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 (Fee Required)
      For the fiscal year ended December 31, 1996 or


   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 (No Fee Required)
      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       (Registrant's telephone   (IRS Employer
jurisdiction of        number, including area   Identification
incorporation or            code)                  No.)
organization)

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 4,967,642 shares of voting stock
held by non-affiliates of the registrant as of March 19, 1997 was
approximately $32,289,673 based on the last sale price of such
stock on such date.

  Indicate 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 19, 1997: 5,001,292 shares.

               DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement in connection with the
annual meeting of shareholders to be held May 20, 1997 are
incorporated by reference into Part III of Form 10-K.






                    AQUILA BIOPHARMACEUTICALS, INC. - 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 and prevent infectious diseases and cancer.

        Background

        Aquila, organized in 1996, became a successor to Cambridge Biotech
        Corporation ("CBC") pursuant to the terms of a Reorganization Plan
        that was confirmed by the United States Bankruptcy Court on
        July 18, 1996 and consummated on October 21, 1996 (the "Plan").
        Prior to the confirmation of the Plan, CBC sold its enterics
        diagnostic business pursuant to an order of the Bankruptcy Court
        to Meridian Diagnostics, Inc. for $5,700,000 in cash and other
        considerations.  On or about October 21, 1996, CBC's
        biopharmaceutical business and its real estate in Rockville,
        Maryland were transferred to Aquila, free and clear of liens,
        encumbrances, claims and interests, except as otherwise provided
        in the Plan or confirmation order.  Pursuant to the Plan, CBC
        shareholders exchanged all of their CBC common stock for Aquila
        common stock and, as a result, CBC became a wholly owned
        subsidiary of Aquila.  Effective as of October 22, 1996, the
        Company sold all the issued and outstanding stock of CBC to
        bioMerieux Vitek, Inc. ("bioMerieux") pursuant to a Master
        Acquisition Agreement dated as of April 4, 1996.  At the same time
        bioMerieux entered into a ten year lease with Aquila for a portion
        of the Rockville, Maryland real estate which lease was
        simultaneously assigned by bioMerieux to CBC.

        Aquila's technology and product development programs are based
        upon modulation of the immune system using the StimulonTM family of
        adjuvants.  Advances in biotechnology and immunology have enabled
        scientists to develop a new generation of products containing
        portions of an infectious agent or a target cell.  These
        components are intended to be immunologically important.  These
        new products are safer than traditional vaccines, but often result
        in an immune response that is less than optimum.  Adjuvants can be
        used to improve the immune response.

        Aquila's product development programs include the QuilimmuneTM
        human health products and the QuilvaxTM products for animal health.
        The Company's corporate partners are SmithKline Beecham p.l.c.
        ("SKB"), Wyeth-Lederle Vaccines and Pediatrics, a business group
        of Wyeth-Ayerst International, Inc., a subsidiary of American Home
        Products Corporation, Pasteur Merieux Connaught, (the combination
        of Pasteur Merieux Serums et Vaccins S.A. and Connaught
        Laboratories, Inc.), Progenics Pharmaceuticals, Inc., VaxGen, Inc.
        and NABI.

        The Immune System and Immune Modulation

        The human immune system is made up of several different cell
        types, including B cells, T cells and antigen presenting cells.
        In general, the immune system responds to the presence of
        antigens, environmental agents or pathogens such as viruses,
        bacteria, and parasites in two different ways: the humoral
        response and the cellular 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.  The antibodies 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.  In addition,
        T cells secrete biologically active molecules called cytokines,
        which mediate the effects of immune system cells and modulate
        other immune functions.  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 peptides
        (synthetic or recombinant), carbohydrates and lipoproteins.

        When these newer technologies were first used, it was found that
        while a disease 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
        specific biotechnology 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 lympet 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 HibTITERTM sold by Wyeth-Lederle
        Vaccines and Pediatrics where the antigen is conjugated to the
        diphtheria CRM 197 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 include
        aluminum hydroxide (Alum), MF59 a product of Chiron Corporation
        and its affiliates, monophosphoryl lipid A (MPL), a product of
        Ribi ImmunoChem Research, Inc. and saponins from Quillaja
        saponaria.  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 StimulonTM 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 StimulonTM adjuvants to create potentially
        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 vaccines 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 vaccines using the new
        technology are comparable to those for therapeutic products.
        Manufacturing costs can be lower for modern vaccines 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).  However, in today's approaches to
        disease management, vaccines have been recognized as very
        effective contributors to controlling the total medical costs of
        certain diseases.  Therapeutic vaccines 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 Modulate 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
        allowed 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 ImmunoChem
        Research, Inc., 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.  The
        StimulonTM family of adjuvants, QS-21 and QS-7, Aquila's adjuvants,
        are purified, defined molecules, isolated from natural sources.
        They stimulate antigen specific responses and have been shown to
        promote both antibody and a CTL immune responses in animal
        studies.

        The StimulonTM Family of Adjuvants

        QS-21 is the lead StimulonTM adjuvant.  It is a natural product,
        purified from the bark of a tree which grows in South America,
        called Quillaja saponaria. The bulk bark extract is available in
        the United States.  QS-21 is purified to greater than 98%.  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 vaccine 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 vaccine
        preparation, the FDA does not require licensure of facilities used
        for its manufacture.  A second StimulonTM 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 and all patents
        include the use of all of these molecules as adjuvants.

        The use of StimulonTM 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; ie, higher antibody levels are achieved,
        and it is potent and active at microgram doses.  The use of QS-21
        has been tested in a number of human clinical trials, involving
        over 900 subjects.

        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 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 through "isotype switching."
        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
        vaccine-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 (CTL).  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.  The majority of adjuvants, including alum, 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
        in animal studies.

        In a human clinical study reported in Cancer Research (Helling et
        al., Vol. 55, p. 2,783, 1995), the effectiveness of QS-21 in
        stimulating an antibody response to the carbohydrate cancer
        antigen GM2 was shown.  When GM2 was coupled to the carrier
        protein KLH, and tested in humans, there was almost no stimulation
        of an antibody response.  When the GM2-KLH antigen was used in
        combination with the adjuvant DetoxTM, only one subject of seven
        showed a slight increase in antibody titer.  However, when QS-21
        was added to the GM2-KLH antigen, all of the patients responded
        with the development of significant antibody titers.  This product
        is being developed by Progenics Pharmaceuticals, Inc. (a QS-21
        licensee of Aquila) and has recently entered Phase III human
        clinical trials.

        Recently, SKB in collaboration with the Walter Reed Army Institute
        of Research (WRAIR) 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 vaccine formulated with different adjuvants.
        The three different vaccine 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 a slight immunological response, but following
        challenge with the malaria parasite after vaccination, 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 vaccine
        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 SKB (a licensee of QS-21 from
        Aquila) is planning further clinical testing of this potential
        product.

        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.  These studies, involving over 900 subjects, have shown
        that the addition of QS-21 to vaccine formulations improves the
        immune response to certain antigens, as evidenced by increased
        antibody titer and the induction of a CTL response.  No serious
        adverse events attributed to QS-21 have occurred thus far in the
        clinical studies.  Some local reactogenicity and pain on injection
        have been seen in some vaccine formulations, but this is believed
        to be due principally to particular formulations.

        QuilimmuneTM and QuilvaxTM Programs

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




                    QuilimmuneTM & QuilvaxTM Product Development


        Program                  Market                Status

        Quilimmune-P TM             Adults >50 years      Phase I clinical
        Product to prevent       >20 mil. people in    trials initiated Q4
        pneumococcal             U.S.                  1996
        infections

        Quilvax-M TM Product to     30 million milk       Bovine immunogenicity
        prevent bovine           cows in the U.S. &    trials completed,
        mastitis (S. aureus &    Europe                challenge studies
        E. coli)                                       ongoing

        Quilimmune-T TM             Persons at risk for   Pre-clinical research
        Product to prevent       tick bites
        Lyme-HGE diseases

        Quilimmune-M TM             1-2 billion persons   Spf66/QS-21 Phase I
        Product to prevent       at risk               trial scheduled to
        malaria (Plasmodium                            start 1997
        falciparum)

        Quilvax-L TM                10 million dogs at    Licensing efficacy &
        Product to prevent       risk in endemic       safety trials
        canine Lyme disease      areas                 completed; safety
                                                       duration of immunity
                                                       studies ongoing
        Quilvax-FeLV TM
        Product to prevent       ~ 15 million cats     On market,
        feline leukemia          vaccinated per year   LeucogenR, Virbac
                                 in the U.S. and       (Europe), GenetivacR,
                                 Europe                Mallinckrodt
                                                       Veterinary Inc.
                                                       (U.S.)

        Quilimmune-P TM for the Prevention of Pneumococcal Infections

        Quilimmune-P TM is intended to be used to prevent pneumococcal
        infections in the elderly.  Pneumococcal infections are a major
        cause of death in the elderly.  There are approximately 20 million
        people over the age of sixty-five in the US.  Various strains of
        Streptococcus pneumoniae are responsible for most community-
        acquired cases of pneumonia (500,000 cases per year) and are the
        second most common cause of bacteremia (50,000 cases per year,
        with 25% mortality).  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.  Public health officials now place a high priority on the
        development of new pneumococcal vaccines, and are considering
        expanding the population for which vaccination would be
        recommended.

        There are currently over 80 recognized serotypes of pneumococci,
        each with varying geographic and age-group prevalence.  The
        currently available vaccines, which were developed and approved in
        the early 1980s, cover 23 serotypes, which cause over 90% of
        infections in the United States and Europe.  These vaccines are
        composed of purified capsular polysaccharides, which are not
        potent immunogens.  Although approved by the FDA for use in
        adults, these vaccines are not recommended for children under two
        years of age, and are less effective in immune-competent elderly
        individuals.  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.  However,
        the manufacturing expense and cumulative mass of the conjugated
        components make it very difficult to include all 23 of the strains
        in the currently available vaccine as conjugates.  The companies
        developing conjugate vaccines have therefore chosen to focus on
        the five to ten strains most prevalent in infants and young
        children.  The resulting vaccines, if successfully developed,
        would likely not be appropriate for immunization of adults and the
        elderly because they address only the limited number of strains
        problematic in children rather than the broader range problematic
        in the elderly.  It is also likely that the conjugate vaccines
        would be too expensive for widespread use in the developing world.

        The current pneumococcal vaccines are not widely used for 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, perhaps resulting
        in a misconception in the market that these vaccines give lifetime
        protection.  In elderly subjects, however, not only is the
        effectiveness only 50-60%, but of those 50-60% who do respond, the
        antibody titers drop over a number of years.  Typically after 3 or
        more years, the effective levels of antibodies in such subjects is
        quite low (Shapiro et al.  NEJM, 1991).  Another reason these
        vaccines are poorly utilized is because physicians have an option
        of treating patients who develop pneumonia with antibiotics.  With
        increased antibiotic resistance, this option is not 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.

        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 in mice.
        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 vaccine
        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 initiated a Phase I clinical trial in 1996 in healthy
        volunteers.  The study is being carried out in collaboration with
        and supported by the National Institutes of Health (NIH). The
        primary end point of the study is to evaluate safety; a secondary
        goal is to evaluate immune responses.  The study is designed as a
        dose response study, evaluating several different dosage levels of
        the polysaccharide antigens and adjuvant.  The control group is
        receiving the marketed vaccine.  The study is expected to be
        completed in 1997, and if the trial is successful, Aquila intends
        to initiate a Phase II trial in an elderly population towards the
        end of 1997.

        Quilvax-M TM for the Prevention of Bovine Mastitis

        Mastitis is an inflammation of a dairy cow's udder.  Three
        pathogens typically cause these infections: Staphylococcus aureus
        ("S. aureus"), Escherichia coli ("E. coli"), and Streptococcus
        agalactiae.  Mastitis is the most costly disease affecting the
        dairy industry.  The economic impact in the US of bovine mastitis
        is estimated to be between $1-2 billion per year.  According to
        the National Mastitis Council, the losses per cow per year are
        $184 (there are about 9.5 million dairy cows in the U.S.).  The
        principle losses occur from reduced milk production, 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.  Since E. coli accounts
        for only a portion of the number of cases of mastitis, these
        vaccines are  not widely used.  E. coli and S. aureus account for
        about 70-80% of the mastitis cases.  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 protection.

