deloitte has brought a further appeal to the U.S.
Court of Appeals for the First Circuit of the District Court's
dismissal order.

In July of 1994, the Securities and Exchange Commission issued an
Order Directing Private Investigation in the matter of Cambridge
Biotech Corporation, investigating matters pertaining to CBC's
financial statements, its public filings and the offerings of its
securities.  CBC cooperated fully with the investigation, which
concluded October 1996, with issuance by the SEC of an order
instituting public administrative proceedings pursuant to Sec. 8A
of the Securities Act of 1933 and Sec. 21C of the Securities
Exchange Act of 1934.  CBC consented to the issuance of the order
without admitting or denying any wrongdoing, that it cease and
desist from  violations of the anti-fraud, corporate reporting,
and books and records provision of the federal securities laws.

The Company has and is engaged in negotiations of various
contracts with other parties regarding issues generally
incidental to the normal course of business.  While the outcome
of these negotiations and the ultimate liability from these
discussions is difficult to determine, in the opinion of
management any additional liability will not have a material
adverse effect on the Company's financial position, liquidity, or
results of operations.

16.  Shareholders' Equity

Capital Stock - The Company has 5,000,000 shares of preferred
stock and 30,500,000 shares of common stock authorized at
December 31, 1997.  No terms have been established for the
preferred stock and none has been issued.

Exchange of Shares - Pursuant to the Plan, an exchange of CBC
common shares for Aquila common shares was effected in October
1996, in the form of  1 Aquila common share issued for every
7.569 CBC common shares held of record on that date.  A total of
3,442,305 shares of Aquila common were issued in exchange for
26,057,006 shares of CBC common.  All  weighted average shares
and per share data have been restated to reflect the exchange of
shares as of the earliest period presented.

17.  Stock Based Compensation Plans

Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan which was
approved in 1997, allows full time employees, as defined in this
plan, to purchase the Company's stock at 85% of the lesser of
beginning or ending fair market value at six month intervals.
Under this plan 200,000 shares of stock are authorized, of which
3,900 were issued in January, 1998 at a purchase price of $4.31.
No compensation expense has been recorded related to this plan.

Stock Options Plans

At December 31, 1997, the Company had two stock option plans.
Under the 1996 Stock Award and Option Plan (the "Employee Plan"),
the Company may grant incentive stock options, nonqualified stock
options, discounted stock options, deferred stock awards,
restricted stock awards, or stock appreciation rights to its
employees for up to 2 million shares of common stock.  Under the
1996 Directors Stock Award and Option Plan (the "Directors
Plan"), the Company may grant the same types of options and
awards as under the Employee Plan, except that certain additional
restrictions apply to the grant of stock appreciation rights
under the Directors Plan. Up to 200,000 shares of common stock
may be issued under the Directors Plan.  In general, options
granted under these plans vest over 4 years and have maximum
terms of 10 years.

In 1996 the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock Based Compensation", and has applied APB
Opinion 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized
for options granted with exercise prices at or above fair market
value under these plans.  The Company recognized $0.2 million of
compensation expense in connection with the issuance of options
granted below fair market value in 1995.  Had compensation
expense for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates, as
calculated in accordance with SFAS 123, the Company's net
income/(loss) and earnings/(loss) per share for the years ended
December 31, 1997, 1996 and 1995 would have been changed to the
pro forma amounts indicated below:

                      1997                        1996                1995
           ------------------------------  ------------------   ---------------
                     (Dollars in thousands except per share amounts)
              Net         Basic   Diluted   Net   Basic and     Net   Basic and
           Income/(loss)  EPS      EPS     Income Diluted EPS   Loss   Diluted
           -------------  ------  -------  ------ -----------   ----  ---------
                                                         
As Reported    $926       $0.18    $0.18  $5,960   $1.60      $(4,942)  $(1.44)
Pro Forma      $532       $0.11    $0.10  $5,529   $1.49      $(5,199)  $(1.51)

The effects of applying SFAS123 in this pro forma disclosure are
not indicative of future effects.  SFAS123 does not apply to
awards prior to 1995, and additional awards in future years are
anticipated.  The weighted average fair value of options granted
in 1997, 1996 and 1995 is $3.08, $2.65 and $2.47, respectively.
A pro forma impact is reflected for 1995 related to options
granted in that year but canceled and reissued in 1996.  The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 1997, 1996 and 1995, respectively;
expected volatility of 63.74%, 72.94% and 72.94%, risk-free
interest rates of 6.25%, 6.19% and 5.41%, expected lives of 5
years, 4 years and 4 years, and no dividend yield.  The fair
value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions; expected
volatility of 63.74%, risk-free interest rate of 5.56%; expected
life of six months and no dividend yield.  The weighted average
fair value of those purchase rights granted in 1997 was $0.82.

