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                                 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, 1998
 
     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
 
         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                          COMMISSION FILE NO. 0-21905
 
                          COULTER PHARMACEUTICAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                     <C>
               DELAWARE                              94-32190758
   (STATE OR OTHER JURISDICTION OF        (IRS EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)
        600 GATEWAY BOULEVARD,                          94080
   SOUTH SAN FRANCISCO, CALIFORNIA                    (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE
               OFFICES)
</TABLE>
 
        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 650-553-2000
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                          COMMON STOCK $.001 PAR VALUE
                                (TITLE OF CLASS)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [X]
 
     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the closing price of the Common Stock listed on the
Nasdaq Stock Market(R) on March 12, 1999 was $253,017,897*.
 
     The total number of shares outstanding of the Registrant's Common Stock was
16,745,797 as of March 12, 1999.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of Registrant's Definitive Proxy Statement filed with the
Commission pursuant to Regulation 14A in connection with the 1999 Annual Meeting
are incorporated herein by reference into Part III of this Report.
 
     Certain Exhibits filed with the Registrant's Registration Statement on Form
S-1 (Registration Nos. 333-17661 and 333-36607), are incorporated herein by
reference into Part IV of this Report.
 
* Based on a closing price of $23.50 per share. Excludes 5,979,078 shares of the
  Registrant's Common Stock held by executive officers, directors and
  stockholders whose ownership exceeds 5% of the Common Stock outstanding at
  March 12, 1999. Exclusion of such shares should not be construed to indicate
  that any such person possesses the power, direct or indirect, to direct or
  cause the direction of the management or policies of the Registrant or that
  such person is controlled by or under common control with the Registrant.
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                                     PART I
 
     Except for historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements which involve risks and
uncertainties. All forward-looking statements included in this document are
based upon information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors" at
the end of Item 1 Business.
 
ITEM 1. BUSINESS
 
     Coulter Pharmaceutical is engaged in the development of novel drugs and
therapies for the treatment of people with cancer. The Company currently is
developing a family of cancer therapeutics based upon two drug discovery
programs: therapeutic antibodies and targeted oncologics. Within these broad
drug discovery programs, the Company is currently concentrating on two distinct
platform technologies: therapeutic antibodies based on conjugated antibody
technology and targeted oncologics based on tumor activated peptide ("TAP")
pro-drug technology.
 
     The Company's most advanced product candidate, Bexxar(TM) (iodine I 131
tositumomab), consists of a monoclonal antibody conjugated with a radioisotope.
The Company intends to seek a priority review for the initial approval of Bexxar
for the treatment of low-grade and transformed low-grade non-Hodgkin's lymphoma
("NHL") in patients who have relapsed after or are refractory to chemotherapy,
while simultaneously pursuing clinical trials to expand the potential use of
Bexxar to other indications. In a Phase I/II clinical trial of Bexxar, 42
patients with low-grade or transformed low-grade NHL who had relapsed from
previous chemotherapy regimens achieved an 83% overall response rate and a 48%
complete response rate. Of those patients who experienced a complete response,
the average duration of response was 20.2 months as of July 1997, the date of
the final study report. In December 1997, the Company presented data on a multi-
center, Phase II clinical trial in heavily pre-treated low-grade and transformed
low-grade NHL patients. The patients achieved a complete response rate of 31% of
the 45 evaluable patients with the median duration of complete response not yet
reached (longest complete response of greater than twenty months). In December
1998, the Company presented data from its pivotal Phase III clinical trial on 60
NHL patients who were refractory to chemotherapy. The results showed, with
statistical significance, that more patients experienced remission with a single
therapeutic dose of Bexxar compared to their last chemotherapy regimen and that
these remissions were of longer duration. The overall response rate was 65% with
a median duration of response of 6.5 months. The Company also announced in
December 1998, that the United States Food and Drug Administration ("FDA") had
designated Bexxar as a Fast Track Product for which the agency will take
appropriate actions to expedite development and review. The designation was
awarded because one of the targeted indications for the therapy is transformed,
low-grade NHL, a life-threatening unmet medical need. The Company believes that
Bexxar, if approved, would become the first radioimmunotherapy approved in the
United States for the treatment of people with cancer. Significant uncertainty
exists as to the extent to which the Fast Track designation will result in a
priority review and approval, and this designation does not ensure product
approval. The FDA could require additional clinical trials or other information
before approving Bexxar. The Company cannot predict the ultimate impact, if any,
of the Fast Track designation on the timing or likelihood of FDA approval of
Bexxar.
 
     The Company intends to pursue additional trials to expand the potential use
of Bexxar to other indications. The Company currently is conducting a
single-center Phase II trial in newly diagnosed low-grade NHL patients. An
interim analysis of data from the first 32 patients showed a 100% overall
response rate. Of the 24 patients for whom adequate data was available, 71%
achieved complete responses. Additionally, in nine of the patients, no evidence
of NHL could be detected at molecular levels using polymerase chain reaction
("PCR") analysis. As of April 1998, 24 patients were in on-going remission, with
the longest duration being 18.5 months.
 
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     The objective of the Company's second technology platform, the TAP pro-drug
program, is to broaden significantly the therapeutic windows of conventional
chemotherapies. The Company currently is developing a pro-drug version of
doxorubicin to treat certain solid tumor cancers with the objective of filing an
Investigational New Drug ("IND") application in 1999.
 
     The Company was incorporated under the laws of Delaware in February 1995.
The Company's conjugated antibody program is based upon the antibody
therapeutics program which originated in the late 1970s at Coulter Corporation,
a recognized leader in the field of hematology. Upon its formation in February
1995, the Company acquired worldwide rights to Bexxar and related intellectual
property, know-how and other assets from Coulter Corporation. In October 1997,
Coulter Corporation was acquired by Beckman Instruments, Inc., and is now known
as Beckman Coulter, Inc. ("Beckman Coulter"). In December 1998, the Company
announced a joint collaboration agreement with SmithKline Beecham Corporation
("SB") granting them joint marketing rights in the United States and exclusive
commercial rights internationally, except Japan, for Bexxar.
 
BACKGROUND
 
  Cancer: The Disease and Its Treatment
 
     Cancer afflicts millions of people worldwide. It is currently the second
leading cause of death in the United States and is estimated to account for more
than 560,000 deaths annually. Some forty percent of Americans are expected to
develop cancer and, despite noteworthy success in the treatment of some cancers,
about half of these cancer patients will die from the disease.
 
     Cancer is a family of more than one hundred diseases that can be
categorized into two broad groups: (i) hematologic or blood-borne malignancies
(e.g., lymphomas and leukemias) and (ii) solid tumor cancers (e.g., lung,
prostate, breast and colon cancers). Both groups are generally characterized by
a breakdown of the cellular mechanisms that regulate cell growth and cell death
("apoptosis") in normal tissues.
 
     Blood-borne cancers involve a disruption of the developmental processes of
blood cell formation, preventing these cells from functioning normally in the
blood and lymph systems. Death from blood-borne cancers ultimately is caused by
infection, organ failure or bleeding. While chemotherapy is the primary
treatment for blood-borne malignancies, many such malignancies are
radiosensitive and some localized lymphomas can be treated with radiation
therapy. Nonetheless, radiation therapy cannot be used in the treatment of most
blood-borne malignancies because the levels of radiation necessary to destroy
diseases that are widely disseminated within the body would result in severe
damage to the bone marrow of the patient, leading to life-threatening
suppression of the immune system, and other serious side effects.
 
     In solid tumor cancers, malignant tumors invade and disrupt nearby tissues
and can also spread throughout the body or "metastasize." The impact of these
tumors on vital organs such as the lungs and the liver frequently leads to
death. Surgery is used to remove solid tumors that are accessible to the surgeon
and can be effective if the cancer has not metastasized. Radiation therapy also
can be employed to irradiate a solid tumor and surrounding tissues and is a
first-line therapy for inoperable tumors, but side effects are a limiting factor
in treatment. Radiation therapy is used frequently in conjunction with surgery
either to reduce the tumor mass prior to surgery or to destroy tumor cells that
may remain at the tumor site after surgery. However, radiation therapy cannot
assure that all tumor cells will be destroyed and has only limited utility for
treating widespread metastases. While surgery and radiation therapy are the
primary treatments for solid tumors, chemotherapy and hormonal treatments often
are used as adjunctive therapies and also are used as primary therapies for
inoperable or metastatic cancers.
 
     Chemotherapy, which typically involves the intravenous administration of
drugs designed to destroy malignant cells, is used for the treatment of both
solid tumors and blood-borne malignancies. Chemotherapeutic drugs generally
interfere with cell division and are therefore more toxic to rapidly dividing
cancer cells. Since cancer cells can often survive the effect of a single drug,
several different drugs usually are given in a combination therapy designed to
target overlapping mechanisms of cellular metabolism to overwhelm the ability of
cancer cells to develop resistance to chemotherapy. Combination chemotherapy is
used widely as
 
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first-line therapy for leukemias and lymphomas and has had considerable success
in the treatment of some forms of these cancers. Nevertheless, partial and even
complete remissions obtained through chemotherapy often are not durable, and the
patient relapses when the cancer reappears and/or resumes its progression within
a few months or years of treatment. The relapsed patient's response typically
becomes shorter and shorter with each successive treatment regimen as the cancer
becomes resistant to the chemotherapy. Eventually, patients may become
"refractory" to chemotherapy, meaning that the length of their response, if any,
to treatment is so brief as to lead to the conclusion that further chemotherapy
regimens would be of little or no benefit.
 
     Chemotherapeutic drugs are not sufficiently specific to cancer cells to
avoid affecting normal cells, especially those that are growing rapidly. As a
result, patients often experience debilitating side effects such as nausea,
vomiting, hair loss, anemia, nerve toxicity and fatigue, as well as
life-threatening side effects such as immune system suppression and cardiac
toxicity. Such side effects can limit the effectiveness of therapy because the
clinician must avoid exceeding the maximum dose of drug that the patient can
tolerate. Since dosages must be limited to avoid unacceptable side effects, it
may not be possible to administer sufficiently high doses of chemotherapeutic
drugs to overcome the natural ability of cancer cells to become resistant. A
number of chemotherapeutic agents originally thought to have promise as cancer
drugs have failed in the clinic because the minimum effective dose exceeded the
maximum tolerable dose. Ideally, a chemotherapeutic agent would have a minimum
effective dose well below the maximum tolerable dose, thereby providing
physicians with a wide "therapeutic window" or a range of doses within which all
patients could be treated effectively.
 
     In cases of certain severe blood-borne malignancies and metastatic solid
tumor cancers, bone marrow transplants ("BMT") may be performed to treat
patients who typically have exhausted all other treatment options. Transplants
generally are performed in connection with regimens of aggressive chemotherapy
and/or radiation therapy. While techniques are improving, BMTs are associated
with side effects and high rates of mortality and morbidity and remain a very
expensive alternative.
 
  Emerging Methods of Treatment
 
     Scientific progress in the elucidation of the underlying molecular biology
of cancer in recent years has yielded a number of promising treatment
approaches. These approaches generally are designed to enhance the specificity
and potency of cancer therapeutics, to improve overall efficacy and to reduce
side effects. The Company believes that two of the most promising of these
approaches are (i) monoclonal antibodies that bind to targeted cells to
stimulate the body's immune system and/or to deliver cytotoxic agents to destroy
malignant cells and (ii) modifications of conventional chemotherapeutic drugs
and drug formulations to improve efficacy by expanding their therapeutic
windows.
 
     Monoclonal Antibodies. The human immune system is comprised of specialized
cells, including B-cells and T-cells, that function in the recognition,
destruction and elimination of disease-causing foreign substances and of virally
infected or malignant cells. Human antibodies, which are produced by the
B-cells, play a vital role in the proper functioning of the immune system. They
have predetermined functions based primarily upon their ability to recognize
specific antigens, which are molecular structures on the surface of
disease-causing substances or diseased cells. Each antigen serves as a binding
site for the antibody specific to that antigen, and each disease-causing
substance or diseased cell can be identified by its antigens.
 
     The ability of specific antibodies to bind to specific antigens that are
expressed on the surface of targeted cells, and to trigger an immune system
attack on those cells, provides the theoretical basis for the development of
cancer immunotherapeutics. In the 1970s, researchers discovered techniques to
produce unlimited supplies of identical murine (mouse-derived) antibodies,
referred to as monoclonal antibodies, by cloning antibody producing cells that
were derived from hybridization of a single B-cell. These techniques provided
researchers with the tools to identify and study specific antigens and to
produce potential therapeutics. In principle, once an antigen expressed by
malignant cells has been identified, a monoclonal antibody specific to that
antigen can be created. If an antibody could be produced that binds to an
antigen expressed exclusively by human cancer cells, the antibody would be
specific to only those cells. As a result, the use of such a monoclonal antibody
as a
 
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therapeutic would have few, if any, side effects. However, the development of
such a therapy has proven to be more problematic than originally hoped.
Immunotherapies based solely upon monoclonal antibodies have had only limited
clinical effectiveness, particularly in solid tumors where the uneven supply of
blood throughout such tumors prevents adequate exposure of monoclonal antibodies
to malignant cells.
 
     The effectiveness of a particular monoclonal antibody in the treatment of
cancer fundamentally is linked to the characteristics of the antigen to which it
binds. For example, while researchers have identified numerous antigens on
cancer cells that can be recognized by monoclonal antibodies, most of these
antigens are also expressed to some degree by other types of cells. An antibody
to such an antigen may not be sufficiently specific to the cancer cells to avoid
or minimize unintended side effects caused by damage to normal cells. Moreover,
the behavior of antigens following binding with an antibody is quite variable:
the bound antibody-antigen complex can remain on the cell surface, can be
internalized into the cell or can be released from the cell surface. Thus, the
identification of suitable antigens to serve as targets for therapeutic
monoclonal antibodies must account for these and other complexities.
 
     Once a suitable antigen has been identified, researchers have found that
different antibodies binding to different sites on the antigen may not have the
same biological activity, introducing another element of variability. Antibodies
also differ in the degree to which they stimulate an immune system response and
in the extent to which they have other effects on the cell. Even the most
effective antibodies have limited biological activity. In addition, research
conducted since the late 1970s has revealed the importance of selecting the
proper type of antibody for use in the intended therapy. Murine antibodies are
appropriate in treatments involving a single dose or other short treatment
regimen where it is beneficial that the antibodies, together with any
therapeutic conjugate, are metabolized and cleared from the body fairly quickly.
Chimerized or humanized antibodies are desirable for multi-dose or chronic
treatment regimens as they reduce the risk of a human immune response to the
antibodies themselves. While these manipulations of the antibodies have
permitted more extended therapeutic regimens in some circumstances, they do not
overcome the inherent limitations in the biological activity of the underlying
antibodies. Thus, despite early expectations, no monoclonal antibody has yet
been shown to be effective as a stand-alone, first-line therapy in the treatment
of cancer.
 