        The S. aureus component of the product is based on patented anti-
        adhesion technology.  A single S. aureus protein known as
        fibronectin binding protein is primarily responsible for
        attachment of S. aureus to host tissue and subsequent
        establishment of infection.  In the Company's Quilvax-M TM product
        program, fibronectin binding protein is used as an antigen to
        induce an antibody response to block attachment of the bacterium
        to the cells in the cow's udder.  Recent bovine field trials have
        indicated that Quilvax-M TM is safe, immunogenic, and has a
        beneficial impact on mastitis in animals challenged with
        S. aureus.  The Company believes it could add a streptococcal
        component in a next generation vaccine.

        The development program is 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-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.  Lyme disease was first described in 1969, but its
        cause, Borrelia burgdorferi transmitted by tick bites, was not
        identified until 1981.  According to the Center for Disease
        Control and Prevention, Lyme disease is the leading tick-borne
        infectious disease in the United States, with over 40,000 reported
        cases, including cases in all 50 states.  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 found the HGE-causing organism in dogs in 1994
        in the course of the efficacy trials of Aquila's canine Lyme
        disease product, and traced its source to the ticks.  Aquila
        believes that it was the first to successfully cultivate the HGE
        organism in tissue culture, and 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 pathogen.

        Aquila has been working with the Centers for Disease Control and
        Prevention ("CDC") to develop a blood test to be used in
        epidemiological surveys that will determine how widespread the
        disease may be.  Prior to Aquila's development of the cell lines,
        diagnosis of the disease was extremely difficult, and impractical
        for survey purposes. Aquila has been conducting additional
        internal research to better characterize the organism and to
        develop additional vaccine antigens and diagnostic reagents, and
        has collaborations with leading academic researchers.  Aquila
        believes that a combination vaccine could be developed against HGE
        and human Lyme disease.  Aquila's work in HGE may also have
        applicability for animal health applications.  The HGE organism
        appears to cause illness in dogs.  Once the epidemiology is better
        understood, Aquila  may seek development funding from an animal
        health partner.




        Quilimmune-M TM for the Prevention 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 for malaria.  SKB/WRAIR are developing a vaccine
        containing QS-21 based on a  recombinant circumsporozite protein
        fused to hepatitis B surface antigen.  The results of a Phase I
        challenge study were published recently in the New England Journal
        of Medicine (Stoute et al., NEJM, January 9, 1997, pp. 86-91)
        involving three vaccine formulations.  QS-21 was a critical
        component of the only formulation to protect against malaria
        challenge in six of the seven subjects challenged.

        In addition to this study, Aquila has a collaboration with the
        World Health Organization (WHO) on another malaria product
        involving the antigen Spf66.  Spf66, a polymerized peptide, was
        discovered by Dr. Manuel Pattaroya at Instituto de Immunologica
        Hospital San Juan de Dios in Colombia, South America. 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 31% 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.  A human clinical trial of Quilimmune-M tm is
        planned in 1997 and will be overseen by WHO.

        Quilvax-L TM for the Prevention of Canine Lyme Disease

        Aquila is developing a product pursuant to a 1991 agreement with
        Mallinckrodt Veterinary Inc. ("Mallinckrodt") against Lyme disease
        in dogs.  There are approximately 50 million dogs in the United
        States, with perhaps a fifth of them living in areas infested with
        the tick which transmits Borrelia burgdorferi, the cause of Lyme
        disease.  The potential market for a canine Lyme disease product
        may be as much as $50 million.

        During 1993-94, Aquila conducted efficacy trials on its canine
        Lyme disease product using a protocol approved by the United
        States Department of Agriculture ("USDA").  The studies showed
        that use of Quilvax-L TM resulted in protection from symptoms in 89%
        of the dogs.  Data from this trial was submitted to the United
        States Department of Agriculture ("USDA"), which reviewed the data
        in support of licensure and found the outcome satisfactory.
        Quilvax-L TM incorporates two outer surface proteins of Borrelia and
        QS-21, a formulation which the Company believes offers better
        protection against geographically diverse strains of the pathogen.
        Mallinckrodt is in the process of conducting field safety studies.
        A patent application has been filed on this formulation.

        Under the Mallinckrodt agreement, the Company will supply
        Mallinckrodt with bulk formulated product, which Mallinckrodt will
        then fill, finish, and distribute.  The Company will be paid a
        supply price for the product and receive a royalty on
        Mallinckrodt's sales.

        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 US
        and 1991 in Europe.  It is marketed by Virbac SA in Europe,
        Australia and Japan under the tradename LeucogenR and by
        Mallinckrodt in the U.S. under the tradename GenetivacR.  FeLV 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.  Aquila manufactures bulk
        formulated  vaccine 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.

        Corporate Partner Programs

        In addition to Aquila's own product development programs, the
        Company has six corporate partners who have licensed the StimulonTM
        adjuvants for a variety of human diseases.  The six corporate
        partners are SmithKline Beecham p.l.c., Wyeth-Lederle Vaccines and
        Pediatrics, Pasteur Merieux Connaught, Progenics Pharmaceuticals,
        Inc., VaxGen, Inc. and NABI.  Three of the world's four largest
        vaccine manufacturers are partners using Aquila's adjuvants.  In
        return for rights to use StimulonTM 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.




                             Clinical Trials Completed


        Disease               Market                           Trial

        Breast Cancer         180,000 cases per year in U.S.   Phase I

        Influenza*            50 million infections per year   Phase I
                                                               Phase I
                                                               Phase II

        Herpes I/II           125 million people infected      Phase I
                                                               Phase Ib

        HIV-1                 >1 million people infected in    Phase I
                              U.S.                             Phase II

        Hepatitis B           300,000 cases per year in U.S.   Phase I

        Malaria               1-2 billion persons at risk      Phase I challenge

        Melanoma*             30,000 cases per year in U.S.    Phase I/II
                                                               Phase I/II
                                                               Phase I/II

        Respiratory Virus     100,000/yr. - infant             Phase I
                              hospitalizations

        *  Multiple partners and/or different antigens




                      StimulonTM  Product Development Programs


        Clinical Trials Ongoing

        B-Cell lymph* (two, Phase I)               Therapeutic
        Breast cancer (two, Phase I)               Therapeutic
        Colon cancer (two, Phase I)                Therapeutic
        Hepatitis B                                Therapeutic
        Herpes II                                  Therapeutic
        HIV-1* (Phase I)                           Prophylactic
        Influenza* (Phase I)                       Prophylactic
        Melanoma* (six, Phase I/II)                Therapeutic
        Melanoma* (two, Phase II/III)              Therapeutic
        Pancreatic cancer (Phase I)                Therapeutic
        Prostate cancer (two, Phase I)             Therapeutic
        Strep-pneumo* (Phase I)                    Prophylactic


        Pre-Clinical/Research

        Chlamydia
        CMV
        EBV
        Gonococcus
        Hepatitis C
        Herpes zoster
        HIV-1*
        Melanoma*
        Para influenza
        Rotavirus
        Toxoplasmosis
        Malaria*


        *  Multiple partners and/or different antigens






        *    SmithKline Beecham, p.l.c. has licensed QS-21 for a number of
             different applications, including influenza, herpes,
             hepatitis, Lyme disease and malaria.  The world's leading
             manufacturer of Hepatitis B vaccine, SmithKline is
             aggressively marketing its existing portfolio of vaccines,
             while developing new and improved products.  SmithKline 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.  (See Management's
             Discussion and Analysis for revenues received from SKB.)

        *    Pasteur Merieux Connaught has licensed QS-21 for use in its
             influenza and HIV vaccine programs.  Pasteur Merieux has
             completed two clinical trials for influenza and has ongoing
             pre-clinical work on three potential HIV products.

        *    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
             initiated a Phase I clinical trial using QS-21 in 1995.

        *    Progenics Pharmaceuticals, Inc. licensed QS-21 in 1995 for
             use in certain therapeutic vaccines for cancer.  Progenics'
             most advanced program involves the use of QS-21 with a
             ganglioside preparation 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 ("Memorial Sloan Kettering"), have been
             completed, and a Phase III study has been started under the
             aegis of the Eastern and Southwestern Collaborative Oncology
             Groups.  A second Phase III study is expected to be initiated
             in the United Kingdom and a third in Australia.  Aquila has
             licensed Progenics to use QS-21 in exchange for a license
             fee, an equity interest in Progenics, and royalties.

        *    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.  While some
             volunteers in this study reported pain on injection, Aquila
             has been informed that an additional study with this
             potential vaccine is planned.

        *    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 StimulonTM adjuvant licensing agreement, the
        Company has retained the right to be the exclusive supplier of
        Stimulon   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 is scaling the process
        to produce a batch size suitable for 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.

        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.  It
        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. or European patents due to
        process differences and formulation techniques which avoid ISCOM
        formation, although the issue is less clear in Europe.  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.

        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.

        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.




        Mastitis

        Aquila exclusively licensed from Alfa Laval Agri AB 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.

        Other Patents

        Aquila also holds U.S. patents on its Quilvax-FeLV TM vaccine, drug
        delivery compounds, and patents on methods of expressing and
        purifying proteins made in a baculovirus expression system have
        issued.  Aquila was granted by CBC, effective on the closing of
        the transaction with bioMerieux: (a) 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; (b) a fully paid-up royalty-free license to U.S.
        Patent No. 4,753,873 in the veterinary diagnostic field; and (c) 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 ImmunoChem Research, Inc. and
        Chiron Corporation, are developing adjuvants.

        At least two of Aquila's adjuvant licensees are also licensees of
        Ribi for certain diseases.  Fort Dodge and Rhone Merieux already
        have canine Lyme disease vaccines on the market, while Pasteur
        Merieux Connaught and SKB are in advanced human trials with human
        Lyme disease vaccines.  Merck, Wyeth-Lederle 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.

        Government Regulation

        The FDA, the USDA, the Environmental Protection Agency and the
        Nuclear Regulatory Commission, comparable state agencies 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.  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 New Drug
        Application (NDA) or 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 vaccine 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 a Biologics Master
        File for QS-21 with the FDA, which its licensees can reference as
        part of their own PLAs and NDAs 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 March 1, 1997, Aquila employed 60 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.  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.
             Chairman, Department of Pathology
             The Animal Medical Center
             New York




             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

        Aquila's discussions as to management's plans and objectives for
        Aquila's business after the date hereof are forward looking
        statements which involve a number of risks and uncertainties.
        Actual results may differ materially from those projected by
        Aquila.  The following factors, among others, could effect the
        Company's actual results:  general economic conditions; risks in
        product and technology development; delays and difficulties in the
        regulatory approval process; difficulties in obtaining raw
        materials and supplies for the Company's products; failure of
        corporate partners to commercialize successfully products using
        the Company's technology; competition from other companies; the
        costs of acquiring additional technology; failure to obtain the
        funding necessary for the Company's 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.

        Item 2.   PROPERTIES.

        Aquila currently leases a 76,475 square foot facility at the
        Biotechnology Research Park in Worcester, Massachusetts.  The
        facility contains research and development laboratories, quality
        control laboratories, manufacturing space and administrative
        offices.  The building is leased pursuant to a lease with a ten
        year initial term expiring December 1996.  The Lease has been
        extended through December 1997.  Since the space exceeds its needs
        for the continuing business, Aquila may relocate to new space at
        the end of 1997.  Aquila believes that suitable replacement space
        is available at reasonable rates.

        Aquila owns three buildings in Rockville, Maryland.  A majority of
        a 46,000 square foot building at 1500 East Gude Drive and a 3,800
        square foot building at 3 1/2 Taft Court are leased to bioMerieux
        under a ten year lease which commenced in October 1996.  A 20,852
        square foot laboratory building at 3 Taft Court is leased to
        Biotech Research Labs, a subsidiary of Boston Biomedica Inc.,
        under a five year lease which commenced July 1992.


        Item 3.   LEGAL PROCEEDINGS.

        The Plan of Reorganization (the "Plan") of Cambridge Biotech
        Corporation ("CBC") was confirmed by the United States Bankruptcy
        Court ("Bankruptcy Court") on July 18, 1996 and consummated on
        October 21, 1996.

        Four parties appealed the Bankruptcy Court's July 18, 1996 order
        confirming the Plan, including Alfa-Laval Agri AB, Behring
        Diagnostics, Inc., Deloitte & Touche, LLP ("Deloitte") and
        Institut Pasteur with Pasteur Sanofi Diagnostics. The appeals
        taken by Alfa-Laval Agri AB and Behring Diagnostics, Inc. have
        been dismissed.  The appeal by Deloitte remains pending before the
        United States District Court for the District of Massachusetts
        (No. 96-40192-NMG).  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.  Finally, an appeal taken by Institut
        Pasteur and Pasteur Sanofi Diagnostics (collectively, "Pasteur")
        was dismissed and the confirmation affirmed, by the First Circuit
        Court of Appeals by order dated January 17, 1997.  Pasteur has
        until April 17, 1997 to file a writ of certiorari with the Supreme
        Court of the United States appealing the First Circuit Court of
        Appeals' decision.  Although the Company is not a party to this
        litigation, a successful appeal could have an adverse effect on
        the Company's continuing operations if the appellate court were to
        disrupt the transactions consummated pursuant to the Plan.

