<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D. C. 20549

                                   FORM 10-K

        [X]  Annual Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934

        For the fiscal year ended    December 31, 1995
                                  ------------------------------------------

                                       OR

        [ ] Transition Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934

        For the transition period from ________________ to _________________

        Commission file number        0-11103
                               ---------------------------------------------

                                 CENTOCOR, INC.
        --------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                   Pennsylvania                       23-2117202
        --------------------------------    --------------------------------
            (State or other jurisdiction           (I.R.S. Employer
          of incorporation or organization)       Identification No.)

          200 Great Valley Parkway, Malvern, PA            19355
        ------------------------------------------  ------------------------
         (Address of principal executive offices)        (Zip Code)

        Registrant's telephone number, including area code: (610) 651-6000
                                                            ----------------

        Securities registered pursuant to Section 12(b) of the Act:

        Title of each class           Name of exchange on which registered
                None                             Not Applicable
        -------------------        -----------------------------------------

        Securities registered pursuant to Section 12(g) of the Act:

                    Series A Preferred Stock Purchase Rights
                    ----------------------------------------
                                (Title of Class)

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

              Warrants for the purchase of shares of Common Stock,
 
                           par value $.01 per share*
                    --------------------------------------
                               (Title of Class)

           7 1/4% Convertible Subordinated Notes Due February 1, 2001
           ----------------------------------------------------------
                                (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.

                             Yes    X          No  
                                  -----            -----      
<PAGE>
 
             Indicate by check mark if disclosure of delinquent filers pursuant
        to Item 405 of Regulation S-K is not contained herein, and will not be
        contained, to the best of registrant's knowledge, in definitive proxy or
        information statements incorporated by reference in Part III of this
        Form 10-K or any amendment to this Form 10-K.   [    ]

             The aggregate market value of the 58,687,412 shares of voting stock
        held by non-affiliates of the registrant as of March 1, 1996 was
        $1,826,645,699.

             Common Stock outstanding at March 1, 1996: 59,189,954 shares.



                      DOCUMENTS INCORPORATED BY REFERENCE:
                                        
             Portions of the following document are incorporated by reference in
        this Report on Form 10-K:

             Proxy Statement for the Annual Meeting of Shareholders to be held
        on May 15, 1996 -- Part III, Items 10, 11, 12 and 13.

        *Includes Warrants issued in January 1992 which were registered pursuant
        to Section 12(g) of the Securities Exchange Act of 1934 as part of
        Units, each Unit consisting of one share of Callable Common Stock of
        Tocor II, Inc., one Series T Warrant and one callable Warrant.
<PAGE>
 
                                     Part I

Item 1. Business
----------------

General

   Centocor, Inc. ("Centocor" or the "Company") is a biotechnology company that
develops therapeutic and diagnostic human health care products for
cardiovascular, autoimmune and infectious diseases and cancer. The Company
concentrates on research and development, manufacturing and market development,
with a primary technological focus on monoclonal antibodies, with additional
programs in genetic vaccines and peptides.

   The Company has two therapeutic products approved for sale and several
product candidates in various stages of development. ReoPro is marketed and sold
in the United States and Europe for the reduction of acute ischemic cardiac
complications in patients undergoing angioplasty procedures who are at high risk
for abrupt artery closure. Panorex is marketed and sold in Germany as an
adjuvant therapy in the treatment of post-operative colorectal cancer. The
Company also markets several diagnostic products for cancer and infectious
disease in the United States, Europe and Japan.

   At December 31, 1995, Centocor had approximately 500 full-time employees. To
complement its own expertise in various fields, Centocor utilizes scientific
consultants and other advisors, many of whom have formal consulting agreements
with Centocor.

   Centocor was incorporated in Pennsylvania in 1979 and maintains its principal
executive offices at 200 Great Valley Parkway, Malvern, Pennsylvania 19355. Its 
telephone number is (610) 651-6000. The Company also maintains facilities in 
Leiden, The Netherlands, and Surrey, the United Kingdom, and offices in Tokyo, 
Japan and Munich, Germany.

Company Strategy

   The Company's strategy is to identify proprietary high value-added product
opportunities, and to commercialize those opportunities by focusing on clinical
development, regulatory process, manufacturing and market development. The
Company seeks to license technology and product candidates from research
institutions and other biotechnology companies, in addition to conducting
selected basic research.
 
   In an effort to reach the market in an expeditious manner, create competitive
barriers and establish itself as the market leader, the Company's clinical
development and regulatory strategy for its therapeutic products is to pursue
initial approval for a narrowly defined indication. The Company also seeks to
expand the indications for which the products may be marketed by conducting
additional clinical trials. The Company maintains and seeks strategic alliances
with major pharmaceutical companies for the commercialization and marketing of
each of its therapeutic products, pursuant to which the Company and its
respective partner jointly focus on the continued clinical and market
development for the product, while the Company's partner primarily conducts the
marketing, promotion and distribution of such product.
 
   In the diagnostics area, the Company seeks to expand the markets for its
existing products while focusing on the development of unique assays that
complement the automated diagnostic instruments developed by its marketing
partners. The Company believes that experience it acquires in developing
therapeutic products may help it define diagnostic product opportunities and
vice versa. Based on this experience, the Company is seeking to develop
diagnostic products that can increase the effectiveness, and thereby the
utilization of, its therapeutic products. The Company maintains and seeks
distribution agreements for its diagnostic products with companies having
established positions and distribution networks in applicable market segments.

                                       1
<PAGE>
 
Products and Products Under Development

   The following table summarizes Centocor's products and selected product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                               Development
                                                                                             and/or Marketing
Product/Product Candidate             Indication                  Status(1)                     Partner(2)
-------------------------             ----------                  ---------                     ----------          
<S>                          <C>                           <C>                              <C>
Therapeutic:
     ReoPro................  High-risk angioplasty         Marketed (U.S., Europe)          Eli Lilly and Company
                                                           Phase II (Japan)                 Eli Lilly and Company
                             All angioplasty               Phase III                        Eli Lilly and Company
                             Unstable angina               Phase III                        Eli Lilly and Company
                             Acute myocardial infarction   Phase III                        Eli Lilly and Company
                             Adjuvant therapy with stents  Phase III planned                Eli Lilly and Company
     Panorex...............  Adjuvant therapy for post-    Marketed (Germany)               Glaxo Wellcome plc
                             operative colorectal cancer   Phase III                        Glaxo Wellcome plc
                                                           Phase IA planned (Japan)         Glaxo Wellcome plc
     CenTNF................  Rheumatoid arthritis          Phase II                         --
                                                           Phase I (Japan)                  Tanabe Seiyaku Co. Ltd.
                             Crohn's disease               Phase II                         --
                                                           Phase I (Japan)                  Tanabe Seiyaku Co. Ltd.
     Corsevin M............  Deep vein thrombosis          Phase I                          --
     GeneVax...............  Colorectal cancer             Phase I planned                  --
                             Prostate cancer               Phase I planned                  --
Diagnostic:
     CA 125 II.............  Ovarian cancer detection      Marketed (U.S., Europe,          (3)
                                                           Japan)
     CA 19-9...............  Pancreatic cancer monitoring  Marketed (Europe, Japan)         (3)
     CA 15-3...............  Breast cancer monitoring      Marketed (Europe, Japan)         (3)
     CA 72-4...............  Gastrointestinal cancer       Marketed (Europe, Japan)         (3)
                             monitoring
     P-glycoCHEK...........  Resistance to chemo-          Sold for investigational use     (3)
                             therapeutic drug detection    (Europe, Japan)
     CYFRA 21-1............  Non-small cell lung cancer    Marketed (Europe, Japan)         (3)
     CAPTIA Syphilis G.....  Syphilis antibody detection   Marketed (U.S., Europe,          (3)
                                                           South America)
     CAPTIA CMV............  Cytomegalovirus antibody      Marketed (U.S., Europe)          (3)
                             detection
     Myoscint..............  Cardiac imaging               Marketed (Europe)                Mallinckrodt Medical B. V.
                                                           FDA review pending               --
                                                           Approved (Japan)                 Daiichi Radioisotope
                                                                                            Laboratories, Ltd.
--------------
</TABLE>
(1)  Phase III clinical trial indicates that the product is being tested in
   humans for safety and efficacy in an expanded patient population at multiple
   clinical sites. Phase I and Phase II clinical trials indicate that the
   product is being tested in humans to evaluate safety, dosage and to some
   extent, efficacy, in a limited patient population.

(2)  Diagnostic products generally are only marketed and sold by the Company's
   marketing partners. With respect to therapeutic products, the Company's
   strategic alliance partners play an extensive role in the clinical and market
   development of the Company's products in addition to selling and marketing
   those products.

                                       2
<PAGE>
 
(3)  This product is sold by the Company to established diagnostic companies,
   the most significant of which are: Abbott Laboratories, Boehringer Mannheim
   GmbH, CIS bio International, Toray-Fuji Bionics, Inc. and Hoffmann-La Roche.


 Therapeutic Products

   ReoPro.   Anticoagulation agents such as ReoPro are used in the treatment of
cardiovascular disease to prevent blood clots. The three main markets for these
agents are angioplasty, unstable angina and myocardial infarction (heart
attack). Better platelet mediation is needed in angioplasty to prevent abrupt
reclosure and restenosis and in unstable angina to prevent the serious
complications of heart attacks and death. Abrupt reclosure, which occurs in
about 5-8% of angioplasty cases and in 12-14% of more complicated high-risk
cases, can result in death, myocardial infarction or the need for emergency
bypass surgery. More powerful agents are also needed to enhance treatment of
myocardial infarction by more effectively opening the clotted artery and
preventing reocclusion following drug therapy. ReoPro is effective in inhibiting
blood clotting by inhibiting the aggregation of platelets. When platelets are
stimulated, a number of different types of surface receptors are exposed that
cause further platelet aggregation, including the glycoprotein ("GP") IIb/IIIa
receptors. ReoPro is a chimeric monoclonal antibody fragment that binds to GP
IIb/IIIa receptors on the surface of platelets, thereby inhibiting platelet
aggregation.

   Following the successful completion of the EPIC Phase III clinical trial of
ReoPro and subsequent U.S. Food and Drug Administration ("FDA") approval, the
Company commenced commercial sales of ReoPro in January 1995 for patients who
are at high risk for abrupt artery closure following angioplasty. ReoPro is
currently marketed in a number of countries, including the United States,
Germany, the United Kingdom and France. Under a Sales and Distribution Agreement
between Eli Lilly and Company ("Lilly") and the Company, Lilly is the exclusive
worldwide distributor of ReoPro. See "Business--Marketing and Sales." Pursuant
to that agreement, Lilly is assisting the Company in the regulatory filings and
continuing development of ReoPro for additional clinical indications. ReoPro is
being developed by Centocor for Centocor Partners III, L.P. ("CPIII"). See
"Business--Patents and Licensing Arrangements."
 
   The following summarizes the results of pivotal clinical trials to date:

           EPIC Trial for High-Risk Angioplasty. Based on the results of a Phase
     III clinical trial known as "EPIC," in December 1994 the FDA approved
     ReoPro as a product indicated for the reduction of acute ischemic cardiac
     complications in patients undergoing angioplasty procedures who are at high
     risk for abrupt artery closure. High-risk patients are characterized as
     those suffering a recent heart attack, experiencing severe unstable angina,
     or having certain high-risk clinical characteristics or features of their
     coronary arteries. Also in December 1994, the Committee for Proprietary
     Medicinal Products of the European Union issued a positive opinion
     regarding the granting of marketing authorization for ReoPro for the same
     indication.

           In the EPIC trial, a randomized, double-blind, placebo-controlled
     trial involving approximately 2,100 patients who were at high risk of
     abrupt artery closure, administration of ReoPro resulted in a 35% reduction
     in serious complications such as heart attacks, death or the need for
     emergency repeat procedures within 30 days following the angioplasty
     procedure. This benefit was sustained at 6 months. By reducing the risk of
     acute cardiac ischemic complications, ReoPro reduces the occurrence of 
     post-angioplasty heart attacks, as well as the need for emergency coronary
     bypass surgery or repeat angioplasty.

           The primary side-effect associated with ReoPro in the EPIC trial was
     an increase in bleeding compared to patients who received placebo,
     typically at the puncture site where the catheter is inserted. Because of
     this side-effect, the Company, in designing the next two clinical trials of
     ReoPro, focused on a reduction of the bleeding events, through a
     combination of: (i) lowering the dosage of heparin, an anticoagulant which
     is part of the conventional therapy for patients scheduled for the
     angioplasty procedure; (ii) better remedial treatment of the puncture site
     and (iii) earlier removal of the arterial sheath

                                       3
<PAGE>
 
     inserted at the puncture sight. In subsequent trials, these adjustments
     have resulted in a reduction of bleeding events in patients receiving
     ReoPro to essentially the same level as in patients receiving placebo.

           EPILOG Trial for All Angioplasty. The EPILOG trial was a randomized,
     double-blind, placebo-controlled trial, originally designed to enroll 4,800
     patients at 65 sites in the United States and Canada, to evaluate 30-day
     and 6-month clinical outcomes in all patients following angioplasty
     procedures. This trial excluded the heart attack and unstable angina
     patient groups that were evaluated in the EPIC trial because ReoPro had
     already demonstrated efficacy in these patients and was already approved
     for use in these groups. Because an interim analysis of the first 1,500
     patients enrolled in the trial revealed approximately a 70% reduction in
     death and heart attack rates within 30 days of the angioplasty procedure
     for patients receiving ReoPro, the EPILOG study was halted in December 1995
     on the recommendation of the EPILOG independent Safety and Efficacy
     Monitoring Committee. This result was highly statistically significant
     (p (is less than) .0001). Additionally, the EPILOG independent Safety and
     Efficacy Monitoring Committee concluded that major bleeding events in
     patients receiving ReoPro were at essentially the same level as patients
     receiving placebo. After completing data analyses for this trial, the
     Company expects to seek additional regulatory approvals in the United
     States and Europe for expanded indications.

           CAPTURE Trial for Unstable Angina. Unstable angina is a condition
     that commonly precedes a heart attack. It is caused by inadequate blood
     supply to the heart due to the build-up of atherosclerotic plaque in the
     coronary artery. The CAPTURE trial was a randomized, double-blind, placebo-
     controlled trial originally designed to enroll 1,400 patients at 75 sites
     in Europe, to evaluate ReoPro in patients scheduled for urgent angioplasty
     procedures due to refractory unstable angina. Because of positive findings
     after an analysis of the first 1,050 patients enrolled in the trial, the
     CAPTURE study was halted in December 1995 on the recommendation of the
     CAPTURE independent Safety and Efficacy Monitoring Committee. The CAPTURE
     independent Safety and Efficacy Monitoring Committee determined that
     efficacy exceeded the predetermined stopping point, p (is less than) .0072,
     on the trial's primary end-point, which was defined as a reduction in a
     composite of death, heart attacks and the need for urgent intervention
     within 30 days. Additionally, in patients receiving ReoPro, the rate of
     major bleeding was markedly lower than in the EPIC trial. After completing
     data analyses for this trial, the Company expects to seek additional
     regulatory approvals in the United States and Europe for expanded
     indications.

     The Company and Lilly are evaluating other potential indications for
ReoPro, including acute myocardial infarction, peripheral vascular disease,
patients suffering thrombotic strokes and patients suffering deep vein
thrombosis. The Company and Lilly have designed the RAPPORT Phase III trial to
study the effect of ReoPro in patients undergoing angioplasty procedures for
acute myocardial infarction. Additionally, the Company and Lilly have designed
the ERASER Phase III trial to evaluate the effects of ReoPro in conjunction with
stents. The Company is also currently conducting Phase II clinical trials of
ReoPro in Japan.
 
     The Company estimates that in 1995 approximately 800,000 angioplasty
procedures were conducted worldwide, with approximately 30% of these procedures
being performed in patients who are at high risk for abrupt artery closure
following the procedure. The Company estimates that approximately 2,000,000
patients annually are admitted to hospitals worldwide for treatment of unstable
angina, and approximately 20% of these patients are refractory to conventional
therapy for unstable angina.
 
     Although some patients with unstable angina will be referred for immediate
angioplasty and therefore may be eligible for ReoPro under the already approved
high-risk indication, the Company believes that current treatment of many of
these patients consists of a period of medical stabilization before referral to
angioplasty. The CAPTURE trial provides data that supports the use of ReoPro
during such period of medical stabilization and therefore may potentially
broaden the use of ReoPro in the treatment of unstable angina.
 
     In addition to conducting studies to test the efficacy of ReoPro, the
Company has conducted a health economic study, based on the EPIC trial, which
has been approved by the FDA and which indicates that the use of ReoPro is cost
effective and may allow hospitals to manage their resources more effectively and
reduce the amount of time patients spend in the hospital. The health economic
study included the cost of blood transfusions required by ReoPro-treated
patients in the EPIC trial. In the recently halted EPILOG trial, major bleeding
events in patients

                                       4
<PAGE>
 
receiving ReoPro were at essentially the same level as in patients receiving
placebo. The decreased need for blood transfusions may result in additional cost
savings to hospitals.
 
     Panorex. Panorex is a monoclonal antibody that targets metastatic colon
cancer cells. The Panorex antibody binds to colon cancer cells and destroys them
using various immunologic mechanisms including complement and/or antibody
dependent cellular cytotoxicity. Both mechanisms result in the death of the
cancer cells. In patients with colorectal cancer, it is thought that small
numbers of cells break away from the primary tumor and spread to other sites
such as bone marrow, where they can be detected as "micrometastatic cells." It
is thought that the Panorex antibody binds to these "micrometastatic cells" and
destroys them, leading to the prolonged survival observed in patients treated
with Panorex. Panorex is the first monoclonal antibody product approved for
cancer. In December 1994, the Paul Ehrlich Institute, the German regulatory body
for vaccines and antibodies, granted the Company marketing authorization for the
use of Panorex as an adjuvant therapy in the treatment of post-operative
colorectal cancer. Applications for marketing authorization have also been
submitted in Austria, Switzerland, Finland and Sweden. During 1993, the Company
and Glaxo Wellcome plc ("Glaxo Wellcome") entered into an alliance agreement for
the development and marketing of certain of the Company's monoclonal antibody-
based cancer therapeutic products, including Panorex. Pursuant to that agreement
Glaxo Wellcome is the worldwide distributor of Panorex. See "Business--Marketing
and Sales." The Company commenced commercial sales of Panorex in Germany in
February 1995.
 
     In a Phase III trial conducted in Germany, Panorex showed a five-year 30%
mortality benefit and 27% reduction in tumor recurrences. Glaxo Wellcome is
conducting additional Phase III trials for Panorex, with a three-year survival
end-point, in North America, Europe and certain other countries, evaluating
patients with colorectal cancer, and also is conducting earlier stage trials in
Japan. According to recent estimates, there are 150,000 cases of colorectal
cancer and 58,000 deaths in the United States and 230,000 cases and 87,000
deaths in Europe per year. There are approximately 40,000 new colorectal cancer
patients per year in Germany. Preliminary studies indicate that Panorex may also
prove useful in the treatment of solid tumors associated with pancreatic cancer
and certain types of lung, breast, ovary and gastric cancer.
 
     CenTNF. The Company is currently developing CenTNF, a chimeric monoclonal
antibody that binds to tumor necrosis factor alpha, which is believed to be
critical to the human body's reaction to inflammation. CenTNF primarily is
targeted for the treatment of rheumatoid arthritis and inflammatory bowel
diseases such as Crohn's disease. In addition, the Company also believes CenTNF
may also prove useful as an immuno-suppressant in transplant patients.
 
     In rheumatoid arthritis, the membrane surrounding the joints becomes
inflamed, causing swelling, pain, disfigurement, and in severe cases,
destruction of the joints. Results of a Phase II randomized, placebo-controlled,
double-blind trial of 73 patients were published in December 1994. The data
showed the rapid onset of a highly significant (p=0.001) clinical response in
44% of patients receiving a single infusion of low dose CenTNF and in 79% of
patients receiving a high dose of CenTNF. The beneficial clinical response
persisted for eight weeks following the single high dose infusion. The Company
is currently conducting advanced placebo-controlled, multi-dose Phase II trials
in the United States and Europe.
 
     Phase I/II open label trials of CenTNF in patients with severe Crohn's
disease requiring steroid therapy showed the rapid onset of clinical benefit
which persisted for over two months following a single infusion. Randomized,
placebo-controlled, Phase II trials are being completed in the United States and
Europe. The Company expects to initiate Phase III trials during 1996.
 
     The Company has entered into an agreement with Tanabe Seiyaku Co., Ltd.
("Tanabe") under which Tanabe has commenced Phase I clinical testing and has the
right to distribute CenTNF in Japan. Additionally, the Company is seeking to
enter into an alliance arrangement with a partner regarding CenTNF for other
parts of the world.
 
     According to recent estimates, in the United States and Western Europe
there are approximately six million patients undergoing treatment for rheumatoid
arthritis. The Company believes that up to one-third of these patients

                                       5
<PAGE>
 
may be candidates for treatment with CenTNF. The Company believes that in the
United States and Western Europe there are approximately 250,000 Crohn's
patients who may benefit from treatment with CenTNF.
 
     Corsevin M. The Company is developing Corsevin M, an anti-factor VII
chimeric monoclonal antibody product intended to be used as an anticoagulant.
Factor VII is one of the primary factors that play a role in the blood clotting
process. The Company has completed a Phase I clinical trial and is evaluating
protocols for additional clinical trials.
 
     GeneVax. The Company is developing genetic DNA-based vaccines employing
commonly available methods to direct the injected DNA to its target site. The
Company has licensed this GeneVax technology from Apollon, Inc., in which the
Company holds a significant equity investment. Under that license, the Company
has rights to develop the GeneVax technology in the cancer field. The Company
expects to initially focus its development efforts on vaccines for prostate,
breast and colorectal cancer. In 1996, the Company expects to commence Phase I
clinical trials to evaluate vaccines for colorectal and prostate cancer.

Diagnostic Products

     Sales of the Company's diagnostics products were approximately $43 million
and $40 million for the years ended December 31, 1995 and 1994, respectively.
 