     Researchers have attempted to increase the effectiveness of antibodies by
attaching radioisotopes or other cytotoxic agents for use in
"radioimmunotherapy" or "chemoimmunotherapy," respectively. By using an antibody
to deliver a radioisotope or other cytotoxic agent to the targeted cells, the
effect of the radiation or cytotoxic agent can be concentrated in the immediate
vicinity of malignant cells. Development of effective radioimmunotherapies,
however, presents an additional set of challenges, including the need to select
an appropriate radioisotope for the intended therapy, to develop a reliable
means of linking the radioisotope to the antibody and to devise a therapeutic
protocol that optimizes therapeutic effect while minimizing undesirable side
effects. The development of effective chemoimmunotherapies presents similar
challenges.
 
     Enhancements of Conventional Chemotherapies. A number of organizations have
explored methods of improving the delivery of cytotoxic drugs to tumor cells,
with the objective of expanding the therapeutic window for these drugs in the
treatment of cancer. Approaches that have been commercialized include
encapsulation of the drug in a liposome to regulate the rate at which it is
released and impregnation of an implantable matrix with the drug to enable its
delivery locally over time as the matrix dissolves. Sustained release of
cytotoxic drugs using liposomal formulations has modestly enhanced the
therapeutic window for these compounds, but instability of the formulations and
accumulations in the skin have produced undesirable side effects. Surgical
implantation of a matrix is limited inherently to the treatment of localized
tumor masses and is not applicable to blood-borne or metastatic cancers.
 
     Another approach, the development of pro-drugs, involves the chemical
modification of cytotoxic drugs to render them inactive until they are delivered
to, or into the proximity of, targeted cancer cells. The pro-drug is transformed
into its active form only in the presence of enzymes or other chemicals produced
by the tumor cells. The preferential activation of a pro-drug in the tumor
milieu increases its lethal effect on tumor cells while limiting side effects to
non-malignant tissues. Pro-drug versions of cytotoxic drugs offer the potential
to broaden significantly the therapeutic windows of such drugs beyond that which
can be achieved using existing
 
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approaches such as liposomal formulations. Challenges that have constrained the
development of effective pro-drugs to date have included the inability to
construct or identify suitable tumor-specific activation mechanisms and
difficulties in designing pro-drugs that will have adequate stability in
circulation.
 
COULTER PHARMACEUTICAL'S APPROACH
 
     Coulter Pharmaceutical is developing a family of cancer therapeutics to
address the shortcomings of current therapies based upon two drug discovery
programs: therapeutic antibodies and targeted oncologics. Within these broad
drug discovery programs, the Company is currently concentrating on two distinct
platform technologies: therapeutic antibodies based on conjugated antibody
technology and targeted oncologics based on tumor activated peptide pro-drugs.
 
     The Company is developing conjugated antibody therapies to overcome the
inherent limitations of monoclonal antibodies when used as stand-alone
therapeutics and to provide advantages over current chemotherapy and radiation
therapy treatments. The Company believes that Bexxar, its first product
candidate, incorporates each of the principal attributes of an effective
radioimmunotherapy for the treatment of NHL: (i) an antigen specific to B-cells,
(ii) a therapeutically active monoclonal antibody, (iii) the radioisotope
appropriate for the disease profile, and (iv) an optimized therapeutic protocol.
 
     The Company intends to file a Biologic License Application ("BLA") with the
FDA in 1999 for the use of Bexxar for the treatment of low-grade and transformed
low-grade NHL in patients who have relapsed after or are refractory to
chemotherapy. The Company intends to seek priority review and marketing approval
for Bexxar, while simultaneously pursuing clinical trials to expand its
potential uses to other indications. The Company believes that Bexxar, if
successfully developed, would be the first radioimmunotherapy approved in the
United States for treatment of people with cancer.
 
     The Company believes that radioimmunotherapies will emerge as important
treatments for blood-borne cancers due to the radiosensitivity of these
malignancies and the ready accessibility of the blood and lymph systems to
monoclonal antibodies. Radioimmunotherapy also may become an important
adjunctive therapy for the treatment of certain solid tumor cancers following
surgery, radiation therapy or chemotherapy, where it may be useful in
eliminating circulating and other undetected malignant cells missed by primary
therapies. In the future, the Company intends to use its expertise in conjugated
antibodies to expand beyond radioimmunotherapy to develop effective
chemoimmunotherapies for the treatment of certain cancers.
 
     The Company's second technology platform, its TAP pro-drug technology, has
the potential to broaden significantly the therapeutic windows of conventional
chemotherapies based on the Company's understanding of biochemical mechanisms
involved in metastasis and the identification of a potential means for
exploiting these mechanisms. TAP pro-drug versions of existing cytotoxic drugs
are designed to be activated preferentially in the proximity of metastatic
cancer cells, yet stable in circulation and in normal tissues. Accordingly,
relatively larger quantities of cytotoxic agents are expected to reach and enter
malignant cells as opposed to normal cells, which could permit a significant
increase in maximum tolerated dosages, potentially overcoming drug resistance in
cancer cells. The Company also believes that cytotoxic agents currently
considered too toxic to be used in their unmodified forms may be suitable
candidates to become TAP pro-drugs.
 
COULTER PHARMACEUTICAL'S STRATEGY
 
     The Company's goal is to develop and commercialize novel drugs and drug
therapies for the treatment of people with cancer based on selected insights
from the emerging understanding of the molecular biology of malignant cells. The
Company's conjugated antibody program is based upon the antibody therapeutics
program which originated in the late 1970s at Beckman Coulter, a recognized
leader in the field of hematology. Upon its formation, Coulter Pharmaceutical
obtained worldwide rights to Bexxar and related intellectual property, as well
as a significant body of expertise pertaining to the selection and development
of suitable antibodies and appropriate radioisotopes (and other cytotoxic
agents) and methods for devising optimized therapies. The Company's TAP pro-drug
program is based upon technology that has been under development at Universite
Catholique de Louvain, Belgium, since 1986 and which was exclusively licensed to
 
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the Company in 1996. Based on this foundation, the Company has established a
strategy comprised of the following primary elements:
 
     Pursue Expedited Approval of Bexxar. The Company intends to seek expedited
FDA review for marketing approval for Bexxar for the treatment of low-grade and
transformed low-grade NHL in patients who have relapsed after or are refractory
to chemotherapy, while simultaneously pursuing clinical trials to expand the
potential use of Bexxar to other indications. The Company intends to file for
FDA marketing approval for this indication in 1999. In December 1998, the
Company announced that the FDA had designated Bexxar as a Fast Track Product for
which the agency will take appropriate actions to expedite review and
development. The Company also intends to seek approval for other NHL indications
based on additional clinical trials, and has commenced a Phase II clinical trial
of Bexxar as a stand-alone, first-line treatment for patients with newly
diagnosed low-grade NHL.
 
     Establish Sales and Marketing Capability. The Company intends to market and
sell its products in the United States through a direct sales force and, where
appropriate, in collaboration with marketing partners. This strategy is intended
to enable the Company to establish a commercial presence in the cancer
therapeutics market with Bexxar, if approved, and to create the capability to
sell other products that it may develop or in-license. The Company believes that
an established sales and marketing capability will enable it to compete
effectively for opportunities to license or distribute later-stage product
candidates and approved products. Internationally, the Company intends to
distribute its products through marketing partners. In December 1998 the company
entered into an agreement with SB to jointly commercialize Bexxar. The two
companies will co-promote Bexxar in the United States following regulatory
approval with each company fielding its own sales force and both companies
sharing profits equally. Outside the Unites States, excluding Japan, the Company
has granted SB exclusive marketing and distribution rights for Bexxar in return
for product royalties and milestone payments.
 
     Leverage Existing Technology Platforms. The Company intends to develop
additional products based on the lead compounds being generated in its TAP
pro-drug program and by leveraging its expertise in conjugated antibodies to
develop other immunotherapies. In its TAP pro-drug program, the Company
currently is engaged in preclinical development of Super-Leu-Dox, a pro-drug
version of doxorubicin, with the objective of filing an IND in 1999 and
commencing clinical trials in 2000. The Company also intends to apply its TAP
pro-drug technology to other classes of cytotoxic drugs to broaden significantly
the therapeutic windows of such agents. The Company is evaluating potential
conjugated antibody therapies for the treatment of other blood-borne
malignancies and selected solid tumor cancers.
 
     Leverage Development Expertise. The Company believes that it has built
substantial product development capabilities and expertise in the cancer field
due in part to the advanced stage of the Bexxar program since the time that it
was obtained from Coulter Corporation. The Company believes it can leverage this
development expertise to accelerate the development of other products in the
cancer therapeutics field. The Company intends to pursue other product
candidates derived from sponsored research or available for in-licensing in both
blood-borne malignancies and solid tumor cancers, particularly in areas that may
be complementary to its existing technology platforms.
 
     Utilize Contract Manufacturers. The Company intends to manufacture its
commercial products through contract manufacturers. This strategy is expected to
(i) accelerate the scale-up of manufacturing processes to commercial scale, (ii)
reduce initial capital investment, (iii) result in competitive manufacturing
costs, and (iv) provide access to a wide range of manufacturing technologies.
 
BEXXAR: RADIOIMMUNOTHERAPY FOR NON-HODGKIN'S LYMPHOMA
 
     The Company plans to file a BLA with the FDA in 1999 for its first product
candidate, Bexxar. The Company believes that Bexxar, if successfully developed,
would become the first radioimmunotherapy approved in the United States for the
treatment of people with cancer.
 
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  Non-Hodgkin's Lymphoma and Its Current Treatment
 
     Non-Hodgkin's lymphomas are blood-borne cancers of the immune system, all
sharing the common feature of a proliferation of malignant B-cells. According to
statistics from the National Cancer Institute, approximately 270,000 people are
afflicted with NHL in the United States. More than 56,000 new cases are expected
to be diagnosed in 1999. NHL is currently the sixth leading cause of death among
cancers in the United States and has the second fastest growing mortality rate.
 
     NHL is categorized by histology as either low-, intermediate- or high-grade
disease. These classifications differ significantly with respect to the speed of
disease progression, the pattern of response to and relapse after conventional
chemotherapy and the average life expectancy. In relapsed low-grade patients,
the disease can transform to an intermediate- or high-grade histology
("transformed low-grade NHL"). In the United States, the Company estimates that
approximately 140,000 patients have low-grade or transformed low-grade, 100,000
have intermediate-grade and 30,000 have high-grade NHL. Initially, the Company
is pursuing clinical development of Bexxar for the treatment of patients with
low-grade and transformed low-grade NHL. Patients with low-grade NHL have a
fairly long life expectancy from the time of diagnosis with a median survival of
more than six years. While patients with low-grade and transformed low-grade NHL
can often achieve one or more remissions with chemotherapy, these patients
eventually relapse. Relapsed patients are more difficult to treat as remissions
are harder to achieve and, if achieved, last for shorter periods of time as the
disease becomes more resistant to chemotherapy and/or transforms to an
intermediate- or high-grade histology. Patients ultimately die from the disease
or from complications of treatment. Intermediate- and high-grade NHL are more
rapidly growing forms of the disease. However, approximately one-half of all
intermediate- and high-grade cases can be treated effectively with conventional
chemotherapy.
 
  Description of Bexxar
 
     Bexxar consists of a radioisotope, (131)Iodine ("(131)I"), combined with a
monoclonal antibody that recognizes and binds to the CD20 antigen, an antigen
commonly expressed on the surface of B-cells primarily during that stage of
their life cycle when NHL arises. Bexxar is administered to patients in a
proprietary therapeutic protocol consisting of a single, two-dose regimen. The
Company believes that the potential benefits of Bexxar result from the following
four constituent elements:
 
     Proprietary Protocol. Bexxar is administered intravenously in a single,
two-dose regimen consisting of a dosimetric dose, three whole body gamma counts
and a therapeutic dose. The Company has rights in two issued patents relating to
methods for radioimmunotherapy and dosing using Bexxar and other anti-CD20
antibodies. The proprietary protocol is flexible: the timing of the counts and
of the therapeutic dose can be adjusted to some extent to accommodate the
schedules of clinicians and patients. The chart below depicts the protocol being
used in the Company's current clinical trials. The dosimetric dose consists of
35 mg of Anti-B1 Antibody trace-labeled with 5 millicuries ("mCi") of (131)I.
Immediately after the dosimetric dose, the patient undergoes a whole body gamma
count. The patient returns for two additional counts on the second, third or
fourth and the seventh or eighth days of the therapy to show how much of the
radiolabeled antibody has been eliminated from the body at each point in time.
This information is used to calculate the correct individualized therapeutic
dose to achieve a total body radiation of 75 centiGray ("cGy"). The amount of
radiolabeled antibody needed to achieve this optimal dose ranges from
approximately 40 to 200 mCi of (131)I due to wide patient-to-patient variability
in the rates at which the antibody is eliminated. The therapeutic dose is
administered once from seven to fourteen days after the dosimetric dose. Both
the dosimetric dose and the therapeutic dose are preceded by a 450 mg dose of
unlabeled Anti-B1 Antibody to improve the targeting of malignant B-cells by the
radiolabeled Anti-B1 Antibody. These pre-doses of unlabeled Anti-B1 Antibody
optimize the distribution of radiolabeled antibody in patients with bulky
disease or large spleens, minimize the required dose by slowing its elimination
from the body and may also contribute to the overall efficacy of the product.
Additionally, the patient takes non-radioactive iodine drops orally during the
course of the therapy to prevent uptake of (131)I into the thyroid gland.
 
                                        8
<PAGE>   9
 
                                    [IMAGE]
 
     Relying upon the dosimetric properties of (131)I to account for critical
patient-to-patient variability in the rate at which the antibody is cleared
makes it possible to deliver predictably a total body radiation dose that has
been determined to maximize therapeutic benefit with manageable side effects and
without the need for bone marrow rescue. Because Bexxar is administered in a
single, two-dose regimen and is well tolerated, it is expected to require
relatively little patient follow-up and physician intervention. In contrast,
chemotherapy requires administration of several cytotoxic agents in repeated
cycles of therapy over a six- to eight-month period during which the patient
must be monitored carefully and/or treated for side effects. Until recently,
patients have been kept in the hospital to monitor radiation levels for up to
four days following the therapeutic dose. However, under new Nuclear Regulatory
Commission ("NRC") regulations, patients are increasingly being treated with
Bexxar on an outpatient basis. Although the Company believes that Bexxar can be
administered primarily on an outpatient basis, some hospitals may be required to
administer the therapeutic dose on an inpatient basis under their own or under
applicable state or local regulations. See "-- Radioactive and Other Hazardous
Materials."
 