        In July of 1994, the Securities and Exchange Commission ("SEC")
        issued an Order Directing Private Investigation (In the matter of
        Cambridge Biotech Corporation, United States of America Before the
        Securities and Exchange Commission, File No. B-1238),
        investigating matters pertaining to CBC's financial statements,
        its public filings, and its offerings of its securities.  The
        investigation concluded on or about October 17, 1996 with the
        issuance by the SEC of an "Order Instituting Proceedings pursuant
        to  8A of the Securities Act of 1933 and  21C of the Exchange Act
        of 1934 Making Findings and Imposing a Cease and Desist Order".
        CBC consented to the issuance of the order, without admitting or
        denying any wrongdoing, that it cease and desist from committing
        or causing any violation of the anti-fraud, corporate reporting,
        and books and records provisions of the federal securities laws.
        The SEC takes the position that this order is binding on both CBC
        and the Company.

        In 1995, CBC received a subpoena issued by the United States
        District Court, District of Massachusetts for documents to be
        presented to the Grand Jury.  The Company believes the
        investigation was focusing on matters similar to the investigation
        of the SEC.  CBC cooperated in the investigation and was informed
        informally by the U.S. Attorney's Office that it was not a target
        of the investigation.  The Company believes it is not a target of
        any current investigation.

        In May 1995, a former employee of CBC filed a complaint against
        CBC with the City of Rockville, Maryland Human Rights Commission,
        claiming wrongful termination (Human Rights Commission on the
        Complaint of Paul R. Shackelford against Cambridge Biotech
        Corporation, Complaint No. 95-15-ER).  The Company was informed by
        letter dated January 28, 1997 from the State of Maryland
        Commission on Human Relations that the complaint had been
        administratively closed because a pre-determination settlement
        agreement had been executed in accordance with the Maryland
        Commission on Human Relations' rules and procedures.

        CBC filed an appeal in the United States District Court for the
        District of Massachusetts, Civil Action No. 96-40219-NMG of the
        Bankruptcy Court's order entered on October 21, 1996 relating to
        the calculation of the cure amount due to Hugh V. Cottingham
        ("Cottingham") in connection with CBC's assumption of a certain
        License Agreement.  Cottingham filed a cross-appeal.  CBC and
        Cottingham have agreed to settle the dispute and dismiss the
        appeal and cross-appeal, and have filed a Joint Motion for Order
        Authorizing and Approving Stipulation of Dismissal and proposed
        Stipulation of Dismissal.

        On January 14, 1997, the Company commenced an adversary proceeding
        (No. 97-4011) in the United States Bankruptcy Court for the
        District of Massachusetts, in connection with the Chapter 11 case
        of CBC, against the State of Maryland, Louis Goldstein as
        Comptroller of the Treasury of the State of Maryland, Montgomery
        County, Maryland and Molly Q. Ruhl, the Clerk of the Circuit Court
        of Montgomery County.  In the adversary proceeding, the Company
        seeks, among other things, (1) a declaration that the payment of
        certain mortgage recordation taxes by the Company, in connection
        with the recordation of a deed of trust under the terms of the
        Plan of CBC, violated the Bankruptcy Court's order confirming the
        Plan and the provisions of the United States Bankruptcy Code
        exempting the Company from the payment of such taxes, and (2) the
        recovery of such tax payments.  The Bankruptcy Court has scheduled
        for April 8, 1997 a hearing on the motions to dismiss filed by the
        defendants.


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

        No matters were submitted to security holders during the quarter
        ended December 31, 1996.


        Item 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT.

        The following is a list of Executive Officers of the Company,
        their ages, positions, offices and business experience, as of
        March 1, 1997:

             Alison Taunton-Rigby, Ph.D., 52, has been President, Chief
             Executive Officer and Director since March of 1996.  Dr.
             Taunton-Rigby was President and Chief Executive Officer and a
             member of the Board of Directors of CBC from April 1995 until
             October of 1996.  From 1993 to 1994, she was 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., 45, is 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 CBC's FeLV
             feline leukemia vaccine and 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.

             Stephen J. DiPalma, 38, is Vice President, Chief Financial
             Officer and Treasurer of the Company.  Mr. DiPalma served as
             Vice President, Chief Financial Officer and Treasurer of CBC
             from March 1996 to October 1996.  Before joining CBC, Mr.
             DiPalma was Chief Financial Officer and Chief Operating
             Officer of the Picker Institute, an affiliate of the Beth
             Israel Hospital, specializing in quality assessment,
             improvement and information services.  From 1988 to 1995, Mr.
             DiPalma was Chief Financial Officer of Athena Diagnostics
             Inc. (formerly Genica Pharmaceuticals Corporation), a
             biotechnology company involved in therapeutic development and
             diagnostic testing targeted at neurological disorders.  From
             1985 to 1988, Mr. DiPalma was Director of Finance of the
             Health Data Institute, a division of Baxter International
             Corporation.  Mr. DiPalma holds a B.S. from University of
             Massachusetts at Lowell and an M.B.A. from Babson College.

             Deborah B. Grabbe, 45, 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 an A.B. from Oberlin College and an M.S. from John A.
             Burns School of Medicine, University of Hawaii.

             Robert B. Kammer, M.D., 56, 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.


                                     PART II


        Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS.

        Price of common stock:

                                  1996                         1995
        Quarter             High       Low                High      Low

        1st                 $1.6250   $0.3750             $0.7500  $0.1250
        2nd                 $1.2500   $0.5000             $1.2500  $0.1870
        3rd                 $0.8125   $0.3437             $1.6250  $0.1870
        4th                 $6.7500   $3.2500             $1.5000  $0.2500


        The above prices reflect interdealer prices without retail mark-
        up, mark-down or commissions and may not necessarily represent
        actual transactions.  The prices reported for 1995 and until
        October 1996 represent bid prices for transactions of CBC stock
        reported by brokers on the "OTC Bulletin Board" and in the so
        called "pink sheets."  The prices for the last quarter of 1996 are
        the high and low bid information as quoted on the NASDAQ National
        Market System for Aquila's stock.  The prices in the fourth
        quarter of 1996 reflect the exchange of CBC shares for shares of
        the Company at a ratio of one share of the Company for each 7.569
        shares of CBC.  The high and low bid prices for CBC stock for the
        last quarter of 1996 fell within the range reported for Aquila,
        after adjustment for the exchange of shares.  The Company's stock
        was deemed registered pursuant to Rule 12g-3(a) under the
        Securities Exchange Act of 1934 on or about October 21, 1996 and
        began trading on the NASDAQ National Market System on October 24,
        1996.




        Below are high and low prices (rounded to the nearest 1/16)
        reported as if the exchange of CBC shares for the Company's shares
        at the rate of 7.5696 shares of CBC for one share of the Company
        had occurred on January 1, 1995.

                                 1996                          1995
        Quarter             High       Low               High        Low

        1st                 $12.3125  $2.8125            $ 5.6875  $0.9375
        2nd                 $ 9.4375  $3.75              $ 9.4375  $1.4375
        3rd                 $ 6.125   $2.625             $12.3125  $1.4375
        4th                 $ 6.75    $3.25              $11.375   $1.875

        As of March 25, 1997, there were approximately 5,445 shareholders
        of record of the Company's common stock.


        Item 6.   SELECTED FINANCIAL DATA
-------------------------------

                        Aquila Biopharmaceuticals, Inc.
             For the years ended December 31, 1996, 1995 and 1994


                                        1996           1995          1994
                                        ----           ----          ----
Year ended December 31:
-----------------------
  Net Sales                          $6,573,112     $5,727,716     $5,009,922
                                     ===========   =============  ============

  Loss from continuing operations   ($1,110,146)    (5,164,876)  ($11,608,156)

  Loss from continuing operations
    per share:

        Primary                          ($0.29)        ($1.50)        ($3.40)
                                     ===========   =============  ============


  Cash dividends declared per             $0.00           $0.00         $0.00
    share                            ===========   =============  ============

At year end:
-----------

  Total Assets
                                    $26,312,350     $23,044,579   $28,502,670
                                    ===========   =============  ============

  Long term notes payable            $4,055,564              $0            $0
                                    -----------   ------------   -------------

  Total long term obligations         4,055,564              $0            $0
                                     ===========   =============  ============





        ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.

        General

        Aquila is the successor to the biopharmaceutical business of CBC
        pursuant to the terms of the Plan and is the successor to CBC
        under the Securities Exchange Act of 1934 and Rule 12g-3(a)
        thereunder.

        Results of Operations

        The Statement of Operations presents Aquila's results from
        operations exclusive of diagnostic activities, which are presented
        as Discontinued Operations in the statement.  Revenues, costs,
        expenses and other items reflect the results of Aquila's
        biopharmaceutical business and administrative functions only, as
        more fully described below.

        Revenues

        Total revenues were $6,573,000 in 1996, or 15% higher than in
        1995.  Total revenues of $5,728,000 in 1995 increased 14% versus
        1994 total revenues of $5,010,000.

        Product sales were $1,398,000 and $591,000, in 1996 and 1995
        respectively, an increase of 137%.  Product sales in 1995 were 13%
        lower than in 1994.  The increase in product sales in 1996
        compared with 1995 was due primarily to increased sales of certain
        animal health products to Virbac S.A. and payments received for
        materials provided by the Company to corporate partners.  Sales of
        the animal health products in 1995 were negatively impacted by
        production problems during that year.  In 1996, animal health
        product sales reflect increased volume to compensate for
        diminished supply in 1995.

        Research and development ("R&D") revenues of $5,176,000 in 1996
        represented a small increase compared to $5,137,000 in 1995.  R&D
        revenues in 1995 were 19% higher than in 1994.  The majority of
        these revenues were generated from license agreements and the
        remainder were generated from funded research agreements.  The
        Company recognized $3,500,000 in both 1996 and 1995 and $3,000,000
        in 1994 in revenue representing installments of a license fee
        under an agreement with SmithKline Beecham p.l.c. ("SKB") which
        allows SKB to use the Company's proprietary StimulonTM adjuvant
        ("QS21") in numerous vaccines.  Income from this agreement
        represented 53%, 61% and 60% of the Company's total revenue in
        1996, 1995 and 1994, respectively.  A final $3,000,000 installment
        of the license fee is payable by SKB in January of 1998 in order
        for SKB to maintain access to all the technology under the
        agreement.  The Company also recognized $1,920,000 in revenue from
        its collaboration with Virbac S.A. on the development of a vaccine
        for bovine mastitis for the three years from 1994 to 1996.

        No royalty revenue has been reported in any period presented.
        Although the Company did receive royalty payments under certain
        license agreements during each year presented, the underlying
        technology which is the subject of those agreements is primarily
        diagnostic.  Therefore, royalty revenue derived from these
        agreements is not considered to be central to Aquila's ongoing
        business and is reported as Other Income.

        Costs and Expenses

        Cost of products sold as a percentage of product sales was 134%,
        185% and 195% in 1996, 1995 and 1994, respectively.  The decrease
        in 1996 from 1995 is primarily due to the increase in product
        sales in 1996 compared to 1995.  Despite the volume increase, cost
        of products sold continued to exceed product sales in 1996 due to
        unfavorable pricing.  In early 1997, management was successful in
        negotiating higher prices for certain of the Company's animal
        health products.

        Research and development expenses were $4,839,000 in 1996 and
        $5,697,000 in 1995, a decrease of 15%.  R&D expenses in 1995
        increased 12% over 1994 expenses of $5,068,000.  The decrease in
        1996 is attributable to expenses recognized in 1995 related to a
        milestone obligation on certain technology licensed by the
        Company, which expense did not recur in 1996, and to a reduction
        in personnel-related expenses.

        General and administrative expenses ("G&A") were $5,027,000 in
        1996 and $5,455,000 in 1995, a decrease of 8%.  1995 G&A expenses
        were 23% lower than in 1994.  This decrease in 1996 is due
        primarily to a reduction in personnel-related expenses.




        Other Income, Net

        The Company recognized other income, net of $5,777,000 in 1996,
        compared to $2,162,000 in 1995 and $360,000 in 1994.  This
        increase in 1996 is due to income recognized related to the
        receipt of a paid-up license fee of $3,250,000 from a third party
        and a $500,000 payment received in exchange for the Company's
        interest in a joint venture.  Both of these payments were
        nonrecurring transactions.