     In-vitro diagnostic products are used to test patient blood samples outside
the body to detect or monitor disease. In this area, the Company has focused
principally on developing cancer diagnostic assays, and other in-vitro
diagnostic products for infectious disease. The Company currently manufactures
and sells the following in-vitro diagnostic products:
 
     CA 125 II Ovarian Cancer Test.   CA 125 II, a second generation assay which
aids in the detection of residual epithelial ovarian cancer following first-line
therapy, is sold in the United States, certain European countries and Japan. CA
125 II is one of only five cancer diagnostics products approved for sale in the
United States.
 
     CA 19-9 Pancreatic Cancer Test.   CA 19-9, which aids in the monitoring of
pancreatic cancer, is sold in certain European countries and Japan.
 
     CA 15-3 Breast Cancer Test. CA 15-3, which aids in the monitoring of breast
cancer, is sold in certain European countries and Japan.
 
     CA 72-4 Gastric Cancer Test.   CA 72-4, which aids in the monitoring of
gastrointestinal cancer, is sold in certain European countries and Japan.
 
     P-glycoCHEK Multidrug Resistance Test.   P-glycoCHEK, which detects a
cellular protein associated with resistance to chemotherapeutic drugs, is sold
for investigational use in certain European countries and Japan.
 
     CYFRA 21-1 Non-Small Cell Lung Cancer Test.   CYFRA 21-1, which aids in the
monitoring of non-small cell lung cancer, is sold in certain European countries
and Japan.
 
     CAPTIA Syphilis G. In 1995, the Company received clearance from the FDA to
market CAPTIA Syphilis G, an infectious disease serology test for use as a
primary screening method for the detection of Treponema pallidum antibodies in
human serum or plasma, as performed in blood bank or plasma center testing
laboratories. CAPTIA Syphilis G is offered for sale in the United States and
certain European and South American countries.
 
     CAPTIA CMV. In 1995, the Company received clearance from the FDA to market
CAPTIA CMV, an infectious serology test for use as a primary screening method
for the detection of cytomegalovirus antibodies in human serum or plasma, as
performed in blood bank or plasma center testing laboratories. CAPTIA CMV is
offered for sale in the United States and certain European countries.
 

                                       6
<PAGE>
 
     The Company has developed techniques for modifying monoclonal antibodies so
that they may be coupled with radioactive isotopes and used as contrast agents
in diagnostic imaging procedures. After injection, antibodies labelled with a
radioactive isotope travel to the disease site, allowing the site to be
visualized or "imaged" with nuclear medicine equipment in a procedure similar to
an X-ray. The Company's focus in this area is primarily on developing imaging
agents for cardiovascular disease.
 
     Myoscint.   Myoscint is an anti-myoscin monoclonal antibody that, when
radio-labeled, may be useful in the detection of damage to heart tissue caused
by transplantation, myocardial infarction, chemotherapy and viral infection. The
Company has received marketing approvals for Myoscint in several European
countries. A product license application ("PLA") for Myoscint was submitted to
the FDA in July 1995, and on January 26, 1996, the Cardiovascular and Renal
Drugs Advisory Committee of the FDA recommended approval of Myoscint for imaging
in the setting of chest pain suspected to be caused by myocardial infarction. In
addition, in February 1996, Myoscint was approved for sale by the Japanese
Ministry of Health and Welfare, subject to pricing approval. Revenues from the
sale of Myoscint in Europe have not been significant. There can be no assurance
that Myoscint will be approved by the FDA or that sales, if any, in the United
States will be significant.


Cellular Diagnostics

     Based upon the Company's experience with Panorex, the Company believes that
the ability to rapidly detect rare cancer cells in blood, bone marrow and other
tissues could be useful to oncologists as a tool to enable them to select
appropriate treatments for cancer patients and then monitor the effectiveness of
those treatments. To the Company's knowledge no such tool is currently available
in the market. The Company is collaborating with a computer software company to
develop a computer-driven high-powered microscope known as the Rapid Rare Event
Detection ("RRED") System that utilizes reagents developed by the Company. The
Company and its partner have developed a working prototype of the RRED System
that will enter clinical trials in 1996 for validation. In addition, the Company
has commenced discussions with other diagnostic companies that may be interested
in manufacturing and marketing the RRED System.

     Although the Company's initial focus with respect to the RRED System is the
oncology field, the Company believes that the RRED System technology may be
equally useful in the fields of infectious disease and prenatal testing. There
can be no assurances that the Company will be able to complete the development
of the RRED System or obtain the regulatory approvals necessary for the sale of
the RRED System.


Platelet Function Diagnostics

     In connection with the development and marketing of ReoPro, the Company has
recognized the importance of platelet assessment in cardiovascular disease.
Based upon its knowledge in this area, the Company is developing a point-of-care
test that is intended to enable interventional cardiologists to rapidly assess
platelet function at the bedside. This device will permit medical experts to
monitor platelet activity and the effect of drugs such as ReoPro with the same
precision with which they currently evaluate other aspects of blood coagulation
and treatment. The Company believes that the availability of this type of
monitoring therefore addresses a currently unmet medical need.


Marketing and Sales

     In the therapeutic area, the Company maintains a separate strategic
alliance with a major pharmaceutical company for each of its two commercialized
products, pursuant to which, in each case, the Company and its respective
partner jointly focus on the continued clinical and market development for the
product, while the Company's partner primarily conducts the marketing, promotion
and distribution of such product. In the diagnostics area, the Company maintains
distribution agreements with companies having established positions and
distribution networks in applicable market segments for the Company's products.
The Company is highly dependent upon the ability of its marketing partners to
develop and expand markets for the Company's products.

                                       7
<PAGE>
 
   Pursuant to its Sales and Distribution Agreement with Lilly, Lilly is the
exclusive worldwide distributor of ReoPro. The Company sells ReoPro to Lilly for
Lilly's further sale to the end market. The Company is principally responsible
for developing and manufacturing ReoPro and for securing regulatory approvals.
Lilly is principally responsible for the marketing, selling and distribution of
ReoPro. Beginning in 1997, the Company is required to make certain royalty
payments to Lilly up to a designated level of sales of ReoPro.

   Pursuant to its alliance agreement with Glaxo Wellcome, Glaxo Wellcome is the
exclusive worldwide distributor for Panorex. The Company sells Panorex to Glaxo
Wellcome for Glaxo Wellcome's further sale to the end market. Glaxo Wellcome is
responsible for the continuing clinical development, marketing, sales and
distribution of Panorex. The Company is principally responsible for
manufacturing Panorex and securing regulatory approvals.
 
   During 1995, approximately 50% of the Company's total product sales were to
three customers, as follows: 24% to  Lilly, 11% to Glaxo Wellcome and 15% to
Toray-Fuji Bionics, Inc..  During 1994, approximately 60% of the Company's total
product sales were to four customers, as follows: 10% to Abbott Laboratories,
12% to Boehringer Mannheim GmbH, 13% to CIS bio International and 25% to Toray-
Fuji Bionics, Inc..

   Certain financial information by geographic area as well as major customer 
information is set forth in Part II Item 8 "Financial Statements and 
Supplementary Data."

   The Company has no significant product backlog.


Research and Development

   Centocor's research and development activities focus primarily on monoclonal
antibody technology and proprietary techniques to modify monoclonal antibodies
in search of optimal therapeutic agents. Centocor believes that there is
significant potential for using monoclonal antibodies to develop human health
care products. While the specificity of monoclonal antibodies makes them
attractive candidates for therapeutic product development, antibody-based
products generally must be administered by injection, usually in a hospital
setting, and are therefore used principally to treat acute diseases. The
Company's ability to select effective hybridomas and to produce antibodies from
them is central to its business. An understanding of the structure and function
of antibodies is necessary in order to modify them for incorporation into
diagnostic or therapeutic products. The Company has developed techniques for
characterizing an antibody with respect to its structure, specificity and
binding ability which are used in an effort to select the best antibody for a
particular application.

   The Company carries out research efforts in the use of recombinant DNA
techniques to manipulate the genetic structure of antibody-producing cells.
These efforts are intended to create re-engineered antibodies that combine the
desired properties of more than one antibody, or the desired properties of
antibodies and other system-regulating biochemicals such as enzymes.
 
   The Company has also expanded its research platform to include the field of
genetic vaccines and peptides. Efforts in the genetic cancer vaccine field are
currently in the pre-clinical stage. Phase I trials are planned for 1996 for
colorectal and prostate cancer vaccines.

   For the three years ended December 31, 1995, 1994 and 1993, the Company's 
research and development expenses were $66,235,000, $70,003,000 and $66,113,000,
respectively.


Patents and Licensing Arrangements

   Products currently being marketed, developed or considered for development by
the Company are in the area of biotechnology, an area in which there are
extensive patent filings. The patent position of biotechnology firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that patent
applications owned or licensed by the Company will result in patents being
issued or that, if issued, such patents will afford protection against
competitors with similar technology. In addition, there can be no assurance that
products covered by such patents, or any other products developed by the Company
or subject to licenses acquired by the Company, will not be covered by third
party patents, in which case continued development and marketing of such
products would require a license under such patents. There can be no assurance
that such required licenses will be available to the Company or its licensees on
acceptable terms.

                                       8
<PAGE>
 
   Other entities have filed applications for or have been issued patents and
are expected to obtain additional patents to which the Company may need to
acquire rights. The extent to which the Company may need to obtain rights to any
such patents or to contest their scope or validity will depend on final product
formulation and other factors. The ability to license any such patents and the
likelihood of successfully contesting the scope or validity of such patents are
uncertain and the costs associated therewith may be significant. If the Company
is required to acquire rights to valid and enforceable patents but cannot do so
at a reasonable cost, the Company's ability to manufacture or market its
products in the country of issuance of any such patent may be materially
adversely affected.

   There has been substantial litigation regarding patent and other intellectual
property rights in the biotechnology industry. Litigation may be necessary to
enforce certain intellectual property rights of the Company. Any such litigation
could result in substantial cost to and diversion of effort by the Company.

   Centocor currently licenses the majority of the cell lines used to produce
its monoclonal antibodies from research institutions pursuant to long-term
licenses for which it is generally obligated to pay royalties based upon sales
of products incorporating such antibodies. There can be no assurance that others
will not acquire rights to such cell lines in the future.

   The Company has been informed by the Research Foundation of the State
University of New York ("SUNY"), which licensed certain rights to the Company
with respect to ReoPro, that SUNY does not agree with the Company regarding the
amount of royalties due to SUNY. The Company is engaged in discussions with SUNY
with respect to this matter and does not believe that the outcome thereof will
have a material adverse effect on the Company's financial position.

   The Company organized CPIII, Tocor II, Inc. ("Tocor II") and other entities
to fund the research and development of certain products and/or technology.
Under agreements with each of these entities, Centocor licensed certain
technology to the entity and performed or continues to perform research and
development in such technology areas on behalf of the entity. The Company
purchased the ownership interests of all of these entities prior to 1995, with
the exception of CPIII, to which the Company has granted an exclusive license to
use all patent rights, know-how, technical information and biological materials
owned or controlled by the Company within CPIII's field of activity, which
includes ReoPro. CPIII also retains the rights to the results of research and
development efforts conducted on its behalf. The Company has the ability to
acquire such rights through an exclusive option to purchase the partnership
interests in CPIII for cash or shares of Common Stock. See Part II Item 7.
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources."


Governmental Regulation

   Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of the
Company's products and in ongoing research and product development activities.
All of the Company's therapeutic products and most of the Company's diagnostic
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other premarket approval
requirements by the FDA and regulatory authorities in other countries. Various
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, recordkeeping and marketing of such products. The lengthy
process of seeking these approvals, and the subsequent compliance with
applicable statutes and regulations, require the expenditure of substantial
resources. The Company believes it is currently in compliance with such statutes
and regulations.  Any failure by the Company to obtain, or any delay in
obtaining, regulatory approvals could materially adversely affect the Company
and the Company's marketing partners' ability to market the Company's products.

   The activities required before a pharmaceutical product may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an Investigational New
Drug application, which must be reviewed by the FDA before

                                       9
<PAGE>
 
proposed clinical testing can begin. Typically, clinical testing involves a
three-phase process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile and the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specified disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large scale, multicenter, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data to
statistically evaluate the efficacy and safety of the product, as required by
the FDA. The results of the preclinical and clinical testing of a chemical
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological pharmaceutical product in the form of a
PLA, for approval to commence commercial sales. In responding to an NDA or PLA,
the FDA may grant marketing approval, request additional information or deny the
application if it determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that any approval
required by the FDA will be obtained on a timely basis, if at all.

   Among the conditions for NDA or PLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with Good Manufacturing Practices ("GMP"). Before approval
of the PLA, the FDA will perform a prelicensing inspection of the facility to
determine its compliance with GMP and other rules and regulations. In complying
with GMP, manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full compliance. After the
establishment is licensed for the manufacture of any product, it is subject to
periodic inspections by the FDA.

   The requirements such as those described above which the Company must satisfy
to obtain regulatory approval by governmental agencies in other countries prior
to commercialization of its products in such countries can be rigorous, costly
and uncertain.

   The Company is also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, the experimental use
of animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with the Company's research. The Company believes it is currently
in compliance with all such laws and regulations.  The extent of governmental
regulation which might result from any legislative or administrative action
cannot be accurately predicted.

   The levels of revenues and profitability of biopharmaceutical companies may
be affected by the continuing efforts of government and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of therapeutic and other
pharmaceutical products is subject to governmental control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar governmental
control. While the Company cannot predict whether any such legislative or
regulatory proposals will be adopted, the adoption of such proposals could have
a material adverse effect on the Company's business, financial condition and
profitability. In addition, in both the United States and elsewhere, sales of
therapeutic and other pharmaceutical products are dependent in part on the
availability of reimbursement to the consumer from third party payors, such as
government and private insurance plans. Third party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that either of the therapeutic products the Company has brought to
market or any therapeutic product candidates the Company may bring to market in
the future will be considered cost effective and that reimbursement to the
consumer will be available or will be sufficient to allow the Company to sell
its products on a competitive and profitable basis.

Significant Competition and Technological Change 

   Monoclonal antibody, genetic vaccine and peptide technology and other
innovations in biotechnology are being examined, evaluated and practiced in
biology research laboratories throughout the United States and in many other
countries, including laboratories of other biotechnology companies and major
pharmaceutical firms, many of which have greater resources than Centocor.

   Several established pharmaceutical companies have internal research and
development groups, and alliances with other biotechnology companies, and are
seeking to develop monoclonal antibody-based, genetic vaccine-based, peptide-
based and other biological products. In addition, a number of companies have
recently entered the biological products field, some through acquisition or
merger, and more may be expected to do so in the future. As a result, Centocor
anticipates that new biological products will be developed by others.

   Centocor's management believes that its ability to compete in its targeted
markets will depend upon, among other things, its ability to develop, produce
and market innovative products. Centocor's management also believes that
significant competition will come from established pharmaceutical companies that
have greater capital resources, manufacturing and marketing experience, research
and development staffs, sales forces and production facilities than Centocor.
Such competition is expected to be in the form of a variety of therapeutic
products, which may include monoclonal antibody-based, genetic vaccine-based and
peptide-based products. There can be no assurance that the activities of others
will not render Centocor's products or technologies obsolete or uncompetitive.




                                       10
<PAGE>

Item 2. Properties and Manufacturing
------------------------------------

   The Company owns four buildings in Malvern, Pennsylvania, and leases space in
other buildings at this location. These buildings contain Centocor's corporate
offices, research and development laboratories, marketing offices, and certain
manufacturing facilities. Space is available in these buildings for future
expansion.
 
   The Company owns a biopharmaceutical manufacturing facility in Leiden, The
Netherlands, for the production of monoclonal antibody-based products using a
proprietary cell-culture system. This facility has been inspected and approved
by the FDA and the equivalent European regulatory agencies. The Company also
leases research and development laboratories and office space at this location.
A portion of the construction cost of the Leiden facility was financed by a 
mortgage loan which is still outstanding. See Part II Item 8 "Financial 
Statements and Supplementary Data." The Company manufactures diagnostics
products at its facilities in Malvern, Pennsylvania and at a facility which it
leases in Guildford, England. Each of the Company's diagnostic manufacturing
facilities has received ISO-9001 certification.

   Each of the Company's lease agreements with respect to its leased facilities
is a triple net lease with a remaining term of at least nine years, under which
the Company is responsible for all operating expenses of the facility.

   At the Company's present level of operations, portions of the Company's
facilities and equipment in Malvern are idle. The Company continually evaluates
the future needs for its facilities and equipment.


Item 3. Legal Proceedings
-------------------------

   In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos"), in the U.S. District Court for the
District of Maryland. The complaint primarily alleged that the Company breached
certain provisions of a license agreement between Velos and the Company pursuant
to which the Company has exclusive rights to U.S. Patent No. 5,057,598, as well
as various patent applications and foreign patents. The patents and applications
include claims relating to monoclonal antibodies used in treating manifestations
of Gram-negative bacterial infections, the targeted indication of HA-1A. The
complaint sought declaratory relief and monetary relief in excess of
$100,000,000, and requested that the Company place in escrow one-half of the
amounts received by the Company in 1992 pursuant to its agreements with Lilly.
The complaint did not seek to terminate or rescind any of the Company's rights
under the license agreement. The Company answered the complaint and asserted
affirmative defenses and counterclaims on January 7, 1993, but the counterclaims
and certain affirmative defenses were dismissed on June 22, 1993 with leave to
replead. On July 28, 1993, the Court permitted plaintiff to file an amended
complaint that updated some of the claims in the original complaint but
otherwise reasserted the basic factual allegations and, with one minor
exception, relied upon the same legal theories. On August 27, 1993, the Company
filed its Answer, Affirmative Defenses and Counterclaim for Damages and
Equitable Relief, to the amended complaint (the "Amended Answer"). In the
Amended Answer, the Company again denied all of the allegations made by Velos
and stated certain affirmative defenses and counterclaims against Velos with
respect to the license agreement, based on theories of (i) failure of
consideration, (ii) fraud in the inducement and (iii) unilateral mistake as to
facts, which mistake was induced by the fraudulent misrepresentation of Velos.
On September 22, 1993, plaintiff moved to dismiss the Company's counterclaims
and to strike certain of the Company's affirmative defenses. On February 6,
1995, the motion was denied. Discovery is in progress, and trial is scheduled
for November 1996. The Company has moved for partial summary judgment with
respect to the plaintiff's claim that under its license agreement, Lilly is
allegedly a sublicensee of Centocor, thereby purportedly entitling plaintiff to
a significant part of the funds paid by Lilly to Centocor. The Company believes
that the allegations of Velos are without merit and intends to vigorously defend
this suit and to pursue its counterclaim.

   On December 23, 1993, a purported class action captioned Peter Cordaro v.
Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden,
Centocor and Tocor II was filed in the Court of Common Pleas for Chester County,
Pennsylvania. The complaint alleges that the defendants breached their fiduciary
duties to Tocor II Unitholders by, among other things, making an offer to
exchange shares of the Company's Common Stock for Tocor II Units, recommending
acceptance of the exchange offer, and failing to maximize shareholder value. The

                                       11
<PAGE>
 
complaint sought, among other relief, an injunction against consummation of the
exchange offer, the establishment of a "truly independent" special committee and
the retention of a financial advisor to consider the exchange offer, and an
award of damages (including rescissionary damages), costs and plaintiff's
counsel fees. Plaintiff took no additional action to obtain an injunction and
the exchange offer was made and consummated. A motion for class certification is
pending. No trial date has been fixed. The Company believes that the allegations
set forth in the complaint are without merit and intends to vigorously defend
this suit.

   In July 1995, PaineWebber Development Corporation ("PaineWebber"), a wholly-
owned subsidiary of Paine Webber Group Inc., caused suits to be filed against
the Company by two research and development partnerships formed in the mid-1980s
by PaineWebber and managed by it since then. The two PaineWebber partnerships
(PaineWebber R&D Partners, L.P. and PaineWebber R&D Partners II, L.P.) were,
respectively, investors in Centocor Partners II, L.P. ("CPII") and CPIII,
research partnerships for which PaineWebber acted as the sales agent and in
other capacities. The Company purchased the limited partners' interests in CPII
in February 1992 and that partnership was then dissolved. The suit by
PaineWebber R&D Partners, L.P., was filed in the Supreme Court of the State of
New York, County of New York, and purports to be a class action on behalf of all
former limited partners of CPII. The complaint charges that some portion of the
$100 million paid by Lilly to the Company in July 1992 constituted revenues to
the Company for the licensing, sublicensing or sale of HA-1A and that the
Company is obligated to pay a percentage thereof to the former limited partners
of CPII, in addition to amounts already paid. The theories of recovery are
similar to those asserted by Velos in 1992, as described above. The Company has
moved to dismiss the New York suit on the ground that it was brought in an
inconvenient forum. The suit by PaineWebber R&D II, L.P., was filed in the Court
of Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III, Inc.
("CDC III"), a wholly owned subsidiary of the Company which acts as the general
partner of CPIII are named as defendants against whom relief is sought. The
claim in this case is that at least $25 million of the money paid by Lilly to
the Company in 1992 represented profits from the marketing of ReoPro, obligating
the Company to pay a portion thereof to CPIII, and that the Company is obligated
to pay an increased percentage of the profits from ReoPro to CPIII going
forward. The Company answered the complaint in the Delaware action and filed a
cross-claim against nominal defendant CPIII and a third-party complaint against
PaineWebber Group Inc. and PaineWebber. On November 1, 1995, an additional suit
was commenced in the Delaware Court of Chancery by John E. Abdo, a limited
partner of CPIII, against the Company, CDC III and certain of their officers and
directors. The complaint, filed derivatively on behalf of CPIII, asserts claims,
inter alia, for breach of contract, breach of fiduciary duty, common law fraud,
and conspiracy and aiding and abetting. The Company answered this complaint and
also filed a cross-claim against nominal defendant CPIII and a third party
complaint against PaineWebber Group Inc. and PaineWebber. The two Delaware suits
have been consolidated and discovery is proceeding. No trial date has been
fixed. In addition, on February 13, 1996, an additional suit was filed in the
Court of Common Pleas for Chester County, Pennsylvania by an alleged former
limited partner in CPII, against the Company, Lilly and an officer and a
director of the Company. The complaint purports to be a class action on behalf
of former limited partners of CPII and limited partners of PaineWebber R&D
Partners, L.P. and asserts claims of breach of contract, breach of fiduciary
duty and breach of a duty of good faith and fair dealing and states theories of
recovery similar to those asserted by PaineWebber R&D Partners, L.P., as
described above. The Company believes that the allegations of the plaintiffs in
these suits are without merit and intends to vigorously defend them.