     CD20 Antigen. The CD20 antigen is a highly selective cell surface marker
found on B-cells: expression of the CD20 antigen is limited to B-cells, is found
on 95% of such cells and occurs on B-cells primarily during that stage of their
life cycle when NHL arises. The CD20 antigen is not expressed by stem cells,
B-cell progenitor cells or plasma cells; thus, these cells are not targeted by
Bexxar. As a result, while Bexxar targets and destroys both normal and malignant
B-cells, unaffected plasma cells continue to function in the immune system and
B-cell populations can be regenerated after therapy by unaffected B-cell
progenitor cells.
 
                                    [IMAGE]
 
     In addition, the CD20 antigen is neither internalized by the B-cell nor
released into circulation after it has been bound to the Anti-B1 Antibody,
ensuring that the antibody-radioisotope conjugate will remain in place to
destroy the B-cell.
 
     The Anti-B1 Antibody. The Anti-B1 Antibody exhibits very high specificity
for the CD20 antigen and, because it is a sub-class IgG(2a) antibody, is capable
of recruiting an immune response to those B-cells to which it binds. Further,
the Anti-B1 Antibody directly affects cell function, triggering apoptosis in a
portion of the B-cells to which it binds. The use of a murine antibody promotes
rapid clearance of unbound radiolabeled
 
                                        9
<PAGE>   10
 
antibody from circulation, which reduces radiotoxicity. Due to the impaired
state of the NHL patient's immune system and the short course of therapy, the
development of antibodies to the murine antibody has been minimal to date and
has not been a limiting factor in treatment under the protocol.
 
     The Anti-B1 Antibody used in Bexxar was generated in 1978 by the
Dana-Farber Cancer Institute in collaboration with Coulter Corporation. The
Anti-B1 Antibody has been available commercially from Coulter Corporation (now
Beckman Coulter) as a diagnostic reagent since 1982 and is generally accepted as
the reference standard for the identification of B-cells. Rights to the antibody
for therapeutic applications were transferred to Coulter Pharmaceutical from
Coulter Corporation in February 1995.
 
     (131)Iodine Radioisotope. The (131)I radioisotope used in Bexxar was
selected over other radioisotopes because it (i) produces both gamma emissions
which permit dosimetry for dose optimization and compact beta emissions for a
concentrated therapeutic effect, (ii) provides additional commercial and
clinical benefits based on its relatively long half-life, (iii) has
characteristics which reduce the risk of bone marrow damage without sacrificing
efficacy, and (iv) has long-established medical uses in other cancer treatments.
 
     Gamma emissions from (131)I permit dose optimization by enabling clinicians
to calculate the actual clearance rate of radiolabeled antibody for each
patient. Use of the same radioisotope for both the dosimetric and the
therapeutic dose provides assurance that the clearance rates observed in
dosimetry also will apply for the therapeutic dose. Having established the
patient's actual clearance rate, the clinician can determine reliably the
therapeutic dose which will deliver the optimized level of total body radiation.
 
     The comparatively lower energy and shorter path length of the beta emission
of (131)I concentrate the destructive energy of the radioisotope on the B-cell
to which the antibody is bound and to adjacent microscopic clusters of malignant
cells which are common to NHL. Moreover, (131)I causes minimal damage to nearby
normal tissues in contrast to other radioisotopes that have longer path length
beta emissions which may extend too far beyond the targeted area.
 
     The relatively long half-life of (131)I, approximately eight days, permits
radiolabeling at a centralized facility to ensure consistent quality, increase
the number of clinical sites capable of administering this radioimmunotherapy
and reduce overall manufacturing costs. The eight-day half-life also provides
the therapeutic advantage of exposing bound malignant cells to radiation over a
longer period of time than other radioisotopes with shorter half-lives.
 
     When bound to a B-cell, (131)I's energy and short path length, together
with its relatively long half-life, minimize bone marrow damage while optimizing
the therapeutic effect of the radiation. Further, as the Anti-B1 Antibody is
metabolized, the released (131)I radioisotope is eliminated rapidly and unlike
some other radioisotopes does not concentrate naturally in the bone matrix.
 
     (131)Iodine is currently an inexpensive radioisotope that has
long-established medical uses in other cancer treatments. Hence, medical
facilities and clinicians are accustomed to its handling, use and disposal and
already have developed the appropriate procedures and facilities for its safe
therapeutic application.
 
  Clinical Results and Development Plan
 
     The initial study of Bexxar was a Phase I/II dose escalation clinical trial
at the University of Michigan Medical Center which completed patient enrollment
in early 1996. This trial was used to develop and refine the proprietary
therapeutic protocol, to determine the maximum tolerated dose of total body
radiation and to assess the safety and efficacy profile of treatment with the
radiolabeled Anti-B1 Antibody in patients representing a full range of NHL
histologies. Based on the data generated in this clinical trial, the Company has
pursued clinical development of Bexxar for the treatment of low-grade and
transformed low-grade NHL.
 
     The following definitions apply to all discussions of the results of the
Company's clinical trials: A "complete response" is defined as the disappearance
of all detectable disease and all signs and symptoms of the disease. A "partial
response" is defined as a greater than 50% reduction in tumor measurement. The
"overall response" rate combines complete response with partial response.
Complete and partial response classifications also require that there be no
progression at any disease site and no new sites of disease.
 
                                       10
<PAGE>   11
 
     Phase I/II Trial Results. A total of 59 patients were enrolled in the Phase
I/II dose escalation clinical trial. Preliminary data from this clinical trial
were first published in August 1993 in the New England Journal of Medicine and
updated, interim clinical results were reported in July 1996 in the Journal of
Clinical Oncology. Of the 59 patients enrolled in this trial, 42 had low-grade
or transformed low-grade NHL, which are the histologies the Company has pursued
in its clinical trials. These 42 patients, who had failed on average more than
four prior treatment regimens with chemotherapy, achieved an 83% overall
response rate, with a 48% complete response rate and a 35% partial response
rate. This 42-patient cohort included eight patients who previously had received
and failed an autologous bone marrow transplant prior to participation in the
clinical trial. The 42 patients in this cohort received total body radiation
doses of up to 85 cGy in this dose escalation trial. Four of the 42 patients did
not receive the therapeutic dose of radiolabeled antibody due to their rapidly
deteriorating medical condition or the presence of an antibody response to the
murine antibody, which arose prior to May 1993 in the early stages of the Phase
I/II dose escalation clinical trial under the yet to be optimized treatment
protocol. Of the 38 patients who received a therapeutic dose, 53% experienced a
complete response with an average duration of response of 20.2 months, with a
range of five to 46 months as of July 1997. As of such date, nine of these
patients were still in complete response.
 
     On an intent-to-treat basis, which includes all enrolled patients whether
treated or not, the 59 enrolled patients achieved an overall response rate of
71%, with a complete response rate of 34% and a 37% partial response rate. Of
the 17 patients in this trial who had intermediate- or high-grade NHL, the
overall response rate was 41%, with no complete responders. While this data is
encouraging, the Company currently is pursuing clinical development of Bexxar in
low-grade and transformed low-grade NHL patients.
 
     Bexxar was generally well tolerated by patients. Dose limiting side effects
were hematologic, consisting primarily of reversible declines in blood cell
counts. These toxicities were generally mild to moderate, with no patient
requiring stem cell rescue. Other side effects observed were mild and consisted
primarily of temporary flu-like symptoms.
 
     As part of its phase I/II dose escalation study, 13 patients who had
responded to an initial treatment with Bexxar were retreated following relapse.
Data concerning there patients was presented at the American Society of Clinical
Oncology meeting in May 1998. Eight of the 13 patients responded to treatment
with four of the 13 patients experiencing a complete response. In patients who
had achieved a complete response after initial treatment with Bexxar, five of
six experienced an overall response and three of six achieved a second complete
response.
 
     Phase II Dosimetry Validation Clinical Trial. The Company completed a
multi-center dosimetry validation clinical trial in a total of 47 patients with
relapsed or refractory low-grade and transformed low-grade NHL in order to
demonstrate that Bexxar's treatment protocol could be implemented consistently
at multiple clinical sites. During this trial, the Company refined its
proprietary protocol to streamline the therapeutic dose calculation,
establishing that accurate antibody elimination rates could be determined from
three gamma camera scans. Overall, 45 of the 47 enrolled patients were
evaluable, having received the protocol-specified therapy. The evaluable
patients had received on average, over four prior therapies, 42% had bulky
disease (tumor burden of greater than 500 grams), and 53% had not responded to
their last chemotherapy. Of the evaluable patients, 31% (14 patients) achieved a
complete response. Ten of the 14 patients with a complete response had not
relapsed with the longest duration of response exceeding 20 months as of
December 1997. As of that date, the median duration of complete response had not
been reached. None of the evaluable patients developed human anti-mouse
antibodies. A complete response was achieved at each clinical site involved in
the trial.
 
     Phase III Pivotal Trial. In December 1998, the Company presented results
from its pivotal Phase III trial of 60 NHL patients refractory to chemotherapy.
The patients represented a difficult-to-treat group, having either no response
to prior chemotherapy, or disease progression within six months of their last
chemotherapy regimen. The primary clinical endpoint was the comparison between
the patient's duration of remission on Bexxar and the duration of remission on
the patient's last chemotherapy, as assessed by a masked, randomized review of
efficacy data by an independent panel of physicians. Of the 41 cases where
response durations to chemotherapy and Bexxar were not equivalent, 32 patients
(78 percent) experienced a
 
                                       11
<PAGE>   12
 
longer duration of response to Bexxar compared to only nine patients (22
percent) who experienced a longer duration of response to prior chemotherapy.
The median duration of remission on Bexxar was 6.5 months, approximately
doubling the 3.4-month median duration of remission experienced on their last
chemotherapy. At December 1998, the longest duration of remission in this trial
with Bexxar was ongoing at 17.3 months. The overall response rate, a secondary
clinical endpoint, also was significantly greater on Bexxar with 39 of 60
patients (65 percent) responding to Bexxar compared to only 17 of 60 patients
(28 percent) responding to prior chemotherapy. In addition, ten of 60
Bexxar-treated patients (17 percent) experienced a complete remission (or
complete elimination of signs and symptoms of the disease) compared to only two
of 60 patients (3 percent) who experienced a complete remission on prior
chemotherapy. Bexxar was well tolerated with mild to moderate non-hematologic
toxicity and acceptable hematologic toxicity.
 
     Results presented are based upon interim data which have been submitted to
the FDA, certain portions of which have not yet been published in a peer
reviewed publication. No assurance can be given that the Company's future
clinical results will be consistent with the results of the Phase I/II dose
escalation, the Phase II dosimetry validation and the Phase III pivotal clinical
trials, which were conducted at relatively few sites with a relatively small
number of patients per NHL histology and disease stage and some of which had
different clinical objectives than the Company's current or planned clinical
trials. See "Risk Factors -- Uncertainties Related to Product Development."
 
  Clinical Development of Bexxar
 
     Based on the foregoing results of the Phase I/II, Phase II dosimetry
validation and Phase III pivotal clinical trials, the Company will rely on three
additional clinical trials to support an application to the FDA for the initial
marketing approval of Bexxar expected to be filed in 1999; (i) interim data from
an ongoing expanded access clinical trial, (ii) interim data from an ongoing
Phase II clinical trial to evaluate the extent to which the therapeutic benefit
of Bexxar is derived from the combination of the Anti-B1 Antibody and the
radioisotope, in comparison to the Anti-B1 Antibody alone; and (iii) to expand
the use of Bexxar to other indications and to support the initial BLA, interim
data from an ongoing Phase II clinical trial of Bexxar as a first-line treatment
for patients with low-grade NHL and intends to conduct additional clinical
trials in the future. The Company's collaboration agreement with SB provides for
SB to participate in the administration, management and funding of certain
current and future clinical trials.
 
     Expanded Access Clinical Trial. The Company currently is conducting a
multi-center expanded access trial for patients with NHL who have failed prior
chemotherapy. The program was established by the Company in response to requests
from physicians and patients for continued access to Bexxar during the period
prior to potential FDA marketing approval. The trial is expected to include
approximately 100 community and academic oncology centers across the United
States.
 
     Phase II Unlabeled Versus Labeled Antibody Clinical Trial. The Company is
conducting a multi-center Phase II clinical trial in 78 patients with relapsed,
low-grade and transformed low-grade NHL. Patients are randomized into two
groups: one group receives Bexxar pursuant to the proprietary protocol; the
other group receives two 485 mg doses of unlabeled Anti-B1 Antibody eight days
apart in a treatment regimen that is parallel to Bexxar. The objective of this
clinical trial is to assess the incremental clinical activity from radiolabeling
the Anti-B1 Antibody as compared to the clinical activity of the unlabeled
Anti-B1 Antibody alone. Administration of the unlabeled Anti-B1 Antibody has not
been designed for use as a stand-alone therapy, nor has the treatment regimen
been optimized for such use. This trial was the subject of an abstract presented
at the 1997 American Society of Therapeutic Radiation Oncology meeting in
October 1997. The Company's objective is to complete enrollment of patients in
this clinical trial in 1999.
 
     Phase II First-Line, Stand-Alone Treatment Clinical Trial. The Company
currently is conducting a single-center Phase II trial in up to 80 newly
diagnosed low-grade NHL patients. An interim analysis of data from the first 32
patients presented at the American Society of Clinical Oncology meeting in May
1998 showed a 100% response rate with 71% achieving a complete response.
Additionally, in nine of the patients, no evidence of NHL could be detected at
molecular levels using PCR analysis. As of April 1998, 24 patients were in
ongoing remission, with the longest duration being 18.5 months. Side effect were
generally mild to moderate
 
                                       12
<PAGE>   13
 
and self-limited. The Company believes that its Phase II trial of Bexxar for
patients newly diagnosed with NHL is the first trial of radioimmunotherapy as a
stand alone, first-line treatment for people with cancer. The Company's
objective is to complete enrollment of patients in this clinical trial in the
first half of 1999.
 