        As discussed above, other income, net includes royalty income in
        all periods presented.  Royalty income, net of royalty expense,
        was $1,395,000, $1,582,000 and $832,000 in 1996, 1995 and 1994,
        respectively.

        Reorganization Items

        The Company incurred expenses of $2,109,000, $1,200,000 and
        $611,000 in 1996, 1995 and 1994, respectively, for professional
        fees related to the bankruptcy process and the consummation of the
        Plan.  The increase in 1996 was due to expenses related to the
        consummation of the Plan.

        The Company considers all cash up to the amount of liabilities
        subject to Chapter 11 proceedings, which were approximately $9.9
        million at December 31, 1995, to be cash accumulated as a result
        of Chapter 11.  Interest earned on cash accumulated as a result of
        Chapter 11 was $394,000, $387,000 and $100,000 in 1996, 1995 and
        1994, respectively.

        Discontinued Operations

        On June 24, 1996, the Company sold the assets of the enterics
        diagnostic business to Meridian Diagnostics, Inc. for
        approximately $5,700,000 in cash and other considerations.  The
        results of operations of the enterics business are reported as
        discontinued operations and prior periods have been restated to
        reflect that presentation and the disposal of that business.
        Income from discontinued enterics operations was $552,000,
        $426,000 and $259,000 in 1996, 1995 and 1994, respectively.  A
        gain on disposal of the enterics business of $5,218,000 was
        recorded in 1996.

        On October 22, 1996, the Company sold its retroviral diagnostic
        business to bioMerieux for $6,500,000.  The results of operations
        of the retroviral business are reported as discontinued operations
        and prior periods have been restated to reflect that presentation
        and the disposal of that business.  Income from discontinued
        retroviral operations was $901,000 in 1996 compared to losses from
        discontinued retroviral operations of $203,000 and $1,183,000 in
        1995 and 1994, respectively.  A gain on disposal of the retroviral
        business of $2,439,000 was recorded in 1996.




        On July 21, 1994 the Company's wholly-owned Irish subsidiary, CBL,
        filed for protection of the Irish high Court and an Examiner was
        appointed pursuant to the Irish Companies Act of 1990.  The
        appointment of the Examiner and the doubtful recovery of the
        Company's investment in CBL led the Company to conclude the
        measurement date to be July 21, 1994 under APB 30.  Consequently
        the accompanying financial statements for 1994 include a loss of
        $2,129,000 from the discontinued operations.  Net revenue from
        discontinued CBL operations were $1,952,000 for the period prior
        to disposal.  On November 30, 1994 the company sold its interest
        in CBL to SelfCare, Inc.  Total consideration for the transaction
        was $2.1 million.  The Company recorded a loss on disposal of
        $6,963,000.

        Extraordinary Loss on Reorganization

        A loss on all transactions related to the consummation of the Plan
        of $2,040,000 was recorded in 1996.  This loss resulted primarily
        from the settlement of the class action lawsuit partially offset
        by the forgiveness of liabilities in the bankruptcy case.

        Net Income (Loss)

        The Company had a loss from continuing operations of $1,110,000,
        or $.29 per share, $5,165,000, or $1.50 per share, and
        $11,608,000, or $3.40 per share, in 1996, 1995 and 1994,
        respectively.  The Company had income of $5,960,000, or $1.57 per
        share, in 1996 and losses of $4,942,000, or $1.44 per share, and
        $22,276,000, or $6.52 per share, in 1995 and 1994, respectively,
        including income or loss from discontinued operations, gain or
        loss on the disposal of discontinued operations and the
        extraordinary loss on consummation.

        In 1996, the Company adopted Statement of Financial Accounting
        Standards No. 123 ("SFAS 123").  SFAS 123 requires that companies
        either recognize compensation expense for grants of stock, stock
        options and other equity instruments based on fair value, or
        provide pro forma disclosure of net income and earnings per share
        in the notes to the financial statements.  The Company adopted the
        disclosure provisions of SFAS 123 in 1996 and has applied APB 25
        and related interpretations in accounting for its plans.

        In February, 1997, the Financial Accounting Standards Board issued
        Statement of Financial Accounting Standards No. 128 ("SFAS 128").
        Earnings Per Share.  SFAS 128 specifies the computation,
        presentation and disclosure requirements for Earnings Per Share
        ("EPS").  This statement will be effective for fiscal year 1997
        and will require restatement of all prior period EPS data
        presented.  The Company has not yet determined the financial
        impact of adopting this statement.




        Liquidity and Capital Resources

        The ability of Aquila to fund its long term operations is
        dependent upon several factors, including the Company's ability to
        attract funding through additional public or private financing or
        by establishing corporate partnerships and collaborative
        arrangements.  There can be no assurance that such additional
        funding can be obtained on acceptable terms.

        Operating activities used $1,025,000, $880,000 and $3,095,000 of
        cash in 1996, 1995 and 1994, respectively.  The 1996 net income of
        $5,960,000 includes approximately $7,423,000 in gain on
        sale of discontinued operations, a loss on the consummation
        of the Plan of $2,040,000, and non-cash depreciation and
        amortization of $3,448,000.  In 1995, the net loss of $4,942,000
        included $4,737,000 of non-cash depreciation and amortization.  In
        1994 the net loss of $22,276,000 included a loss on disposal of
        discontinued operations of $7,482,000, and non-cash depreciation
        and amortization of $4,282,000.

        In 1996, the Company reduced inventories and accounts receivable
        by $1,263,000, and $348,000, respectively.  By comparison,
        inventories increased by $402,000 and accounts receivable
        decreased by $143,000 in 1995.  In 1996, accounts payable and
        other accrued expenses decreased by $1,034,000, primarily due to
        payments made against post-petition administrative claims pursuant
        to the consummation of the Plan.  Cash used to satisfy pre-
        petition Chapter 11 liabilities under the Plan was $3,757,000.
        Deferred revenue also decreased, due primarily to the recognition
        of revenue related to the Company's collaboration with Virbac on
        the development of a vaccine for bovine mastitis.  The primary
        reason for the reduction in deferred revenue in 1995 was the
        $3,500,000 license fee received in December, 1994 and earned
        during 1995.

        Accounts payable and other liabilities increased by $3,349,000 and
        $2,074,000 in 1995 and 1994, respectively.  The 1995 increase was
        due primarily to the patent related milestone obligation
        previously mentioned, employee retention bonus plan and timing of
        payments.  The 1994 increase was primarily due to postponed
        payments due to a cash shortage prior to filing for Chapter 11,
        employee retention bonus plan and professional fees incurred due
        to the Company's filing for Chapter 11.

        Investing activities generated $3,306,000 in 1996, due primarily
        to the receipt of proceeds from the sales of the enterics and
        retroviral diagnostic businesses.  In 1995, by comparison,
        investing activities used $798,000, primarily related to the
        purchase of property, plant and equipment and additions to Patent
        and Purchased Technology assets.  In 1994 investing activities
        generated $5,262,000, due primarily to the proceeds from the sale
        of the Company's Irish subsidiary, the proceeds from the
        collection of a note receivable and the sale of marketable
        securities.




        During 1994, the Company's financing activities generated
        $5,455,000 due primarily to the stock issued from the January 1994
        shelf offering.

        Cash and cash equivalents were $9,112,000 at December 31, 1996,
        compared to $6,856,000 at December 31, 1995 and $8,538,000 at
        December 31, 1994.  The increase in 1996 results primarily from
        the sales of the enterics and retroviral diagnostic businesses and
        the receipt of a paid-up license fee from a sub-licensee of
        certain diagnostic technology.  Total cash, cash equivalents and
        marketable securities were $17,675,000 at December 31, 1996.

        The Company currently occupies an office, research and
        manufacturing facility in Worcester, Massachusetts under a lease
        which expires on December 31, 1997.  The Company expects that
        relocation to another facility will be necessary.  Given the
        nature of Aquila's research and manufacturing activities and the
        specialized space required to support those activities, it is
        expected that the Company will be required to make capital
        expenditures to improve the new facility and to acquire new
        systems and equipment related to the new facility.  While an
        accurate estimate cannot be made at this time, it is possible that
        these expenditures could be substantial.

        Aquila's discussions as to management's plans and objectives for
        Aquila's business after the date hereof are forward looking
        statements which involve a number of risks and uncertainties.
        Actual results may differ materially from those projected by
        Aquila.  The following factors, among others, could effect the
        Company's actual results:  general economic conditions; risks in
        product and technology development; delays and difficulties in the
        regulatory approval process; difficulties in obtaining raw
        materials and supplies for the Company's products; failure of
        corporate partners to commercialize successfully products using
        the Company's technology; competition from other companies; the
        costs of acquiring additional technology; failure to obtain the
        funding necessary for the Company's 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.


        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, "Proposals 1 and 2, Election of Directors", to be filed
        pursuant to Regulation 14A, in connection with the 1997 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, "Proposals 1 and 2, Election of Directors - Executive
        Compensation", to be filed pursuant to Regulation 14A, in
        connection with the 1997 Annual Meeting of Shareholders.


        Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

             Incorporated by reference to the Company's definitive proxy
        statement, "Proposals 1 and 2, Election of Directors - Security
        Ownership of Certain Beneficial Owners and Management", to be
        filed pursuant to Regulation 14A in connection with the 1997
        Annual Meeting of Shareholders.


        Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

             Incorporated by reference to the Company's definitive proxy
        statement, "Proposals 1 and 2, Election of Directors", to be filed
        pursuant to Regulation 14A in connection with the 1997 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.  Statement of Operations for each of
        the three years in the period ended December 31, 1996.

                  iii. Balance Sheets at December 31, 1996
        and 1995.

                  iv.  Statement of Cash Flows for each of
        the three years in the period ended December 31, 1996.

                  v.   Statement of Shareholders' Equity for
        each of the three years in the period ended December 31, 1996.

                  vi.  Notes to Financial Statements for the
        years ended December 31, 1996 and 1995.

             (a)  2.   Financial Statement Schedules.

                  None.

             (a)  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 Restated 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).

                 o3.2    Certificate of Amendment of Amended and Restated
        Certificate of Incorporation, effective March 24, 1997 (a complete
        copy of the Amended and Restated Certificate of Incorporation, as
        amended, is filed herewith).

                  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 Form
        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. 0-12081).

                  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. 0-12081).

                  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. 0-12081).

                  tm10.7  Employment Agreement with Robert B. Kammer,
        dated August 21, 1995 (incorporated by reference to Exhibit 10.20
        to Annual Report on Form 10-K for fiscal year ended December 31,
        1995, File No. 0-12081).

                  tm o10.8 Employment Agreement with Stephen J. DiPalma,
        dated March 1, 1996.

                  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).

                 o10.11  Lease Agreement with bioMerieux Vitek, Inc.
        dated October 22, 1996 for premises located at 1500 East Gude
        Drive and 3  Taft Court, Rockville, Maryland.

                 o10.12  1996 Stock Award and Option Plan.

                 o10.13  1996 Directors Stock Award and Option Plan.

                 o10.14  1996 Employee Stock Purchase Plan.

                 o11.    Computation of Earnings Per Share.

                 o27.    Financial Data Schedule.

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

                  1.      Current report on Form 8-K, dated October 21,
        1996.



        _____________________

        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, 1996 and 1995, and the
        related statements of operations, cash flows and stockholders' equity
        for each of the three years in the period ended December 31, 1996.
        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, 1996 and 1995, and the
        results of its operations and its cash flows for each of the three
        years in the period ended December 31, 1996 in conformity with
        generally accepted accounting principles.