   While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.



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

   Not applicable.

                                       12
<PAGE>
 
                                    Part II


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

   The Company's Common Stock is traded publicly on the Nasdaq National Market
under the trading symbol CNTO. The table below sets forth the high and low sale
prices for the Company's Common Stock for the periods indicated as reported by
the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                                 High       Low
                                                              ----------  --------
<S>                                                           <C>         <C>
Year ended December 31, 1994
    First Quarter........................................     $  14     $  10
    Second Quarter.......................................        14 3/8     8 7/8
    Third Quarter........................................        18 1/2     9 5/8
    Fourth Quarter.......................................        18 3/4    15 1/2

Year ended December 31, 1995
    First Quarter........................................        21        14 1/2
    Second Quarter.......................................        16 3/8    12 1/8
    Third Quarter........................................        14 35/64  10 7/8
    Fourth Quarter.......................................        33 1/8     9 5/8
 
</TABLE> 
 
          On March 1, 1996, there were approximately 4,248 holders of record of
    the Common Stock.

          The Company has never declared or paid any dividends on its Common
Stock. The Company does not anticipate paying any dividends in the foreseeable
future and intends to retain future earnings for the development and expansion
of its business.

                                       13
<PAGE>
 
Item 6. Selected Financial Data
-------------------------------

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
 
                                                                     Year Ended December 31,
                                                    ---------------------------------------------------------
                                                       1991        1992        1993        1994       1995
                                                    ----------  -----------  ---------  ----------  ---------
<S>                                                 <C>         <C>          <C>        <C>         <C>
Consolidated Statement of Operations Data:
Revenues:
  Sales...........................................  $  44,328    $  58,394   $ 48,071   $  39,984   $ 65,001
  Contracts:
    Related parties...............................      4,902       16,071     10,109       1,652         --
    Other.........................................      3,967       51,767     17,750      25,590     13,915
                                                    ---------    ---------   --------   ---------   --------
  Total revenues..................................     53,197      126,232     75,930      67,226     78,916
Costs and expenses(1).............................    247,151      295,978    130,683     173,290    126,219
Other income (expenses)(2)........................     (1,601)     (24,400)   (19,626)    (20,594)    (9,829)
                                                    ---------    ---------   --------   ---------   --------
Loss..............................................  $(195,555)   $(194,146)  $(74,379)  $(126,658)  $(57,132)
                                                    =========    =========   ========   =========   ========
Loss per share....................................     $(5.72)      $(4.90)    $(1.79)     $(2.55)    $(0.98)
                                                    =========    =========   ========   =========   ========
Weighted average number of shares outstanding(3)..     34,172       39,623     41,482      49,597     58,207

<CAPTION> 
 
                                                       1991        1992        1993        1994       1995
                                                       ----        ----        ----        ----       ----
Consolidated Balance Sheet Data:
<S>                                                <C>         <C>         <C>         <C>        <C>
Cash and investments (4)                           $233,598    $163,083    $140,028    $184,507   $137,206
Total assets                                        472,929     349,268     281,039     305,915    260,284
Long-term debt                                      259,368     238,166     238,100     231,640    231,640
Shareholders' equity (deficit)                      144,027      30,721     (19,194)      5,278    (29,396)
</TABLE>

  No dividends have been declared or paid during any of the periods presented.

(1) Costs and expenses include the following: (a) charges for acquired research
    and development of $70,147 and $36,966 in 1991 and 1994, respectively, (b)
    charges of $64,877 and $3,500 in 1992 and 1993, respectively, related to HA-
    1A inventory, (c) restructuring charges of $15,266, $9,387 and $1,642 in
    1992, 1993 and 1995, respectively, (d) a royalty buyout of $17,098 in 1994
    and (e) a write-down of facilities and equipment of $7,870 in 1994.

(2) Other income (expenses) include charges of $11,245, $1,275 and $3,750 in
    1992, 1994 and 1995, respectively, related to the settlement of certain
    litigation.                                                     
 
(3) No shares of Common Stock issuable upon the exercise of stock options or
    warrants or the vesting of restricted stock awards have been included as
    their inclusion would have an antidilutive effect because the Company has
    incurred a net loss in each period presented. 
 
(4) Cash and investments at December 31, 1995 include equity investments
    classified as available for sale of $5,769, and $27,500 of investments
    maintained at certain banks as collateral for certain debt outstanding at
    December 31, 1995. 
 

                                       14
<PAGE>
 
Item 7. Management's Discussion and Analysis of Results of Operations and
-------------------------------------------------------------------------
Financial Condition
-------------------

Results of Operations

  General
 
   Centocor is a biotechnology company, which, since inception, has incurred
significant operating expenses developing therapeutic and diagnostic products.
The Company has also incurred significant special charges. To date, product
sales have not produced sufficient revenues to cover the Company's operating
expenses. Consequently, the Company has experienced substantial operating
losses.
 
   The Company commenced commercial sales of two therapeutic products in 1995:
ReoPro in January 1995 and Panorex in February 1995. Because of positive
findings at interim analyses, in December 1995 the Company halted two clinical
trials of ReoPro designed to expand its authorized use. After completing the
data analyses for these trials, the Company expects to seek additional
regulatory approvals in the United States and Europe for expanded indications.
The level of the Company's research and development expenses has been primarily
dependent upon the extent of clinical trial activity. The Company does not
anticipate that the termination of the two ReoPro clinical trials will result in
any significant reduction in 1996 research and development expenses as compared
to 1995 levels due principally to continued follow-up of enrolled patients and
analysis of clinical trial data. Further, the impact on the level of sales of
ReoPro of the early termination of these two trials will depend upon the timing
and extent of any future regulatory approvals and the degree of market
acceptance of ReoPro.
 
   In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to Be Disposed of" ("Statement 121"),
which requires companies to review long-lived assets and certain identifiable
intangibles to be held, used or disposed of, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company is required to adopt Statement 121 for 1996. The
Company believes that the adoption of Statement 121 will not have a significant
effect on its financial statements.
 
  Year ended December 31, 1995 compared to year ended December 31, 1994

   The increase in sales for the year ended December 31, 1995 as compared to the
year ended December 31, 1994 is principally due to the commencement of sales of
ReoPro in January 1995 and Panorex in February 1995.
 
   The Company is highly dependent upon the ability of its marketing partners to
develop and expand the markets for both ReoPro and Panorex. For the year ended
December 31, 1995, ReoPro sales to Lilly were $15,545,000 and Lilly's announced
sales to end-users were $22,800,000. During the same period, the Company's sales
of Panorex to Glaxo Wellcome were $6,531,000 and Glaxo Wellcome reported to the
Company that sales to end-users were approximately $3,400,000. The level of the
Company's sales of ReoPro to Lilly and of Panorex to Glaxo Wellcome is dependent
upon the orders placed and the levels of inventory maintained by each of these
marketing partners, which in 1995 included initial launch period quantities.
 
   Diagnostic product sales for the year ended December 31, 1995 were
$42,859,000 as compared to $39,697,000 for the year ended December 31, 1994. The
increase in sales for the year ended December 31, 1995 as compared to the year
ended December 31, 1994 is primarily related to a third quarter reagent sale to
a new customer within the oncology product line.
 
   The level of future sales of both diagnostic and therapeutic products will be
dependent upon several factors, including, but not limited to, the timing and
extent of future regulatory approvals of the Company's products, approval and
commercialization of competitive products and ultimately the degree of
acceptance of the Company's products in the marketplace. For the Company's
diagnostic products, the level of sales is also dependent upon the extent of and
timing of reagent sales to marketing partners developing new automated
instruments, as well as the mix of completed diagnostic kit sales and sales of
antibody to collaborative partners who pay the Company for such

                                       15
<PAGE>
 
antibody upon sales of their respective diagnostic kits incorporating the
Company's antibody. The Company is currently attempting to expand its diagnostic
distribution channels to include additional distributors on a non-exclusive
basis, which the Company expects will result in reduced sales prices on certain
diagnostic products. The Company's gross margins from sales of antibodies to
partners are higher than its gross margin from sales of its completed diagnostic
kits.

   The decrease in contract revenues for the year ended December 31, 1995 as
compared to the year ended December 31, 1994 was primarily due to the
achievement of certain milestones and expansion of certain marketing and
distribution rights with Glaxo Wellcome in 1994, which in the aggregate amounted
to $14,000,000. Contract revenues for the year ended December 31, 1995 and 1994
included $10,000,000 and $9,500,000, respectively, recognized pursuant to the
Company's agreements with Lilly as a result of the Company's achievement of
milestones in the development of ReoPro. Contract revenues for the year ended
December 31, 1994 also included $1,652,000 recognized pursuant to the Company's
development agreement with Tocor II. As a result of an exchange offer which was
completed in March 1994 and pursuant to which the Company acquired all of the
outstanding callable common stock of Tocor II (the "Exchange Offer"), the
revenues under the Tocor II research program terminated in 1994. The level of
contract revenues in future periods will depend primarily upon the extent to
which the Company enters into other collaborative contractual arrangements, if
any, and its achievement of milestones under current arrangements.
 
   Cost of sales increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 due to the initiation of sales of ReoPro and
Panorex. The Company is required to make certain royalty payments, based on
sales of products, which payments represent a significant percentage of cost of
sales. The Company expects an increase in cost of sales in 1996, the extent of
which will depend primarily on the amount and mix of products sold. Beginning in
1997, the Company is required to make certain royalty payments to Lilly up to a
designated level of sales of ReoPro. See Part I Item 1 "Business--Marketing and
Sales." The Company's gross margins from sales of its therapeutic products were
approximately 45% of such sales for the year ended December 31, 1995. There were
no sales of therapeutic products in 1994. The Company's gross margins from sales
of its diagnostic products were approximately 60% of such sales for the years
ended December 31, 1995 and 1994, respectively.
 
   Research and development expenses for the year ended December 31, 1995
decreased as compared to the year ended December 31, 1994 due principally to the
capitalization as inventory in 1995 of certain costs associated with the
manufacture of ReoPro and Panorex. In 1994, such costs were not associated with
the production of inventory and therefore were expensed as research and
development expenses. Clinical trial expenses increased in 1995 as compared to
1994 because of the Company's efforts to obtain regulatory approvals for
additional indications of therapeutic products and further developing other
therapeutic and diagnostic product opportunities. The level of the Company's
total research and development expenses in future periods is dependent upon the
extent of clinical trial-related activities.
 
   Marketing, general and administrative expenses for the year ended December
31, 1995 increased as compared to the year ended December 31, 1994 due
principally to increases in facilities, insurance and market development
expenses. The levels of the Company's marketing, general and administrative
expenses may increase in future periods as compared to 1995 levels if the
Company expands its market development activities in connection with sales of
therapeutic and diagnostic products.
 
   Interest income increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 due principally to an increase in interest
rates on investments and an increase in the Company's average cash and
investment balances. Interest income in future periods will depend primarily on
the level of the Company's investments and the rates of return obtained on such
investments.
 
   Interest expense decreased for the year ended December 31, 1995 as compared
to the year ended December 31, 1994 due principally to a one-time adjustment of
$2,200,000 on a loan which was renegotiated with the Commonwealth of
Pennsylvania. Interest expense in future periods will depend upon the level of
debt outstanding. The Company intends to redeem the 7 1/4% Convertible
Subordinated Notes due February 1, 2001 (the "7 1/4% Convertible Notes") which
will reduce the Company's interest expense. See Note 20 to the Company's
Consolidated Financial Statements.

                                       16


<PAGE>
 
                             
   Other income increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 due to the Company's equity in earnings of a
company in which Centocor has invested. The Company does not expect any
significant additional income from this investment in the near future.

   Other income (expenses) also includes a charge to operations of $3,750,000
for the year ended December 31, 1995 relating to the settlement of certain class
action securities litigation. The results of operations for the year ended
December 31, 1995 also included a charge to costs and expenses of $1,642,000 for
severance costs related to a reduction in the level of the Company's personnel
in the fourth quarter of 1995.
 
 
 Year ended December 31, 1994 compared to year ended December 31, 1993

   The decrease in sales for the year ended December 31, 1994 as compared to the
year ended December 31, 1993 is principally due to lower sales of certain
diagnostic reagents and the discontinuance of certain diagnostic product lines.

   Contract revenues for the year ended December 31, 1994 included $1,652,000
recognized pursuant to the Company's agreements with Tocor II, as compared to
$10,109,000 for the year ended December 31, 1993. As a result of the Exchange
Offer, the revenues under the Tocor II research program terminated in 1994. The
decrease in contract revenue from Tocor II was principally offset by an increase
in contract revenues recognized from Lilly and Glaxo Wellcome in connection with
the achievement of milestones and the expansion of certain marketing and
distribution rights. Contract revenues for the year ended December 31, 1994
included $9,500,000, as compared to $5,000,000 for the year ended December 31,
1993, recognized pursuant to the Company's agreements with Lilly. The Company
recorded $14,000,000 and $10,000,000 of contract revenues for the years ended
December 31, 1994 and 1993, respectively, pursuant to the Company's agreements
with Glaxo Wellcome.

   Cost of sales increased for the year ended December 31, 1994 as compared to
the year ended December 31, 1993 due to the mix of diagnostic products sold. The
Company is required to make certain royalty payments based on sales of products,
which payments represent a significant percentage of cost of sales. Gross
margins decreased from 67% in 1993 to 60% in 1994. Such decrease was due to the
higher percentage of diagnostic reagent sales in 1993 as compared to 1994, on
which the Company realizes higher margins than on sales of its diagnostic kits.

   Research and development expenses increased for the year ended December 31,
1994 as compared to the year ended December 31, 1993 due principally to costs
associated with increased clinical trials and regulatory activities related to
products under development.

   Marketing, general and administrative expenses for the year ended December
31, 1994 decreased as compared to the year ended December 31, 1993 due
principally to reductions in sales and administrative staffs, marketing expenses
and other cost reductions.

   The results of operations for the year ended December 31, 1994 included a
charge to earnings of $36,966,000 for acquired research and development in
connection with the Exchange Offer. The results of operations for the year ended
December 31, 1994 also included charges of $7,870,000 related to the writedown
of certain facilities and equipment and $17,098,000 representing a royalty
buyout relating to ReoPro. Additionally, a charge of $1,275,000 related to a
litigation settlement was recorded in the fourth quarter of 1994.
 
   The results of operations for the year ended December 31, 1993 included
restructuring charges of $4,273,000 related to reserves for certain fixed assets
no longer used or subsequently disposed of and $5,114,000 principally related to
severance. A charge of $3,500,000 related to HA-1A inventory was recorded in the
fourth quarter of 1993. The Company commenced sales of HA-1A, a therapeutic
product intended for the treatment of patients with severe sepsis resulting from
Gram-negative bacterial infections, in Europe in 1990. The Company voluntarily
discontinued sales of HA-1A in 1993, as a result of data from a U.S. clinical
trial of HA-1A.

                                       17
<PAGE>
 
   Interest income increased in the year ended December 31, 1994 as compared to
the year ended December 31, 1993 due principally to an increase in the Company's
cash and investment balances as a result of the Exchange Offer. During 1994, the
Company recorded unrealized losses of $3,649,000 compared to $2,477,000 for
1993, due to other than temporary reductions in the market value of marketable
equity investments below the Company's cost for such investments.

Quarterly Results
 
   The following table sets forth certain unaudited consolidated statement of
operations data for the three years ended December 31, 1995 (in thousands):

<TABLE> 
<CAPTION> 
                                                                      Quarter Ended
                                                     March 31,    June 30,     Sept. 30,   Dec. 31,
                                                          1993        1993          1993       1993
   <S>                                               <C>          <C>          <C>         <C>  
   Total revenues                                     $ 14,978    $ 13,753      $ 16,729   $ 30,470
 
   Cost and expenses:
      Cost of sales                                      3,894       3,983         3,842      4,100
      Research and development                          18,711      16,760        15,964     14,678
      Marketing, general and administration              9,630       9,664         8,420      8,150
      Special charges                                    4,273       5,114            -       3,500
                                                      --------    --------      --------   --------
   Total costs and expenses                             36,508      35,521        28,226     30,428

   Other income (expenses)                              (3,999)     (4,254)       (4,307)    (7,066)
                                                      --------    --------      --------   --------
   Net loss                                           $(25,529)   $(26,022)     $(15,804)  $ (7,024)
                                                      ========    ========      ========   ========
<CAPTION>  

                                                     March 31,    June 30,     Sept. 30,   Dec. 31,
                                                          1994        1994          1994       1994
   <S>                                               <C>          <C>          <C>         <C>   
   Total revenues                                     $ 15,273    $ 16,384      $ 12,927   $ 22,642
 
   Cost and expenses:
      Cost of sales                                      3,630       4,471         3,652      4,231
      Research and development                          14,389      16,666        15,701     23,247
      Marketing, general and administration              6,818       6,809         7,159      4,583
      Special charges                                   36,966          -             -      24,968
                                                      --------    --------      --------   --------
   Total costs and expenses                             61,803      27,946        26,512     57,029
                                                                                          
   Other income (expenses)                              (4,107)     (3,856)       (3,994)    (8,637)
                                                      --------    --------      --------   --------
                                                                                          
   Net loss                                           $(50,637)   $(15,418)     $(17,579)  $(43,024)
                                                      ========    ========      ========   ========   
<CAPTION> 
                                                     March 31,    June 30,     Sept. 30,   Dec. 31,
                                                          1995        1995          1995       1995
   <S>                                               <C>          <C>          <C>         <C>   
   Total revenues                                     $ 23,995    $ 20,754      $ 19,155   $ 15,012
 
   Cost and expenses:
      Cost of sales                                      8,625       8,071         7,271      5,199
      Research and development                          13,501      17,008        18,376     17,350
      Marketing, general and administration              7,494       7,120         7,643      6,919
      Special charges                                       -           -             -       1,642
                                                      --------    --------      ---------  --------
 
   Total costs and expenses                             29,620      32,199        33,290     31,110
                                                                                          
   Other income (expenses)                              (2,617)     (5,864)        1,980     (3,328)
                                                      --------    --------      --------   --------
                                                                                          
   Net loss                                           $ (8,242)   $(17,309)     $(12,155)  $(19,426)
                                                      ========    ========      ========   ========
</TABLE> 
 

                                       18
<PAGE>
 
   The Company's losses, as a percentage of total revenues, have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. Quarterly results can fluctuate as a result of a number of
factors, including the timing of research and development expenses, the level of
product sales, the completion or commencement of significant contracts, and
foreign exchange fluctuations.
 
Liquidity and Capital Resources
 
   The Company has incurred significant operating expenses attempting to develop
therapeutic and diagnostic products. The Company's product sales have not
produced sufficient revenues to cover the Company's operating costs.
Consequently, the Company has experienced substantial net cash outflows, which
have been only partially offset by significant contract revenues received
through collaborative alliances with pharmaceutical companies and the Company's
financing activities.
 
   The Company's future financial condition is highly dependent upon the
reduction of the Company's rate of net cash outflows and, ultimately, upon the
achievement of significant and sustained levels of therapeutic product sales.
For the year ended December 31, 1995, sales of the Company's products, including
ReoPro and Panorex, did not generate sufficient revenue to result in positive
cash flow for the year. Under the Company's strategy of entering into
collaborative alliances with established pharmaceutical companies, the Company
generally shares sales revenues from products covered by such arrangements with
its partners. There can be no assurance that those products, in conjunction with
the Company's therapeutic product candidates under development and diagnostic
products, will achieve a level of sales sufficient to generate positive cash
flow from operations for the Company, given the current and currently
anticipated future scope of the Company's operations. The level of future sales
of both diagnostic and therapeutic products will be dependent upon several
factors, including, but not limited to, the timing and extent of future
regulatory approvals of the Company's products, approval and commercialization
of competitive products and the degree of acceptance of the Company's products
in the marketplace. There can be no assurance that FDA or other regulatory
approvals expanding the authorized use of ReoPro and Panorex or permitting the
commercial sale of any of the Company's product candidates under development
will be obtained. Failure to obtain additional timely FDA or other regulatory
approvals for the use of ReoPro and Panorex or other product candidates will
have a material adverse effect on the Company.
 
   Until significant and sustained levels of therapeutic product sales are
achieved, the Company expects that it will need to secure significant additional
funding in the future from collaborative arrangements with pharmaceutical
companies or from the capital markets. There can be no assurance that sufficient
additional funding will be available to the Company or that the Company can
obtain additional collaborations with established pharmaceutical companies and
receive payments for product rights and/or the achievement of milestones under
such collaborative agreements. Even if the Company obtains such funding, there
can be no assurance that such funding will be sufficient to sustain the
Company's operations until it generates positive cash flows from operations.
 
   At December 31, 1995, the Company had cash, cash equivalents and investments
of $137,206,000, including equity investments of $5,769,000. For the year ended
December 31, 1995, the Company had negative cash flows from operations of
$56,551,000. The Company's total cash flows for the year ended December 31, 1995
included the receipt of $18,557,000 from the exercise of warrants and options to
purchase shares of the Company's Common Stock. The extent and timing of future
warrant and option exercises, if any, are primarily dependent upon the market
price of the Company's Common Stock and general financial market conditions, as
well as the exercise prices and expiration dates of the warrants and options.
The Company's total cash, cash equivalents and investments decreased by
$47,301,000 from December 31, 1994, principally as a result of cash used for
operations, debt repayments, and purchases of fixed assets partially offset by
cash received from the exercise of warrants and options as discussed above. The
Company believes that its cash, cash equivalents and investments will be
sufficient to fund its operations through at least the end of 1996.
 