     The ability of the Company to conduct and complete its ongoing and planned
clinical trials in a timely manner is subject to a number of uncertainties and
risks, including the rate at which patients can be accrued in each clinical
trial, the Company's ability to obtain necessary regulatory approvals, the
capacity of the Company's contract manufacturers to supply unlabeled and
radiolabeled Anti-B1 Antibody as needed for patient treatment and the occurrence
of unanticipated adverse events. Any suspension or delay of one or more of such
clinical trials could have a material adverse effect on the Company's business,
financial condition and results of operation. See "Risk Factors -- Uncertainties
Related to Product Development," "-- Government Regulation; No Assurance of
Regulatory Approvals," and "-- Dependence on Suppliers; Manufacturing and
Scale-up Risk."
 
     Use of Bexxar for Bone Marrow Transplantation. The radiolabeled Anti-B1
Antibody has been the subject of other clinical trials to assess the efficacy of
using the radiolabeled Anti-B1 Antibody to deliver the high levels of radiation
necessary to prepare patients for autologous bone marrow transplants. The
conventional preparation for autologous bone marrow transplants is chemotherapy
and total body irradiation. These clinical trials were designed to determine the
maximum tolerated dose, response duration and rates of response,
progression-free survival and overall survival.
 
     The first of two clinical trials conducted at the University of Washington
Medical Center and the Fred Hutchinson Cancer Research Center tested
(131)I-labeled Anti-B1 Antibody as a single agent to prepare patients for an
autologous bone marrow transplant by achieving a total body radiation level of
up to 997 cGy (over ten times Bexxar's dose). As reported in The Lancet in
August 1995, of the 21 patients receiving the full radiotherapeutic regimen, the
overall response rate was 86%, with a 76% complete response rate and a 10%
partial response rate. Interim data from this clinical trial were published in
the New England Journal of Medicine in October 1993. The second clinical trial,
currently ongoing, is designed to test the combination of similarly high doses
of radiolabeled Anti-B1 Antibody and high doses of chemotherapy in preparation
for autologous bone marrow transplant. This clinical trial has enrolled 43
patients since its commencement in January 1995. Data from this clinical trial
was presented at the American Society of Clinical Oncology meeting in May 1998.
In this Phase I/II trial, 28 of 43 patients (65%) had low grade and 15 of 43
patients (35%) had intermediate or high grade NHL. Of the 42 evaluable patients,
31 of 42 patients (74%) are progression-free after a median follow-up of 1.5
years. All patients experienced myelosuppression by design with the high dose
combination regimen of chemotherapy and Bexxar (at a level approximately four to
ten times the mean standard dose of Bexxar). Other dose-limiting toxicities
included pulmonary and gastrointestinal toxicities.
 
     In addition, a Phase II dose escalation clinical trial is ongoing at the
University of Nebraska for the combined use of standard dose radiolabeled
Anti-B1 Antibody and high dose chemotherapy as preparation for autologous bone
marrow transplant.
 
     Other Clinical Trials. The Company is also conducting a Phase I
multi-center investigational trial in patients previously treated with Bexxar.
This open label trial includes low-, intermediate-, and high-grade NHL patients
who have relapsed from their initial Bexxar treatment.
 
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<PAGE>   14
 
TAP PRO-DRUG PLATFORM
 
     The Company's second technology platform, its tumor-activated peptide
pro-drug technology, has the potential to broaden significantly the therapeutic
window of cytotoxic agents. The TAP pro-drug technology is based upon an
understanding of the biochemical mechanisms utilized by cancer cells to
metastasize and the identification of a potential means for exploiting these
mechanisms and is being developed in collaboration with the Universite
Catholique de Louvain, Belgium. TAP pro-drugs are designed to be (i) activated
preferentially at the tumor site by enzymes secreted by the tumor, (ii) stable
in circulation and in normal tissues and (iii) unable to penetrate normal cells
or malignant cells until activated. As a result, relatively larger quantities of
cytotoxic agents are expected to reach and enter malignant cells as opposed to
normal cells, which could permit a significant increase in maximum tolerated
dosages, potentially overcoming drug resistance in cancer cells. The Company's
lead preclinical pro-drug candidate is a pro-drug version of doxorubicin known
as Super-Leu-Dox. Doxorubicin is an off-patent chemotherapeutic drug which
currently is used in the treatment of a number of solid tumor cancers, including
breast, prostate, ovarian and soft-tissue sarcoma cancers.
 
                                    [IMAGE]
 
     As depicted in the graphic above, Super-Leu-Dox is based on a proprietary
peptide of four amino acids (a "tetrapeptide") that can be linked to
doxorubicin's active site. In the two-step activation process, (1) the
extracellular tumor enzyme cleaves three amino acids from the tetrapeptide
leaving a leucine amino acid-doxorubicin conjugate that is able to penetrate
cells. (2) The resulting conjugate is then capable of entering cells. Since this
first activation step occurs in the immediate vicinity of tumor cells that are
secreting the enzyme, the probability that the cytotoxic drug will enter tumor
cells as opposed to normal cells is increased. Moreover, the conjugate remains
inactive inside the cells until (3) the remaining leucine is removed from
doxorubicin's active site by an intracellular enzyme. Although it is expressed
in both normal and tumor cells, this intracellular enzyme is present in tumor
cells in concentrations three to five times higher than in normal cells. As a
result, (4) the doxorubicin is activated to a greater extent in tumor cells
relative to normal cells.
 
     This two-step activation process is designed to produce a significantly
higher ratio of active to inactive doxorubicin in cancer cells relative to
normal cells. In in vitro studies of Super-Leu-Dox, researchers have found that
the concentration of activated to inactivated doxorubicin in tumor cells was 40
times higher than in normal cells. These results, if confirmed in clinical
trials, offer the potential to improve significantly the therapeutic window of
doxorubicin. The Company currently plans to complete preclinical development of
Super-Leu-Dox and to commence clinical trials in 2000.
 
     Prior to the licensing of the TAP pro-drug technology by Coulter
Pharmaceutical, an earlier generation leucine-doxorubicin conjugate was tested
as a stand-alone therapy for the treatment of solid tumors in two separate dose
escalation clinical trials in Europe. A total of 59 patients were enrolled in
these clinical trials, and patients safely tolerated doses well in excess of
those associated with unmodified doxorubicin. Results from these clinical
trials, along with data from preclinical studies, will be used by the Company to
select the initial indication to pursue in clinical trials of Super-Leu-Dox.
Selection of the particular indication or indications to be evaluated in such
clinical trials has not been finalized.
 
                                       14
<PAGE>   15
 
     While the Company will focus initially on previously approved
chemotherapeutic drugs, it also is evaluating TAP pro-drug versions of cytotoxic
agents currently considered too toxic to be used in their unmodified forms. The
Company believes that the TAP pro-drug technology potentially can be applied to
several classes of cytotoxic agents, including the vinca alkaloids, which are
used commonly to treat blood-borne malignancies and some solid tumors. The
Company also plans to develop and evaluate other peptide structures for possible
use in pro-drug versions of cytotoxic agents and other cancer therapeutics.
 
     Under its agreement with Catholique Universite de Louvain, Belgium, the
Company has secured an exclusive license to the intellectual property underlying
the program and will pay royalties on sales of licensed products. The agreement
also provides for specified minimum payments, including one payment that will be
due if the Company should elect to relocate the program outside of Belgium. The
amounts of these payments are not material and, in any event, the Company does
not currently intend to relocate the research program. In 1997, the Company also
entered into a sponsored research agreement with Catholique Universite de
Louvain to conduct research in the area of TAP pro-drugs.
 
OTHER PRODUCT CANDIDATES
 
     In 1997, the Company began a program which actively seeks to in-license
promising product development candidates in the area of cancer therapeutics with
the objective of expanding the Company's product pipeline.
 
RESEARCH AND DEVELOPMENT
 
     The Company incurred research and development expenses of $13.7 million,
$21.0 million, $28.7 million and $66.0 million for the years ended December 31,
1996, 1997 and 1998, and for the period from inception (February 16, 1995) to
December 31, 1998, respectively.
 
MANUFACTURING
 
     The Company intends to utilize contract manufacturers for most of the
preclinical and clinical requirements for its potential products and for all of
its commercial needs. This strategy is expected to (i) accelerate the scale-up
of manufacturing processes to commercial scale, (ii) reduce initial capital
investment, (iii) result in competitive manufacturing costs, and (iv) provide
access to a wide range of manufacturing technologies. The Company's
collaboration agreement with SB provides for SB to participate in the planning,
management and funding of manufacturing development.
 
     Pursuant to several contracts with the Company, Lonza Biologics PLC
("Lonza") now is supplying the Anti-B1 Antibody for use in ongoing clinical
trials and to meet commercial requirements. There can be no assurance that the
material produced by Lonza will be suitable for human use and that clinical
trials or commercial supply will not be delayed or disrupted if Lonza is unable
to meet the Company's demand for product.
 
     In addition, the Company has entered into agreements with Boehringer
Ingleheim Pharma KG ("BI Pharma KG") to manufacture and supply Anti-B1 Antibody
for use in ongoing clinical trials and to meet commercial requirements as well
as provide for fill/finish and packaging services. The Company has committed to
minimum order quantities of the Anti-B1 antibody from BI Pharma KG. The maximum
amount of the penalty which would be payable if the Company did not place orders
to purchase any antibody is approximately $5.4 million. There can be no
assurance that the material produced by BI Pharma KG will be suitable for human
use and that clinical trials or commercial supply will not be delayed or
disrupted if Pharma KG is unable to meet the Company's demand for product.
 
     Radiolabeling currently is conducted at MDS Nordion Inc.'s ("Nordion")
centralized radiolabeling facility. The Company has several contracts with
Nordion that provide for radiolabeling services for clinical and commercial
product. There can be no assurance that material produced by Nordion will be
suitable for human use and clinical trials or commercial supply will not be
delayed or disrupted if Nordion is unable to meet the Company's demand for
product.
 
                                       15
<PAGE>   16
 
     If Bexxar is successfully developed and is approved for marketing by the
FDA, the Company expects that production for commercialization will consist of
(i) production of bulk Anti-B1 Antibody by Lonza and BI Pharma KG, (ii) filling
and labeling of individual product vials with Anti-B1 Antibody by another
third-party supplier and/or BI Pharma KG, and (iii) radiolabeling of Anti-B1
Antibody at Nordion. While the Company plans to develop additional suppliers of
these services, it expects to rely on its current suppliers for all or a
significant portion of its requirements for Bexxar for the foreseeable future.
Radiolabeled antibody cannot be stockpiled against future shortages due to the
eight-day half-life of the (131)I radioisotope. Accordingly, any change in the
Company's existing or planned contractual relationships with, or interruption in
supply from, its third-party suppliers could adversely affect the Company's
ability to complete its ongoing clinical trials and to market Bexxar, if
approved. Any such change or interruption would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors -- Dependence on Suppliers; Manufacturing and Scale-up Risk."
 
     The Company believes that the products it expects to develop in its TAP
pro-drug program can be produced with standard chemical synthesis processes and
expects to utilize third parties to meet clinical trial and any commercial
requirements for these products. The Company is in discussions with potential
manufacturers of Super-Leu-Dox, its initial TAP pro-drug product candidate.
There can be no assurance that agreements will be entered into in a timely
manner or under acceptable terms or that the material produced under the
agreements will be suitable for human use.
 
DISTRIBUTION
 
     The unique properties of the Bexxar therapy require the distribution of the
product to be tightly controlled. Due to its radioactive component, the product
is shipped in a shielded container and must arrive at its destination within
24 - 48 hours of production. The product must also be under controlled
temperature during shipment. The company will rely on many third parties to
process orders and to package, store and ship the product. The Company is
working with these suppliers to establish a commercial scale system for the
product which will minimize risk and loss of inventory and provide efficient
service to customers. There can, however, be no assurance that these third
parties will handle the product in a manner that will minimize loss and damage
of inventory. The Company is in the process of negotiating several contracts for
the handling of the product before it is delivered to the customer. There can be
no assurance that the Company will be able to enter into such agreements on
commercially reasonable terms, on a timely basis or at all.
 
MARKETING AND SALES
 
     The Company intends to market and sell its products in North America
through a direct sales force and, where appropriate, in collaboration with
marketing partners. This strategy is intended to enable the Company to establish
a commercial presence in the cancer therapeutics market with Bexxar, if
approved, and to create the capability to sell other products that it may
develop or in-license. The sales force is expected to initially call on
oncologists, hematologists and nuclear medicine physicians in connection with
the sale of Bexxar. The Company initially will focus its sales efforts on those
physicians who treat the largest volume of NHL patients. These physicians
generally are concentrated in large metropolitan areas. Because of the
characteristics of Bexxar, the target physician must have access to a facility
with radiopharmaceutical and gamma count capabilities. The Company believes such
facilities are available in large metropolitan areas such that a significant
portion of physicians who treat NHL patients will be able to prescribe Bexxar.
The Company intends to distribute its products internationally through marketing
partners.
 
     In December 1998, the Company entered into an agreement with SB to jointly
commercialize Bexxar. The two companies will co-promote Bexxar in the United
States following regulatory approval, with each company fielding its own sales
force and both companies sharing profits equally. Outside the United States,
excluding Japan, the Company has granted SB exclusive marketing and distribution
rights in return for milestone payments and product royalties.
 
     The current purchasers of cancer therapeutics are hospitals, clinics,
physicians, pharmacies, large HMOs and state and federal governments.
Historically, physicians made treatment decisions and prescribed
 
                                       16
<PAGE>   17
 
therapeutics which then were dispensed through the clinic, hospital or pharmacy.
However, the United States health care system is undergoing significant changes
and the decision-making authority of the physician varies. These changes may
make it necessary for the Company to alter its marketing strategy prior to the
launch of Bexxar or even after launch and could affect adversely the ability of
the Company to generate revenues.
 
     The Company's ability to market effectively may be affected adversely by a
number of factors including physicians' resistance to change from established
methods of treatment such as chemotherapy or radiation therapy and the special
handling and administration requirements of a radioimmunotherapy. Further, the
Company can provide no assurance as to whether Bexxar will be priced
competitively compared to existing methods of treatment such as chemotherapy and
radiation therapy. See "Risk Factors -- Uncertainty of Market Acceptance of
Bexxar."
 