                                            /s/
                                            Coopers & Lybrand L.L.P.
        Boston, Massachusetts
        March 7, 1997


Aquila Biopharmaceuticals, Inc.
	Statements of Operations
	For the Years Ended December 31, 1996, 1995 and 1994


Revenue:                                                 1996             1995
        Product sales                              $1,397,597          590,859
        Research and development                    5,175,515        5,136,857
                                                    _________        _________
                                                    6,573,112        5,727,716
Cost and expenses:
        Cost of sales                               1,879,206        1,090,408
        Research and development                    4,839,116        5,696,964
        General and administrative                  5,027,190        5,454,835
        Loss on impairment of assets                        0                0
          (Notes 7 and 8)                          __________       __________
                                                   11,745,512       12,242,207


Other income, net (Note 14)                         5,777,032        2,162,396

Income/(Loss) from continuing operations before
 reorganization items and income tax benefit          604,632       (4,352,095)

Reorganization items (Note 1):
        Professional fees                          (2,109,050)      (1,200,188)
        Provision for rejected executory contracts          0                0
	Interest earned on accumulated cash
          resulting from Chapter 11 proceedings       394,272          387,407

        Total reorganization items                 (1,714,778)        (812,781)
                                                  ___________        _________
Loss from continuing operations before
 income tax benefit                                (1,110,146)      (5,164,876)

Income tax (expense)/benefit (Note 13)                      0                0
                                                    _________        _________
Loss from continuing operations                    (1,110,146)      (5,164,876)

Discontinued operations (Note 3):
        Income/(Loss) from operations               1,452,810          223,330
        Gain/(Loss) on disposal                     7,656,683                0
                                                    _________        _________
Income/(Loss) before extraordinary loss             7,999,347       (4,941,546)

Extraordinary loss on Reorganization (Note 12)     (2,039,816)               0
                                                    _________        _________
Net Income/(Loss)                                  $5,959,531      ($4,941,546)

Net income/(loss) per weighted average number
  of common shares:
        Continuing operations                          ($0.29)          ($1.50)
        Discontinued operations                         $2.40            $0.06
        Extraordinary loss on Reorganization           ($0.54)           $0.00

Net Income/(Loss) per share                             $1.57           ($1.44)

Weighted average number of
  common shares outstanding                         3,803,247        3,442,305

	Aquila Biopharmaceuticals, Inc.
	Statements of Operations
	For the Years Ended December 31, 1996, 1995 and 1994

Revenue:                                                1994
        Product sales                               $675,725
        Research and development                   4,334,197
                                                   _________
                                                   5,009,922
Cost and expenses:
        Cost of sales                              1,317,850
        Research and development                   5,068,244
        General and administrative                 7,051,194
	Loss on impairment of assets
          (Notes 7 and 8)                          2,879,707
                                                   _________
                                                  16,316,995

Other income, net (Note 14)                          359,796

Income/(Loss) from continuing operations before
 reorganization items and income tax benefit     (10,947,277)

Reorganization items (Note 1):
        Professional fees                           (610,832)
        Provision for rejected executory contracts  (357,501)
	Interest earned on accumulated cash
          resulting from Chapter 11 proceedings       99,579
                                                   _________
        Total reorganization items                  (868,754)

Loss from continuing operations before           ___________
 income tax benefit                              (11,816,031)

Income tax (expense)/benefit (Note 13)               207,875
                                                ____________
Loss from continuing operations                  (11,608,156)

Discontinued operations (Note 3):
        Income/(Loss) from operations             (3,186,400)
        Gain/(Loss) on disposal                   (7,481,710)
                                                  __________
Income/(Loss) before extraordinary loss          (22,276,266)

Extraordinary loss on Reorganization (Note 12)             0
                                                 ___________
Net Income/(Loss)                               ($22,276,266)

Net income/(loss) per weighted average number
  of common shares:
        Continuing operations                         ($3.40)
        Discontinued operations                       ($3.12)
        Extraordinary loss on Reorganization           $0.00
                                                      ______
Net Income/(Loss) per share                           ($6.52)

Weighted average number of                         3,416,100
  common shares outstanding





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



	Aquila Biopharmaceuticals, Inc
	Balance Sheets
	As of December 31, 1996 and 1995

                                                         1996             1995
Assets
Current Assets:
        Cash and cash equivalents                   9,112,091        6,855,751
        Marketable securities
          (Notes 2 and 4)                           8,562,730          216,162
        Accounts receivable - trade
          (less allowance for
          doubtful accounts of $178,565 and
          $160,000, respectively)                   1,545,612        2,638,024
        Other receivables                             820,307          125,831
        Inventories (Note 5)                          451,074        4,367,831
        Prepaid expenses and other current assets     778,927          695,455
                                                   __________       __________
                Total current assets               21,270,741       14,899,054

Investments (Note 6)                                  394,500                0

Property, Plant, and Equipment, Net (Note 7)        4,308,457        6,985,523

Patents and Purchased Technology, Net (Note 8)        295,620        1,054,579

Other Assets                                           43,032          105,423
                                                   __________       __________
Total Assets                                       26,312,350       23,044,579

Liabilities & Shareholders' Equity

Current Liabilities:
        Accounts payable                              943,924          850,480
        Accrued royalties                             642,959        1,192,169
        Accrued professional fees                     383,557          753,244
        Accrued incentive compensation (Note 16)            0        1,457,622
        Other accrued expenses (Note 9)             2,097,326        2,258,196
        Deferred revenue (Note 18)                    917,600          410,739
        Current maturities of long-term debt
          (Note 10)                                   129,103                0
                                                   __________        _________
                Total Current Liabilities           5,114,469        6,922,450

Deferred Revenue (Note 6)                             225,000        2,287,315

Long Term Debt (Note 10)                            4,055,564                0

Liabilities Subject To Chapter 11 Proceedings
  (Note 11)                                                 0        9,880,309
                                                    _________        _________

Total Liabilities                                   9,395,033       19,090,074

Minority Interest                                           0            8,989

Commitments and Contingencies (Note 15)

Shareholders' Equity (Note 16):
	Preferred stock, authorized:
          5,000,000 in 1996 and 1995 none issued             -              -
	Common stock, par value: $.01 per share,
          authorized: 30,500,000 and 40,000,000
          shares in 1996 and 1995, respectively
          issued:  5,000,000 and 26,057,006 shares
          in 1996 and 1995, respectively                 50,000        260,570
        Additional paid in capital                  127,514,223    120,382,104
        Unearned compensation                                 0       (138,088)
        Treasury stock at cost: 10,526 shares           (47,367)             0
        Accumulated deficit                        (110,599,539)  (116,559,070)

Total Shareholders' Equity                           16,917,317      3,945,516

Total Liabilities and Shareholders' Equity          $26,312,350    $23,044,579



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


                        Aquila Biopharmaceuticals, Inc.
                            Statement of Cash Flows
                  For the years ended December 31, 1996 and 1995


                                                   1996            1995
                                                   ----            ----
Cash Flows From Operating Activities:

Net Income/(Loss)                               $5,959,531     ($4,941,546)
Adjustments to reconcile net income/(loss)
 to net cash used in operating activities:
    Depreciation and amortization                3,448,192       4,736,689
    Provision for doubtful accounts                 50,000          61,065
    Non cash compensation expense                   50,000         219,381
    Loss on sale of property, plant and
      equipment                                        ---             ---
    Loss from impairment of assets                     ---             ---
    Gain on sale of discontinued
      businesses                                (7,423,020)            ---
    Loss from bankruptcy consummation            2,039,816             ---
    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 disposed
      businesses:
    Accounts and other receivables                 347,936         143,316
    Inventories                                  1,262,592        (402,163)
    Deferred revenue                            (1,780,454)      (4,090,520)
    Prepaid and other current assets               (83,472)        140,830
    Accounts payable and other accrued
      expenses                                  (1,033,690)      3,349,347
    Settlement of liabilities subject to
      chapter 11 proceedings                    (3,757,436)            ---
    Other noncurrent assets                         62,391             368
    Minority interest                               (8,989)          8,989
    Discontinued operations-non cash &
      working capital changes                          ---             ---
                                                ------------   ------------
          Net cash used by
          operating activities                  (1,024,939)       (879,820)

Cash Flows From Investing Activities:
    Purchases of marketable securities          (8,562,730)            ---
    Proceeds from disposal of marketable
      securities                                   204,998             ---
    Purchases of property, plant, and
      equipment                                   (309,627)       (593,551)
    Proceeds from sale of property, plant
      and equipment                                    ---             ---
      Proceeds from collection of notes
        receivable                                     ---             ---
    Patents and purchased technology              (227,968)       (204,927)
    Proceeds from sale of discontinued
      businesses                                12,201,000             ---
    Financing activities of discontinued
      operations                                       ---             ---
                                                ------------   ------------
        Net cash (used)/provided by
          investing activities                   3,305,673        (798,478)

Cash Flows From Financing Activities:
    Issuance of common stock                           ---             ---
    Payment on long-term obligations               (24,394)         (3,742)
                                                ------------   ------------
        Net cash (used)/provided by
          financing activities                     (24,394)         (3,742)
    Effect of exchange rate changes on cash
      and cash equivalents                             ---             ---

Net increase/(decrease) in cash                 ------------   ------------
  and cash equivalents                           2,256,340      (1,682,040)

Cash and cash equivalents at the
  beginning of the year                          6,855,751       8,537,791
                                                ------------   ------------
Cash and cash equivalents at the
    end of the period                           $9,112,091      $6,855,751
                                                ============   ============
Supplemental disclosures:
Income taxes paid/(refunded)                        $4,231              $0
                                                ============   ============
Interest paid                                      $98,541              $0
                                                ============   ============
Stock Received for Unearned License Fee           $225,000              $0
                                                ============   ============
Conversion of Chapter 11 liabilities into
  long term debt                                $4,021,220              $0
                                                ============   ============
Stock issued under incentive plan                 $503,055              $0
                                                ============   ============

Stock issued to Creditors pursuant to
  Reoganization Plan                              $881,582              $0
                                                ============   ============
Stock issued in settlement of class action
  lawsuit                                       $5,625,000              $0
                                                ============   ============
The accompanying notes are an integral part of the financial statements
-------------------------------------------------------------------------------
                        Aquila Biopharmaceuticals, Inc.
                            Statement of Cash Flows
                     For the year ended December 31, 1994

                                                                   1994
                                                                   ----
Cash Flows From Operating Activities:

Net Income/(Loss)                                             ($22,276,266)
Adjustments to reconcile net income/(loss)
 to net cash used in operating activities:
    Depreciation and amortization                                4,282,125
    Provision for doubtful accounts                                 46,697
    Non cash compensation expense                                  160,253
    Loss on sale of property, plant and
      equipment                                                     60,343
    Loss from impairment of assets                               2,879,707
    Gain on sale of discontinued
      businesses                                                 7,481,710
    Gain from discontinued operations                                  ---
    Loss from bankruptcy consummation                                  ---
    Receipt of investments                                             ---
    Loss on disposition and write down
      of investments                                               531,155
    Changes in assets and liabilities,
      net of effects of disposed
      businesses:
    Accounts and other receivables                                 974,979
    Inventories                                                  1,524,269
    Deferred revenue                                              (468,819)
    Prepaid and other current assets                              (275,089)
    Accounts payable and other accrued
      expenses                                                   2,073,972
      Settlement of liabilities subject to
    Other noncurrent assets                                         44,261
    Minority interest                                                  ---
    Discontinued operations-non cash &
      working capital changes                                     (134,235)
                                                               ------------
          Net cash used by
          operating activities                                  (3,094,938)

Cash Flows From Investing Activities:
    Purchases of marketable securities                           4,139,562
    Proceeds from disposal of marketable
      securities                                                       ---
    Purchases of property, plant, and
      equipment                                                ( 2,118,359)
    Proceeds from sale of property, plant
      and equipment                                                 84,750
      Proceeds from collection of notes
        receivable                                               1,000,366
    Patents and purchased technology                              (266,332)
    Proceeds from sale of discontinued
      businesses                                                 2,391,256
    Financing activities of discontinued
      operations                                                    31,152
                                                               ------------
        Net cash (used)/provided by
          investing activities                                   5,262,395

Cash Flows From Financing Activities:
    Issuance of common stock                                     6,832,513
    Payment on long-term obligations                            (1,377,449)
                                                               ------------
        Net cash (used)/provided by
          financing activities                                   5,455,064
    Effect of exchange rate changes on cash
      and cash equivalents                                          31,107

Net increase/(decrease) in cash                                ------------
  and cash equivalents                                           7,653,628

Cash and cash equivalents at the
  beginning of the year                                            884,163
                                                               ------------
Cash and cash equivalents at the
    end of the period                                           $8,537,791
                                                               ============
Supplemental disclosures:
Income taxes paid/(refunded)                                     ($141,814)
                                                               ============
Interest paid                                                     $254,026
                                                               ============
Stock Received for Unearned License Fee                                 $0
                                                               ============
Conversion of Chapter 11 liabilities into
  long term debt                                                        $0
                                                               ============

Stock issued under incentive plan                                       $0
                                                               ============
Stock issued to creditors pursuant to
  Reorganization Plan                                                   $0
                                                               ============
Stock issued in settlement of class action
  lawsuit                                                               $0
                                                               ============
The accompanying notes are an integral part of the financial statements

                        Aquila Biopharmaceuticals, Inc.
                       Statement of Shareholders' Equity
              For the years ended December 31, 1996, 1995 and 1994


                                                 Additional
                              Common Stock        Paid-In        Unearned
                            Shares     Amount     Capital      Compensation
                            ------     ------     --------    --------------
BALANCE,
DECEMBER 31, 1993         23,403,445  $234,034  $113,854,636    ($796,231)