   Agreements covering $18,289,000 of the Company's outstanding debt balances
contain certain financial and non-financial covenants, including the maintenance
of minimum equity and cash balances and compliance with certain financial
ratios. The Company is currently not in compliance with certain of these
covenants; however, the Company has obtained waivers of such covenants on the
condition that it maintain certain investments at the lending

                                       19
<PAGE>
 
bank, which at December 31, 1995 totaled $20,000,000. The Company has classified
this $18,289,000 of debt as short-term. Additionally, $7,500,000 of the
Company's short-term debt is secured by investments at the lending bank of
$7,500,000. If cash flows continue to be negative, the Company's ability to
service its debt may be impaired.
 
   Inventory at December 31, 1995 increased as compared to December 31, 1994 due
primarily to the production of ReoPro and Panorex.
 
   Gross fixed assets at December 31, 1995 increased as compared to December 31,
1994, principally due to the investment of $4,845,000 for the purchase of fixed
assets, in addition to the impact of exchange rates on fixed assets denominated
in foreign currencies. The Company expects to make investments in fixed assets
of approximately $4,100,000 in 1996. At the Company's present level of
operations, the Company currently maintains idle facilities and equipment. The
Company continually evaluates the future needs for its facilities and equipment.
There can be no assurance that reserves to reduce the carrying value of certain
fixed assets will not be required in the future.
 
   Long-term investments at December 31, 1995 increased as compared to December
31, 1994, principally due to the increase in market value of a certain equity
investment classified as available for sale.
 
   Centocor has an exclusive option to purchase the limited partnership
interests in CPIII. Centocor's option to purchase the limited partnership
interests in CPIII is exercisable upon the earlier of (a) each limited partner
having received distributions related to sales of the CPIII products equal to
15% of the total capital contributions of such limited partner (approximately
$7,926,000 in the aggregate) and the expiration of at least 24 months after the
first commercial sale of a CPIII product or (b) the expiration of at least 48
months after the first commercial sale of a CPIII product; but, in any event,
not prior to the expiration of the then applicable long-term capital gains
holding period after the expenditure by the Company of all funds paid to it
pursuant to the Development Agreement with CPIII. Centocor commenced commercial
sales of ReoPro in January 1995 and, as of December 31, 1995, the limited
partners of CPIII had received cumulative distributions of approximately
$1,796,000. If the Company elects to exercise this option, the Company must make
an advance payment of approximately $13,598,000 in cash or, at the Company's
election, approximately $15,229,000 in shares of the Company's Common Stock, and
future payments generally of six percent of sales of products developed by
CPIII. If Centocor does not exercise this option, it will have no rights to the
technology or products developed on behalf of CPIII, including ReoPro.
 
   The Company has entered into indemnity agreements with CPIII, the former
limited partners of Centocor Cardiovascular Imaging Partners, L.P. ("CCIP") and
CPII pursuant to which the Company would be obligated, under certain
circumstances, to compensate these parties for the fair market value of their
respective interests under any license agreements with the Company relating to
their respective products which are lost through the exercise by the U.S.
government of any of its rights relating to the licensed technology. The amount
of any such loss would be determined annually by independent appraisal.
 
   In March 1996, the Company completed a public offering for 3,500,000 shares
of the Company's Common Stock, par value $.01 per share, and an additional
525,000 shares to cover over-allotments at $33.00 per share. The net proceeds
to the Company from the offering are estimated to be approximately $126.2
million after deducting underwriting discounts and commissions paid by the
Company.

   The Company also called for redemption the 7 1/4% Convertible Notes at a
redemption price of 103.222% of the outstanding principal amount. At December
31, 1995, the outstanding principal amount of the 7 1/4% Convertible Notes was
$106,640,000. If, at the time of redemption, the market price of Centocor's
Common Stock exceeds the $28.64 per share effective conversion price of the 7
1/4% Convertible Notes, Centocor anticipates that some or all of the holders of
the 7 1/4% Convertible Notes will exercise their rights to convert the 7 1/4%
Convertible Notes into the Company's Common Stock. To the extent the holders do
not exercise such rights, the Company intends to use the proceeds from this
offering to redeem the 7 1/4% Convertible Notes remaining outstanding.

   The balance of the proceeds not used to redeem 7 1/4% Convertible Notes, if
any, will be utilized for working capital and other corporate purposes, which
may include expenses associated with the development and clinical testing of
therapeutic products, reduction of debt, purchase of the CPIII partnership
interests and other acquisitions. The Company is not currently in discussions
with respect to any acquisitions. Pending such uses, the Company intends to
invest the net proceeds from this offering in short-term, investment grade,
interest-bearing securities.

   Interest on these notes will cease to accrue and the Company's cash outflows
in future periods will be reduced accordingly. See Note 20 to the Company's
Consolidated Financial Statements.
 
Legal Proceedings

   The Company is subject to certain litigation, as more fully described under
Part I Item 3 "Legal Proceedings." While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that such
legal proceedings will not have a material adverse effect on the Company.

                                       20
<PAGE>
 
Royalties

   The Company is required to make certain future payments to the former limited
partners of CCIP and CPII based on sales of products developed by each of the
respective partnerships. Upon any exercise by the Company of its options to
acquire the limited partnership interests in CPIII, the Company would be
required to make future payments to the former limited partners of CPIII,
including payments based on any sales of ReoPro. Beginning in 1997, the Company
is required to make certain royalty payments to Lilly up to a designated level
of sales of ReoPro.

   The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses and/or
options to license certain technology resulting from the research, generally
require the Company to pay royalties to such institutions on the sales of any
products that utilize the licensed technology. Further, the Company has licenses
under certain patents, patent applications and technology and pays the licensors
or their licensees royalties under such agreements.

   All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.


Product Liability

   The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage. Centocor's business may be materially adversely affected by a
successful product liability claim in excess of any insurance coverage. There
can be no assurance that product liability insurance coverage will continue to
be available to Centocor in the future on reasonable terms or at all.


Foreign Currency

   Certain of the Company's sales are denominated in currencies other than the
U.S. dollar. Additionally, the Company conducts operations in countries other
than the United States, primarily its manufacturing facility in Leiden, The
Netherlands. The Company's consolidated financial statements are denominated in
U.S. dollars, and, accordingly, changes in the exchange rate between foreign
currencies and the U.S. dollar will affect the translation of financial results
of foreign subsidiaries into U.S. dollars for purposes of reporting the
Company's consolidated financial results. To date, exchange rate fluctuations
have not had a material net effect on the Company's financial results. The
Company does not currently engage in any derivatives transactions as a hedge
against foreign currency fluctuations.

Inflation

   The Company believes the effects of inflation generally do not have a
material adverse impact on its operations or financial condition.

                                       21
<PAGE>
 
Item 8:  Financial Statements and Supplementary Data
----------------------------------------------------

                        CENTOCOR, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                            (In thousands)
<TABLE> 
<CAPTION> 

December 31,                                                     1995              1994
------------------------------------------                  ------------       ------------ 
<S>                                                              <C>                <C>           
ASSETS

Current assets:


         Cash and cash equivalents  (Notes 5, 9, 13 and 20)      $16,002            $78,925
         Short-term investments (Notes 5, 9 and 13)              115,435            102,663
         Accounts and contracts receivable                        11,489             11,842
         Interest receivable                                       1,648              1,082
         Inventory (Note 6)                                       20,783             16,682
         Prepaid expenses                                          2,959              2,722
         Other current assets                                        653              1,041
                                                            ------------       ------------ 
                                                                 168,969            214,957



Fixed assets (Notes 9 and 19):
         Land and buildings                                       72,980             71,137
         Equipment, furniture, fixtures and
            improvements                                          69,884             60,671
                                                            ------------       ------------
                                                                 142,864            131,808
         Less accumulated depreciation                           (74,727)           (61,768)
                                                            ------------        -----------  
                                                                  68,137             70,040

Long-term investments (Note 5)                                     5,769              2,919

Intangible and other assets (Note 7)                              17,409             17,999
                                                            ------------       ------------ 
             Total assets                                       $260,284           $305,915
                                                            ============       ============
</TABLE> 

See accompanying Notes to Consolidated Financial Statements.

                                      22
<PAGE>
 
                        CENTOCOR, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONT'D.)

                                (In thousands)
<TABLE> 
<CAPTION> 

December 31,                                                                 1995          1994
---------------------------------------                                  ------------   ----------
<S>                                                                        <C>           <C> 
LIABILITIES  AND  SHAREHOLDERS'  EQUITY

Current liabilities:

          Accounts payable                                                     $4,126        $6,383
          Accrued expenses (Note 8)                                            26,139        26,378
          Unearned revenues                                                        83         1,407
          Notes payable (Note 9)                                                7,500         6,897
          Current portion of
            long-term debt (Note 9)                                            18,289        26,182
                                                                         ------------   ----------- 
                                                                               56,137        67,247

Long-term debt (Notes 9 and 20)                                               231,640       231,640


Other liabilities                                                               1,286         1,240

Minority Interest                                                                 617           510

Shareholders' equity (Notes 3, 10, 13 and 20):
          Preferred Stock, $.01 par value,
            10,000 shares authorized, none issued                                   -             -
          Common Stock, $.01 par value,
            100,000 shares authorized and
            58,538 and 57,081 issued and
            outstanding at December 31, 1995
            and  1994, respectively                                               585           571
          Additional paid-in capital                                          770,068       750,175
          Accumulated Deficit                                                (808,839)     (751,707)
          Unrealized gain on marketable
            securities                                                          2,342             -
          Cumulative foreign currency
            translation adjustments                                             6,448         6,239
                                                                         ------------   -----------
                                                                              (29,396)        5,278
                                                                         ------------   -----------
              Total liabilities and
                shareholders' equity                                         $260,284      $305,915
                                                                         ============   ===========
</TABLE> 
See accompanying Notes to Consolidated Financial Statements.



                      

                                       23
<PAGE>
 
                        CENTOCOR, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (In thousands except per share data)
<TABLE> 
<CAPTION> 

---------------------------------------------------------------------------------------
For the years ended December 31,                          1995        1994        1993
---------------------------------------------------------------------------------------
<S>                                                  <C>          <C>         <C> 
Revenues:
 Sales                                                  $65,001     $39,984     $48,071
 Contracts (including related party revenues of:
  $1,652 in 1994 and $10,109 in 1993) (Note 12)          13,915      27,242      27,859
                                                     -----------  ----------  ----------       
                                                         78,916      67,226      75,930

Costs and expenses:
 Cost of sales                                           29,166      15,984      15,819
 Research and development (including contract
  revenue related party expenses of $1,572               
  in 1994 and $9,414 in 1993)                            66,235      70,003      66,113
 Marketing, general and administrative (including
  contract revenue related party expenses of $343
  in 1994 and $2,327 in 1993)                            29,176      25,369      35,864
 Charge for acquired research and
  development (Note 13)                                       -      36,966           -
 Other charges (Note 19)                                  1,642      24,968      12,887
                                                     -----------  ----------  ----------       
                                                        126,219     173,290     130,683

Other income (expenses):
 Interest income                                         10,126       5,999       4,192
 Interest expense                                       (17,001)    (19,821)    (20,087)
 Net loss on long-term investments (Note 14)                  -      (3,649)     (2,477)
 Litigation settlement (Note 14)                         (3,750)     (1,275)          -
 Other                                                      796      (1,848)     (1,254)
                                                     -----------  ----------  ----------           
                                                         (9,829)    (20,594)    (19,626)


Net loss                                               ($57,132)  ($126,658)   ($74,379)
                                                    ============ =========== ===========      
                                                    
Net loss per share                                       ($0.98)     ($2.55)     ($1.79)
                                                    ============ =========== ===========      
Weighted average number of shares
 outstanding                                             58,207      49,597      41,482
                                                     ===========  =========== ===========      
</TABLE> 
See accompanying Notes to Consolidated Financial Statements.

                                       24
<PAGE>
 
                        CENTOCOR, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                     (In thousands)
<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------
Years ended December 31,                                        1995        1994       1993
-----------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>         <C> 
Cash flows used for operating activities:
    Net loss                                                  ($57,132)  ($126,658)  ($74,379)
    Adjustments to reconcile net loss to net cash
      used for operating activities:
       Charge for acquired research and development                  -      36,966          -
       Special charges                                               -       9,145      6,528
       Net loss on long-term investments                             -       3,649      2,477
       Provisions for depreciation and amortization             16,394      18,164     25,804
       Amortization of deferred income                          (1,616)     (3,067)      (268)
       Other                                                       204       2,413      1,157
       Changes in assets and liabilities:
              Accounts and contracts receivable                    378       1,330        490
              Interest receivable                                 (542)       (466)     1,296
              Inventory                                         (4,519)     (2,344)      (591)
              Prepaid expenses                                  (3,568)     (2,809)    (1,606)
              Other current assets                                 462          81        529
              Intangible and other assets                       (1,456)     (1,423)    (1,759)
              Accounts payable                                  (2,425)       (962)     2,753
              Unearned revenue                                      46       1,675        152
              Accrued expenses and other liabilities            (2,941)     (1,162)    (5,157)
              Other long-term liabilities                          164         948        277
                                                              --------   ---------   --------  
      Net cash used for operating activities                   (56,551)    (64,520)   (42,297)

  Cash flows (used for) from investing activities:
    Purchases of investments                                  (147,381)    (98,808)  (168,643)
    Sales of investments                                       136,490     127,250    203,840
    Purchases of fixed assets                                   (4,845)     (4,555)    (2,008)
    Proceeds from sale of St. Louis facility                         -           -     11,913
    Acquisition of Tocor II, net of cash acquired                    -       3,991          -
                                                              --------   ---------   --------  
      Net cash (used for) from investing activities            (15,736)     27,878     45,102

  Cash flows from financing activities:
    Net proceeds from issuance of  Common Stock                 18,557      71,633     23,123
    Proceeds from issuance of debt                                   -           -      2,500
    Reduction of debt                                           (9,615)     (2,788)    (9,453)
                                                              --------   ---------   --------  
      Net cash from financing activities                         8,942      68,845     16,170
  Effect of foreign currency translation                           422         512     (1,261)
                                                              --------   ---------   --------  

  Net (decrease) increase in cash and cash equivalents         (62,923)     32,715     17,714
  Beginning cash and cash equivalents                           78,925      46,210     28,496
                                                              --------   ---------   --------  
  Ending cash and cash equivalents                             $16,002     $78,925    $46,210
                                                              ========   =========   ========  
</TABLE> 

  See accompanying Notes to Consolidated Financial Statements.

                                       25
<PAGE>
 
                        CENTOCOR, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                (In thousands)
<TABLE> 
<CAPTION> 


--------------------------------------------------------------------------------------------------------------------------------  
                                                                                                                
                                           Common Stock                                        Net Unrealized    Cumulative    
                                        -----------------                                      gain (loss) on  foreign currency 
                                       Number of                 Additional      Accumulated      Marketable     translation   
                                        shares     Par value   paid in capital    Deficit         Securities     adjustments   
--------------------------------------------------------------------------------------------------------------------------------  
 <S>                                     <C>           <C>          <C>            <C>                  <C>          <C>       
 Balance at December 31, 1992             41,192        $412            $575,072     ($550,670)            $ -       $5,907     
                                                                                                                               
 Issued to Glaxo Wellcome  (Note 10)       2,000          20              19,980             -               -            -    
 Issued upon exercise of options and                                                                                           
   warrants or as stock grants               329           3               2,908             -               -            -    
 Issued to employee benefit plan              57           1                 970             -               -            -    
 Vested pursuant to                                                                                                            
   restricted stock award plan                94           1               2,208             -               -            -    
 Translation adjustments                       -           -                   -             -               -         (992)   
 Carrying value adjustments                    -           -                   -             -            (635)           -    
 Net loss                                      -           -                   -       (74,379)              -            -    
                                       -------------------------------------------------------------------------------------  
 Balance at December 31, 1993             43,672         437             601,138      (625,049)           (635)       4,915    
                                                                                                                               
 Issued to Glaxo Wellcome  (Note 10)         140           1               3,500             -               -            -    
 Issued pursuant to the Tocor II                                                                                               
   exchange offer (Note 13)                7,014          70              84,259             -               -            -    
 Warrants retired pursuant to Tocor II                                                                                         
   exchange offer (Note 13)                    -           -              (8,492)            -               -            -    
 Issued upon exercise of options and                                                                                           
   warrants or as stock grants             6,151          62              68,070             -               -            -    
 Issued to employee benefit plan              17           -                 208             -               -            -    
 Vested pursuant to                                                                                                            
   restricted stock award plan                87           1               1,492             -               -            -    
 Translation adjustments                       -           -                   -             -               -        1,324    
 Carrying value adjustments                    -           -                   -             -             635            -    
 Net loss                                      -           -                   -      (126,658)              -            -    
                                       ------------------------------------------------------------------------------------- 
 Balance at December 31, 1994             57,081         571             750,175      (751,707)              -        6,239    
                                                                                                                               
 Issued upon exercise of options and                                                                                          
   warrants or as stock grants             1,388          14              18,323             -               -            -    
 Issued to employee benefit plan              31           -                 511             -               -            -    
 Vested pursuant to                                                                                                            
   restricted stock award plan                38           -               1,059             -               -            -    
 Translation adjustments                       -           -                   -             -               -          209    
 Carrying value adjustments                    -           -                   -             -           2,342            -    
 Net loss                                      -           -                   -       (57,132)              -            -     
                                       ------------------------------------------------------------------------------------- 
 Balance at December 31, 1995                                                                                  
   (Note  20)                             58,538        $585            $770,068     ($808,839)         $2,342       $6,448     
                                       =====================================================================================    
</TABLE> 

 See accompanying Notes to Consolidated Financial Statements. 

                                       26
<PAGE>
 
                  Notes to Consolidated Financial Statements


Note 1
Description of Business

   Centocor is a biotechnology company that develops therapeutic and diagnostic
human health care products for cardiovascular, autoimmune and infectious
diseases and cancer. The Company concentrates on research and development,
manufacturing and market development, with a primary technological focus on
monoclonal antibodies, with additional programs in genetic vaccines and
peptides.

Note 2
Summary of Significant Accounting Policies

   Basis of Presentation
   ---------------------

   The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries and a 75% interest in a joint venture.

   Use of estimates
   ----------------

   The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

   Investments
   -----------

   The Company classifies investments with original maturities of three months
or less as cash equivalents. Investments with maturities of one year or less are
classified as short-term.

   Short-term marketable securities are carried at cost, which approximates
market value. Long-term debt securities which the Company has the ability and
intent to hold until maturity are carried at cost. The equity investments
classified as available for sale are carried at estimated fair value with
unrealized gains and losses recorded as a component of shareholders' equity.

   Inventory
   ---------

   Inventory is stated at the lower of cost or market value using the first-in,
first-out method for diagnostic product inventories and the average cost method
for pharmaceutical product inventories.

   Inventories have various expiration dates. Reserves are provided for
inventories which are likely to expire prior to sale or are likely to otherwise
not be available for sale.

   Fixed Assets and Depreciation
   -----------------------------

   Fixed assets are stated at cost. Depreciation is provided using the straight-
line method over the estimated useful lives of the assets, the depreciable lives
are as follows:

   Equipment and Furniture and Fixtures     3-5 years
   Land improvements                         10 years
   Leasehold improvements                    10 years
   Building and Building improvements      31.5 years

                                       27
<PAGE>
 
                  Notes to Consolidated Financial Statements

   Leasehold improvements are amortized over the applicable lease period or
their estimated useful lives, whichever is shorter. Maintenance and repairs are
charged to expense, and major renewals and improvements are capitalized.

   Intangible Assets
   -----------------
 
   Intangible assets are stated at cost, net of accumulated amortization.
Amortization is provided using the straight-line method over the estimated
useful lives of the assets, generally 10 to 20 years. Intangible assets at
December 31, 1995 and 1994 were $8,445,000 and $9,653,000, respectively, net of
accumulated amortization of $7,282,000 and $4,229,000 at December 31, 1995 and
1994, respectively. Licensing agreements, goodwill and other assets are reviewed
for impairment whenever events or circumstances provide evidence that suggest
that the carrying amount of the asset may not be recoverable. Impairment is
evaluated by using identified or expected cashflows.
 
   Revenue Recognition
   -------------------
 
   For contracts under which the Company is reimbursed for expenses, revenue is
recognized as the related expenses are incurred. Non-refundable fees or
milestone payments in connection with research and development or
commercialization agreements are recognized when they are earned in accordance
with the applicable performance requirements and contractual terms. Payments
received which are related to future performance are deferred and recognized as
revenue over the specified future performance periods.
 
   Sales revenues are recognized at the time the goods are shipped or when title
to the goods passes to the buyer.
 
   Income Taxes
   ------------
 
   The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company has a net operating loss carryforward for tax purposes that begins to
expire in 2005. Since realization of the tax benefit associated with this
carryforward is not assured, a valuation allowance was recorded against this tax
benefit. In addition, pursuant to the Tax Reform Act of 1986, the annual
utilization of these losses may be limited. The Company believes that any such
limitation will not have a material impact on the utilization of these
carryforwards.
 
   Per Share Data
   --------------
 
   Per share data are calculated using the weighted average number of
outstanding shares of Common Stock. Common Stock issuable upon the exercise of
stock options or warrants and upon the vesting of restricted stock awards are
included in the per share calculations only to the extent their inclusion would
have an aggregate dilutive effect. Common Stock issuable upon conversion of
convertible debt securities are included only in the fully diluted per share
calculations to the extent their inclusion would have a dilutive effect.
 
   Foreign Currency Translation
   ----------------------------
 
   Assets and liabilities of subsidiaries denominated in foreign currencies are
translated at rates in effect at the appropriate year-end. Revenues and expenses
of such subsidiaries are translated at average rates of exchange for the period
of operation. The differences resulting from such translation as compared to the
equity of such subsidiaries translated at historical rates are included in
cumulative foreign currency translation adjustments, a separate component of
shareholders' equity. The Company believes that the aggregate foreign currency
transaction gains/losses do not have a significant effect on its financial
statements.

                                       28
<PAGE>
 
                  Notes to Consolidated Financial Statements

   New Accounting Standards
   ------------------------

   In June 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets to be Disposed of ("Statement 121") which
requires companies to review long-lived assets and certain identifiable
intangibles to be held, used or disposed of, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company is required to adopt Statement 121 for 1996. The
Company believes the adoption of Statement 121 will not have a significant
effect on its financial statements.