A summary of the status of the Company's two stock option plans
as of December 31, 1997 and 1996 respectively, and changes during
those years are presented below:
                                  1997                 1996
                        ---------------------   --------------------
                                    Weighted              Weighted
                          Shares     Average    Shares     Average
                                    Exercise              Exercise
                                      Price                 Price
                         ---------  ---------   -------   ---------
Beginning outstanding    712,655     $ 4.09        --     $     --
Options granted at fair  
  market value           194,375       5.12    551,750        4.50
Options regranted below    
  fair market value          --          --    173,405        2.80                           5
Options exercised        (4,000)       4.50         --          --
Options forfeited       (71,375)       4.68    (12,500)       4.50
                        -------        ----    -------        ----
Balance, December 31,    
     1997               831,655      $ 4.28    712,655     $  4.09
                        =======        ====    =======        ====

The following table summarizes information about Aquila stock
options outstanding at December 31, 1997:

      Options Outstanding                                Options Exercisable
--------------------------------------------------   ------------------------
                           Weighted       Weighted                   Weighted
Range of    Number          Average        Average    Number         Average
Exercise   Outstanding     Remaining      Exercise   Exercisable    Exercise
 Prices    at 12/31/97  Contractual Life     Price   at 12/31/97       Price
--------   -----------  ----------------  --------   -----------    ---------                 
 $ 2.80    173,405             7.93         $2.80      173,405        $2.80
   4.50    490,625             8.21          4.50      294,958         4.50
4.625-6.69 167,625             9.68          5.15       13,625         5.31
---------- -------             ----          ----      -------         ----
$2.80-6.69 831,655             8.45         $4.28      481,988        $3.91

At December 31, 1997, there were 1,364,345 shares available for
option grants.  Options available for exercise and weighted
average exercise price are not presented for 1995, as all options
outstanding on those dates have been canceled pursuant to the
Plan.  Compensation expense of $10,000 and $50,000 was recorded
in 1997 and 1996, respectively, related to options granted to
consultants during the year.

18.   Employee Benefits Plan

The Company has a savings plan for its employees pursuant to
Section 401(k) of the Internal Revenue Code.   Substantially all
employees can participate, and the plan allows for a minimum
deferral of 1% to a maximum deferral of 15% percent of
compensation, as permitted by law or as limited by the plan
administrator.  Commencing on January 1, 1997 the Company matches
25% of the first 6% of the employee's compensation contributed to
the plan.  Any contributions made by the Company are vested at
33% for each year of employment.  The amount charged to
operations for the plan was $48,500 in 1997.

19.  Agreements

The Company has a comprehensive agreement with a corporate
partner which allows the partner to use the Company's proprietary
Stimulon adjuvant ("QS-21") in numerous vaccines including
hepatitis, lyme disease, human immunodeficiency virus  (HIV),
influenza and malaria.  The agreement grants exclusive worldwide
rights in some fields of use, and co-exclusive or non-exclusive
rights in others.  The Company recognized $3.5 million in license
fees under this agreement in each of 1997, 1996 and 1995,
respectively.  The agreement calls for royalties to be paid by
the partner on its future sales of licensed vaccines which
include Aquila's adjuvant and for Aquila to manufacture QS-21 for
the partner.

The Company has product development agreements with a corporate
partner and supply agreements with this corporate partner and its
U.S. subsidiary which cover the ongoing collaboration between the
partner and the Company relating to the development of products
for feline immune deficiency virus ("FIV") and bovine mastitis
and the supply of vaccine and adjuvant for feline leukemia
("FeLV").  The Company recognized $1.1 million, $1.2 million and
$0.6 million in revenues under the product development agreements
during 1997, 1996 and 1995, respectively.  In addition, $0.9
million and $2.1 million were included in deferred revenue at
December 31, 1996 and 1995, respectively, related to the product
development agreements.  Sales to the partner under the terms of
the supply agreements were $1.3 million, $0.9 million and $0.6
million in 1997, 1996 and 1995, respectively.