Private placement of
 common stock              2,589,100    25,891     6,609,357        ---

Stock issued for the
 employee stock purchase
 plan                         50,761       508       154,313        ---

Exercises of warrants,
 options, and other
 shares issued                13,700       137        42,307        ---

Forfeiture of discounted       ---         ---      (449,134)     449,134
 stock options

Compensation expense
 recognized                    ---         ---         ---        160,253

Net loss                       ---         ---         ---          ---

Translation adjustment         ---         ---         ---          ---
                            ---------    --------    --------    --------
BALANCE,
DECEMBER 31, 1994         26,057,006   260,570   120,211,479    (186,844)

Compensation expense
 recognized                    ---         ---       170,625      48,756

Net loss                       ---         ---         ---          ---
                          -------------------------------------------------
BALANCE,
DECEMBER 31, 1995         26,057,006   260,570   120,382,104    (138,088)
                          =================================================

Stock exchanged with
 former shareholders
 pursuant to Reorgan-
 ization Plan            (22,614,701) (226,147)      226,147       ---

Stock issued in settle-
 ment of class action
 shareholder lawsuit       1,250,000    12,500     5,612,500       ---

Stock issued
 under incentive plan        111,790     1,118       501,937       ---

Stock issued to
 creditors pursuant
 to Reorganization Plan      195,905     1,959       879,623       ---

Compensation expense
 recognized                    ---         ---        50,000       ---

Forfeiture of dis-
 counted stock options         ---         ---      (138,088)    138,088

Stock held in Treasury
 related to disputed
 Chapter 11 claim              ---         ---         ---         ---

Net income                     ---         ---         ---         ---
                          -------------------------------------------------
BALANCE,
DECEMBER 31, 1996          5,000,000   $50,000  $127,514,223          $0
                          =================================================
The accompanying notes are an integral part of the financial statements
-------------------------------------------------------------------------------

                        Aquila Biopharmaceuticals, Inc.
                       Statement of Shareholders' Equity
              For the years ended December 31, 1996, 1995 and 1994


                                                 Cumulative
                           Treasury              Translation
                            Stock      Deficit   Adjustment       Total
                            ------     ------     --------    --------------

BALANCE,
DECEMBER 31, 1993            ---   ($89,341,258)  ($1,934,051)   $22,017,130

Private placement of
 common stock                ---        ---           ---          6,635,248

Stock issued for the
 employee stock purchase
 plan                        ---        ---           ---            154,821

Exercises of warrants,
 options, and other
 shares issued               ---        ---           ---             42,444

Forfeiture of discounted
stock options                ---        ---           ---                  0

Compensation expense
 recognized                  ---        ---           ---            160,253

Net loss                     ---    (22,276,266)      ---        (22,276,266)

Translation adjustment       ---         ---        1,934,051      1,934,051

                           --------    --------    --------      ---------
BALANCE,
DECEMBER 31, 1994              0   (111,617,524)            0      8,667,681

Compensation expense
 recognized                  ---        ---           ---            219,381

Net loss                     ---     (4,941,546)      ---         (4,941,546)
                          ---------------------------------------------------
BALANCE,
DECEMBER 31, 1995              0   (116,559,070)            0      3,945,516
                          ===================================================

Stock exchanged with
 former shareholders
 pursuant to Reorgan-
 ization Plan                ---        ---           ---                  0

Stock issued in settle-
 ment of class action
 shareholder lawsuit         ---        ---           ---          5,625,000

Stock issued
 under incentive plan        ---        ---           ---            503,055

Stock issued to
 creditors pursuant
 to Reorganization Plan      ---        ---           ---            881,582

Compensation expense
 recognized                  ---        ---           ---             50,000

Forfeiture of dis-
 counted stock options       ---        ---           ---                  0

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       ($47,367) ($110,599,539)           $0    $16,917,317
                          ==================================================
The accompanying notes are an integral part of the 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. The Company's predecessor, Cambridge Biotech
         Corporation ("CBC")  filed a petition for reorganization under
         Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on
         July 7, 1994 with the United States Bankruptcy Court for the
         District of Massachusetts Western Division (the "Bankruptcy
         Court").  Aquila, organized in 1996 as a Delaware corporation,
         became a successor to CBC pursuant to the terms of a
         Reorganization Plan (the "Plan") that was confirmed by the
         Bankruptcy Court  on July 18, 1996 and consummated on October 21,
         1996.

         2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation - The 1996 Balance Sheet reflects
         Aquila alone; no subsidiaries or other entities are consolidated
         in the accompanying 1996 Balance Sheet. All of the Company's
         former subsidiaries, which were Biotech Research Laboratories,
         Inc., FSC ("FSC"), Cambridge Affiliated Corporation ("CAC"),
         Cambridge Biotech International Corporation ("CBIC") and Cambridge
         Biotech Ltd. ("CBL"), collectively "the subsidiaries",  were
         disposed of or dissolved by the Company during the period from
         1994 through 1996. Results of operations of the  subsidiaries are
         included in the accompanying financial statements as discontinued
         operations. The Balance Sheet at December 31, 1995 includes CBC,
         Biotech Research Laboratories, Inc., FSC, and CAC.

         CBL's revenue and expenses from January 1, 1994 to July 21, 1994
         are reflected on the Statement of Operations as a loss from
         discontinued operations.  CBIC ceased operations in   1994 .  FSC
         is a foreign sales corporation which was dissolved by the Company
         on January 27, 1995.  The Company's 51% ownership interest in CAC
         was disposed of in October, 1996 as part of the sale of the
         Company's "Retroviral" diagnostic business. All significant
         intercompany transactions and accounts have been eliminated. (See
         Note 3).

         Nature of Operations - The Company is in the business of
         developing, manufacturing and marketing products that modulate the
         immune system to control or prevent infectious diseases and
         cancer.  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.

         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, 1996, all
         marketable securities were commercial paper of domestic corporations
         and were classified as "held to maturity".  At December 31, 1995,
         the Company had classified its marketable securities as "available
         for sale".  All marketable securities at that date represented shares
         of common stock of one insurance company which were sold during
         1996.  (See Note 4.)

         Concentrations of Credit 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 diverse nature of the entities from
         which accounts receivable are due. Additionally,  the Company
         maintains reserves for potential credit losses. Writeoffs for
         1996, 1995 and 1994 were $34,000, $51,000 and $929,000,
         respectively.

         Inventories - Inventories are stated at the lower of cost (first-
         in, first-out method) or market.

         Long-Lived Assets - The Company adopted Statement of Financial
         Accounting Standards No. 121 ("SFAS 121") "Accounting for the
         Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed Of" in 1994. SFAS 121 requires that long-lived assets be
         reviewed for impairment by comparing the cumulative undiscounted
         cash flows from the assets with their carrying amount.  Any
         writedowns are treated as permanent reductions in the carrying
         amount of the assets.  Management's policy regarding long-lived
         assets is to evaluate the recoverability of its assets when the
         facts and circumstances suggest that these assets may be impaired.
         This analysis relies on a number of factors, including operating
         results, business plans, budgets, economic projections and changes
         in management's strategic direction or market emphasis.  The test
         of such recoverability is a comparison of the asset value to its
         expected cumulative net operating cash flow over the remaining
         life of the asset.

         Property, Plant and Equipment - Property, plant and equipment are
         recorded at cost.  However, the carrying value is included in
         management's evaluation of the recoverability of the Company's
         long-lived assets. Depreciation for financial accounting purposes
         is computed  by the straight-line method to amortize the cost of
         various classes of assets 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.  Gains and
         losses on the disposition of properties, if reflected in earnings
         and the related asset costs and accumulated depreciation, are
         removed from the respective accounts.

         Patents and Purchased Technology - Purchased technology related to
         the acquisition of assets is recorded at fair market value at
         acquisition date. However, the carrying value is included in
         management's evaluation of the recoverability of the Company's
         long-lived assets.   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 and service sales is
         recognized at the time of the product shipment or performance of
         the service.  Revenue from research and development contracts is
         deferred and recognized over the contractual periods as services
         are performed.  In addition, research agreements which have
         established payments for distinct achievements or phases are
         recorded as income is earned.  The initial fee in alliance
         agreements is recognized 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 the current
         statutory tax rates.

         Net Income/(Loss) Per Share - The net income or loss per share is
         computed based on the weighted average number of common and common
         equivalent shares (using the treasury stock method) outstanding
         during each period. Common equivalent shares are included in the
         per share calculations where the effect of their inclusion would
         be dilutive. Common equivalent shares consist of outstanding stock
         options.

         In February, 1997, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
         Earnings Per Share. SFAS 128 specifies the computation,
         presentation and disclosure requirements for Earnings Per Share
         ("EPS"). This statement will be effective for fiscal year 1997 and
         will require restatement of all prior period EPS data presented.
         Management has not yet determined the financial impact of adopting
         this statement.

         3.   DISCONTINUED OPERATIONS

         During 1996, the Company disposed of two separate diagnostics
         businesses encompassing the Company's diagnostic assets and
         operations. On May 16, 1996, the Bankruptcy Court approved the
         sale of the "Enterics" business, which was subsequently sold to
         Meridian Diagnostics Inc. on  June 24, 1996 for approximately
         $5,700,000 in cash. The approval by the Bankruptcy Court led the
         Company to conclude the measurement date, under the Accounting
         Principles Board Statement No. 30 "Reporting the Results of
         Operations - Reporting the Effects of Disposal of a Segment of a
         Business, and Extraordinary, Unusual and Infrequently Occurring
         Events and Transactions"  ("APB 30"), to be May 16, 1996.
         Consequently, the accompanying financial statements include a gain
         from the disposal of the Enterics business of $5,218,000 in 1996
         and income from discontinued operations of the Enterics business
         of $552,000, $426,000 and $259,000 in 1996, 1995 and 1994,
         respectively. Net revenue from discontinued Enterics operations
         were $4,718,000, $3,880,000, and $3,571,000 in 1996, 1995 and
         1994, respectively.

         On October 22, 1996, the Company sold its Retroviral diagnostic
         business to bioMerieux Vitek Inc. for approximately $6,500,000 in
         cash pursuant to the Reorganization Plan. As the Company could not
         be assured the sale of this business would proceed until the
         consummation of the Reorganization Plan occurred, which took place
         on October 21, 1996, the Company has concluded that October 22,
         1996 is the measurement date for the disposal of the Retroviral
         business under APB 30 .  Consequently, the accompanying financial
         statements include a gain from the disposal of the Retroviral
         business of $2,439,000 in 1996, income from discontinued
         operations of the Retroviral  business of $901,000 in 1996, and
         losses from discontinued operations of the Retroviral  business of
         $203,000 and $1,183,000 in 1995 and 1994, respectively. Net
         revenue from discontinued Retroviral operations were $9,780,000,
         $16,384,000, and $12,436,000 in 1996, 1995 and 1994, respectively.

         On July 21, 1994 the Company's wholly-owned Irish subsidiary, CBL,
         filed for protection of the Irish High Court and an Examiner was
         appointed pursuant to the Irish Companies Act of 1990.  At July
         21, 1994 CBL's debt to the Company represented approximately 92%
         of CBL's total liabilities. The appointment of the Examiner and
         the doubtful recovery of the Company's investment in CBL led the
         Company to conclude the measurement date to be July 21, 1994 under
         APB 30.  Consequently the accompanying financial statements for
         1994 include a loss of $2,129,000 from the discontinued operations
         for the period January 1, 1994 through July 21, 1994.  Net revenue
         from discontinued CBL operations was $1,952,000 for the period
         prior to disposal. On November 30, 1994 the Company sold its
         interest in CBL's debt and equity to SelfCare, Inc. (a U.S.
         Corporation).  Total consideration for the transaction was
         approximately $2.1 million. The Company recorded a loss on
         disposal of  $6,963,000.

         The Company, through the acquisition of certain assets of
         Codiapharm, S.A. in November, 1991 obtained product registration
         rights and distribution contracts for the sale of products
         manufactured by CBL, the Company's Irish subsidiary.  These assets
         were  recorded by the Company's subsidiary CBIC.  Effective with
         the disposal of CBL, the Company wrote off the value of CBIC's assets,
         and included this loss of $519,000 in the loss on disposal in 1994.

         4.   MARKETABLE SECURITIES

         Marketable securities are held at amortized cost, which
         approximates fair value, based on quoted market prices.  At
         December 31, 1996, marketable securities consisted entirely of
         corporate commercial paper with maturities between 91 and 360 days
         and  gross unrealized losses of $6,000. At  December 31, 1995,
         marketable securities consisted entirely of the common stock of
         one insurance company that the Company received when the insurance
         company demutualized. The Company sold this stock during 1996 and
         recorded a loss of $11,000 on the sale.