   In October 1995, the FASB issued Statement of Financial Accounting Standards
No.123, Accounting for Stock-Based Compensation ("Statement 123"), which is
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Company is currently evaluating the requirements of Statement 123.

Note 3
Commitments and Contingencies

   Liquidity and Capital Resources
   -------------------------------
 
   The Company has incurred significant operating expenses attempting to develop
therapeutic and diagnostic products. The Company's product sales have not
produced sufficient revenues to cover the Company's operating costs.
Consequently, the Company has experienced substantial net cash outflows, which
have been only partially offset by significant contract revenues received
through collaborative alliances with pharmaceutical companies and the Company's
financing activities.
 
   The Company's future financial condition is highly dependent upon the
reduction of the Company's rate of net cash outflows and, ultimately, upon the
achievement of significant and sustained levels of therapeutic product sales.
For the year ended December 31, 1995, sales of the Company's products, including
ReoPro and Panorex, did not generate sufficient revenue to result in positive
cash flow for the year. Under the Company's strategy of entering into
collaborative alliances with established pharmaceutical companies, the Company
generally shares sales revenues from products covered by such arrangements with
its partners. There can be no assurance that those products, in conjunction with
the Company's therapeutic product candidates under development and diagnostic
products, will achieve a level of sales sufficient to generate positive cash
flow from operations for the Company, given the current and currently
anticipated future scope of the Company's operations. The level of future sales
of both diagnostic and therapeutic products will be dependent upon several
factors, including, but not limited to, the timing and extent of future
regulatory approvals of the Company's products, approval and commercialization
of competitive products and the degree of acceptance of the Company's products
in the marketplace. There can be no assurance that FDA or other regulatory
approvals expanding the authorized use of ReoPro and Panorex or permitting the
commercial sale of any of the Company's product candidates under development
will be obtained. Failure to obtain additional timely FDA or other regulatory
approvals for the use of ReoPro and Panorex or other product candidates will
have a material adverse effect on the Company.
 
   Until significant and sustained levels of therapeutic product sales are
achieved, the Company expects that it will need to secure significant additional
funding in the future from collaborative arrangements with pharmaceutical
companies or from the capital markets. There can be no assurance that sufficient
additional funding will be available to the Company or that the Company can
obtain additional collaborations with established pharmaceutical companies and
receive payments for product rights and/or the achievement of milestones under
such collaborative agreements. Even if the Company obtains such funding, there
can be no assurance that such funding will be sufficient to sustain the
Company's operations until it generates positive cash flows from operations.
 
   Legal Proceedings
   -----------------
 
   In October 1992, the Company was served with a complaint filed by Velos in
the U.S. District Court for the District of Maryland. The complaint primarily
alleged that the Company breached certain provisions of a license

                                       29
<PAGE>
 
Notes to Consolidated Financial Statements


agreement between Velos and the Company pursuant to which the Company has
exclusive rights to U.S. Patent No. 5,057,598, as well as various patent
application and foreign patents. The patents and applications include claims
relating to monoclonal antibodies used in treating manifestations of Gram-
negative bacterial infections, the targeted indication of HA-1A. The complaint
sought declaratory relief and monetary relief in excess of $100,000,000, and
requested that the Company place in escrow one-half of the amounts received by
the Company in 1992 pursuant to its agreements with Lilly. The complaint did not
seek to terminate or rescind any of the Company's rights under the license
agreement. The Company answered the complaint and asserted affirmative defenses
and counterclaims on January 7, 1993, but the counterclaims and certain
affirmative defenses were dismissed on June 22, 1993 with leave to replead. On
July 28, 1993, the Court permitted plaintiff to file an amended complaint that
updated some of the claims in the original complaint but otherwise reasserted
the basic factual allegations and, with one minor exception, relied upon the
same legal theories. On August 27, 1993, the Company filed its Answer,
Affirmative Defenses and Counterclaim for Damages and Equitable Relief, to the
amended complaint. In the Amended Answer, the Company again denied all of the
allegations made by Velos and stated certain affirmative defenses and
counterclaims against Velos with respect to the license agreement, based on
theories of (i) failure of consideration, (ii) fraud in the inducement and (iii)
unilateral mistake as to facts, which mistake was induced by the fraudulent
misrepresentation of Velos. On September 22, 1993, plaintiff moved to dismiss
the Company's counterclaims and to strike certain of the Company's affirmative
defenses. On February 6, 1995, the motion was denied. Discovery is in progress,
and trial is scheduled for November 1996. The Company has moved for partial
summary judgment with respect to the plaintiff's claim that under its license
agreement, Lilly is allegedly a sublicensee of Centocor, thereby purportedly
entitling plaintiff to a significant part of the funds paid by Lilly to
Centocor. The Company believes that the allegations of Velos are without merit
and intends to vigorously defend this suit and to pursue its counterclaim.

   On December 23, 1993, a purported class action captioned Peter Cordaro v.
Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden,
Centocor and Tocor II was filed in the Court of Common Pleas of Chester County,
Pennsylvania. The complaint alleges that the defendants breached their fiduciary
duties to Tocor II Unitholders by, among other things, making an offer to
exchange shares of the Company's Common Stock for Tocor II Units, recommending
acceptance of the exchange offer, and failing to maximize shareholder value. The
complaint sought, among other relief, an injunction against consummation of the
exchange offer, the establishment of a "truly independent" special committee and
the retention of a financial advisor to consider the exchange offer, and an
award of damages (including rescissionary damages), costs and plaintiff's
counsel fees. Plaintiff took no additional action to obtain an injunction and
the exchange offer was made and consummated. A motion for class certification is
pending. No trial date has been fixed. The Company believes that the allegations
set forth in the complaint are without merit and intends to vigorously defend
this suit.
 
   In July 1995, PaineWebber, a wholly-owned subsidiary of Paine Webber Group
Inc., caused suits to be filed against the Company by two research and
development partnerships formed in the mid-1980s by PaineWebber and managed by
it since then. The two PaineWebber partnerships (PaineWebber R&D Partners, L.P.
and PaineWebber R&D Partners II, L.P.) were, respectively, investors in CPII and
CPIII, research partnerships for which PaineWebber acted as the sales agent and
in other capacities. The Company purchased the limited partners' interests in
CPII in February 1992 and that partnership was then dissolved. The suit by
PaineWebber R&D Partners, L.P., was filed in the Supreme Court of the State of
New York, County of New York, and purports to be a class action on behalf of all
former limited partners of CPII. The complaint charges that some portion of the
$100 million paid by Lilly to the Company in July 1992 constituted revenues to
the Company for the licensing, sublicensing or sale of HA-1A and that the
Company is obligated to pay a percentage thereof to the former limited partners
of CPII, in addition to amounts already paid. The theories of recovery are
similar to those asserted by Velos in 1992, as described above. The Company has
moved to dismiss the New York suit on the ground that it was brought in an
inconvenient forum. The suit by PaineWebber R&D II, L.P., was filed in the Court
of Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and CDC III, a wholly owned subsidiary of the
Company which acts as the general partner of CPIII are named as defendants
against whom relief is sought. The claim in this case is that at least $25
million of the money paid by Lilly to the Company in 1992 represented profits
from the marketing of ReoPro, obligating the Company to pay a portion thereof to
CPIII, and that the Company is obligated to pay an

                                       30
<PAGE>
 
                  Notes to Consolidated Financial Statements

increased percentage of the profits from ReoPro to CPIII going forward. The
Company answered the complaint in the Delaware action and filed a cross-claim
against nominal defendant CPIII and a third-party complaint against PaineWebber
Group Inc. and PaineWebber. On November 1, 1995, an additional suit was
commenced in the Delaware Court of Chancery by John E. Abdo, a limited partner
of CPIII, against the Company, CDC III and certain of their officers and
directors. The complaint, filed derivatively on behalf of CPIII, asserts claims,
inter alia, for breach of contract, breach of fiduciary duty, common law fraud,
and conspiracy and aiding and abetting. The Company answered this complaint and
also filed a cross-claim against nominal defendant CPIII and a third party
complaint against PaineWebber Group Inc. and PaineWebber. The two Delaware suits
have been consolidated and discovery is proceeding. No trial date has been
fixed. In addition, on February 13, 1996, an additional suit was filed in the
Court of Common Pleas for Chester County for the Commonwealth of Pennsylvania by
an alleged former limited partner in CPII, against the Company, Lilly and an
officer and a director of the Company. The complaint purports to be a class
action on behalf of all former limited partners of CPII and asserts claims of
breach of contract, breach of fiduciary duty and breach of duty of good faith
and fair dealing and states theories of recovery similar to those asserted by
PaineWebber R&D Partners, L.P., as described above. The Company believes that
the allegations of the plaintiffs in these suits are without merit and intends
to vigorously defend them.
 
    While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.
 
   Partnerships
   ------------
 
   Centocor has an exclusive option to purchase the limited partnership
interests in CPIII. Centocor's option to purchase the limited partnership
interests in CPIII is exercisable upon the earlier of (a) each limited partner
having received distributions related to sales of the CPIII products equal to
15% of the total capital contributions of such limited partner (approximately
$7,926,000 in the aggregate) and the expiration of at least 24 months after the
first commercial sale of a CPIII product or (b) the expiration of at least 48
months after the first commercial sale of a CPIII product; but, in any event,
not prior to the expiration of the then applicable long-term capital gains
holding period after the expenditure by the Company of all funds paid to it
pursuant to the Development Agreement with CPIII. Centocor commenced commercial
sales of ReoPro in January 1995 and, as of December 31, 1995, the limited
partners of CPIII had received cumulative distributions of approximately
$1,796,000. If the Company elects to exercise this option, the Company must make
an advance payment of approximately $13,598,000 in cash or, at the Company's
election, approximately $15,229,000 in shares of the Company's Common Stock, and
future payments generally of six percent of sales of products developed by
CPIII. If Centocor does not exercise this option, it will have no rights to the
technology or products developed on behalf of CPIII, including ReoPro.
 
   The Company has entered into indemnity agreements with CPIII and the former
limited partners of CCIP and CPII pursuant to which the Company would be
obligated, under certain circumstances, to compensate these parties for the fair
market value of their respective interests under any license agreements with the
Company relating to their respective products which are lost through the
exercise by the United States Government of any of its rights relating to the
licensed technology. The amount of any such loss would be determined annually by
independent appraisal.
 
   Royalties
   ---------
 
   The Company is required to make certain future payments to the former limited
partners of CCIP and CPII based on sales of products developed by each of the
respective partnerships. Upon any exercise by the Company of its option to
acquire the limited partnership interests in CPIII, the Company would be
required to make future payments to the former limited partners of CPIII,
including payments based on any sales of ReoPro. Beginning in 1997, the Company
is required to make certain royalty payments to Lilly up to a designated level
of sales of ReoPro.
 
   The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses and/or
options to license certain technology resulting from the

                                       31
<PAGE>
 
                  Notes to Consolidated Financial Statements

research, generally require the Company to pay royalties to such institutions on
the sales of any products that utilize the licensed technology. Further, the
Company has licenses under certain patents, patent applications and technology
and pays the licensors or their licensees royalties under such agreements.
                             
   All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
 
   Product Liability
   -----------------
 
   The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage. Centocor's business may be materially adversely affected by a
successful product liability claim in excess of any insurance coverage. There
can be no assurance that product liability insurance coverage will continue to
be available to Centocor in the future on reasonable terms or at all.

Note 4
Collaborative Arrangements

Relationship with Eli Lilly and Company
---------------------------------------

   In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement. Under that Agreement, Centocor is principally responsible for
developing and manufacturing ReoPro, and Lilly will assist Centocor in the
regulatory filings and continued development of ReoPro for various clinical
indications. Also, in the event Centocor cannot manufacture ReoPro or under
certain other circumstances, such as material breach of the agreement by or the
bankruptcy of Centocor, Lilly has the option to assume the manufacture of ReoPro
and assure the continued supply of the product, even to the extent of acquiring
Centocor's related manufacturing assets at their independently appraised values.

Relationship with Glaxo Wellcome plc
------------------------------------

   In November 1993, Centocor and Glaxo Wellcome entered into an alliance
agreement for the development and marketing of certain of Centocor's monoclonal
antibody-based cancer therapeutic products, including Panorex. In November 1994,
Centocor and Glaxo Wellcome amended their alliance agreement and Glaxo Wellcome
became the exclusive worldwide distributor for Panorex. Under the agreement,
Glaxo Wellcome is responsible principally for the continuing clinical
development of Panorex, and Centocor is responsible principally for
manufacturing Panorex and securing regulatory approvals.

                                       32
<PAGE>
 
                  Notes to Consolidated Financial Statements


Note 5
Cash Equivalents and Investments

   The Company's equity investments classified as available for sale are carried
at estimated fair value with unrealized gains and losses recorded as a component
of shareholders' equity. The Company's other investments which the Company has
the ability and intent to hold to maturity are carried at amortized cost.

   At December 31, 1995, securities classified as available for sale and held to
maturity are summarized below (in thousands).

<TABLE> 
<CAPTION> 
                                        
                                                       Estimated 
                                        Adjusted       Unrealized     Carrying
                                            Cost    Gains    (Losses)    Value
                                            ----    -----    --------    -----
<S>                                     <C>       <C>        <C>      <C> 
Investments available for sale:
Equity securities                       $  3,427  $ 2,342       $   -  $ 5,769
                                         =======   ======        ====   ======
<CAPTION> 

                                                                 
                                                      Estimated  
                                        Carrying      Unrealized          Fair
                                           Value    Gains    (Losses)    Value
                                           -----    -----    --------    -----
<S>                                     <C>         <C>      <C>       <C> 
Investments held to maturity:
    Securities and obligations of
      the U.S. Treasury and other
      U.S. government agencies          $ 70,622     $148    $ (2)     $70,768
    Certificates of deposit               32,801        -        -      32,801
    Corporate bonds and
      commercial paper                    24,260       62      (1)      24,321
                                          ------       --        -      ------
                                        $127,683     $210    $ (3)    $127,890
                                         =======      ===      ===     =======
 
    At December 31, 1995, these securities were classified as follows (in
    thousands):
<CAPTION> 
 
    <S>                                 <C>  
    Cash equivalents                    $ 12,248
    Short-term investments               115,435
    Long-term investments                  5,769
                                           -----
                                        $133,452
                                         =======
</TABLE>

   The Company has agreed to maintain investments with fair values of
$27,500,000 as of December 31, 1995 at certain banks as collateral for loans
from those banks. See Note 9.

                                       33
<PAGE>
 
                  Notes to Consolidated Financial Statements

          At December 31, 1994, securities classified as available for sale and
held to maturity are summarized below (in thousands).

<TABLE> 
<CAPTION>                                                                   
                                                      Estimated       
                                     Adjusted         Unrealized      Carrying
                                         Cost     Gains    (Losses)      Value
                                         ----     -----    --------      -----
<S>                                  <C>       <C>         <C>        <C> 
Investments available for sale:                                                
    Equity securities                 $ 2,919  $      -    $      -    $ 2,919 
                                       ======   =======     =======     ====== 
<CAPTION> 
                                                      Estimated       
                                     Carrying         Unrealized      Carrying
                                        Value     Gains    (Losses)      Value
                                        -----     -----    --------      -----
<S>                                  <C>        <C>        <C>        <C> 
Investments held to maturity:                                         
    Securities and obligations of                                     
      the U.S. Treasury and other                                     
      U.S. government agencies        $59,485   $     3    $   (242)   $59,246
    Certificates of deposit            28,812         -           -     28,812
    Corporate bonds and                                               
      commercial paper                 28,151        12        (112)    28,051
                                       ------    ------     -------     ------
                                     $116,448   $    15    $   (354)  $116,109
                                      =======    ======     =======    =======
</TABLE>

    At December 31, 1994, these securities were classified as follows 
    (in thousands):

<TABLE>
    <S>                       <C>
    Cash equivalents          $ 13,785
    Short-term investments     102,663
    Long-term investments        2,919
                              --------
                              $119,367
                              ========
</TABLE>

Note 6
Inventory

       Inventory consists of the following (in thousands):

<TABLE>
<CAPTION>
       December 31,          1995     1994
                             ----     ---- 
<S>                       <C>      <C>
 
       Raw materials       $4,965  $ 3,564
       Work in process      9,382    8,973
       Finished goods       6,436    4,145
                           ------  -------
                          $20,783  $16,682
                          =======  =======
</TABLE>

          Inventories have various expiration dates.  The Company continually
evaluates the extent of inventory reserves considered necessary based upon the
future regulatory and commercial status of such products.  There can be no
assurance that reserves for inventories will not be required in the future.
 

                                       34
<PAGE>
 
                  Notes to Consolidated Financial Statements

Note 7
Intangibles and Other Assets

    Intangibles and other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
 
    December 31,                    1995     1994
                                    ----     ----
    <S>                             <C>      <C>
 
    Licenses                     $ 4,126  $ 3,517
    Goodwill                       5,502    5,847
    Debt issuance costs            3,854    4,566
    Other                          3,927    4,069
                                 -------  -------
                                 $17,409  $17,999
                                 =======  =======
</TABLE>

          Licensing agreements, goodwill and other assets are reviewed for
impairment whenever events or circumstances provide evidence that suggest that
the carrying amount of the asset may not be recoverable.  Impairment is
evaluated by using identified or expected cashflows.

Note 8
Accrued Expenses

    Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
 
    December 31,                 1995     1994
                                 ----     ----
    <S>                       <C>      <C>
 
    Compensation              $ 3,191  $ 2,621
    Interest                    5,473    6,681
    Research                    4,942    3,790
    Other                      12,533   13,286
                              -------  -------
                              $26,139  $26,378
                              =======  =======
</TABLE>
                              
Note 9
Debt
 
    Note Payable

    Note payable at December 31, 1995 and 1994 consists of $7,500,000 and
$6,897,000, respectively, of borrowings under short-term notes at an interest
rate of 5.26 percent per annum at December 31, 1995, payable in Dutch guilders
no later than March 28, 1996. These borrowings are secured by investments at the
lending bank of $7,500,000 (see "Loan Covenants").
 
    Long-term debt
 
    Long-term debt consists of the following (in thousands):
 
<TABLE> 
<CAPTION> 
    December 31,                                 1995       1994
                                                 ----       ----
    <S>                                      <C>        <C> 
    7 1/4% Convertible Notes                 $106,640   $106,640
    6 3/4% Convertible Debentures             125,000    125,000
    Mortgage Debt                               9,101     15,941
    Long-term Note                              9,188     10,241
                                             --------   --------
                                              249,929    257,822
 Current Portion                              (18,289)   (26,182)
                                             --------   --------
                                             $231,640   $231,640
                                             ========   ========
</TABLE> 

                                       35
<PAGE>
 
                  Notes to Consolidated Financial Statements

          7 1/4% Convertible Notes
 
          On January 28, 1991, the Company issued $106,645,000 principal amount
of 7 1/4% Convertible Notes due February 1, 2001. The 7 1/4% Convertible Notes
are convertible by the holders into approximately 3,843,000 shares of the
Company's Common Stock at a conversion price of $27.75 per share at any time
prior to redemption or maturity. The 7 1/4% Convertible Notes are subordinated
in right of payment to senior indebtedness at December 31, 1995 of $25,789,000
and all future senior indebtedness of the Company, and rank pari passu with the
6 3/4% Convertible Debentures described below. The 7 1/4% Convertible Notes are
redeemable by the Company for cash in whole or in part until February 1, 2001 at
amounts ranging up to 105 percent of the principal amount of the 7 1/4%
Convertible Notes. The Company may be required to redeem the 7 1/4% Convertible
Notes at their principal amount at the option of the holders of the 7 1/4%
Convertible Notes in certain limited circumstances, including a change in
control of the Company. See Note 20.
 
          6 3/4% Convertible Debentures
 
          On October 16, 1991, the Company issued $125,000,000 principal amount
of 6 3/4% Convertible Debentures due October 16, 2001. The 6 3/4% Convertible
Debentures are convertible by the holders into approximately 2,049,000 shares of
the Company's Common Stock at a conversion price of $61.00 per share at any time
prior to redemption or maturity. The 6 3/4% Convertible Debentures are
subordinated in right of payment to senior indebtedness at December 31, 1995 of
$25,789,000 and all future senior indebtedness of the Company, and rank pari
passu with the 7 1/4% Convertible Notes. The 6 3/4% Convertible Debentures are
redeemable by the Company for cash in whole or in part until October 16, 2001 at
amounts ranging up to 104 percent of the principal amount of the 6 3/4%
Convertible Debentures. The Company may be required to redeem the 6 3/4%
Convertible Debentures at their principal amount at the option of the holders of
the 6 3/4% Convertible Debentures in certain limited circumstances, including a
change in control of the Company.
 
          Mortgage Debt
 
          Mortgage loans have been used to finance a portion of the acquisition
and expansion of certain of the Company's facilities in the United States and
The Netherlands. These loans are generally secured by the related land and
buildings. In the United States, the Company repaid such a loan on its maturity
date of May 1, 1995 in the amount of $6,442,000. A Netherlands loan, with an
outstanding balance of approximately $6,125,000 at December 31, 1995, is payable
in Dutch guilders and bears interest at an annual rate of 8 1/4% percent through
its final maturity date of September 30, 2011. At December 31, 1995 and 1994
these loans are classified as short-term debt (see "Loan Covenants").

          Long-term Note

          The Company borrowed $9,188,000 under a 9 1/2% percent long-term note
which is payable in Dutch guilders. At December 31, 1995 and 1994, this loan is
classified as short-term (see "Loan Covenants").

          Loan Covenants

          Agreements covering $18,289,000 of the Company's outstanding debt
balances contain certain financial and non-financial covenants, including the
maintenance of minimum equity and cash balances and compliance with certain
financial ratios. The Company is currently not in compliance with certain of
these covenants; however, the Company has obtained waivers of such covenants on
the condition that it maintains certain investments at the lending bank, which
at December 31, 1995 totalled $20,000,000. The Company has classified the
$18,289,000 of debt as short-term. Additionally, $7,500,000 of the Company's
short-term debt is secured by investments at the lending bank of $7,500,000. If
cash flows continue to be negative, the Company's ability to service its debt
may be impaired.