PHARMACEUTICAL PRICING AND REIMBURSEMENT
 
     Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Initiatives to reduce
the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company to limit or
eliminate spending on development projects and affect the Company's ultimate
profitability. Legislative debate is expected to continue in the future, and
market forces are expected to drive reductions of health care costs. The Company
cannot predict what impact that adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
 
     In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payors increasingly are challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Bexxar, as potentially the first radioimmunotherapy for cancer, faces particular
uncertainties due to the absence of a comparable, approved therapy to serve as a
model for pricing and reimbursement decisions. There can be no assurance that
the Company's product candidates will be considered cost effective or that
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. Further, there can be no assurance that
products can be manufactured on a commercial scale at a cost that will enable
the Company to price its products within reimbursable rates. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement rates are not provided by the government and
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
 
GOVERNMENT REGULATION
 
     The testing, manufacturing, labeling, advertising, promotion, export and
marketing, among other things, of the Company's proposed products are subject to
extensive regulation by governmental authorities in the United States and other
countries. In the United States, pharmaceutical products are regulated by the
FDA under the Federal Food, Drug and Cosmetic Act and other laws, including, in
the case of biologics, the Public Health Service Act. At the present time, the
Company believes that Bexxar and other immunotherapeutics that it may develop
will be regulated by the FDA as biologics and that other products to be
developed by the Company, including Super-Leu-Dox and other TAP pro-drugs, are
likely to be regulated as drugs.
 
                                       17
<PAGE>   18
 
     The steps required before a drug or biologic may be approved for marketing
in the United States generally include (i) preclinical laboratory tests and
animal tests, (ii) the submission to the FDA of an IND for human clinical
testing, which must become effective before human clinical trials may commence,
(iii) adequate and well-controlled human clinical trials to establish the safety
and efficacy of the product, (iv) in the case of a biologic, the submission to
the FDA of a BLA, or in the case of a drug, a New Drug Application ("NDA"), (v)
FDA review of the BLA (or PLA/ELA) or NDA and (vi) satisfactory completion of an
FDA inspection of the manufacturing facilities at which the product is made to
assess compliance with Good Manufacturing Practices ("GMP"). The testing and
approval process requires substantial time, effort and financial resources, and
there can be no assurance that any approval will be granted on a timely basis,
if at all.
 
     Preclinical studies include laboratory evaluation of the product, as well
as animal studies to assess the potential safety and efficacy of the product.
The results of the preclinical studies, together with manufacturing information
and analytical data, are submitted to the FDA as part of the IND, which must
become effective before clinical trials may be commenced. The IND automatically
will become effective thirty days after receipt by the FDA, unless the FDA
before that time raises concerns or questions about the conduct of the trials as
outlined in the IND. In such case, the IND sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
 
     Clinical trials involve the administration of the investigational products
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Further, each clinical trial must be reviewed and approved by an
independent Institutional Review Board ("IRB") at each institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
 
     Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to (i) evaluate the efficacy of the drug for specific, targeted indications,
(ii) determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. Phase III clinical trials generally further
evaluate clinical efficacy and test further for safety within an expanded
patient population and at multiple clinical sites. Phase IV clinical trials are
conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication and to document a clinical
benefit in the case of drugs approved under accelerated approval regulations. If
the FDA approves a product while a company has ongoing clinical trials that were
not necessary for approval, a company may be able to use the data from these
clinical trials to meet all or part of any Phase IV clinical trial requirement.
These clinical trials are often referred to as "Phase III/IV post-approval
clinical trials." Failure to conduct promptly Phase IV clinical trials could
result in withdrawal of approval for products approved under accelerated
approval regulations.
 
     In the case of products for severe or life-threatening diseases, the
initial clinical trials are sometimes done in patients rather than in healthy
volunteers. Since these patients are afflicted already with the target disease,
it is possible that such clinical trials may provide evidence of efficacy
traditionally obtained in Phase II clinical trials. These trials are referred to
frequently as Phase I/II trials. There can be no assurance that Phase I, Phase
II or Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
 
     The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a BLA or NDA requesting approval to market
the product. Before approving a BLA or NDA, the FDA will inspect the facilities
at which the product is manufactured and will not approve the product unless the
manufacturing facility complies with GMP. The FDA may delay approval of a BLA or
NDA if applicable regulatory criteria
 
                                       18
<PAGE>   19
 
are not satisfied, require additional testing or information, and/or require
post-marketing testing and surveillance to monitor safety or efficacy of a
product. There can be no assurance that FDA approval of any BLA or NDA submitted
by the Company will be granted on a timely basis, if at all. Also, if regulatory
approval of a product is granted, such approval may entail limitations on the
indicated uses for which such product may be marketed.
 
     The Company also will be subject to a variety of foreign regulations
governing clinical trials and sales of its products. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in those countries. The approval process varies from
country to country and the time needed to secure approval may be longer or
shorter than that required for FDA approval.
 
FOOD AND DRUG ADMINISTRATION MODERNIZATION ACT OF 1997
 
     In September 1998, the Company submitted a request to the FDA for the
designation of Bexxar (for the treatment of patients with relapsed or refractory
low-grade NHL) as a Fast Track product. The Fast Track designation means that
the FDA will take such actions as are appropriate to expedite the development
and review of the license for approval. In December 1998, the Company announced
that it was notified by the FDA that Bexxar met the criteria for Fast Track
designation. The designation was awarded because one of the targeted indications
for the therapy is transformed, low-grade NHL, a life-threatening unmet medical
need.
 
ORPHAN DRUG DESIGNATION
 
     Under the Orphan Drug Act and the Orphan Drug Amendments of 1998, the FDA
may grant orphan drug designation to drugs intended to treat a "rare disease or
condition," which is generally a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting a BLA. After the FDA grants orphan drug designation,
the generic identity of the therapeutic agent and its potential orphan use are
disclosed publicly by the FDA. Orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory review and approval
process. If a product that has orphan drug designation subsequently receives FDA
approval for the indication for which it has such designation, the product is
entitled to orphan exclusivity, i.e., the FDA may not approve any other
applications to market the same drug for the same indication, except in very
limited circumstances, for seven years. Bexxar received orphan drug designation
from the FDA in May 1994. Although the FDA recently decided to remove NHL from
the list of diseases for which orphan drug designation may be obtained, the
previous designation of Bexxar will not be affected. In any event, there can be
no assurance that competitors will not receive approval of other, different
drugs or biologics for low-grade NHL. Thus, although obtaining FDA approval to
market a product with orphan drug exclusivity can be advantageous, there can be
no assurance that it would provide the Company with a material commercial
benefit.
 
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
 
     The manufacturing and administration of Bexxar requires the handling, use
and disposal of (131)I, a radioactive isotope of iodine. These activities must
comply with various state and federal regulations, regarding the handling, use
and disposal of radioactive materials. Violations of these regulations could
significantly delay completion of clinical trials and commercialization of
Bexxar. For its ongoing clinical trials and for commercial-scale production, the
Company relies on Nordion to radiolabel the Anti-B1 Antibody with (131)I at a
single location in Canada. Violations of safety regulations could occur and the
risk of accidental contamination or injury cannot be eliminated completely. In
the event of any such noncompliance or accident, the supply of radiolabeled
Anti-B1 Antibody for use in clinical trials or commercially could be
interrupted, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Manufacturing."
 
     The administration of Bexxar entails the introduction of radioactive
materials into patients. These patients emit radioactivity at levels that may
pose a safety concern to others around them, especially healthcare workers for
whom the cumulative effect of repeated exposure to radioactivity is of
particular
 
                                       19
<PAGE>   20
 
concern. These concerns are addressed in regulations promulgated by the NRC, as
well as by various state and local governments and individual hospitals.
Generally, patients who emit radioactivity above specified levels are required
to be admitted to the hospital, where they can be isolated from others until
radiation falls to approved levels. The NRC recently modified its regulations to
make it easier for hospitals to treat patients with radioactive materials on an
outpatient basis. Under these modified regulations, Bexxar may be administered
on an outpatient basis in most cases. Although state and local governments often
follow the lead of the NRC, many currently do not, and there can be no assurance
that they will do so or that patients receiving Bexxar will not have to remain
in the hospital for one to four days following administration of the therapeutic
dose, adding to the overall cost of the therapy.
 
     The Company also expects to use hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, as well as for unexpected remedial costs and penalties that
may result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations.
 
PATENTS AND OTHER INTELLECTUAL PROPERTY
 
     The Company believes that patent and trade secret protection is important
to its business and that its future will depend in part on its ability to
maintain its technology licenses, protect its trade secrets, secure additional
patents and operate without infringing the proprietary rights of others. The
Company currently holds exclusive rights to two issued United States patent and
several patent applications that relate to the Bexxar therapeutic protocol. The
Company also holds exclusive rights to a United States patent application
relating to the manufacture of Bexxar and to several patent applications
relating to the dosimetry methods employed in the administration of Bexxar. The
Company also holds an exclusive license to patent applications filed in the
United States and Europe relating to its TAP pro-drug program.
 
     The pharmaceutical and biotechnology fields are characterized by a large
number of patent filings. A substantial number of patents have already been
issued to other pharmaceutical and biotechnology companies. Research has been
conducted for many years in the monoclonal antibody field by pharmaceutical and
biotechnology companies and other organizations. Competitors may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to those of the Company. Patent applications are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. The Company may not be aware of all of the patents
potentially adverse to the Company's interest that may have been issued to other
companies, research or academic institutions, or others. No assurances can be
given that such patents do not exist, have not been filed, or could not be filed
or issued, which contain claims relating to the Company's technology, products
or processes.
 
     To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to one or more of such patents or to develop or obtain alternative
technology. The Company is aware of various patents that have been issued to
others that pertain to a portion of the Company's prospective business; however,
the Company believes that it does not infringe any patents that ultimately would
be determined to be valid. There can be no assurance that patents do not exist
in the United States or in other foreign countries or that patents will not be
issued to third parties that contain preclusive or conflicting claims with
respect to Bexxar or any of the Company's other product candidates or programs.
Commercialization of monoclonal antibody-based products may require licensing
and/or cross-licensing of one or more patents with other organizations in the
field. There can be no assurance that the licenses that might be required for
the Company's processes or products would be available on commercially
acceptable terms, if at all.
 
                                       20
<PAGE>   21
 
     The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
 
     The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants, advisory
board members, collaborators and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
 
     Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Moreover, there is certain
subject matter which is patentable in the United States and not generally
patentable outside of the United States. Statutory differences in patentable
subject matter may limit the protection the Company can obtain on some of its
inventions outside of the United States. For example, methods of treating humans
are not patentable in many countries outside of the United States. These and/or
other issues may prevent the Company from obtaining patent protection outside of
the United States which would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     Rights to use the name "Coulter Pharmaceutical, Inc." are licensed from
Beckman Coulter. The rights expire on October 31, 2002 or earlier upon the
occurrence of certain events.
 
COMPETITION
 
     The pharmaceutical and biotechnology industries are intensely competitive.
Any product candidate developed by the Company would compete with existing drugs
and therapies. There are many pharmaceutical companies, biotechnology companies,
public and private universities and research organizations actively engaged in
research and development of products for the treatment of people with cancer.
Many of these organizations have financial, technical, manufacturing and
marketing resources greater than those of the Company. Several of them have
developed or are developing therapies that could be used for treatment of the
same diseases targeted by the Company. One competitor known to the Company has
received approval from the FDA for a non-radiolabeled chimeric antibody for the
treatment of low-grade NHL. If a competing company were to develop or acquire
rights to a more efficient or safer cancer therapy for treatment of the same
diseases targeted by the Company, or one which offers significantly lower costs
of treatment, the Company's business, financial condition and results of
operations could be materially adversely affected.
 
     The Company believes that competition in the development and marketing of
new cancer therapies will be based primarily on product efficacy and safety,
time to market and price. To the extent the Company's product programs are
successful, it also intends to rely to some degree on patents and other
intellectual property and orphan drug designations to protect its products from
competition.
 
     The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer, more effective and/or more cost effective
 
                                       21
<PAGE>   22
 
than those under development or proposed to be developed by the Company. There
can be no assurance that research and development by others will not render the
Company's technology or potential products obsolete or non-competitive or result
in treatments superior to any therapy developed by the Company, or that any
therapy developed by the Company will be preferred to any existing or newly
developed technologies.
 
PRODUCT LIABILITY AND INSURANCE
 
     The manufacture and sale of human therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. The Company
has only limited product liability insurance for clinical trials and no
commercial product liability insurance. There can be no assurance that the
Company will be able to maintain existing insurance or obtain additional product
liability insurance on acceptable terms or with adequate coverage against
potential liabilities. Such insurance may be expensive, difficult to obtain and
may not be available in the future on acceptable terms, if at all. An inability
to obtain sufficient insurance coverage on reasonable terms or to otherwise
protect against potential product liability claims brought against the Company
in excess of its insurance coverage, if any, or a product recall could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
 
HUMAN RESOURCES
 
     As of December 31, 1998 the Company had 137 employees, 77 of whom were
engaged in product development activities. Fifty-one employees hold
post-graduate degrees, including five with medical degrees and twenty-one with
Ph.D.s. The Company's employees are not represented by a collective bargaining
agreement. The Company believes its relations with its employees are good.
 
SCIENTIFIC ADVISORY BOARD
 
     James O. Armitage, M.D., is Chairman of the Department of Internal Medicine
at the University of Nebraska Medical Center. He previously directed the Bone
Marrow Transplant Program at the University of Iowa, where he was an Assistant
Professor of Medicine.
 
     Paul P. Carbone, M.D., MACP, D.Sc. (Hon.), is the Director of the
University of Wisconsin Comprehensive Cancer Center. He also is Professor
Emeritus of Medicine and Associate Dean for Program Development at the
University of Wisconsin Medical School. He previously served as a physician
scientist at the National Institutes of Health. His clinical research has
included the development of active combination chemotherapy for Hodgkin's
disease, NHL and breast cancer.
 
     Lawrence H. Einhorn, M.D., is Distinguished Professor of Medicine at
Indiana University Medical Center. His research of germ cell tumors focused upon
the discovery of treatments for testicular and ovarian cancer. Dr. Einhorn's
work has also been directed toward the optimization of combination chemotherapy
for these cancers.
 
     Sandra J. Horning, M.D., is Professor of Medicine (Oncology and Bone Marrow
Transplantation) at Stanford University School of Medicine. She has been an
active member of the American Society of Clinical Oncology since 1983. Dr.
Horning's research has focused in the areas of Hodgkin's disease and lymphomas.
 
     T. Andrew Lister, is Professor of Medical Oncology at St. Bartholomew's
Hospital in London, England where he is also director of the medical oncology
unit. Professor Lister is also Honorary Consultant Physician at Broomfield
Hospital in Chelmsford, England. He is author of numerous scientific articles on
lymphomas and its clinical treatment.
 