         5.   INVENTORIES

         Inventories consist of the following at December 31:

                                               1996         1995
                                               ----         ----
         Finished goods                    $ 260,000     $ 681,000
         Work in process                     150,000     2,887,000
         Raw materials and supplies           41,000       800,000
                                            --------   -----------
                                            $451,000   $ 4,368,000
                                            ========   ===========

         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 sublicense agreement in regard to
         certain technology.  The Company recognized revenue of $95,000
         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 licensing fee,
         subject to the achievement of certain 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, the Company recorded an investment of
         $300,000 and deferred revenue of $300,000 until the milestones
         defined in the agreement are achieved.  During 1996 the Company
         recognized $75,000 of revenue upon the achievement of the first
         milestone under this agreement.  The remaining $225,000 is
         included in deferred revenue at December 31, 1996.

         At December 31, 1995, the Company owned a 19% interest in GRF
         Corporation (GRF) as part of a joint venture formed  to develop
         and market human growth hormone releasing factor (GHRF) thought to
         be beneficial in the treatment of osteoporosis and other diseases.
         The remainder of this company was beneficially owned by
         BioNebraska, Inc. and R&C Enterprises, Inc. Due to the uncertainty
         that the joint venture would be able to raise additional funding
         to support its activities, this investment had been fully written
         off at December 31, 1995.  In August, 1996, the Company sold its
         share in the joint venture to BioNebraska for $500,000 in cash,
         which was reported as Other Income in 1996.

         The Company had an investment in ImmuCell Corporation, which was
         accounted for on the cost method.  In December, 1994 the Company
         sold its interest in ImmuCell for $309,000, recognizing a $306,000
         loss.

         7.   PROPERTY, PLANT, AND EQUIPMENT

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

                                        1996             1995
                                        ----             ----
          Land                     $       0           $647,000
          Buildings                        0          3,356,000
          Furniture, fixtures,
            and equipment          5,985,000         13,329,000
          Leasehold and building
            improvements           5,993,000          6,780,000
          Property leased to
            others                 5,762,000            988,000
          Leased equipment                 0             21,000
                                   ---------         ----------
          Sub-total               17,740,000         25,121,000
          Less accumulated
            depreciation and
            amortization         (13,431,000)       (18,135,000)
                                 ------------       ------------
                                  $4,309,000        $ 6,986,000
                                  ==========        ===========

         Total depreciation and amortization expense during 1996, 1995 and 1994
         was $2,649,000, $3,492,000 and $3,174,000, respectively.  Accumulated
         amortization on leasehold improvements was $5,980,000 and
         $4,605,000 at December 31, 1996 and 1995, respectfully.
         Accumulated depreciation on property leased to others was
         $1,946,000 and $603,000 at December 31, 1996 and 1995,
         respectively.

         As a result of the Company filing for reorganization under Chapter
         11, the Company recognized an impairment loss of $1,145,000 on its
         property and plant in Rockville during 1994.

         8.   PATENTS AND PURCHASED TECHNOLOGY

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

                                                 1996              1995
                                                 ----              ----
         Purchased technology                $3,451,000        $ 3,451,000
         Patents and patent support             746,000            949,000
                                             ----------        -----------
         Sub-total                            4,197,000          4,400,000
         Less accumulated amortization       (3,901,000)        (3,345,000)
                                             -----------        -----------
                                             $  296,000         $1,055,000
                                             ==========         ==========

         Total amortization expense was $799,000, $1,245,000 and $1,107,000
         in 1996, 1995 and 1994, respectively.

         As a result of the Company filing for reorganization under Chapter
         11, the Company recognized an impairment  loss in 1994 of
         $1,734,000 on certain purchased technology.

         9.   ACCRUED EXPENSES

         Accrued expenses consist of the following at December 31:

                                           1996          1995
                                           ----          ----
         Contract obligations           $ 747,000     $ 975,000
         Compensation                     760,000       321,000
         Rockville restructuring charge         0       257,000
         Charge for excess space          361,000             0
         Other                            229,000       705,000
                                          -------       -------
                                       $2,097,000    $2,258,000
                                       ==========    ==========

         In 1996 a charge was recorded against the gain on the sale of the
         Enterics business of $361,000, representing the Company 's best
         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 Enterics  diagnostic
         business. During 1992 the Company recorded a restructuring charge
         for the consolidation of the Rockville manufacturing facilities
         and processes into the Worcester, Massachusetts and Galway,
         Ireland locations.  The Company made $121,000 and $351,000 in
         payments against this reserve in 1995 and 1994, respectively.  The
         remaining balance of $257,000 at December 31, 1995 consisted of
         estimated severance costs and related expenses which were paid on
         or about October 22, 1996, the date of the sale of the Retroviral
         business, which was largely located at the Rockville manufacturing
         facility.

         10.  DEBT

         As of December 31, 1995 the Company was in default of its debt
         agreements, with the exception of the capital lease agreement, and
         the balance was included in liabilities subject to Chapter 11
         proceedings at that date (see Note 11). During 1996, the Company's
         debt agreements which were in default were restructured or paid
         off as part of the Reorganization Plan.  At December 31, 1996,
         debt consists of the following:
                                                                   1996
          Mortgage note payable; monthly payments of               ----
          $46,000 through October, 2001, variable interest,
          collateralized by real estate                       $4,180,000

          Equipment capital lease;  interest at 9.5%;
          due 12/97;                                               5,000
                                                              ----------
                                                               4,185,000

          Less: current maturities                              (129,000)
                                                               ----------
          Net long term debt                                  $4,056,000
                                                              ==========

         The building loans  previously in default have been restructured
         into a single loan collateralized by land, buildings and
         improvements with a net book value of $3,816,000.  As part of the
         agreement restructuring the building loans, unpaid accrued
         interest under the previous loans was forgiven and the principal
         amount of the restructured loan was agreed to be $4,200,000.
         Interest on the restructured loan is the lender's prime rate plus
         2 percentage points.  The interest rate on the restructured loan
         at the time of the Plan consummation was 10.25%. The interest rate
         is subject to adjustment at six-month intervals.  The mortgage
         calls for a balloon payment for the entire unpaid balance at the
         end of the mortgage's five year term.

         Annual principal payments on long-term debt during the next five years
         are as follows:

              Year ending December 31,
              -----------------------
                   1997                    $  129,000
                   1998                       140,000
                   1999                       156,000
                   2000                       172,000
                   2001                     3,588,000
                   Thereafter                   -
                                           ----------
                   Total                   $4,185,000
                                           ==========

         11.  LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS

         As described in Note 1, the Company's predecessor filed for
         Chapter 11 protection on July 7, 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 Reorganization Plan.  The principal
         categories of claims included in Liabilities Subject to Chapter 11
         Proceedings in the Balance Sheet as of December 31, 1995 are set
         forth below:

                                                         1995
                                                         ----
         Priority liabilities                      $    15,000
         Collateralized Debt (see Note 10)           4,021,000
         Prepetition unsecured liabilities           5,844,000
                                                     ---------
         Total                                     $ 9,880,000
                                                   ===========
         These amounts represented management's best estimate of all valid
         claims at the respective balance sheet dates. In April, 1996 the
         Company filed the Reorganization Plan with
         the Bankruptcy Court which, among other matters, described the
         proposed settlement of these liabilities.  The Bankruptcy Court
         confirmed the Reorganization Plan on July 18, 1996 and  it was
         consummated on October 21, 1996.

         Pursuant to the terms of the Reorganization Plan, the
         collateralized debt was restructured as described in Note 10.
         Priority liabilities were paid in cash at 100% of the value of the
         claim. Prepetition unsecured liabilities included approximately
         $1,393,000 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% 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, 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 for in
         Other Accrued Expenses.

         12.   EXTRAORDINARY LOSS ON REORGANIZATION

         On October 21, 1996, the Company recognized an extraordinary loss
         of $2,040,000 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 in settlement of
           shareholders class action                     $5,625,000

         Recognition of costs incurred
           to restructure mortgage on
           Rockville real estate                            193,000

         Forgiveness of debt on pre-petition
           liabilities                                   (3,778,000)
                                                         -----------
                                                         $2,040,000
                                                         ===========
         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:
                                                   1996    1995    1994
                                                   ----    ----    ----
         Tax expense/(benefit) at federal
           statutory rates                         34.0%  -34.0%  -34.0%

         Utilization of loss carryforwards        -34.0%   34.0%   34.0%
         Other                                        0       0    -1.6%
                                                  -----   -----   -----
         Reported expense/(benefit) for income
           taxes                                    0.0%    0.0%   -1.6%
                                                  ======  ======   =====

         The components of the deferred tax assets and liabilities at
         December 31, 1996 and 1995
         are as follows:
                                                  1996      1995
                                                  ----      ----
         Current:
                   Inventory                   $140,000    $500,000
                   Other                        620,000     300,000
                                               --------    --------
          Total current                         760,000     800,000

         Noncurrent:
                 Capital Loss Carryover       4,691,000   7,200,000
                 Depreciation & Amortization  2,383,000   2,200,000
                 Restructuring & merger costs   426,000   1,100,000
                 Other                        1,469,000     900,000
                 Federal & State NOL's       26,706,000  27,400,000
                 Federal tax credits          1,246,000   1,200,000
                                             ----------  ----------
        Total noncurrent                     36,921,000  40,000,000
                                             ----------  ----------
         Sub-total                           37,681,000  40,800,000

         Less: valuation allowance          (37,681,000)(40,800,000)
                                            -----------  ----------
         Net deferred tax asset                      $0          $0
                                            ===========  ==========

         Management has assessed the positive and negative 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  be unrealized due to the uncertainty of earning
         sufficient taxable income.  Accordingly, a valuation reserve has
         been established for the full amount of the deferred tax asset.

         As of December 31, 1996, the Company had federal net operating
         loss (NOL) carryforwards of approximately $61,000,000.  These loss
         carryforwards begin to expire in the year 2000 and expire fully by
         the year 2011.  Utilization of these NOL's may be limited pursuant
         to the provisions of Section 382 of the Internal Revenue Code of
         1986.  The Company's NOL's are subject to review by the Internal
         Revenue Service and various state tax authorities.

         14.  OTHER INCOME, NET

         Included in Other Income, Net is royalty income earned under
         certain license and sublicense agreements related primarily to
         diagnostic technologies, net of expenses due, in some cases, to
         third-party licensors. This royalty income was previously reported
         as revenue. Since the completion of the Company's Reorganization
         Plan and the discontinuance of all other diagnostic operations,
         however, this income is no longer considered to be central the
         Company's business and has therefore been reclassified as Other
         Income in all years presented.  The net royalty income reported
         under Other Income was $1,395,000, $1,582,000 and $832,000 in
         1996, 1995, and 1994, respectively.

         Other Income, Net in 1996 includes $3,250,000 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. Also included in
         Other Income in 1996 is $500,000 received from BioNebraska in
         exchange for the Company's share in a joint venture (see Note 6).

         The Company receives rental income on certain property from
         various tenants and sub-tenants under noncancelable leases which
         extend to 2006.  The Company received $362,000, $286,000 and
         $458,000 in rental income in 1996, 1995 and 1994, respectively.
         The Company records the expenses associated with the rental income
         by aggregating the expenses with the rental income in Other
         Income, Net on its Statement of Operations.  The Company incurred
         approximately $54,000, $75,000 and $420,000 in expenses during
         1996, 1995 and 1994, respectively, in regard to these leases.
         Future minimum rental income on noncancelable operating leases for
         the year ended December 31, 1996 are as follows:

                   1997                                    621,000
                   1998                                    477,000
                   1999                                    483,000
                   2000                                    517,000
                   2001                                    517,000
                   Thereafter                            2,621,000
                                                         ---------
                   Total future minimum rental income   $5,236,000
                                                        ==========

         15.  COMMITMENTS AND CONTINGENCIES

         Leases - The Company has entered into operating lease agreements
         for its executive offices, warehouse, research laboratories,
         manufacturing facilities, and office equipment.  The base lease
         periods range from two to ten years.  During 1996, the Company
         extended the lease for its Worcester facility, housing its
         executive offices, research laboratories, and manufacturing
         facilities one year to December 31, 1997 and extended the lease
         for its warehouse through April, 1997.  Costs incurred under the
         operating leases are recorded as rent expense and totaled
         $1,105,000, $1,161,000 and $1,406,000 for real estate and $3,000,
         $9,000 and $632,000 for equipment in 1996, 1995 and 1994,
         respectively. As of December 31, 1996, the future minimum lease
         payments required under operating leases are $1,032,000, all of
         which is payable under the Worcester facility lease through
         December, 1997.