As part of its program to develop, manufacture and market
products for detection, prevention and treatment of human and
animal infectious diseases, the Company entered into various
agreements with the National Institutes of Health.  Such
agreements provided the Company with research and development
funding through 1996, assuming, in certain cases, achievement of
mutually defined milestones.  Revenue recognized under these
agreements amounted to $0.3 million and $0.6 million in 1996 and
1995, respectively.

20.  Major Customers

One corporate partner has historically been the Company's
principle source of research and development revenue.  Research
and development revenues from this corporate partner represented
61%, 53% and 61% of the Company's total revenue in 1997, 1996 and
1995, respectively.  This corporate partner also compensates the
Company for producing QS-21 clinical trial material for use in
its product development programs.

A marketing partner represents a substantial portion of the
Company's product sales and research and development revenue.
Revenue from development agreements with this partner represented
16%, 18% and 10% of total revenue in 1997, 1996 and 1995,
respectively.  Product sales to this partner represented 19%, 13%
and 10% of total revenues in 1997, 1996 and 1995, respectively.

21.  Segment Information

The Company operates in one industry segment consisting of the
development, manufacturing and marketing of products that
modulate the immune system to control or prevent infectious
diseases and cancer.  Total export sales were approximately $1.2
million, $2.6 million and $4.0 million in 1997, 1996 and 1995,
respectively, of which $1.2 million, $0.8 million and $0.2
million were from continuing operations in 1997, 1996 and 1995,
respectively.

22.  Events Subsequent to the Balance Sheet Date:

In January 1998, the Company received a final payment of $3.0
million from one of its partners under license agreement which
allows the partner to use the Company's proprietary StimulonT
adjuvant in numerous vaccines.

In February 1998, the Company completed the sale of 769,000
shares of the Company's common stock via a private placement with
a group of investors let by OrbiMed Advisors LLC.  Proceeds from
the private placement of $3.6 million will be used for general
corporate purposes.

                           SIGNATURES

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

                    Aquila Biopharmaceuticals, Inc.

March 17, 1998   By:     /s/ Alison Taunton-Rigby
                         Alison Taunton-Rigby
                         President, (Principal Executive Officer)

March 17, 1998   By:     /s/ James L. Warren
                         James L. Warren
                         Vice President - Finance, Treasurer and
                           Chief Financial Officer
                         (Principal Financial Officer)

March 17, 1998   By:     /s/ Paul M. Foulkrod
                         Paul M. Foulkrod
                         Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of
1934 this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:

          Signature                Title                    Date

    /s/ Alison Taunton-Rigby       Director            March 17, 1998
       Alison Taunton-Rigby

   /s/ Elliott D. Hillback, Jr.    Director            March 17, 1998
       Elliott D. Hillback, Jr.

   /s/ John M. Nelson              Director            March  9, 1998
       John M. Nelson

   /s/ Keith J. Dorrington         Director            March  7, 1998
       Keith J. Dorrington

   /s/ Jeffrey T. Beaver           Director            March  13, 1998
       Jeffrey T. Beaver


                                EXHIBIT INDEX

           2.   Confirmed Reorganization Plan
               (consisting of Reorganization Plan, dated May 20,
               1996, and modification date of July 15, 1996)
               (incorporated by reference to Exhibit 2 to current
               report on Form 8-K, dated  July 18, 1996, File No.
               0-12081).

          3.1  Amended and Restate Certificate of
               Incorporation, effective July 25, 1996
               (incorporated by reference to Exhibit 2 to Form 8-
               K, dated July 18, 1996, File No. 0-12081).

          3.2  Certificate of Amendment of Amended and
               Restated Certificate of Incorporation, effective
               March 24, 1997 (incorporated by reference to
               Exhibit 3.2 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1996, File No. 0-
               12081).

          3.3  By-laws (incorporated by reference to
               Exhibit 2 to Form 8-K, dated July 18, 1996, File
               No. 0-12081).