                                       36
<PAGE>
 
                  Notes to Consolidated Financial Statements

          Other

          Scheduled repayments on the mortgage debt and long-term note pursuant
to the terms of the related loan agreements are as follows:

<TABLE>
<CAPTION>
          Year ending December 31,
          <S>                        <C>
                                  
                 1996                $2,692,000
                 1997                 2,809,000
                 1998                 2,814,000
                 1999                 2,818,000
                 2000                 2,261,000
                 Thereafter           4,895,000
</TABLE>

          The fair value of the Company's long-term debt at December 31, 1995,
principally determined by quoted market prices, was $241,419,000 as compared to
its carrying value of $231,640,000. The carrying amount of the Company's debt
classified as short-term at December 31, 1995 approximates its fair value.

Note 10
Shareholders' Equity

          Capital Stock

          In 1995 the Company issued 1,388,000 shares of its Common Stock par
value $.01 per share ("Common Stock") in connection with the exercise of options
and warrants. In 1994, the Company issued 7,014,000 shares of its Common Stock
pursuant to the terms of an exchange offer as described in Note 13, 6,151,000
shares of its Common Stock in connection with the exercise of options and
warrants and 140,000 shares pursuant to the terms of the extension of the
alliance agreement with Glaxo Wellcome. In 1993, the Company issued 2,000,000
shares of its Common Stock pursuant to the terms of an agreement with Glaxo
Wellcome. At December 31, 1995, approximately 14,571,000 shares of Common Stock
were reserved for issuance upon exercise of warrants and stock options, pursuant
to employee retirement savings and stock award plans and agreements, and upon
conversion of convertible debt securities. Additionally, at December 31, 1995,
approximately 365,000 shares of preferred stock were reserved for issuance under
a shareholder rights plan which is further described below. See Note 20.

          Warrants

          At December 31, 1995, warrants to purchase approximately 700,000
shares of the Company's Common Stock were outstanding. The specific exercise
prices per share and exercise periods of such warrants are set forth below (in
thousands except per share amounts):

<TABLE> 
<CAPTION> 
Shares Issuable
Upon Exercise             Exercise Period                  Exercise Price Per Share
---------------           ---------------                  ------------------------
<S>              <C>                                       <C>  
                                                                
     446         Through February 28, 1996                          $13.33
     127         January 1, 1996 through December 31, 1996          $64.50
     127         January 1, 1996 through December 31, 1997          $49.75
</TABLE>

                                       37
<PAGE>
 
                  Notes to Consolidated Financial Statements

Stock Option and Restricted Stock Award Plans

          The Company maintains stock option plans pursuant to which options to
purchase a total of approximately 9,050,000 shares of its Common Stock have been
authorized for grant to the Company's employees and to its non-employee
directors. Under the terms of these plans, the option exercise price may not be
less than the fair market value of the underlying stock at the time the option
is granted. The options granted under these plans generally expire upon the
earlier of the termination of the optionee's employment or service or ten years
from the date of the grant. Additionally, non-qualified stock options have been
granted to certain directors and employees of, and certain consultants to, the
Company pursuant to non-qualified stock option agreements with terms similar to
those set forth in the plans. The following table summarizes the activity with
respect to the Company's stock options (in thousands except per share amounts):

<TABLE> 
<CAPTION> 
For the Years ended December 31,
                          1995                     1994                     1993
                  Options  Exercise Price  Options  Exercise Price  Options  Exercise Price
<S>               <C>      <C>             <C>      <C>             <C>      <C>
Outstanding,   
beginning  
of year            4,958    $6.500-53.50    5,770    $6.50-53.50      5,948    $7.38-56.00
Granted              713    $9.875-24.00      726    $9.13-17.94      2,681    $6.50-14.13
Exercised           (678)   $6.875-31.75     (685)   $6.88-16.00       (304)   $7.38-12.00
Canceled            (336)   $6.500-53.50     (853)   $6.88-51.75     (2,555)   $6.88-56.00
                   -----    ------------    -----    -----------     ------    -----------
Outstanding,
end of year        4,657    $6.875-51.75    4,958    $6.50-53.50      5,770    $6.50-53.50
                   =====    ============    =====    ===========     ======    =========== 
</TABLE> 

          During 1993, a substantial number of outstanding options were canceled
in exchange for the grant of fewer options with an exercise price equal to the
fair market value at date of grant of $7.125 per share. At December 31, 1995,
options to purchase a total of approximately 2,887,000 shares of Common Stock
were exercisable, and approximately 1,770,000 options become exercisable as
follows (in thousands):
 
          Years ending December 31,   Shares
          -------------------------   ------
 
          1996                           554
          1997                           712
          1998                           312
          1999                           152
          2000                            40
 
          The Company maintains a Restricted Common Stock Award Plan, pursuant
to which a total of approximately 2,000,000 shares of the Company's Common Stock
have been authorized for award to eligible employees. The number of shares
awarded in each year and the terms under which such shares vest are determined
by the Board of Directors at the time of the award. Generally, a portion of the
shares awarded vests annually over a period of five years from the date of the
award. As of December 31, 1995, awards of approximately 255,000 shares of the
Company's Common Stock were outstanding and are scheduled to vest in the
following periods (in thousands):
 
          Years ending December 31,   Shares
          -------------------------   ------
 
          1996                            87
          1997                            70
          1998                            64
          1999                            34
 
 

                                       38
<PAGE>
 
                  Notes to Consolidated Financial Statements


          The terms of options unexercisable as of December 31, 1995 for an
aggregate of approximately 1,178,000 shares and restricted stock awards unvested
as of December 31, 1995 for an aggregate of approximately 187,000 shares provide
for the acceleration of the exercisability of such options and the vesting of
such restricted stock awards upon the occurrence of certain events constituting
a change in control of the Company. Further, in such event, the holders of
approximately 2,747,000 options may then choose to receive cash through the
exercise of a limited stock appreciation right in lieu of exercising their
options.
 
Qualified Savings and Retirement Plan
 
          The Company maintains a Qualified Savings and Retirement Plan for the
benefit of its employees. Employees' benefits are based solely on the employees'
discretionary contributions and the Company's discretionary matching
contributions, which the Company generally makes in its Common Stock. Employee
contributions to the Plan may be invested in various instruments, including the
Company's Common Stock, at the discretion of the employee.
 
Shareholder Rights Plan
 
          The Company maintains a Shareholder Rights Plan ("Rights Plan"). Under
the Rights Plan, each common shareholder receives one-half of one Right (a
"Right") for each share of Common Stock held. Each Right entitles the holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Stock at an exercise price of $170. The Rights will become exercisable and will
detach from the Common Stock in the event any individual or group acquires 20
percent or more of the Common Stock, or announces a tender or exchange offer
which, if consummated, would result in the ownership by that person or group of
at least 30 percent of the Common Stock.
 
          If, following an acquisition of 20 percent or more of the Common
Stock, the Company is acquired by any person in a merger or other business
combination transaction or sells more than 50 percent of its assets or earning
power to any person, each Right will entitle the holder to purchase, for the
exercise price, common stock of the acquiring company with a value of twice the
exercise price. In addition, if any person acquires 30 percent or more of the
Common Stock, each Right will entitle the holder, other than an acquiring
person, to purchase Common Stock of the Company with a value of twice the
exercise price. The Rights also provide for protection against self-dealing
transactions by a 20 percent shareholder.

          The Company may redeem the Rights at $.02 per Right at any time until
the tenth day after the acquisition by a person or group beneficially owning 20
percent or more of its Common Stock. The Rights will expire on September 26,
1998 unless earlier redeemed.

                                       39
<PAGE>
 
                  Notes to Consolidated Financial Statements

Note 11
Geographic and Customer Information

                     Geographic Information (in thousands)
<TABLE>
<CAPTION>
 
                                              Income   Identifiable
Years ended December 31,     Revenue          (Loss)         assets
       <S>                   <C>          <C>          <C>
       1995
       United States         $35,272      $ (61,208)       $160,094
       Europe                 43,466          4,076         100,190
       Other                     178              -               -
                             -------      ---------        --------
                             $78,916      $ (57,132)       $260,284
                             =======      =========        ========
                                                       
       1994                                            
       United States         $59,294      $(112,266)       $233,208
       Europe                  7,932        (14,392)         72,707
                             -------      ---------        --------
                             $67,226      $(126,658)       $305,915
                             =======      =========        ========
                                                       
       1993                                            
       United States         $66,655      $ (72,601)       $211,411
       Europe                  9,275         (1,778)         69,628
                             -------      ---------        --------
                             $75,930      $ (74,379)       $281,039
                             =======      =========        ========
</TABLE>
          Customer Information

          During 1995, approximately 50% of the Company's total product sales
were to three customers, as follows: 24% to Lilly, 11% to Glaxo Wellcome and 15%
to Toray-Fuji Bionics, Inc.. During 1994, approximately 60% of the Company's
total product sales were to four customers, as follows: 10% to Abbott
Laboratories, 12% to Boehringer Mannheim GmbH, 13% to CIS bio International and
25% Toray-Fuji Bionics, Inc..

Note 12
Contract Revenues

          Lilly Related

          Pursuant to the Company's agreements with Lilly, the Company
recognized revenues of $10,000,000, $9,500,000 and $5,000,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, related to the achievement
of ReoPro milestones.

          Glaxo Wellcome Related

          Pursuant to the Company's agreements with Glaxo Wellcome, the Company
recognized revenues of $14,000,000 and $10,000,000 for the years ended December
31, 1994 and 1993, respectively, principally related to the reimbursement of
prior expenses and achievement of milestones associated with Panorex. Glaxo
Wellcome may make certain future payments to the Company based on the
achievement of certain milestones related to Panorex.

          Related Party Research & Development

          During 1994 and 1993, the Company conducted research and development
under a contract with Tocor II. Under the contract, the Company received
reimbursement of its costs plus a management fee. Such revenues were
 

                                       40
<PAGE>
 
                  Notes to Consolidated Financial Statements

recorded net of amortization of deferred costs resulting from the issuance of
warrants to Tocor II Unitholders. See Note 13 for a discussion of an exchange
offer which resulted in the termination of the research and development contract
and services agreement.

          For the years ended December 31, 1994 and 1993, revenues related to
the Tocor II research program were $1,652,000 and $10,109,000 respectively.
Expenses incurred, including general and administrative expenses for the years
ended December 31, 1994 and 1993 were $1,915,000 and $11,741,000 respectively.

          Additionally, the Company incurred expenses of $29,900,000,
$22,850,000, and $19,389,000, for the years ended December 31, 1995, 1994 and
1993, respectively, representing aggregate CPIII research costs funded by the
Company in order to continue the progress of the research program and to
preserve the value of its purchase option. See Note 3.

          Other

          The Company has entered into various commercialization agreements
under which it has recognized revenues from non-refundable fees or milestone
payments in support of its research and development efforts. Revenues recorded
under these agreements amounted to $3,915,000, $2,090,000, and $2,750,000, for
the years ended December 31, 1995, 1994 and 1993, respectively.

Note 13
Charge for Acquired Research and Development
 
          In February 1994, the Company initiated the exchange offer pursuant to
which the Company offered to exchange 3.2 shares of its Common Stock for each of
the 2,250,000 outstanding Tocor II Units tendered. Each Unit consisted of one
share of callable common stock of Tocor II, one callable warrant to purchase one
share of Centocor Common Stock and one Series T warrant to purchase one share of
Centocor Common Stock (the "Warrants"). The exchange offer expired at the close
of business on March 11, 1994, at which time the Company accepted all of the 94
percent of the Tocor II Units tendered in exchange for approximately 6,793,000
shares of its Common Stock, thereby increasing shareholders equity by
$81,607,000. The transaction was accounted for as a purchase and the Company
allocated the excess of the consideration paid over the net assets of Tocor II
to the value of the acquired research and development. The Company recorded a
charge to earnings in the first quarter of 1994 of $36,966,000 representing
principally the cost allocated to the acquired research and development. In
connection with the transaction, the Company acquired $50,124,000 of cash and
short-term investments and warrants with a value of $8,492,000 which were
retired. The unaudited comparative statement of operations data excluding the
charge for acquired research and development, assuming the exchange offer was
consummated as of January 1, 1993, would have been as follows (in thousands
except per share amounts):
<TABLE> 
<CAPTION>  
          Statements of           For the twelve months ended December 31,
          Operations Data               1994                  1993
          ---------------               ----                  ---- 
          <S>                       <C>                   <C> 
          Revenues                  $ 65,574              $ 65,821
          Loss                      $(90,963)             $(83,143)
          Loss per share            $  (1.78)             $  (1.72)
 
</TABLE>

          Effective March 30, 1994, each remaining share of Tocor II callable
Common Stock ("Tocor II Shares") was converted into 2.88 shares of the Company's
Common Stock through a merger of Tocor II into a wholly-owned subsidiary of the
Company. Pursuant to the terms of the merger, holders of Tocor II Shares at the
time of the merger were required to surrender the certificates representing
Tocor II Shares to an exchange agent in exchange for certificates representing
Common Stock of the Company. Through December 31, 1995, stock certificates
representing 222,000 shares of the Company's Common Stock had been delivered by
the exchange agent in connection with the merger. If all of the remaining Tocor
II Shares are surrendered to the exchange agent, stock

                                       41
<PAGE>
 
                  Notes to Consolidated Financial Statements

certificates representing an additional 145,000 shares of the Company's Common
Stock will be delivered. Shares of the Company's Common Stock into which the
Tocor II Shares were converted by the merger are not classified as issued and
outstanding until the delivery by the exchange agent of the stock certificate
representing such shares. Warrants not tendered as part of Units in the exchange
offer remain outstanding.

Note 14
Other Income (Expenses)

          The Company recorded a charge to earnings of $3,750,000 and $1,275,000
for the years ended December 31, 1995 and December 31, 1994, respectively, in
connection with the settlement of certain litigation. During 1994 and 1993,
respectively, the Company recorded a charge to earnings of $3,649,000 and
$2,477,000 representing an unrealized loss due to the other than temporary
decline in the market value of marketable equity investments below the Company's
cost for such investments. Other income (expenses) also includes the Company's
equity share of the gain and/or losses of an investee company.

Note 15
Income Taxes

          The components of the deferred tax assets are as follows as of
December 31, 1995 and 1994 (in thousands):

<TABLE>
<CAPTION>
                                              1995           1994
                                              ----           ----
          <S>                            <C>            <C>
          Tax credits                    $   5,424      $   5,424
          Loss carryforwards               229,855        199,375
          Acquired research                 30,357         35,215
          Facilities and equipment           2,326          2,443
          Depreciation                         977            819
          Investments                        1,553          2,947
                                         ---------      ---------
          Total                            270,492        246,223
          Valuation reserve               (270,492)      (246,223)
                                         ---------      ---------
          Net deferred tax assets        $       -      $       -
                                         =========      =========
</TABLE>                                

          The Company recorded a charge for acquired research and development of
$36,966,000 in 1994, which was not deductible for U.S. tax purposes.
Additionally, at December 31, 1995, the Company had research and development tax
credits and other tax credits of $5,043,000 substantially all with expiration
dates ranging from 1999 to 2008, and minimum tax credits of $381,000 which do
not expire.

          Realization of net deferred tax assets related to these items is
dependent on future earnings, which are uncertain. Accordingly, a valuation
reserve was recorded by the Company and, therefore, the Company had no net
deferred tax assets at December 31, 1995.

          Of the $270 million valuation allowance at December 31, 1995, $7.6
million relating to deductions for non-qualified stock options will be credited
to paid in capital if realized. At December 31, 1995 there were unused foreign
tax subsidies that may be used to offset foreign taxable income of approximately
$30 million. The Company had net operating loss carryforwards available in the
United States for federal income tax purposes of approximately $590 million
which will begin to expire at various dates from the year 2005 to 2010. Net
operating loss carryforwards may be also be subject to various annual and other
limitations on the amounts to be utilized.

                                       42
<PAGE>
 
                  Notes to Consolidated Financial Statements

Note 16
Leases

          The Company is lessee under various non-cancelable operating leases,
covering certain of the Company's facilities and equipment. The facility leases
generally provide for the Company to pay all taxes and operating costs
associated with the facility.

          The aggregate minimum rental commitments of leases are as follows:
<TABLE>
<CAPTION>
          Years ending December 31,
          <S>                                 <C>
                 1996                         $2,709,000
                 1997                          2,337,000
                 1998                          1,782,000
                 1999                          1,470,000
                 2000                            777,000
                 Thereafter                    4,078,000
</TABLE>

          Rent expense was $3,308,000, $3,189,000, and $5,428,000, for the years
ended December 31, 1995, 1994, and 1993, respectively.

Note 17
Supplemental Information on Cash Flows

          Interest paid was $18,358,000, $19,192,000, and $19,421,000, in 1995,
1994, and 1993, respectively.

          During 1994, the Company issued 7,014,000 shares of Common Stock,
resulting in a noncash increase to additional paid-in capital of $25,643,000 and
acquired cash and short-term investments of $50,124,000 in connection with an
exchange offer more fully described in Note 13.

                                       43
<PAGE>
 
                  Notes to Consolidated Financial Statements 

Note 18
Quarterly Financial Data (unaudited)


                     (In thousands except per share data)
<TABLE> 
<CAPTION> 
                                             Three Months Ended 
                                  March 31    June 30   September 30  December 31
<S>                               <C>         <C>       <C>           <C>
1995
     Total revenues                $23,995    $ 20,754    $ 19,155     $ 15,012
     Sales                          19,319      17,754      15,860       12,068
     Gross profit from sales        10,694       9,683       8,589        6,869
     Net loss (1) and (2)           (8,242)    (17,309)    (12,155)     (19,426)
     Net loss per share            $  (.14)   $   (.30)   $   (.21)    $   (.33)

<CAPTION> 
                                              Three Months Ended  
                                  March 31    June 30   September 30  December 31
<S>                               <C>         <C>       <C>           <C>
1994
     Total revenues               $ 15,273    $ 16,384    $ 12,927     $ 22,642
     Sales                           9,829      12,114       9,319        8,722
     Gross profit from sales         6,199       7,643       5,667        4,491
     Net loss (3) and (4)          (50,637)    (15,418)    (17,579)     (43,024)
     Net loss per share           $  (1.13)   $   (.30)   $   (.34)    $   (.83)
 
</TABLE> 
 
(1)  During the second quarter of 1995, the Company recorded a reserve of
     $3,750,000 relating to the settlement of litigation.
(2)  During the fourth quarter of 1995, the Company recorded restructuring
     charges of $1,642,000 relating to severance costs.
(3)  During the first quarter of 1994, the Company recorded a charge for
     acquired research and development of $36,966,000 in connection with the
     exchange offer as discussed in Note 13.
(4)  During the fourth quarter of 1994, the Company recorded a charge of
     $17,098,000 representing a royalty buyout related to ReoPro. Additionally,
     the Company recorded charges of $7,870,000 in connection with the writedown
     of certain facilities and equipment, and $1,275,000 in connection with the
     settlement of certain litigation. See Note 19. 

Note 19
Other Charges

          In 1995, the Company recorded a charge of $1,642,000 representing
severance costs in connection with the downsizing of its workforce. In 1994, the
Company elected to buyout a future royalty obligation and, as a result, recorded
a charge of $17,098,000 representing such buyout. Additionally in 1994, the
Company recorded a charge of $7,870,000 in connection with the write-down of
certain facilities and equipment. In 1993, the Company recorded restructuring
charges of $9,387,000 consisting principally of severance related costs incurred
in connection with the downsizing of its work force, and reserves for certain
fixed assets which are no longer used or have been subsequently disposed. At the
Company's present level of operations, the Company currently maintains idle
facilities and equipment. The Company continually evaluates the future needs for
its facilities and equipment. There can be no assurance that reserves to further
reduce the carrying value of certain fixed assets, other royalty buyout
arrangements, or other charges will not be required in the future.

          Also in 1993, the Company recorded charges related to HA-1A inventory
of $3,500,000. The Company continually evaluates the extent of inventory
reserves considered necessary based upon the future regulatory and

                                       44
<PAGE>
 
                  Notes to Consolidated Financial Statements

commercial status of such products. There can be no assurance that reserves for
inventories will not be required in the future.

Note 20
Subsequent Event

          In March 1996, the Company completed a public offering for 3,500,000
shares of the Company's Common Stock, par value $.01 per share, and an
additional 525,000 shares to cover over-allotments at $33.00 per share. The net
proceeds to the Company from the offering are estimated to be approximately
$126.2 million after deducting underwriting discounts and commissions paid by
the Company.

          The Company also called for redemption the 7 1/4% Convertible
Notes at a redemption price of 103.222% of the outstanding principal amount. At
December 31, 1995, the outstanding principal amount of the 7 1/4% Convertible
Notes was $106,640,000. If, at the time of redemption, the market price of
Centocor's Common Stock exceeds the $28.64 per share effective conversion price
of the 7 1/4% Convertible Notes, Centocor anticipates that some or all of the
holders of the 7 1/4% Convertible Notes will exercise their rights to convert
the 7 1/4% Convertible Notes into the Company's Common Stock. To the extent the
holders do not exercise such rights, the Company intends to use the proceeds
from this offering to redeem the 7 1/4% Convertible Notes remaining
outstanding. 

          The balance of the proceeds not used to redeem 7 1/4% Convertible
Notes, if any, will be utilized for working capital and other corporate
purposes, which may include expenses associated with the development and
clinical testing of therapeutic products, reduction of debt, purchase of the
CPIII partnership interests and other acquisitions. The Company is not currently
in discussions with respect to any acquisitions. Pending such uses, the Company
intends to invest the net proceeds from this offering in short-term, investment
grade, interest-bearing securities.
 
          The unaudited pro forma condensed balance sheet, assuming the stock
offering was consummated and adjusted for the redemption of the 7 1/4%
Convertible Notes as of December 31, 1995 would have been as follows:

<TABLE> 
<CAPTION> 
                                     (In thousands)
        Balance Sheet Data        December 31, 1995
        ------------------        -----------------
        <S>                       <C> 
        Cash and investments               $152,914
        Total Assets                        274,135
        Long-term debt                      125,000
        Shareholders' equity                 91,095
</TABLE> 

                                       45
<PAGE>
 
                              REPORT OF MANAGEMENT
 
 
          The consolidated financial statements presented in this report have
been prepared by the Company's management in conformity with generally accepted
accounting principles from the Company's financial records. The Company's
management is responsible for all information and representations made in those
financial statements and for their integrity and objectivity. In those cases
where judgment and best estimates are necessary, appropriate consideration is
given to materiality in the preparation of the financial statements. The
Company's management has also prepared the other information in this report and
is responsible for its accuracy and consistency with the financial statements.
 