         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 $525,000.  Costs
         incurred and charged to operations under these contracts
         aggregated $1,268,000, $1,259,000 and $2,165,000 in 1996, 1995 and
         1994, respectively.

         Other Agreements -During 1992, the Company paid $2,300,000 to
         Alfa-Laval, a Swedish company, to acquire its fibronectin binding
         technology for use in mastitis vaccines and certain other
         products.  In 1995 the Company recorded $700,000 in expenses for
         the granting of certain patents on this technology.  The agreement
         provides for additional payments to Alfa-Laval conditioned upon
         the first commercial sale of future vaccines at  $1,333,000 per
         vaccine, and up to $1,300,000 conditioned 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, against the Company, certain of its officers, and
         in three of the actions, the Company's former auditors.  The
         actions were instituted by persons alleging to be shareholders of
         the Company 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 the
         Company and the restatement thereof.  The actions have been
         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 the Company and the individual defendants and pleadings
         were filed with the United States District Court for the District
         of Massachusetts for the purpose of approving the settlement.
         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  the Company's former auditors.  The Company is entitled
         to receive 10% of any recoveries from prosecution of such claims.
         Prosecution of claims against the Company's former auditors is an
         ongoing matter.

         In March 1995, an Adversary Proceeding No. 95-4074 was commenced
         in the Bankruptcy court, by Institut Pasteur and Genetic Systems
         Corporation alleging patent infringement and asking for damages
         and injunctive relief.  The Company filed an answer and
         counterclaim denying the plaintiff's allegations and alleging a
         breach by Institute Pasteur of its license agreement with the
         Company.  On September 1, 1995, the Bankruptcy Court issued a
         summary judgment upholding the Company'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 the Company's HIV-1 Western blot confirmatory test
         infringes a third patent issued to Institut Pasteur, and enjoined
         the Company from the manufacture and sale of the HIV-1 Western
         blot test.  On January 5, 1996, the Bankruptcy Court lifted its
         injunction with respect to the Company's production and sale of
         the HIV-1 Western blot kits.  The Court ruled that the Company has
         a license for the HIV-1 patent and must pay a royalty on related
         sales.  Institut Pasteur has appealed the Bankruptcy Court's
         ruling.  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 it is part
         of the Retroviral business that was sold to bioMerieux. Further,
         the Company has not indemnified bioMerieux against any adverse
         decision on this appeal, other than any liability arising out of
         the conduct of the Company 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 Company's
         Reorganization 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 U.S.
         District Court for the District of Massachusetts dismissed the
         appeal and affirmed the Confirmation Order on September 27, 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). To date, Pasteur has not sought further
         review of the Confirmation Order, although the time to file a
         petition with the U.S. Supreme Court does not expire until August
         17, 1997.

         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 the
         Company's financial statements, its public filings and the
         offerings of its securities.  The Company cooperated fully with
         the investigation, which concluded on or about October 17, 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 Exchange Act of 1934. The Company
         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 - In the first quarter of 1994 the Company issued
         2,589,100 shares in connection with a shelf offering.  The
         offering raised net proceeds of $6,635,000 after deducting legal
         costs and other expenses associated with the offering.

         The Company has 5,000,000 shares of preferred stock and 30,500,000
         shares of common stock authorized at December 31, 1996. No terms
         have been established for the preferred stock and none has been
         issued. 5,000,000 shares of Aquila common stock have been issued,
         and 10,526 are in treasury.

         Employee Incentive Stock Plan - On October 27, 1994, the Company's
         plan to institute a retention bonus plan for some of its employees
         was approved by the United States Bankruptcy Court for the
         District of Massachusetts.  The plan called for bonuses to be paid
         in stock of the reorganized Company upon emergence from Chapter 11
         reorganization.  The Company recorded compensation expense of
         $830,000 and $627,000 in 1995 and 1994, respectively. Shares of
         Aquila common stock totaling 111,790 were issued under the
         retention bonus plan shortly after the consummation of the Plan.

         Exchange of Shares - pursuant to the Reorganization Plan, an
         exchange of CBC common shares for Aquila common shares was
         effected on October 21, 1996, in the form of  1 Aquila common
         share issued for every 7.6 CBC common shares held of record on
         that date. In total, 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.  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 plan compensation, as permitted by law or as limited by the
         plan administrator.  Prior to the Chapter 11 filing, the Company
         matched 50% of the first 6% of an employee's compensation, if
         contributed to the plan.  Any contributions made by the Company
         vest over a three-year period.  The amount charged to operations
         for the plan was $93,000 in 1994.  The Company suspended its
         matching contribution on the date of the Chapter 11 filing, but
         reinstituted the matching contribution beginning in January, 1997.
         Currently, the Company matches  25% of the first  6% of the
         employees compensation, if  contributed to the plan.  Any
         contributions made by the Company are vested at 33% for each year
         of employment.

         Stock Option Plans - Prior to the consummation of the Plan, the
         Company  had three stock option plans, each of which was canceled
         under the Plan.

         At December 31, 1996, 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 1996 the Company adopted Statement of Financial Accounting
         Standards No. 123 ("SFAS 123"), Accounting for Stock Based
         Compensation. SFAS 123 requires that companies either recognize
         compensation expense for grants of stock, stock options and other
         equity instruments based on fair value, or provide pro forma
         disclosure of net income and earnings per share in the notes to
         the financial statements. The Company adopted the disclosure
         provisions of SFAS 123 in 1996 and has applied APB Opinion 25 and
         related Interpretations in accounting for its plans. Accordingly,
         no compensation expense has been recognized for options granted at
         or above fair market value under these plans.  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
         or loss and earnings per share for the years ended December 31,
         1996 and 1995 would have been reduced to the pro forma amounts
         indicated below:

                           1996                           1995

                   Net Income Earnings Per Share  Net Loss Earnings Per Share
                   ---------- ------------------  -------- ------------------
         As Reported $5,960        $1.57          $(4,942)     $(1.44)
         Pro Forma    5,529         1.45           (5,199)      (1.51)

         The effects of applying SFAS123 in this pro forma disclosure are
         not indicative of future amounts. 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
         1996 and 1995 is $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
         1996 and 1995, respectively; expected volatility of 72.94% in both
         years, risk-free interest rates of 6.19% and 5.41%, expected lives
         of 4 years for all options grants, and no dividend yield.

         A summary of the status of the Company's two stock option plans as
         of December 31, 1996 is presented below:
                                                           Weighted Average
                                            Shares          Exercise Price
                                            ------         ----------------
         Options granted below
           fair market value                173,405             $2.80
         Options granted at
           fair market value                551,750             $4.50
         Options forfeited                   12,500             $4.50
                                            -------             -----
         Balance, December 31, 1996         712,655             $4.09

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

                                Weighted    Weighted                 Weighted
         Range of   Number      Average     Average     Number       Average
         Exercise  Outstanding  Remaining   Exercise    Exercisable  Exercise
         Prices    at 12/31/96  Contractual Price       at 12/31/96  Price
                                Life
         --------  -----------  ----------- ---------  ------------  ---------
         $2.80      173,405      8.9 years   $2.80       173,405      $2.80
          4.50      539,250      9.2 years    4.50       165,625       4.50
                    -------      ---------   -----       -------      -----
         $2.80 to   712,655      9.1 years    4.09       339,030       3.63
         $4.50

         At December 31, 1996,  there were 1,487,345 options available to
         be granted. Options available for exercise and weighted average
         exercise price are not presented for 1995 and 1994, as all options
         outstanding on those dates have been canceled pursuant to the
         Plan. Therefore, the Company believes the presentation of that
         information would not be meaningful. Compensation expense of
         $50,000 was recorded in 1996 related to options granted to a
         consultant during the year.

         18.  AGREEMENTS

         The Company has a comprehensive agreement with SmithKline Beecham
         p.l.c. ("SmithKline") which allows SmithKline 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 certain
         exclusive worldwide rights in some fields of use, and co-exclusive
         or non-exclusive rights in others.  The Company recognized
         $3,500,000, $3,500,000 and $3,000,000 in license fees under this
         agreement during 1996, 1995 and 1994, respectively. The agreement
         calls for royalties to be paid by SmithKline on its future sales
         of licensed vaccines which include Aquila's adjuvant.  The terms
         of the collaborative agreement with SmithKline include funding
         through 1998.

         The Company has product development agreements with Virbac S.A.
         and supply agreements with Virbac S.A and Virbac Inc., the U.S.
         subsidiary of Virbac S.A. (together, "Virbac") which cover the
         ongoing collaboration between Virbac 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
         $1,177,000, $581,000 and $472,000 in revenues under the product
         development agreements during 1996, 1995 and 1994, respectively.
         In addition, $895,000 and $2,072,000 were included in deferred
         revenue at December 31, 1996 and 1995, respectively, related to
         the product development agreements. Sales to Virbac under the
         terms of the supply agreements were $883,000, $546,000 and
         $662,000 in 1996, 1995 and 1994, 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 has entered into various
         agreements with the National Institute of Health ("NIH").  Such
         agreements provide 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 $296,000, $596,000 and $787,000 in 1996,
         1995 and 1994, respectively.

         19.  MAJOR CUSTOMERS

         SmithKline is the Company's principle source of research and
         development revenue.  Research and development revenues from
         SmithKline represented 53% , 61% and 60% of the Company's total
         revenue in 1996, 1995 and 1994, respectively. SmithKline also
         purchases certain clinical trial material from the Company for use
         in its product development programs.

         Virbac represents a substantial portion of the Company's product
         sales and research and development revenue.  Revenue from
         development agreements with Virbac represented 18%, 10% and 9% of
         total revenue in 1996, 1995 and 1994, respectively. Product sales
         to Virbac represented 13%, 10% and 12% of total revenues in 1996,
         1995 and 1994, respectively.

         20.  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 $3.1 million, $4
         million and $3.7 million in 1996, 1995 and 1994, respectively, of
         which $1,344,000, $238,000,  and $286,000   were from continuing
         operations in 1996, 1995 and 1994, respectively.





                                    SIGNATURES

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

                                          AQUILA BIOPHARMACEUTICALS, INC.



        March 31, 1997                    By:__/s/ Alison Taunton-Rigby__
                                             Alison Taunton-Rigby
                                             President, (Principal
                                             Executive Officer)



        March 31, 1997                    By:__/s/ Stephen J. DiPalma
                                             Stephen J. DiPalma
                                             Vice President-Finance,
                                             Treasurer
                                             and Chief Financial Officer
                                             (Principal Financial Officer)



        March 31, 1997                    By:__/s/ Paul Foulkrod
                                             Paul 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 31, 1997
        Alison Taunton-Rigby


        /s/ Elliott D. Hillback, Jr.__   Director       March 31, 1997
        Elliott D. Hillback, Jr.


        /s/ John M. Nelson__________     Director       March 31, 1997
        John M. Nelson






        /s/ Keith J. Dorrington______    Director       March 31, 1997
        Keith J. Dorrington


        /s/ Jeffrey T. Beaver____        Director       March 31, 1997
        Jeffrey T. Beaver



                                 INDEX OF 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 Restated 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).

                  o3.2    Certificate of Amendment of Amended and Restated
        Certificate of Incorporation, effective March 24, 1997 (a complete
        copy of the Amended and Restated Certificate of Incorporation, as
        amended, is filed herewith).

                  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 Form
        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. 0-12081).

                  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. 0-12081).

                  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. 0-12081).

                  tm10.7  Employment Agreement with Robert B. Kammer,
        dated August 21, 1995 (incorporated by reference to Exhibit 10.20
        to Annual Report on Form 10-K for fiscal year ended December 31,
        1995, File No. 0-12081).

                  tmo10.8 Employment Agreement with Stephen J. DiPalma,
        dated March 1, 1996.

                  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).

                  o10.11  Lease Agreement with bioMerieux Vitek, Inc.
        dated October 22, 1996 for premises located at 1500 East Gude
        Drive and 3  Taft Court, Rockville, Maryland.

                  o10.12  1996 Stock Award and Option Plan.

                  o10.13  1996 Directors Stock Award and Option Plan.

                  o10.14  1996 Employee Stock Purchase Plan.

                  o11.    Computation of Earnings Per Share.

                  o27.    Financial Data Schedule.








        _____________________

        o    Filed herewith as part of this Annual Report on Form 10-K.

        *    Confidential treatment previously granted.

        tm   Management contract or compensatory plan.