     Robert J. Mayer, M.D., is the President of the American Society of Clinical
Oncology, Chief of the Division of Clinical Oncology at the Dana-Farber Cancer
Institute and Professor of Medicine at Harvard Medical School. He also is an
attending physician at The Brigham and Women's Hospital, The Massachusetts
General Hospital and the Beth Israel/Deaconess Medical Center. Dr. Mayer is
known for his work in the treatment of leukemia and gastrointestinal cancers and
for developing programs to train cancer researchers and clinicians.
 
     Saul Rosenberg, M.D., MACP, is Professor of Medicine and Radiology Emeritus
at Stanford University School of Medicine and is an oncologist known for his
contributions to advances in the treatment of Hodgkin's disease.
 
                                       22
<PAGE>   23
 
                                  RISK FACTORS
 
     In this Section, the Company summarizes certain risks that should be
considered by stockholders and prospective investors in the Company. These risks
are discussed in greater detail below, and are discussed in context in other
Sections of this Report.
 
     Uncertainties Related to Product Development. The Company's product
candidates are generally in early stages of development, with only one in
clinical trials. The development of safe and effective therapies for the
treatment of people with cancer is highly uncertain and subject to numerous
risks. Product candidates that may appear to be promising at early stages of
development may not reach the market for a number of reasons. Product candidates
may be found ineffective or cause harmful side effects during clinical trials,
may take longer to progress through clinical trials than had been anticipated,
may fail to receive necessary regulatory approvals, may prove impracticable to
manufacture in commercial quantities at reasonable cost and with acceptable
quality or may fail to achieve market acceptance.
 
     The results of initial preclinical and clinical testing of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical testing. The Company's clinical data gathered to date with respect to
Bexxar are from a Phase I/II dose escalation trial which was designed to develop
and refine the therapeutic protocol, to determine the maximum tolerated dose of
total body radiation and to assess the safety and efficacy profile of treatment
with a radiolabeled antibody. Further, the data from this Phase I/II dose
escalation trial were compiled from testing conducted at a single site and with
a relatively small number of patients per NHL histology and disease stage. The
Company has since completed a multi-center Phase II dosimetry clinical trial and
a multi-center pivotal Phase III clinical trial. However, substantial additional
development, clinical testing and investment may be required prior to seeking
any regulatory approval for commercialization of this potential product. There
can be no assurance that clinical trials of Bexxar or other product candidates
under development will demonstrate the safety and efficacy of such products to
the extent necessary to obtain regulatory approvals for the indications being
studied, or at all. Companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier trials. The failure to demonstrate
adequately the safety and efficacy of Bexxar or any other therapeutic product
under development could delay or prevent regulatory approval of the product and
would have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     Furthermore, the timing and completion of current and planned clinical
trials of Bexxar, as well as clinical trials of other products, are dependent
upon, among other factors, the rate at which patients are enrolled, which is a
function of many factors, including the size of the patient population, the
proximity of patients to the clinical sites, the number of clinical sites, the
eligibility criteria for the study and the existence of competing clinical
trials. There can be no assurance that delays in patient enrollment in clinical
trials will not occur, and any such delays may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     Uncertainty of Market Acceptance of Bexxar. Even if the Company's product
candidates are approved for marketing by the FDA and other regulatory
authorities, there can be no assurance that the Company's products will be
commercially successful. If the Company's most advanced product candidate,
Bexxar, is approved, it would represent a significant departure from currently
approved methods of treatment for NHL and would require the handling of
radioactive materials. Accordingly, Bexxar may experience under-utilization by
oncologists and hematologists who are unfamiliar with the application of Bexxar
in the treatment of NHL. Further, oncologists and hematologists are not
typically licensed to administer radioimmunotherapies such as Bexxar and will
need to engage a nuclear medicine physician or receive specialty training to
administer Bexxar. Recently enacted NRC regulations permit Bexxar to be
administered on an outpatient basis in most cases as is currently contemplated
by the Company. However, market acceptance could be affected adversely because
some hospitals may be required to administer the therapeutic dose of Bexxar on
an inpatient basis under applicable state or local or individual hospital
regulations. As with any new drug, doctors may be inclined to continue to treat
patients with conventional therapies, in this case chemotherapy. Market
 
                                       23
<PAGE>   24
 
acceptance also could be affected by the availability of third-party
reimbursement. Failure of Bexxar to achieve significant market acceptance would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Uncertainty Related to Health Care Reform and
Third-Party Reimbursement," "-- Hazardous and Radioactive Materials," and
"Business -- Radioactive and Other Hazardous Materials."
 
     Early Stage of Development. Since its inception in 1995, the Company has
been engaged in the development of drugs and related therapies for the treatment
of people with cancer. The Company's product candidates are generally in early
stages of development, with only one in clinical trials. No revenues have been
generated from product sales or product royalties; and there can be no assurance
that products resulting from the Company's research and development efforts will
be available within a specific timeframe. No assurance can be given that the
Company's product development efforts, including clinical trials, will be
successful, that required regulatory approvals for the indications being studied
can be obtained, that its products can be manufactured at acceptable cost and
with appropriate quality or that any approved products can be successfully
marketed. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
     Government Regulation; No Assurance of Regulatory Approvals. All new drugs
and biologics, including the Company's products under development, are subject
to extensive and rigorous regulation by the federal government, principally the
FDA under the Food, Drug and Cosmetic Act and other laws including, in the case
of biologics, the Public Health Services Act, in the case of radioactive
products, the NRC; and by state and local governments. Such regulations govern,
among other things, the development, testing, manufacture, labeling, storage,
premarket approval, criteria for release of patents relating to administration
of radioactive materials, advertising, promotion, sale and distribution, and
postmarketing surveillance of such products. If drug products are marketed
abroad, they also are subject to extensive regulation by foreign governments.
 
     The regulatory process, which includes physicochemical studies, preclinical
studies and clinical trials of each potential product, is lengthy, expensive and
uncertain. Prior to commercial sale in the United States, most new drugs and
biologics, including the Company's products under development, must be approved
by the FDA. Securing FDA marketing approvals often requires the submission of
extensive, physicochemical preclinical and clinical data and supporting
information to the FDA. Product approvals, if granted, can be withdrawn for
failure to comply with regulatory requirements or upon the occurrence of
unforeseen problems following initial marketing. Moreover, regulatory approvals
for products such as new drugs and biologics, even if granted, may include
significant limitations on the uses for which such products may be marketed.
 
     There can be no assurance that the Company will be able to obtain necessary
regulatory approvals on a timely basis, if at all, for any of its product
candidates, and delays in receipt or failures to receive such approvals or
failures to comply with existing or future regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain material manufacturing changes to new drugs and
biologics also are subject to FDA review and approval. There can be no assurance
that any approvals that are required, once obtained, will not be withdrawn or
that compliance with other regulatory requirements can be maintained. Further,
failure to comply with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, refusals of the FDA to grant premarket approval of drugs and
biologics or to allow the Company to enter into government supply contracts,
withdrawals of previously approved marketing applications and criminal
prosecutions.
 
     Manufacturers of drugs and biologics also are required to comply with the
applicable FDA GMP regulations, which include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection by
the FDA, including unannounced inspection, and must be licensed before they can
be used in commercial manufacturing of the Company's products. The Company
relies on Nordion for centralized radiolabeling of the Anti-B1 Antibody at
Nordion's radiolabeling facility in Canada. To the Company's knowledge,
Nordion's radiolabeling facilities previously have not been licensed by the FDA
as suitable for commercial manufactur-
 
                                       24
<PAGE>   25
 
ing of a drug or biologic. There can be no assurance that the Company or its
suppliers will be able to comply with the applicable GMP regulations and other
FDA regulatory requirements. Such failure could have a material adverse effect
on the Company's business, financial condition and results of operations.
 
     In December 1998, the Company announced that it had been notified by the
FDA that Bexxar met the criteria for Fast Track designation because one of the
targeted indications is transformed low-grade NHL, a life-threatening unmet
medical need. However, significant uncertainty exists as to the extent to which
Bexxar's Fast Track designation will result in expedited review and approval.
Further, the FDA retains considerable discretion to determine eligibility for a
priority review and approval and is not bound by discussions that an applicant
may have had with FDA staff. Accordingly, the FDA could employ such discretion
to deny eligibility of Bexxar as a candidate for a priority review or to require
additional clinical trials or other information before approving Bexxar. A
determination that Bexxar is not eligible for a priority review or delays and
additional expenses associated with generating a response to any such request
for additional trials could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Government Regulation."
 
     Dependence on Suppliers; Manufacturing and Scale-up Risk. The Company has
no existing internal capacity or experience with respect to manufacturing
products for large-scale clinical trials or commercial purposes. The Company has
contracted with two third-party manufacturers, Lonza and BI Pharma KG to produce
unlabeled Anti-B1 Antibody and with Cytogen for filling and labeling. There can
be no assurance that any Anti-B1 antibody produced by BI Pharma will be deemed
clinically equivalent to Anti-B1 antibody produced by Lonza, which equivalence
is a prerequisite to clinical and commercial use of any Anti-B1 antibody
produced by BI Pharma. In addition, these manufacturers have limited experience
producing the Anti-B1 Antibody, and there can be no assurance that they will be
able to produce the Company's requirements in commercial quantities or with
acceptable quality.
 
     The Company relies upon Nordion for radiolabeling of the Anti-B1 Antibody
at Nordion's centralized radiolabeling facility. The Company and Nordion have
entered into an agreement for supply of the radiolabeled Anti-B1 Antibody for
both clinical trials and commercial sale. If Bexxar is approved and is
successful in the market, there can be no assurance that Nordion's capacity to
radiolabel antibodies is sufficient to meet all of the Company's commercial
requirements.
 
     The Company is aware of only a limited number of manufacturers capable of
producing the Anti-B1 Antibody in commercial quantities or radiolabeling the
antibody with (131)I on a commercial scale. To establish and qualify a new
facility to centrally radiolabel antibodies could take as long as two years.
Further, radiolabeled antibody cannot be stockpiled against future shortages due
to the eight-day half-life of the 131)I radioisotope. Accordingly, any change in
the Company's existing contractual relationships with, or interruption in supply
from, its producer of unlabeled antibody or its radiolabeler could affect
adversely the Company's ability to complete its ongoing clinical trials and to
market Bexxar, if approved. Any such change or interruption would have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company is evaluating additional sources of
supply for production and radiolabeling of the Anti-B1 Antibody, no assurance
can be given that such sources will be secured on commercially reasonable terms,
on a timely basis, or at all.
 
     Prior to August 1997, the Company obtained Anti-B1 Antibody from an
inventory produced by Beckman Coulter, and radiolabeling was performed by
radiopharmacies at the individual clinical trial sites. In order to begin using
Lonza Anti-B1 Antibody, BI Pharma KG Anti-B1 Antibody, and the centrally
radiolabeled Anti-B1 Antibody from Nordion, the Company filed and the FDA
cleared IND amendments to allow the use of these materials in clinical trials.
The Company is collecting data from its clinical trials to be filed with the FDA
to establish that Anti-B1 Antibody from these different sources and that Nordion
radiolabeled and on-site radiolabeled Anti-B1 antibody are clinically
comparable. However, there can be no assurance that it will be able to establish
clinical comparability. A failure to establish clinical comparability could lead
to a requirement that the Company conduct additional clinical trials, which
would increase costs and potentially delay regulatory approval for Bexxar.
 
                                       25
<PAGE>   26
 
     Third-party manufacturers must comply with GMP regulations prescribed by
the FDA and other standards prescribed by various federal, state and local
regulatory agencies in the United States and any other relevant country. Failure
to comply with these regulations could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     Absence of Commercialization Resources and Experience; Reliance on
Marketing Partner. The Company intends to market and sell Bexxar in the United
States through a direct sales force and in collaboration with SB, and
internationally (except Japan) through SB. The Company currently does not
possess the resources and experience necessary to commercialize any of its
product candidates. The Company's ability to market Bexxar, if approved, will be
contingent upon recruitment, training and deployment of a sales and marketing
force as well as the performance of SB under the collaboration agreement.
Development of an effective sales force will require significant financial
resources and time. There can be no assurance that the Company will be able to
establish such a sales force in a timely or cost effective manner, if at all, or
that such a sales force will be capable of generating demand for Bexxar or other
product candidates. Failure to establish such a sales force and marketing
capability could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     Highly Competitive Industry; Risk of Technological Obsolescence. The
pharmaceutical and biotechnology industries are intensely competitive. Any
product candidate developed by the Company would compete with existing drugs and
therapies. There are many pharmaceutical companies, biotechnology companies,
public and private universities and research organizations actively engaged in
research and development of products for the treatment of people with cancer.
Many of these organizations have financial, technical, manufacturing and
marketing resources greater than those of the Company. Several of them may have
developed or are developing therapies that could be used for treatment of the
same diseases targeted by the Company. One competitor known to the Company
recently received a approval from the FDA of its non-radiolabeled chimeric
antibody for the treatment of low-grade NHL. If a competing company were to
develop or acquire rights to a more efficacious or safer cancer therapy for
treatment of the same diseases targeted by the Company, or one which offers
significantly lower costs of treatment, the Company's business, financial
condition and results of operations could be materially adversely affected. The
Company believes that its product development programs will be subject to
significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer and more effective than those under development or proposed to be
developed by the Company. There can be no assurance that research and
development by others will not render the Company's technology or product
candidates obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies.
 
     Dependence Upon Proprietary Technology; Uncertainty of Patents and
Proprietary Technology. The pharmaceutical and biotechnology fields are
characterized by a large number of patent filings. A substantial number of
patents have already been issued to other pharmaceutical and biotechnology
companies. Research has been conducted for many years in the monoclonal antibody
field by pharmaceutical and biotechnology companies and other organizations.
Competitors may have filed applications for or have been issued patents and may
obtain additional patents and proprietary rights related to products or
processes competitive with or similar to those of the Company. Patent
applications are maintained in secrecy for a period after filing. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the patents potentially adverse to the Company's interests
that may have been issued to other companies, research or academic institutions,
or others. No assurance can be given that such patents do not exist, have not
been filed, or could not be filed or issued, which contain claims relating to
the Company's technology, products or processes.
 
     To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims and such claims are
determined ultimately to be valid, the Company may be required to obtain
licenses to one
 
                                       26
<PAGE>   27
 
or more of such patents or to develop or obtain alternative technology. The
Company is aware of various patents that have been issued to others that pertain
to a portion of the Company's prospective business; however, the Company
believes that it does not infringe any patents that ultimately would be
determined to be valid. There can be no assurance that patents do not exist in
the United States or in other foreign countries or that patents will not be
issued to third parties that contain preclusive or conflicting claims with
respect to Bexxar or any of the Company's other product candidates or programs.
Commercialization of monoclonal antibody-based products may require licensing
and/or cross-licensing of one or more patents with other organizations in the
field. There can be no assurance that the licenses that might be required for
the Company's processes or products would be available on commercially
acceptable terms, if at all.
 