          The Company's management has designed systems of internal accounting
controls to provide reasonable, but not absolute, assurance that assets are
safeguarded from unauthorized use or disposition, and that transactions are
recorded according to management's policies and procedures. The concept of
reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the costs of
such systems should not exceed the benefits to be derived. These systems are
continually reviewed and modified, where appropriate, to maintain such
assurance. Additionally, in connection with their annual audit, independent
auditors perform examinations in accordance with generally accepted auditing
standards, which include a review of the system of internal accounting controls
to the extent necessary in order to determine the nature, timing, and extent of
audit tests to be applied on the financial statements. The Company's management
believes that the Company's system of internal accounting controls is adequate
to accomplish the objectives discussed herein.
 
          The selection of the Company's independent auditors, KPMG Peat Marwick
LLP, has been approved by the Company's Board of Directors. An Audit Committee
of the Board of Directors, composed of three non-management directors, meets
with, and reviews the activities of, corporate financial management and the
independent auditors to ascertain that each is properly discharging its
responsibilities. The independent auditors also meet separately with the Audit
Committee without management present, to discuss the results of their work, the
adequacy of internal accounting controls, and the quality of financial
reporting.

                                       46
<PAGE>
 
                         Independent Auditors' Report



The Board of Directors and Shareholders, Centocor, Inc.:

We have audited the accompanying consolidated balance sheets of Centocor, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, cash flows and shareholders' equity for each of the
years in the three-year period ended December 31, 1995. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Centocor, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.

KPMG Peat Marwick LLP



Philadelphia, Pennsylvania
February 14, 1996 except for Note 20 which is as of March 15, 1996

                                       47
<PAGE>
 
Item 9. Changes in and Disagreements with Accountants on Accounting and 
------------------------------------------------------------------------
Financial Disclosure
--------------------

          Not Applicable


                                    Part III


Item 10. Executive Officers and Directors of the Registrant
-----------------------------------------------------------

          The following table and narrative sets forth, as of March 15, 1996,
information as to the executive officers and directors of the Company, including
their recent employment, positions with the Company, other directorships and
age.  Directors are elected to serve one-year terms.  Executive officers of the
Company are elected to serve at the discretion of the Board of Directors.

          The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
 
             Name              Age                       Position
---------------------------    ---    ------------------------------------------------------------
<S>                            <C>        <C>
David P. Holveck...........     50    President, Chief Executive Officer and Director
Warren C. Bogard...........     46    Senior Vice President and General Manager--Diagnostics
                                      Division
Martin R. Page.............     51    Senior Vice President--Regulatory Affairs
                                      and Quality Assurance
Dominic J. Caruso..........     38    Vice President--Finance and Chief Financial Officer
Hubert J.P. Schoemaker.....     45    Chairman of the Board
Anthony B. Evnin(1)(2).....     55    Director
William F. Hamilton(1)(2)..     56    Director
Antonie T. Knoppers(2).....     81    Director
Ronald A. Matricaria(2)....     53    Director
Richard D. Spizzirri.......     63    Director
Lawrence Steinman..........     48    Director
Jean C. Tempel(1)..........     52    Director
--------------------------
</TABLE> 
(1)  Member of Audit Committee
(2)  Member of Compensation Committee

          Mr. Holveck has been associated with the Company since June 1983. Mr.
Holveck has served as President and Chief Executive Officer of the Company since
November 1992. Mr. Holveck held the position of President and Chief Operating
Officer from April 1992 to October 1992 and Executive Vice President and
President--Diagnostics Division from December 1988 to April 1992. Mr. Holveck
also has served as a director of the Company since 1994.

          Dr. Bogard has been associated with the Company since January 1982.
Dr. Bogard has served as Senior Vice President and General Manager--Diagnostics
Division since October 1994. Previously, Dr. Bogard held the position of Vice
President, Program Management from April 1992 to October 1994 and Director,
Scientific Affairs--Pharmaceutical Division from November 1990 to April 1992.

          Mr. Page has been associated with the Company since September 1987.
Mr. Page has served as Senior Vice President--Regulatory Affairs and Quality
Assurance since March 1994. Previously, Mr. Page held the position of Senior
Vice President--Worldwide Regulatory Affairs from August 1992 to March 1994,
Vice President-- Worldwide Regulatory Affairs from June 1990 to August 1992, and
Vice President--International Regulatory Affairs from September 1987 to June
1990.

                                       48
<PAGE>
 

          Mr. Caruso has been associated with the Company since November 1985.
Mr. Caruso has served as Vice President--Finance and Chief Financial Officer of
the Company since December 1994. Previously, Mr. Caruso held the position of
Vice President and Corporate Controller from January 1991 to November 1994.

          Dr. Schoemaker has been associated with the Company since 1980 and has
served as a director of the Company since 1983. Dr. Schoemaker has been Chairman
of the Board of the Company since November 1987 and served as Chief Executive
Officer of the Company from November 1987 to October 1992 and President of the
Company from 1983 to 1987. Dr. Schoemaker is also a director of Apollon, Inc.,
Avitech, Inc., Myco Pharmaceuticals, Inc. and Safeguard Scientifics, Inc..

          Dr. Evnin has served as a director of the Company since 1980. Dr.
Evnin is currently General Partner of Venrock Associates, a venture capital
limited partnership. Dr. Evnin is also a director of AgriDyne Technologies Inc,
Arris Pharmaceutical Corporation, Athena Neurosciences, Inc., Genetics
Institute, Inc., IDEXX Laboratories, Inc., Escalon Medical Corp., Kopin
Corporation, Opta Food Ingredients, Inc. and Sugen, Inc..

          Dr. Hamilton has served as a director of the Company since 1985. Dr.
Hamilton is currently the Landau Professor of Management and Technology at the
Wharton School of the University of Pennsylvania. Dr. Hamilton is also a
director of Hunt Manufacturing Co., Marlton Technologies, Inc. and Neose
Technologies, Inc..

          Dr. Knoppers has served as a director of the Company since 1986. Dr.
Knoppers is currently a self-employed business consultant. Dr. Knoppers
previously served as President, Chief Operating Officer and Vice Chairman of
Merck & Co., Inc., a research-based health products company. Dr. Knoppers is
also a director of Agouron Pharmaceuticals, Inc..

          Mr. Matricaria has served as a director of the Company since 1994. Mr.
Matricaria has served as President and Chief  Executive Officer of St. Jude
Medical, Inc., a medical products company, since April 1993 and Chairman of the
Board since 1995. From 1970 to 1993, Mr. Matricaria was employed by Eli Lilly
and Company, Inc., a research-based pharmaceutical company, where he served in a
variety of capacities, including President of the Medical Devices and
Diagnostics Division, Executive Vice President of the Pharmaceutical Division
and President of its North American operations. Mr. Matricaria is also a
director of St. Jude Medical, Inc., Diametrics Medical, Inc., InControl, Inc.
and the Health Industry Manufacturers Association.

          Mr. Spizzirri has served as a director of the Company since 1994. Mr.
Spizzirri has served as Senior Counsel to the law firm of Davis Polk & Wardwell
since January 1995. He was previously a Partner with Davis Polk & Wardwell from
1967 to 1994. Mr. Spizzirri is also a director of Sugen, Inc..

          Dr. Steinman has served as a director of the Company since 1991. Dr.
Steinman has been Professor of Immunology, Weizmann Institute of Science,
Rehovot, Israel since 1994, and Professor of Neurology and Neurological Sciences
and Pediatrics at Stanford University School of Medicine since 1991. Dr.
Steinman was previously Associate Professor of Neurology, Pediatrics and
Genetics at Stanford University School of Medicine from 1985 to 1991.

          Ms. Tempel has served as a director of the Company since 1993. Ms.
Tempel has served as General Partner of Technology Leaders, L.P., an affiliate
of Safeguard Scientifics Inc., an entrepreneurial technology company, since
November 1993. Ms. Tempel previously served as President and Chief Operating
Officer of Safeguard Scientifics Inc. from January 1992 to November 1993. Ms.
Tempel was also a Principal of Tempel Partners Inc., a management consulting
firm, from 1991 to January 1992 and Executive Vice President of The Boston
Company, a bank trust company, from 1985 to 1990. Ms. Tempel is also a director
of Cambridge Technology Partners Inc., Safeguard Scientifics Inc. and Sonesta
International, Inc. and a Trustee of the Scudder Family of Mutual Funds.
 

                                       49
<PAGE>
 
   The standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The Audit Committee is responsible for determining
the adequacy of the Company's internal accounting and financial controls. The
Compensation Committee is responsible for reviewing matters pertaining to the
compensation of the executive officers of the Company.
 

Item 11. Executive Compensation
-------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------


   In accordance with General Instruction G(3), the information called for by
Items 10 (only with respect to the requirements of Rule 405 of Regulation S-K),
11, 12 and 13 of Part III are incorporated herein by reference from the
Company's definitive Proxy Statement for the Centocor Annual Meeting of
Shareholders to be held on May 15, 1996, which definitive Proxy Statement will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A.


                                    Part IV

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

   a.   Documents filed as part of the Report:

        i.   Financial Statements of Centocor Partners III, L.P.:

             Balance Sheets, December 31, 1995 and 1994.

             Statements of Operations for the Years Ended December 31, 1995, 
             1994 and 1993.

             Statements of Cash Flows for the Years Ended December 31, 1995, 
             1994 and 1993.

             Statements of Partners' Capital for the Years Ended December 31, 
             1995, 1994 and 1993.

             Notes to Financial Statements.

             Independent Auditors' Report.

        ii.  Financial Statement Schedules:

             Schedule II - Valuation and Qualifying Accounts

             Schedules, other than those listed above, have been omitted because
             of the absence of conditions under which they are required or
             because the required information is included in the financial
             statements or the notes thereto.

       iii.  Exhibits:

               3.1  Restated Articles of Incorporation (incorporated by
                    reference to Exhibit 3.1 to Form S-1 Registration Statement,
                    File No. 2-80098).

                                       50
<PAGE>
 
               3.2  Statement of Reduction of Authorized Shares filed September
                    19, 1983 (incorporated by reference to Exhibit 3.2 to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1986).

               3.3  Statement of Reduction of Authorized Shares filed January
                    19, 1984 (incorporated by reference to Exhibit 3.3 to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1986).

               3.4  Articles of Amendment filed April 18, 1984 (incorporated by
                    reference to Exhibit 3.4 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1986).

               3.5  Statement of Reduction of Authorized Shares filed February
                    25, 1985 (incorporated by reference to Exhibit 3.5 to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1986).

               3.6  Statement of Reduction of Authorized Shares filed May 6,
                    1985 (incorporated by reference to Exhibit 3.6 to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1986).

               3.7  Statement of Reduction of Authorized Shares filed October
                    23, 1985 (incorporated by reference to Exhibit 3.7 to
                    Registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1986).

               3.8  Articles of Amendment filed April 16, 1987 (incorporated by
                    reference to Exhibit 3.8 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1987).

               3.9  Articles of Amendment filed April 21, 1988 (incorporated by
                    reference to Exhibit 3.9 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1988).

               3.10 Articles of Amendment filed April 26, 1988 (incorporated by
                    reference to Exhibit 3.10 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1988).

               3.11 Statement Re Series A Preferred Stock filed October 11, 1988
                    (incorporated by reference to Exhibit 3.11 to Registrant's
                    Annual Report on Form 10-K for the year ended December 31,
                    1988).

               3.12 Articles of Amendment filed April 13, 1990 (incorporated by
                    reference to Exhibit 3.12 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1990).

               3.13 Articles of Amendment filed April 26, 1991 (incorporated by
                    reference to Exhibit 3.13 to Registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1991).

               3.14 Statement of Correction filed October 16, 1991 to Articles
                    of Amendment filed April 26, 1991 (incorporated by reference
                    to Exhibit 3.14 to Registrant's Annual Report on Form 10-K
                    for the year ended December 31, 1991).

               3.15 By-Laws of Centocor, Inc. as amended October 30, 1992
                    (incorporated by reference to Exhibit 3.15 to Registrant's
                    Annual Report on Form 10-K for the year ended December 31,
                    1992).

                                       51
<PAGE>
 
               4.1   Specimen Certificate for Common Stock (incorporated by
                     reference to Exhibit 4 to Amendment No. 1 to Form S-1
                     Registration Statement, File No. 2-80098).
                  
               4.2   Form of Warrant Issued to Purchasers of Limited Partnership
                     Interests in CPIII (incorporated by reference to Exhibit
                     4.5 to Registrant's Annual Report on Form 10-K for the year
                     ended December 31, 1987).
                  
               4.3   Rights Agreement between Centocor, Inc. and the First
                     National Bank of Boston as Rights Agent dated September 26,
                     1988 (incorporated by reference to Exhibit 4 to
                     Registrant's Current Report on Form 8-K dated September 26,
                     1988).
                  
               4.4   Form of Indenture between Centocor, Inc. and CoreStates
                     Bank, N.A. as Trustee Dated as of January 18, 1991
                     (incorporated by reference to Exhibit 4.3 to Amendment No.
                     1 to Form S-3 Registration Statement, Reg. No. 33-38110).
                  
               4.5   Form of Note Issued to Purchasers of 7 1/4% Convertible
                     Subordinated Notes Due February 1, 2001 (incorporated by
                     reference to Exhibit 4.4 to Amendment No. 1 to Form S-3
                     Registration Statement, Reg. No. 33-38110).
                  
               4.6   Form of Indenture between Centocor, Inc. and Chase
                     Manhattan Trustees Limited as Trustee Dated as of October
                     16, 1991 (incorporated by reference to Exhibit 4.3 to Form
                     S-3 Registration Statement, Reg. No. 33-44231).
                  
               4.7   Form of Debenture Issued to Purchasers of 6 3/4%
                     Convertible Subordinated Debentures Due October 16, 2001
                     (included in Exhibit 4.9) (incorporated by reference to
                     Exhibit 4.3 to Form S-3 Registration Statement, Reg. No. 
                     33-44231).
                  
               4.8   Form of Series T Warrant Issued to Purchasers of Units,
                     each Unit consisting of one share of Tocor II Callable
                     Common Stock, one Series T warrant to purchase one share of
                     Centocor Common Stock, and one Callable warrant to purchase
                     one share of Centocor Common Stock (incorporated by
                     reference to Exhibit 4.2 to Amendment No. 4 to Form S-1/S-3
                     Registration Statement of Tocor II and Centocor, Reg. No.
                     33-44072).
                  
               4.9   Form of Callable Warrant Issued to Purchasers of Units,
                     each Unit consisting of one share of Tocor II Callable
                     Common Stock, one Series T warrant to purchase one share of
                     Centocor Common Stock, and one Callable warrant to purchase
                     one share of Centocor Common Stock (incorporated by
                     reference to Exhibit 4.3 to Amendment No. 4 to Form S-1/S-3
                     Registration Statement of Tocor II and Centocor, Reg. No.
                     33-44072).

               10.1* Form of Non-Qualified Stock Option Agreement (incorporated
                     by reference to Exhibit 10.01 to Registrant's Annual Report
                     on Form 10-K for the year ended December 31, 1987).

               10.2* Incentive Stock Option Plan, as amended (incorporated by
                     reference to Exhibit 10.03 to Registrant's Annual Report on
                     Form 10-K for the year ended December 31, 1986).

               10.3* 1983 Incentive Stock Option Plan, as amended (incorporated
                     by reference to Exhibit 10.04 to Registrant's Annual Report
                     on Form 10-K for the year ended December 31, 1986).

                                       52
<PAGE>
 
               10.4*  1983 Restricted Common Stock Award Plan, as amended and
                      restated (incorporated by reference to Exhibit 10.04 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1993).

               10.5*  1987 Non-Qualified Stock Option Plan, as amended and
                      restated (incorporated by reference to Exhibit 10.05 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1990).

               10.6*  1989 Non-Employee Directors' Non-Qualified Stock Option
                      Plan (incorporated by reference to Exhibit 10.06 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1989).

               10.7   Lease Agreement for property located at Great Valley
                      Parkway, Malvern, PA 19355 (incorporated by reference to
                      Exhibit 10.07 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1989).

               10.8   Partnership Purchase Option Agreement among Centocor,
                      Inc., CCIP, Centocor Development Corporation I, each Class
                      A limited partner and the Class B limited partner, dated
                      September 12, 1985 (incorporated by reference to Exhibit
                      10.53 to Registrant's Post Effective Amendment No. 1 to
                      Form S-1 Registration Statement, File No. 2-95057).

               10.9   Indemnity Agreement between Centocor, Inc. and CCIP, dated
                      September 12, 1985 (incorporated by reference to Exhibit
                      10.71 to Registrant's Post Effective Amendment No. 1 to
                      Form S-1 Registration Statement, File No. 2-95057).

               10.10* Qualified Savings and Retirement Plan, as amended and
                      restated (incorporated by reference to Exhibit 10.14 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1989).

               10.11  Partnership Purchase Option Agreement among Centocor,
                      Inc., CPII, Centocor Development Corporation II, each
                      Class A limited partner and the Class B limited partner,
                      dated December 17, 1986 (incorporated by reference to
                      Exhibit 10.23 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1986).

               10.12  Indemnity Agreement between Centocor, Inc. and CPII, dated
                      December 17, 1986 (incorporated by reference to Exhibit
                      10.26 to Registrant's Annual Report on Form 10-K for the
                      year ended December 31, 1986).

               10.13  CPIII Agreement of Limited Partnership, dated December 23,
                      1987 as amended and restated on January 15, 1988 and March
                      23, 1988 (incorporated by reference to Exhibit 10.26 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1988).

               10.14  Cross License Agreement between CPIII and Centocor, Inc.,
                      dated December 23, 1987 (incorporated by reference to
                      Exhibit 10.38 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1987).
 

                                       53
<PAGE>
 
               10.15  Amendment dated March 23, 1988 to Cross License Agreement
                      between CPIII and Centocor, Inc. dated December 23, 1987
                      (incorporated by reference to Exhibit 10.28 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1988).

               10.16  Development Agreement between CPIII and Centocor, Inc.,
                      dated December 23, 1987 (incorporated by reference to
                      Exhibit 10.39 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1987).

               10.17  Amendment dated March 23, 1988 to Development Agreement
                      between CPIII and Centocor, Inc. dated December 23, 1987
                      (incorporated by reference to Exhibit 10.30 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1988).

               10.18  Joint Venture Agreement between CPIII and Centocor, Inc.,
                      dated December 23, 1987 (incorporated by reference to
                      Exhibit 10.40 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1987).

               10.19  Amendment dated March 23, 1988 to Joint Venture Agreement
                      between CPIII and Centocor, Inc. dated December 23, 1987
                      (incorporated by reference to Exhibit 10.32 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1988).

               10.20  Indemnity Agreement between CPIII and Centocor, Inc.,
                      dated December 23, 1987 (incorporated by reference to
                      Exhibit 10.41 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1987).

               10.21  Inducement Agreement among Centocor, Inc., CPIII, Centocor
                      Development Corporation III, PaineWebber Development
                      Corporation, PaineWebber, Inc. and PaineWebber R&D
                      Partners II, L.P., dated December 23, 1987 (incorporated
                      by reference to Exhibit 10.42 to Registrant's Annual
                      Report on Form 10-K for the year ended December 31, 1987).

               10.22  Amendment dated March 23, 1988 to Inducement Agreement
                      among Centocor, Inc., CPIII, Centocor Development
                      Corporation III, PaineWebber Development Corporation,
                      PaineWebber, Inc. and PaineWebber R&D Partners II, L.P.
                      dated December 23, 1987 (incorporated by reference to
                      Exhibit 10.35 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1988).

               10.23  Partnership Purchase Option Agreement among Centocor,
                      Inc., CPIII, Centocor Development Corporation III, and the
                      Class C limited partner, dated December 23, 1987
                      (incorporated by reference to Exhibit 10.43 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1987).

               10.24  Amendment dated March 23, 1988 to Partnership Purchase
                      Option Agreement among Centocor, Inc., CPIII, Centocor
                      Development Corporation III and the Class C limited
                      partner dated December 23, 1987 (incorporated by reference
                      to Exhibit 10.37 to Registrant's Annual Report on Form 
                      10-K for the year ended December 31, 1988).


                                       54
<PAGE>
 
               10.25  Series E, F and G Preferred Stock Purchase Agreement dated
                      as of November 20, 1991 between Centocor Delaware, Inc.
                      and Corvas International, Inc. (incorporated by reference
                      to Exhibit 10.28 to Form S-1 Registration Statement of
                      Corvas International, Inc. Reg. No. 33-44555).

               10.26  Sales and Distribution Agreement between Centocor, Inc.
                      and Eli Lilly and Company dated July 15, 1992. (The
                      Registrant has requested confidential treatment from the
                      Securities and Exchange Commission for portions of this
                      Agreement.) (incorporated by reference to Exhibit 10.32 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1992).

               10.27  Reimbursement Agreement between Centocor, Inc. and Eli
                      Lilly and Company dated July 15, 1992. (The Registrant has
                      requested confidential treatment from the Securities and
                      Exchange Commission for portions of this Agreement.)
                      (incorporated by reference to Exhibit 10.33 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1992).

               10.28  Investment Agreement between Centocor, Inc. and Eli Lilly
                      and Company dated July 15, 1992. (The Registrant has
                      requested confidential treatment from the Securities and
                      Exchange Commission for portions of this Agreement.)
                      (incorporated by reference to Exhibit 10.34 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1992).

               10.29  Amendment to Sales and Distribution Agreement among
                      Centocor, Inc., Centocor B.V. and Eli Lilly and Company
                      dated June 27, 1993. (The Registrant has requested
                      confidential treatment from the Securities and Exchange
                      Commission for portions of this Agreement.) (incorporated
                      by reference to Exhibit 10.35 to Registrant's Annual
                      Report on Form 10-K for the year ended December 31, 1993).