          4.1  Specimen Certificate representing common
               stock of the Company Incorporated by reference to
               Exhibit 4.1 to From 8-K, dated October 21, 1996,
               File No. 0-12081).

          4.5  Long Term Debt.  No instrument which
               defines the rights of holders of long term debt of
               the Company is filed herewith.  The Company hereby
               agrees to furnish a copy of any such instrument to
               the SEC upon request.

     *10.1     Contract Research and License
               Agreement with Virbac Laboratories, S.A. dated
               July 6, 1983 (incorporated by reference to Exhibit
               10.31 to Annual Report on Form 10-K for fiscal
               year ended December 31, 1983, File No. 0-12081).

     *10.1.1   Amendment to Agreement with Virbac
               Laboratories, S.A. (incorporated by reference to
               Exhibit 10.10.1 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1988, File No. 0-
               12081).

     *10.2     Lease for Worcester Massachusetts
               facility (incorporated by reference to Exhibit 10.
               13 to Annual Report on Form 10-K for fiscal year
               ended December 31, 1986, File No. 0-12081).

     10.2.1    Amendment to Lease Agreement for
               Worcester Massachusetts facility (incorporated by
               reference to Exhibit 10.18 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1992,
               File No. 0-12801).

     *10.3     License, Development and Supply
               Agreement with SmithKline Beecham, p.l.c., dated
               as of September 11, 1992, as amended by Agreement
               dated as of March 31, 1993 (incorporated by
               reference to Exhibit 10-17 to Annual Report of
               Form 10-K for fiscal year ended December 31, 1992,
               File No. 0-12081).

     tm10.4    Employment Agreement with Alison
               Taunton-Rigby, dated April 6, 1995 (incorporated
               by reference to Exhibit 10.17 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.5    Employment Agreement with Gerald A.
               Beltz, dated August 21, 1995 (incorporated by
               reference to Exhibit 10.18 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.6    Employment Agreement with Deborah
               Blackburn Grabbe, dated August 21, 1995
               (incorporated by reference to Exhibit 10.19 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1995, File No. 01-12081).

     tm10.7    Employment Agreement with Robert B.
               Kammer, dated August 21, 1995 (incorporated by
               reference to Exhibit 10.19 to Annual Report on
               Form 10-K for fiscal year ended December 31, 1995,
               File No. 01-12081).

     tm10.8    Employment Agreement with Stephen
               J. DiPalma, dated March 1, 1996 (incorporated by
               reference to Exhibit 10.8 to Annual Report on Form
               10-K for fiscal year ended December 31, 1996, File
               No. 01-12081).

          10.9 Master Acquisition Agreement by and
               among bioMerieux Vitek, Inc., Aquila
               Biopharmaceuticals, Inc. and Cambridge Biotech
               Corporation, dated as of April 4, 1996
               (incorporated by reference to Exhibit 10.1 to
               quarterly report on Form 10-Q for quarter ended
               June 30, 1996, File No. 0-12081).

     10.10     Asset Purchase Agreement between
               Meridian Diagnostics, Inc. and Cambridge Biotech
               Corporation, dated as of June 24, 1996
               (incorporated by reference to Exhibit 2.1 to
               current report on Form 8-K, dated June 24, 1996,
               File No. 0-12081).

     10.11     1996 Stock Award and Option Plan
               (incorporated by reference to Exhibit 10.12 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1996, File No. 01-12081).

     10.12     1996 Directors Stock Award and
               Option Plan (incorporated by reference to
               Exhibit 10.13 to Annual Report on Form 10-K for
               fiscal year ended December 31, 1996, File No.
               01-12081).

     10.13     1996 Employee Stock Purchase Plan
               (incorporated by reference to Exhibit 10.14 to
               Annual Report on Form 10-K for fiscal year ended
               December 31, 1996, File No. 01-12081).

    tm10.14    1996 Employee Retention
               Agreements (incorporated by reference to
               Exhibit 10.2 to Quarterly Report on Form 10-Q for
               fiscal quarter ended September 30, 1997, File No.
               01-12081).

   tmo10.15    Employment Agreement with James L.
               Warren, dated January 17, 1998.

          o11. Computation of Earnings Per Share.

          o23.1  Consent of Independent Accountants.

          o27. Financial Data Schedule.




</TABLE>