     The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
 
     The Company also relies on trade secrets to protect its technology,
especially where patent protection is not believed to be appropriate or
obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its employees, consultants, advisory
board members, collaborators and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
 
     Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Moreover, there is certain
subject matter which is patentable in the United States and not generally
patentable outside of the United States. Statutory differences in patentable
subject matter may limit the protection the Company can obtain on some of its
inventions outside of the United States. For example, methods of treating humans
are not patentable in many countries outside of the United States. These and/or
other issues may prevent the Company from obtaining patent protection outside of
the United States which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Patents and Other Intellectual Property."
 
     Future Capital Needs; Uncertainty of Additional Funding. The Company's
operations to date have consumed substantial and increasing amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate in
next several years. The development of the Company's technology and potential
products will require a commitment of substantial funds. The Company expects
that its existing capital resources will be adequate to satisfy the requirements
of its current and planned operations through 2000. However, the rate at which
the Company expends its resources is variable, may be accelerated and will
depend on many factors, including the scope and results of preclinical studies
and clinical trials, the cost, timing and outcome of regulatory approvals,
continued progress of the Company's research and development of product
candidates, the timing and cost of establishment or procurement of requisite
production radiolabeling and other manufacturing capacities, the cost involved
in preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, the expenses of establishing a sales and marketing force, the
acquisition of technology licenses, the status of competitive products and the
availability of other financing.
 
     The Company may need to raise substantial additional capital to fund its
operations and, if needed, intends to seek such additional funding through
public or private equity or debt financings, as well as through
 
                                       27
<PAGE>   28
 
collaborative arrangements. There can be no assurance that such additional
funding will be available on acceptable terms, if at all. If additional funds
are raised by issuing equity securities, substantial dilution to stockholders
may result. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research and
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products that the Company would
otherwise seek to develop or commercialize. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
     History of Operating Losses; Anticipated Future Losses. The Company has a
limited history of operations and has experienced significant losses since
inception. As of December 31, 1998, the Company's accumulated deficit was
approximately $46.6 million. The Company expects to incur significant additional
operating losses over the next several years and expects cumulative losses to
increase substantially due to expanded research and development efforts,
preclinical studies and clinical trials and development of manufacturing,
marketing and sales capabilities. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial. All of
the Company's product candidates are in development in preclinical studies and
clinical trials, and no revenues have been generated from product sales. To
achieve and sustain profitable operations, the Company, alone or with others,
must develop successfully, obtain regulatory approval for, manufacture,
introduce, market and sell its products. The time frame necessary to achieve
market success is long and uncertain. The Company does not expect to generate
product revenues for at least the next year. There can be no assurance that the
Company will ever generate sufficient product revenues to become profitable or
to sustain profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
     Dependence on Management and Other Key Personnel. The Company is dependent
upon a limited number of key management and technical personnel. The loss of the
services of one or more of such key employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's success will be dependent upon its ability to attract
and retain additional highly qualified sales, management, manufacturing and
research and development personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance that the Company will be
able to attract and/or retain qualified personnel.
 
     Exposure to Product Liability. The manufacture and sale of human
therapeutic products involve an inherent risk of product liability claims and
associated adverse publicity. The Company has only limited product liability
insurance for clinical trials and no commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, may be difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations.
 
     Uncertainty Related to Health Care Reform and Third-Party
Reimbursement. Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. Initiatives to
reduce the federal deficit and to reform health care delivery are increasing
cost-containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause the Company to limit or
eliminate spending on development projects and affect the Company's ultimate
profitability. Legislative debate is expected to continue in the future, and
market forces are expected to drive reductions of health care costs. The Company
cannot predict what impact the adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
 
                                       28
<PAGE>   29
 
     In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Bexxar, as
potentially the first radioimmunotherapy for cancer, faces particular
uncertainties due to the absence of a comparable, approved therapy to serve as a
model for pricing and reimbursement decisions. Further, if Bexxar is not
administered in most cases on an outpatient basis, as is contemplated currently
by the Company, the projected cost of the therapy will be higher than
anticipated. In addition, there can be no assurance that products can be
manufactured on a commercial scale for a cost that will enable the Company to
price its products within reimbursable rates. Consequently, there can be no
assurance that the Company's product candidates will be considered cost
effective or that adequate third-party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. If adequate coverage and reimbursement
rates are not provided by the government and third-party payors for the
Company's products, the market acceptance of these products could be adversely
affected, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     Hazardous and Radioactive Materials. The manufacturing and administration
of Bexxar requires the handling, use and disposal of (131)I, a radioactive
isotope of iodine. These activities must comply with various state and federal
regulations. Violations of these regulations could delay significantly
completion of clinical trials and commercialization of Bexxar. For its ongoing
clinical trials and for commercial-scale production, the Company relies on
Nordion to radiolabel the Anti-B1 Antibody with (131)I at a single location in
Canada. Violations of safety regulations could occur with this manufacturer,
and, therefore, there is a risk of accidental contamination or injury. In the
event of any such noncompliance or accident, the supply of radiolabeled Anti-B1
Antibody for use in clinical trials or commercially could be interrupted, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     The Company also expects to use hazardous chemicals and radioactive
compounds in its ongoing research activities. The Company could be held liable
for any damages that result from such an accident, contamination or injury from
the handling and disposal of these materials, as well as for unexpected remedial
costs and penalties that may result from any violation of applicable
regulations, which could result in a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company may incur substantial costs to comply with environmental regulations.
 
     Potential Volatility of Stock Price. The securities markets have from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. The market prices of the
common stock of many publicly held biotechnology and pharmaceutical companies
have in the past been, and can in the future be expected to be, especially
volatile. Announcements of technological innovations or new products by the
Company or its competitors, release of reports by securities analysts, sales of
stock by large holders, developments or disputes concerning patents or
proprietary rights, regulatory developments, changes in regulatory or medical
reimbursement policies, economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results, may have a
significant and adverse impact on the market price of the Common Stock. See
"Price Range of Common Stock."
 
     Potential Adverse Impact of Shares Eligible for Future Sale. Sales of
shares of Common Stock (including shares issued upon the exercise of outstanding
options) in the public market could adversely affect the market price of the
Common Stock. Such sales also might make it more difficult for the Company to
sell equity securities or equity-related securities in the future at a time and
price that the Company deems appropriate.
 
     Adverse Impact of Possible Issuances of Preferred Stock; Anti-Takeover
Effect of Certain Charter and Bylaw Provisions. The Board of Directors has
authority to issue up to 3,000,000 shares of Preferred Stock and to fix the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares
 
                                       29
<PAGE>   30
 
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could affect adversely the voting power
of holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation. Additionally, the issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may affect adversely the
market price of and the voting and other rights of the holders of the Common
Stock. In addition, the Company's Bylaws provide that special meetings of
stockholders may be called only by the Chairman of the Board of Directors, the
Chief Executive Officer or the Board of Directors pursuant to a resolution
approved by a majority of the Board of Directors. In July 1997, the Company
adopted a Share Purchase Rights Plan, commonly referred to as a "poison pill."
In addition, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibits the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions, along with certain provisions of
California law that may be applicable to the Company, could have the effect of
discouraging certain attempts to acquire the Company which could deprive the
Company's stockholders of the opportunity to sell their shares of Common Stock
at prices higher than prevailing market prices.
 
                                       30
<PAGE>   31
 
ITEM 2. PROPERTIES
 
     The Company currently leases approximately 77,000 square feet of office
space in Palo Alto, Alameda and South San Francisco, California, under several
lease agreements. In November 1997, the Company entered into an agreement to
build and lease new facilities in South San Francisco, California. The first two
buildings are each approximately 50,000 square feet and contain both office and
laboratory facilities. The lease includes an option to occupy third building. In
February 1999, the Company began vacating the Palo Alto offices and moving
substantially all personnel from the Palo Alto space to the first of the two
buildings in South San Francisco. The second of these leased buildings is
currently under construction. In connection with its lease agreement, the
Company obtained a letter of credit agreement from a bank which secures the
aggregate future payments under the lease.
 
ITEM 3. LEGAL PROCEEDINGS
 
     Not Applicable.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
     Not Applicable.
 
                                       31
<PAGE>   32
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
 
     The Company's Common Stock is traded on The Nasdaq Stock Market(R) under
the symbol "CLTR." Trading of the Company's Common Stock commenced on January
28, 1997, following effectiveness of its initial public offering. The following
table presents quarterly information on the price range of the Company's Common
Stock, indicating the high and low sales prices reported by the Nasdaq Stock
Market(R). These prices do not include retail markups, markdowns or commissions.
 
<TABLE>
<CAPTION>
                           1998                               LOW       HIGH
                           ----                              ------    ------
<S>                                                          <C>       <C>
First Quarter..............................................  17.000    28.438
Second Quarter.............................................  21.625    35.125
Third Quarter..............................................  13.250    32.125
Fourth Quarter.............................................  18.375    34.125
</TABLE>
 
<TABLE>
<CAPTION>
                           1997                               LOW       HIGH
                           ----                              ------    ------
<S>                                                          <C>       <C>
First Quarter..............................................   8.750    13.250
Second Quarter.............................................   6.500    12.625
Third Quarter..............................................   7.875    15.125
Fourth Quarter.............................................  13.000    23.500
</TABLE>
 
     As of March 12, 1999, the Company had approximately 377 holders of record
of its Common Stock.
 
     The Company has never paid any cash dividends on its capital stock and does
not expect to pay any such dividends in the foreseeable future.
 
     In December 1998, the Company issued to SmithKline Beecham Corporation
("SB"), 239,607 shares of its Common Stock for a purchase price of $7.25 million
in connection with the collaboration agreement with SB. The above-listed
securities were issued in reliance on an exemption to the registration
requirements of the Securities Exchange Act of 1933.
 
                                       32
<PAGE>   33
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
     The following selected consolidated financial data as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
and the period from inception (February 16, 1995) to December 31, 1998 are
derived from the consolidated financial statements of Coulter Pharmaceutical,
Inc. that have been audited by Ernst & Young LLP, independent auditors, and
which are included herein. The selected consolidated financial data as of
December 31, 1995 and 1996 and for the period from inception (February 16, 1995)
to December 31, 1995 are derived from the consolidated financial statements of
Coulter Pharmaceutical, Inc. that have been audited by Ernst & Young LLP, and
which are not included herein. The selected consolidated financial data as of
December 31, 1994 and for the year ended December 31, 1994 and for the period
from January 1, 1995 to February 15, 1995 are derived from the financial
statements of the Antibody Therapeutics Business Operations of Coulter
Corporation that have been audited by Ernst & Young LLP, and which are not
included herein.
 
<TABLE>
<CAPTION>
                                                  FULL YEAR 1995
                                          ------------------------------
                               ANTIBODY THERAPEUTICS
                              BUSINESS OPERATIONS OF                                     COMPANY
                              COULTER CORPORATION(2)     ------------------------------------------------------------------------
                             -------------------------      INCEPTION                                                INCEPTION
                             YEAR ENDED   JAN. 1, 1995   (FEB. 16, 1995)   YEAR ENDED   YEAR ENDED   YEAR ENDED   (FEB. 16, 1995)
                              DEC. 31,    TO FEB. 15,      TO DEC. 31,      DEC. 31,     DEC. 31,     DEC. 31,      TO DEC. 31,
                                1994          1995            1995            1996         1997         1998           1998
                             ----------   ------------   ---------------   ----------   ----------   ----------   ---------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                          <C>          <C>            <C>               <C>          <C>          <C>          <C>
STATEMENTS OF OPERATIONS
  DATA:
Corporate partner
  revenues.................        --           --                  --            --           --     $34,250        $ 34,250
Operating expenses:
  Research and
    development............     2,798          200               2,539        13,681       21,045      28,698          65,963
  Selling, general and
    administrative.........       288           36                 581         2,409        7,610      11,758          22,358
                              -------        -----         -----------      --------     --------     -------        --------
        Total operating
          expenses.........     3,086          236               3,120        16,090       28,655      40,456          88,321
Interest income and other,
  net......................        --           --                 127           752        2,327       4,248           7,454
                              -------        -----         -----------      --------     --------     -------        --------
Net loss...................   $(3,086)       $(236)        $    (2,993)     $(15,338)    $(26,328)    $(1,958)       $(46,617)
                              =======        =====         ===========      ========     ========     =======        ========
Basic and diluted net loss
  per share(1).............                                $(12,736.17)     $(649.39)    $  (2.58)    $ (0.13)             --
                                                           -----------      --------     --------     -------
Shares used in computing
  basic and diluted net
  loss per share(1)........                                      0.235            24       10,197      14,562              --
                                                           -----------      --------     --------     -------
</TABLE>
 
<TABLE>
<CAPTION>
                                        ANTIBODY THERAPEUTICS
                                        BUSINESS OPERATIONS OF                    COMPANY
                                        COULTER CORPORATION(2)   -----------------------------------------
                                        ----------------------   DEC. 31,   DEC. 31,   DEC. 31,   DEC. 31,
                                          DECEMBER 31, 1994        1995       1996       1997       1998
                                        ----------------------   --------   --------   --------   --------
                                                                  (IN THOUSANDS)
<S>                                     <C>                      <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
  investments.........................           $ --            $ 3,438    $ 16,443   $ 75,445   $139,778
Working capital (deficit).............            (50)             2,878      10,737     65,202    131,263
          Total assets................            135              3,628      18,321     78,671    153,430
Non-current portion of equipment
  financing obligations and debt
  facility............................             --                 --       1,535      2,298      6,659
Deficit accumulated during the
  development stage...................             --             (2,993)    (18,331)   (44,659)   (46,617)
          Total stockholders'
            equity....................             --              2,997      10,546     65,861    135,193
Coulter Corporation(2) net
  investment..........................             85                 --          --         --         --
</TABLE>
 
---------------
(1) See Note 1 to the December 31, 1998 financial statements for information
    regarding the calculation of net loss per share amounts.
 
(2) Coulter Corporation was acquired by Beckman Instruments, Inc. and is now
    known as Beckman Coulter, Inc.
 