               10.30  Option Agreement between Centocor B.V. and Eli Lilly
                      Nederland B.V. dated August 20, 1993. (The Registrant has
                      requested confidential treatment from the Securities and
                      Exchange Commission for portions of this Agreement.)
                      (incorporated by reference to Exhibit 10.36 to
                      Registrant's Annual Report on Form 10-K for the year ended
                      December 31, 1993).

               10.31  Deed of Mortgage from Centocor B.V. to Eli Lilly Nederland
                      B.V. dated August 26, 1993 (incorporated by reference to
                      Exhibit 10.37 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1993).

               10.32  Deed of Pledge from Centocor B.V. to Eli Lilly Nederland
                      B.V. dated August 26, 1993 (incorporated by reference to
                      Exhibit 10.38 to Registrant's Annual Report on Form 10-K
                      for the year ended December 31, 1993).

               10.33  Stock Purchase Agreement made as of December 16, 1993 by
                      and between Centocor, Inc. and The Wellcome Foundation
                      Limited (incorporated by reference to Exhibit 10(a) to the
                      Registrant's Current Report on Form 8-K dated December 16,
                      1993).

               10.34  Supply, Distribution and Sales Agreement dated December
                      16, 1993 by and among Centocor, Inc., Centocor B.V., The
                      Wellcome Foundation Limited and Burroughs Wellcome Co.
                      (The Registrant has requested confidential treatment from
                      the Securities and Exchange Commission for portions of
                      this Agreement.) incorporated by reference to Exhibit
                      10(b) to the Registrant's Current Report on Form 8-K dated
                      December 16, 1993).

                                       55
<PAGE>
 
               10.35  Clinical and Regulatory Development Agreement dated
                      December 16, 1993 among Centocor, Inc., Centocor B.V., The
                      Wellcome Foundation Limited and Burroughs Wellcome Co.
                      (The Registrant has requested confidential treatment from
                      the Securities and Exchange Commission for portions of
                      this Agreement.) (incorporated by reference to Exhibit
                      10(c) to the Registrant's Current Report on Form 8-K dated
                      December 16, 1993).

               10.36  Centocor Technology License Agreement dated as of December
                      16, 1993 among Centocor, Inc., Centocor B.V., The Wellcome
                      Foundation Limited and Burroughs Wellcome Co. (The
                      Registrant has requested confidential treatment from the
                      Securities and Exchange Commission for portions of this
                      Agreement.) (incorporated by reference to Exhibit 10(e) to
                      the Registrant's Current Report on Form 8-K dated December
                      16, 1993).

               10.37  Relicense Agreement dated as of December 16, 1993 among
                      Centocor, Inc., Centocor B.V., The Wellcome Foundation
                      Limited and Burroughs Wellcome Co. (incorporated by
                      reference to Exhibit 10(f) to the Registrant's Current
                      Report on Form 8-K dated December 16, 1993).

               10.38  Appendix A - Glossary of Terms to each of the Agreements
                      dated as of December 16, 1993 by and among Centocor, Inc.,
                      Centocor B.V., The Wellcome Foundation Limited and
                      Burroughs Wellcome Co. (The Registrant has requested
                      confidential treatment from the Securities and Exchange
                      Commission for portions of this Agreement.) (incorporated
                      by reference to Exhibit 10(g) to the Registrant's Current
                      Report on Form 8-K dated December 16, 1993).

               10.39  First Supplemental Agreement dated as of November 15, 1994
                      among Centocor, Inc., Centocor B.V., The Wellcome
                      Foundation Limited and Burroughs Wellcome Co. (The
                      Registrant has requested confidential treatment from the
                      Securities and Exchange Commission for portions of this
                      Agreement.) (incorporated by reference to Exhibit 10(a) to
                      the Registrant's Current Report on Form 8-K dated November
                      15, 1994).

               10.40  Wellcome Clinical Development Agreement dated as of
                      November 15, 1994 among Centocor, Inc., Centocor B.V., The
                      Wellcome Foundation Limited and Burroughs Wellcome Co.
                      (The Registrant has requested confidential treatment from
                      the Securities and Exchange Commission for portions of
                      this Agreement.) (incorporated by reference to Exhibit
                      10(b) to the Registrant's Current Report on Form 8-K dated
                      November 15, 1994).

               11     Computation of Earnings of Common Share.

               12     Statement re: Computation of Ratios.

               21     Subsidiaries of the Registrant.

               23     Consent of Independent Auditors.

               27     Financial Data Schedule.

*These exhibits constitute compensatory plans.

                                       56
<PAGE>
 
b.   The Registrant has filed the following reports on Form 8-K since the
     beginning of the quarter ended December 31, 1995:

             Date of Report       Item Covered
             --------------       ------------

             January 26, 1996          5,7
             February 15, 1996         5,7

          For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statements on Form
S-8, Nos. 2-86486, 33-16285, 33-00167, 33-35731, 33-23480, 33-16284, and 
33-35730.

          Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

                                       57
<PAGE>
 
Centocor Partners III, L.P.
Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                           December 31,   December 31,
                                               1995           1994
                                           -------------  -------------
<S>                                        <C>            <C>
Assets
 
 Cash                                       $     4,187   $          -
 Investment in joint venture                    618,011        511,630
                                            -----------    -----------
     Total Assets                           $   622,198    $   511,630
                                            ===========    ===========
 
Liabilities
 
 Current liabilities:
     Accounts payable and accrued expenses  $    70,133    $    42,407
     Due to Centocor, Inc. (Note 7)           7,954,507      6,997,126
                                            -----------    -----------
                                              8,024,640      7,039,533
Partners' capital (Note 4)                   (7,402,442)    (6,527,903)
                                            -----------    -----------
 
     Total Liabilities and Partners' 
          capital                           $   622,198    $   511,630
                                            ===========    ===========
</TABLE> 
See accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------

                                       58
<PAGE>
 
Centocor Partners III, L.P.
Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

For the Years ended December 31,            1995              1994             1993
                                      ---------------  ----------------  ---------------
<S>                                   <C>              <C>               <C>
                            
Revenues:                   
                            
    Equity in earnings of   
    joint venture (Note 6)              $  1,269,919      $      4,490     $      3,375
                                        ------------      ------------     ------------
                            
Costs and Expenses:         
                            
    Research and development (Note 7)     29,900,000        22,850,000       19,875,000
    General and administrative                23,548             4,500            7,336
                                        ------------      ------------     ------------
                                          29,923,548        22,854,500       19,882,336
                                        ------------      ------------     ------------
                            
Loss for the period                     $(28,653,629)     $(22,850,010)    $(19,878,961)
                                        ============      ============     ============
</TABLE>
See accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------

                                       59
<PAGE>
 
Centocor Partners III, L.P.
Statements of Cash Flows
-------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
For the Years ended December 31,                       1995                1994               1993    
                                                  --------------      --------------      -------------
<S>                                                 <C>                <C>                <C>      
Cash flows used for operating activities:

  Loss                                              $(28,653,629)      $(22,850,010)      $(19,878,961)
  Increase (decrease) in due to Centocor, Inc.           957,381          2,863,000         (2,461,664)
  Change in accounts payable                                                        
    and accrued expenses                                  27,726              4,500              1,000
  Investment in joint venture                           (106,381)            (4,490)            (3,375)
                                                     ------------       ------------       ------------
  Net cash used for operating activities             (27,774,903)       (19,987,000)       (22,343,000)
                                                                                    
Cash flows from (used for) financing activities:                                    
                                                                                    
  Distributions to partners                           (1,163,538)                 -                  -
  General partner capital contributions               28,942,628         19,987,000         22,343,000
                                                    ------------       ------------       ------------
  Net cash from financing activities                  27,779,090         19,987,000         22,343,000
                                                    ------------       ------------       ------------
                                                                                    
Increase in cash and cash equivalents                      4,187                  -                  -
                                                                                    
Cash and cash equivalents at beginning of year                 -                  -                  -
                                                    ------------       ------------       ------------
                                                                                    
Cash and cash equivalents at end of year            $      4,187       $          -       $          -
                                                    ============       ============       ============
</TABLE>

See accompanying Notes to Financial Statements.
-------------------------------------------------------------------------------

                                       60
<PAGE>
 
Centocor Partners III, L.P.
Statements of Partners' Capital
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                Limited        General
                                Partners       Partner         Total
                              ------------  -------------  -------------
<S>                           <C>           <C>            <C>
 
Balance, December 31, 1992    $   474,373   $ (6,603,305)  $ (6,128,932)

Contributions                           -     22,343,000     22,343,000
Loss                               (3,921)   (19,875,040)   (19,878,961)
                              -----------   ------------   ------------

Balance, December 31, 1993        470,452     (4,135,345)    (3,664,893)

Contributions                           -     19,987,000     19,987,000
Loss                                  (10)   (22,850,000)   (22,850,010)
                              -----------   ------------   ------------

Balance, December 31, 1994        470,442     (6,998,345)    (6,527,903)

Distributions                  (1,151,903)       (11,635)    (1,163,538)
Contributions                           -     28,942,628     28,942,628
Income (Loss)                   1,233,530    (29,887,159)   (28,653,629)
                              -----------   ------------   ------------

Balance, December 31, 1995    $   552,069   $ (7,954,511)  $ (7,402,442)
                              ===========   ============   ============
--------------------------------------------------------------------------------
</TABLE>

See accompanying Notes to Financial Statements.

                                       61
<PAGE>
 
Centocor Partners III, L.P.
Notes to Financial Statements
--------------------------------------------------------------------------------

1.   Basis of Presentation
     ---------------------

     Centocor Partners III, L.P. (the "Partnership"), was formed in December
1987, and is managed by its general partner, Centocor Development Corporation
III, a wholly owned subsidiary of Centocor, Inc. ("Centocor"), a Pennsylvania
corporation, which is subject to the reporting requirements of the Securities
and Exchange Act of 1934.  The Partnership was organized to develop and
derive income from the sale of one therapeutic product (ReoPro) and one
imaging product (Capiscint) which are expected to be used in the treatment
and diagnosis, respectively, of two different types of cardiovascular
disease.

     In 1987 and 1988, the Partnership and Centocor sold (a) 542.25 units,
consisting of 111 Class C limited partnership interests and 431.25 Class A
limited partnership interests each together with warrants to purchase shares
of Centocor common stock, and (b) one Class B limited partnership interest,
together with warrants to purchase shares of Centocor common stock.  The
purchase prices were $90,000 for the Class C interests, $100,000 for the
Class A interests and $150,000 for the Class B interest.

     The net proceeds from the sale of limited partnership interests were
used primarily to pay expenses incurred under the Partnership's agreement
with Centocor (the "Development Agreement") to perform research and
development for the Partnership (see Note 7).

     The Partnership also entered into a Cross License Agreement pursuant to
which Centocor granted to the Partnership an exclusive license to use all
patent rights, know-how, technical information and biological materials owned
or controlled by Centocor within the Partnership's field of activity.  Under
the Cross License Agreement, the Partnership agreed to grant to Centocor an
exclusive royalty-free license to all patent rights, know-how, technical
information and biological materials arising from research and development
conducted under the Development Agreement for all purposes outside of the
Partnership's field of activity.

2.   Summary of Significant Accounting
     ---------------------------------

     Investment in Joint Venture
     ---------------------------

     The Partnership accounts for its investment in the joint venture (see
Note 6) under the equity method of accounting.

     Income Taxes
     ------------

     The Partnership's distributable income or loss is reportable for income
tax purposes by the partners; therefore, no provision for income taxes has
been made in the accompanying financial statements.  The Partnership's tax
returns are subject to examination by federal and state taxing authorities.
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, certain amounts may
be subject to change at a later date upon final determination by the
respective taxing authorities.

                                       62
<PAGE>
 
Centocor Partners III, L.P.
Notes to Financial Statements
--------------------------------------------------------------------------------

3.   Contingencies
     -------------

     In July 1995, PaineWebber Development Corporation ("PaineWebber"), a
wholly-owned subsidiary of PaineWebber Group, Inc., caused suit to be filed
against Centocor and Centocor Development Corporation III ("CDCIII", the
general partner of the Partnership and a wholly-owned subsidiary of Centocor)
by a development partnership formed in the mid 1980s by PaineWebber and
managed by it since then. The PaineWebber partnership, PaineWebber R&D
Partners II, L.P., an investor in the Partnership, filed suit in the Court of
Chancery of the State of Delaware. In the complaint, the plaintiff seeks to
sue derivatively on behalf of CPIII. The Partnership is named as a nominal
defendant and Centocor and CDCIII are named as defendants against whom relief
is sought. The claim is that at least $25 million of the money paid by Eli
Lilly and Company ("Lilly") to Centocor in 1992 represented profits from the
marketing of ReoPro, obligating Centocor to pay a portion thereof to the
Partnership, and that Centocor is obligated to pay an increased percentage of
the profits from ReoPro to the Partnership going forward. On November 1,
1995, an additional suit was commenced in the Delaware Court of Chancery by a
limited partner, John E. Abdo, against Centocor and CDCIII and certain of
their officers and directors.  The complaint, filed derivatively on behalf of
the Partnership, asserts claims, inter alia, for breach of contract, breach
of fiduciary duty, common law fraud, and conspiracy and aiding and abetting.
The Partnership incurred approximately $24,000 in legal expenses related to
these suits in the fourth quarter of 1995 as a result of being named a
nominal defendant in the above suits.

     Under paragraph 7.8 of the Agreement of Limited Partnership, the
Partnership is obligated, under certain conditions, to indemnify CDCIII and
its officers and directors in respect of all fees, costs and expenses
incurred in connection with or resulting from any claim against CDCIII and
its officers and directors that arises out of or in any way relates to the
Partnership or its properties, business or affairs including any losses or
damages resulting from such claims and amounts paid in settlement or
compromise.  Therefore, the Partnership may incur legal expenses and other
costs pertaining to the suits described above.

4.   Partners' Capital
     -----------------

     Profits and losses of the Partnership are generally allocated 1 percent
to the general partner and 99 percent to the limited partners.  Losses
resulting from research and development expenditures in excess of the limited
partners' capital contributions are allocated to the general partner (see
Note 7).

                                       63
<PAGE>
 
5.   Partnership Purchase Option
     ---------------------------

     Centocor has entered into a Partnership Purchase Option Agreement with
each of the limited partners.  Under its terms, Centocor has the option to
purchase each limited partnership interest upon the earlier of (a) the
limited partners having received distributions from the joint venture (see
Note 7) equal to 15 percent of their capital contributions to the Partnership
and the expiration of at least 24 months after the first commercial sale of
products by the joint venture or (b) the expiration of at least 48 months
after the first commercial sale of products by the joint venture; but, in any
event, not prior to the expiration of the then applicable long-term capital
gains holding period after the expenditure by Centocor of all funds paid to
it pursuant to the Development Agreement. Commercial sales of ReoPro
commenced in January 1995.  The ability of Centocor to exercise this option
is highly dependent upon the future financial condition of Centocor.

     If Centocor exercises the Partnership Purchase Option, each limited
partner will enter into a Partnership Purchase Agreement with Centocor which
sets forth the terms under which Centocor will purchase the limited
partnership interests.  Under the terms of the Partnership Purchase
Agreement, the aggregate purchase price for the limited partnership interests
would be payable as follows:  (a) an advance payment of $13,598,000 in cash
(or, at Centocor's option, $15,229,000 in Centocor common stock), and (b)
quarterly payments equal to certain percentages of revenue to Centocor from
sales of the Partnership's products, or products of Centocor or its
affiliates which are competitive, or sold in combination, with the
Partnership's products.  Beginning with the 12th calendar quarter after the
calendar quarter in which the advance payment is made, Centocor's payment to
the limited partners will be reduced by 25 percent of the amount which the
limited partners would otherwise have received until Centocor has recouped
the amount of the advance payment.

6.   Joint Venture
     -------------

     The Partnership and Centocor have formed a joint venture for the purpose
of commercializing any products developed within the Partnership's field of
activity.  The Joint Venture Agreement provides that Centocor shall
manufacture the products on behalf of the joint venture for its actual costs
of manufacturing.  Under the Joint Venture Agreement, Centocor also provides
marketing services for the joint venture for a commission of 17 percent of
joint venture sales and receives 10 percent of joint venture sales as
reimbursement for its management and administrative services.  The profits
and losses of the joint venture are to be allocated approximately 75 percent
to Centocor and 25 percent to the Partnership.

     The joint venture will terminate upon the occurrence of certain events,
principally related to the exercise or expiration of the purchase option
granted to Centocor (see Note 5).

     On July 15, 1992, Centocor and Lilly entered into a Sales and
Distribution Agreement which was amended in the second quarter of 1994.
Pursuant to such agreement, as amended, Lilly exercised its option to become
the exclusive worldwide distributor for ReoPro.  As part of the amendment,
Lilly has assisted and will continue to assist Centocor in the regulatory
filings and continued development of ReoPro for various clinical indications.

     In December 1994, the U.S. Food and Drug Administration ("FDA") granted
Centocor a product license for ReoPro, a product indicated for the reduction
of acute ischemic cardiac complications in patients undergoing angioplasty
procedures who are high risk for abrupt artery closure, and the Committee for
Proprietary Medicinal Products ("CPMP") issued a positive opinion regarding
the granting of marketing authorization in 11 of the 12 member states for
ReoPro. Belgium, the only dissenting country in the European Union ("EU"),
will require additional clinical trial results.  For products recommended for
approval by the CPMP prior to January 1, 1995, each

                                       64
<PAGE>
 
EU member state issues its own national licenses.  In addition, some
countries require approvals for pricing and reimbursement. Through the joint
venture, Centocor commenced sales of ReoPro to Lilly in January 1995.  ReoPro
sales to Lilly for the twelve months ended December 31, 1995 were
$15,545,000.  The level of sales of ReoPro will depend upon a number of
factors, including the timing and extent of additional regulatory approvals
for ReoPro, approval and commercialization of competitive products, the
degree of acceptance of ReoPro in the marketplace, and the strength of
Centocor's patent position and that of others. Centocor expects that ReoPro
sales to Lilly in 1996 to increase compared to the sales levels noted in
1995.

7.   Research Funding
     ----------------

     The initial funding by the limited partners for the Partnership's
research program pursuant to the Development Agreement with Centocor was
exhausted in 1990.  In order to continue the research program, the
Partnership extended the terms of the Development Agreement with Centocor.
Approximately $122,770,000 of the Partnership's research costs through
December 31, 1995 were funded by the general partner.  At December 31, 1995
and 1994, approximately $7,954,000 and $6,997,000, respectively, was due to
Centocor for expenditures under the Development Agreement. The general
partner intends to provide funding but is under no obligation to do so.
The ability of the general partner to continue to fund, and the ability of
Centocor to perform under, the Development Agreement is highly dependent upon
the future financial condition of Centocor.

                                       65
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


The Partners of Centocor Partners III, L.P.:

We have audited the accompanying balance sheets of Centocor Partners III, L.P.
as of December 31, 1995 and 1994, and the related statements of operations, cash
flows and partners' capital for each of the years in the three-year period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Centocor Partners III, L.P.
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.


KPMG PEAT MARWICK LLP



Philadelphia, Pennsylvania
February 14, 1996

                                       66
<PAGE>
 
                                                                     SCHEDULE II
                        CENTOCOR, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1995
                                 (IN THOUSANDS)


<TABLE> 
<CAPTION> 
                   Balance   Charged to              Balance    Charged to              Balance    Charged to               Balance
                     at      Costs and                  at      Costs and                  at      Costs and                   at
Classification    12/31/92   Expenses   Deductions   12/31/93   Expenses   Deductions   12/31/94   Expenses    Deductions   12/31/95
--------------    --------   --------   ----------   --------   --------   ----------   --------   --------    ----------   --------
<S>               <C>        <C>        <C>          <C>        <C>        <C>          <C>        <C>         <C>          <C> 
Inventory 
  Reserves        $68,306    $3,500(1)  $(7,063)     $64,743     $3,609     ($53,472)    $14,880    $2,094     ($15,938)     $1,036
                ====================================================================================================================
</TABLE> 

1) The Company recorded reserves for HA-1A inventories of $3,500,000 in 1993 due
to the uncertainties regarding future HA-1A sales resulting from the regulatory
and commercial status of HA-1A.

                                      67

<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
 
                                      CENTOCOR, INC.
                                     
March 15, 1996                    By: /s/   David P. Holveck
                                      ----------------------------
                                      David P. Holveck,
                                      President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE> 
<CAPTION> 
   Signatures                                         Title                                 Date
-------------------------                ----------------------------------            --------------
<S>                                      <C>                                           <C> 
/s/   Hubert J. P. Schoemaker            Director, Chairman of the Board               March 15, 1996
-----------------------------------
Hubert J. P. Schoemaker            
                                   
/s/   David P. Holveck                   President, Chief Executive                    March 15, 1996
-----------------------------------      Officer, and Director                         
David P. Holveck                   
                                   
/s/   Dominic J. Caruso                  Vice President-Finance and                    March 15, 1996
-----------------------------------      Chief Financial Officer
Dominic J. Caruso                        (principal financial and
                                         accounting officer)
                                   
/s/   Anthony B. Evnin                   Director                                      March 15, 1996
-----------------------------------      
Anthony B. Evnin
 
/s/   William F. Hamilton                Director                                      March 15, 1996
----------------------------------- 
William F. Hamilton
 
/s/   Antonie T. Knoppers                Director                                      March 15, 1996
-----------------------------------
Antonie T. Knoppers
 
/s/   Ronald A. Matricaria               Director                                      March 15, 1996
-----------------------------------
Ronald A. Matricaria
 
/s/   Lawrence Steinman                  Director                                      March 15, 1996
-----------------------------------
Lawrence Steinman
 
/s/   Richard D. Spizzirri               Director                                      March 15, 1996
-----------------------------------
Richard D. Spizzirri


/s/   Jean C. Tempel                     Director                                      March 15, 1996
-----------------------------------
Jean C. Tempel
</TABLE> 

                                       68

<PAGE>
 
                                 EXHIBIT INDEX



   Exhibit
   Number
   ------

     11          Computation of Earnings Per Common Share
               
     12          Statement re:  Computation of Ratios
               
     21          Subsidiaries of the Registrant
               
     23          Consent of Independent Auditors
               
     27          Financial Data Schedule