                                       33
<PAGE>   34
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
OVERVIEW
 
     Coulter Pharmaceutical is engaged in the development of novel drugs and
therapies for the treatment of people with cancer. The Company currently is
developing a family of cancer therapeutics based upon two drug discovery
programs: therapeutic antibodies and targeted oncologics. Within these broad
discovery programs, the Company is currently concentrating on two distinct
platform technologies: therapeutic antibodies based on conjugated antibody
technology and targeted oncologics based on tumor activated peptide ("TAP")
pro-drugs technology.
 
     The Company's most advanced product candidate, Bexxar(TM) (formerly known
as the "B-1 Therapy"), consists of a monoclonal antibody conjugated with a
radioisotope. The Company intends to seek initial approval of Bexxar for the
treatment of low-grade and transformed low-grade non-Hodgkin's lymphoma ("NHL")
in patients who have relapsed after, or are refractory to, chemotherapy. The
Company intends to seek expedited Biologics License Application ("BLA") review
and marketing approval for Bexxar, while simultaneously pursuing clinical trials
to expand the potential use of Bexxar to other indications. Bexxar is based upon
the antibody therapeutics program which originated at Coulter Corporation. In
1995, Coulter Pharmaceutical was incorporated and acquired worldwide rights to
Bexxar and related intellectual property, know-how and other assets from Coulter
Corporation. In 1997, Beckman Instruments, Inc. acquired Coulter Corporation,
and is now known as Beckman Coulter. In December 1998, the Company announced a
joint collaboration agreement with SmithKline Beecham Corporation ("SB")
granting them joint marketing rights in the United States and exclusive
commercial rights internationally, except Japan.
 
     To date, the Company has devoted substantially all of its resources to
research and development programs, as well as selling, general and
administrative activities needed to support product development and potential
product sales. No revenues have been generated from product sales, and product
revenues resulting from the Company's research and development efforts will not
occur until commercial availability of such product. The Company has a limited
history of operations and has experienced significant operating losses to date.
The Company may continue to incur significant additional operating losses over
the next several years and expects cumulative losses to increase substantially
due to expanded research and development efforts, preclinical studies and
clinical trials and development of manufacturing, marketing and sales
capabilities if product sales revenues do not offset these costs. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. There can be no assurance that the Company will
successfully develop, manufacture and commercialize its products or ever achieve
or sustain product revenues or profitability. As of December 31, 1998, the
Company's accumulated deficit was approximately $46.6 million.
 
RESULTS OF OPERATIONS
 
     COMPARISON OF YEARS ENDED DECEMBER 31, 1998, DECEMBER 31, 1997 AND DECEMBER
31, 1996
 
     Corporate Partner Revenues. Corporate Partner revenues for the year ended
December 31, 1998 were $34.3 million compared with zero for the years ended
December 31, 1997 and 1996. The 1998 revenue is attributable to the license fee
payment received from SB under the joint development and commercialization
agreement for Bexxar. This was a one time, non-refundable license fee and
provides no indication as to the level of revenue that can be expected in future
periods. Revenue in future periods will depend on the achievement of contract
milestones and commercial sales of Bexxar.
 
     Operating Expenses. Research and development expenses were $28.7 million
for the year ended December 31, 1998, compared to $21.0 million for the year
ended December 31, 1997 and $13.7 million for the year ended December 31, 1996.
The $7.7 million increase from 1997 to 1998 was due primarily to increases in
staffing and expenditures associated with the development of Bexxar, including
costs of clinical trials and manufacturing expenses. These manufacturing
expenses included certain expenses associated with scaled-up production of
monoclonal antibodies and the establishment of a centralized radiolabeling
capability. The $7.3 million increase from 1996 to 1997 was due primarily to
increases in staffing and in expenditures
 
                                       34
<PAGE>   35
 
associated with the development of Bexxar, including costs of clinical trials
and manufacturing expenses. The Company expects its research and development
expenses to grow in 1999, reflecting anticipated increased costs related to
additions to staffing, preclinical studies, clinical trials and manufacturing.
 
     Selling, general and administrative expenses were $11.8 million for the
year ended December 31, 1998, compared to $7.6 million for the year ended
December 31, 1997 and $2.4 million for the year ended December 31, 1996. The
$4.2 million increase from 1997 to 1998 was incurred to support the Company's
increased pre-commercialization expenses, as well as facilities and staffing
expansion, increased corporate development activities and related legal and
patent activities. The $5.2 million increase from 1996 to 1997 was incurred to
support the Company's facilities expansion, increased research and development
efforts, and related legal and patent activities. The Company expects its
selling, general and administrative expenses to continue to increase in 1999 to
support its increasing commercialization efforts in anticipation of potential
product sales, as well as to support its increased research and development,
patent and corporate development activities and facilities expansion.
 
     Interest Income and other, net. Interest income was $4.2 million for the
year ended December 31, 1998, compared to $2.3 million for the year ended
December 31, 1997 and $0.8 million for year ended December 31, 1996. The $1.9
million increase from 1997 to 1998 was due to higher average cash, cash
equivalent and short-term investment balances as a result of the Company's
follow-on offering of common stock in July 1998 and the proceeds from SB related
to the joint development and commercialization agreement for Bexxar. The $1.5
million increase from 1996 to 1997 was due to higher average cash, cash
equivalent and short-term investment balances as a result of the Company's
initial public offering in January 1997 and follow-on offering of common stock
in October 1997. Interest expense is not material for any period presented.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Since its inception through December 31, 1998, the Company has financed its
operations primarily through private placements and public offerings of equity
securities totaling $179.8 million. In July 1998, the Company completed a
follow-on public offering of 2,400,000 shares of common stock at a price to the
public of $25.00 per share, resulting in net proceeds to the Company of
approximately $56.3 million. Also, in August 1998, the underwriters of that
offering purchased 245,000 additional shares of common stock upon a partial
exercise of their over-allotment option, raising additional net proceeds of $5.8
million. The total net proceeds from this offering were $62.1 million. In
October 1998, the Company entered into a $10.0 million revolving credit line
agreement with a bank, $5.0 million of which was available at December 31, 1998.
The Company also received $41.5 million (including $7.3 million for the purchase
239,607 shares of the Company's common stock) from SB upon the effectiveness of
the joint development and commercialization agreement for Bexxar in December
1998. The SB agreement also provides for a $15 million credit line, all of which
was available at December 31, 1998. Cash, cash equivalents and short-term
investments totaled $139.8 million at December 31, 1998.
 
     The negative cash flow from operations in the years ended December 31,
1996, 1997 and 1998 results primarily from the Company's net operating losses
and is expected to continue and to accelerate in next several years. The Company
expects to incur substantial and increasing research and development expenses,
including expenses related to additions to personnel, preclinical studies,
clinical trials, manufacturing and commercialization efforts. The Company may
need to raise substantial additional capital to fund its operations. The Company
may seek such additional funding through public or private equity or debt
financings from time to time, as market conditions permit. There can be no
assurance that additional financing will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its research and development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize.
 
     Net cash used in operations was $3.2 million for the year ended December
31, 1998, compared to $21.1 million used in the year ended December 31, 1997.
This decrease is primarily the result of the decreased
 
                                       35
<PAGE>   36
 
net loss for the period ended December 31, 1998. Net cash used in investing
activities decreased to $2.9 million for the year ended December 31, 1998 from
$49.0 million used in the year ended December 31, 1997, primarily resulting from
higher maturities and sales of short-term investments. The Company's capital
expenditures increased to $7.9 million for the year ended December 31, 1998 from
$1.6 million for the year ended December 31, 1997, primarily representing
investment in the Company's new corporate facilities, equipment for the central
radiolabeling facility and equipment and furniture related to increased
staffing. Net cash provided by financing activities decreased to $75.4 million
for the year ended December 31, 1998 from $81.7 million for the year ended
December 31, 1997, resulting primarily from lower proceeds from public offerings
of the Company's common stock, partially offset by a $7.5 million purchase of
common stock by SB in accordance with the joint development and
commercialization agreement. Net cash used in operations was $21.1 million for
the year ended December 31, 1997, compared to $10.4 million for the year ended
December 31, 1996. This increase is primarily the result of the increased net
loss for the period ended December 31, 1997. Net cash used in investing
activities increased to $49.0 million for the year ended December 31, 1997 from
$8.5 million for the year ended December 31, 1996, primarily resulting from the
purchase of $61.5 million in short-term investments using a portion of the
proceeds from the Company's sales of common stock in January and October 1997.
The Company's capital expenditures increased to $1.6 million for the year ended
December 31, 1997 from $0.9 million for the year ended December 31, 1996,
primarily representing investment in equipment for the central radiolabeling
facility and equipment and furniture related to increased staffing. Net cash
provided by financing activities increased to $81.7 million for the year ended
December 31, 1997 from $24.3 million for the year ended December 31, 1996,
resulting primarily from the public offerings of the Company's common stock in
January and October 1997.
 
     The Company expects that its existing capital resources, including the net
proceeds of its public offerings and interest thereon, will be adequate to
satisfy the requirements of its current and planned operations through 2000. At
December 31, 1998, the Company had entered into a long-term lease obligation for
office and laboratory space that will require material commitments for capital
expenditures. The Company's future capital requirements will depend on a number
of factors, including: the scope and results of preclinical studies and clinical
trials; continued progress of the Company's research and development of
potential products; the cost, timing and outcome of regulatory approvals; the
expenses of establishing a sales and marketing force; the timing and cost of
establishment or procurement of requisite production, radiolabeling and other
capacities; the cost involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; the need to acquire licenses to new
technology; the status of competitive products; the availability of other
financing and the ability to achieve profitability.
 
YEAR 2000 READINESS
 
     The Company uses and relies on a wide variety of information technologies,
computer systems and scientific equipment containing computer related
components. Some of the Company's older computer software programs and equipment
use two digit fields rather than four digit fields to define the applicable year
(i.e., "98" in the computer code refers to the year "1998"). As a result,
time-sensitive functions of those software programs and equipment may
misinterpret dates after January 1, 2000, to refer to the twentieth century
rather than the twenty-first century (i.e., "02" could be interpreted as "1902"
rather than "2002"). This could cause system or equipment shutdowns, failures or
miscalculations resulting in inaccuracies in computer output or disruptions of
operations, including, among other things, inaccurate processing of financial
information and/or temporary inability to process transactions or engage in
other normal business activities.
 
     The Company has developed a strategy to address the potential exposures
related to the impact on its computer systems for the Year 2000 and beyond. An
inventory of key financial, informational and operational systems is being
completed. Detailed plans for implementation and testing of any necessary
modifications to these key computer systems and equipment to ensure they are
Year 2000 compliant are being developed by a cross functional team to address
computer system and equipment problems as required by December 31, 1999. The
Company believes that with these plans and completed modifications, the Year
2000 issue will not pose significant operational problems for its computer
systems and equipment. However, if such modifications and conversions are not
made, or are not completed in a timely fashion, the Year 2000 issue could have a
material
 
                                       36
<PAGE>   37
 
impact on the operations of the Company, the precise degree of which cannot be
known at this time. The Company currently has no contingency plans to deal with
major Year 2000 failures, though such plans, if necessary, will be developed
over the coming months. The Company does not expect the resources required to be
devoted to Year 2000 compliance to cause significant delay in other projects.
The Company is currently considering the need for external verification of its
Year 2000 readiness and that of its partners.
 
     In addition to risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include financial institutions, suppliers,
vendors, research partners and governmental entities. If a significant number of
these third parties experience failures in their computer systems or equipment
due to Year 2000 non-compliance, it could affect the Company's ability to
process transactions, develop, manufacture and distribute products, or engage in
similar normal business activities. While some of these risks are outside the
control of the Company, the Company has instituted programs, including internal
records review and use of external questionnaires, to identify key third
parties, assess their level of Year 2000 compliance, update contracts and
address any non-compliance issues.
 
     The total cost of the Year 2000 systems assessments and conversions is
funded through operating cash flows, and the Company is expensing these costs.
The financial impact of making the required systems changes and ensuring that
key third-parties are Year 2000 compliant is not known precisely at this time,
but it is currently expected to be less than $1.0 million. The amount of the
cost incurred to date is less than $50,000. The actual financial impact could,
however, exceed this estimate. These costs are not expected to be material to
the Company's financial position, results of operations or cash flows.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-United States dollar
denominated assets and liabilities. The Company regularly assesses these risks
and has established policies and business practices to protect against the
adverse effects of these and other potential exposures. As a result, the Company
does not anticipate material losses in these areas.
 
     Interest Rates -- The Company's interest income is sensitive to changes in
the general level of interest rates, primarily United States interest rates. In
this regard, changes in United States interest rates affect the interest earned
on the Company's cash equivalents and short-term investments. Based on the
Company's overall interest rate exposure at December 31, 1998, a near-term
change in interest, based on historical currency rate movements, would not
materially affect the fair value of interest rate sensitive instruments.
 
     Foreign Currency Exchange Rates -- The Company has certain liabilities
which are denominated in several European currencies. As a result, the Company's
financial results could be significantly affected by factors such as changes in
foreign currency exchange rates or economic conditions in the foreign markets in
which the Company's suppliers are located. To mitigate this risk, the Company
may enter into foreign currency forward contracts as is deemed necessary by
management. Based on the Company's overall currency rate exposure at December
31, 1998, a near-term change in currency rates, based on historical currency
rate movements, would not materially affect the fair value of foreign currency
sensitive instruments.
 
                                       37
<PAGE>   38
 
     The Company invests cash which is not currently being used for operational
purposes in accordance with its investment policy. This policy allows for the
purchase of low risk securities issued by the government agencies and very
highly rated banks and corporations subject to certain concentration limits. The
maturities of these securities are maintained at less than one year. The
following table presents the amounts and related weighted average interest rates
by year of maturity for the Company's investment portfolio and long term debt
obligations at December 31, 1998:
 
<TABLE>
<CAPTION>
                                  1999      2000    2001    2002    2003     THEREAFTER     TOTAL
                                 -------    ----    ----    ----    -----    ----------    -------
                                                      (DOLLARS IN THOUSANDS)
<S>                              <C>        <C>     <C>     <C>     <C>      <C>           <C>
Cash Equivalent Investments:
  Fixed Rate...................  $84,162      --      --      --       --       --         $84,162
  Average Interest Rate........      5.3%     --      --      --       --       --              --
Short Term Investments:
  Fixed Rate...................   49,970      --      --      --       --       --          49,970
  Average Interest Rate........      5.5%     --      --      --       --       --              --
Long-term debt, including
  current portion:
  Variable Rate................      119     714     714     714    2,739       --           5,000
  Average Interest Rate........     8.75%   8.75%   8.75%   8.75%    8.75%      --              --
</TABLE>
 
                                       38
<PAGE>   39
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Coulter Pharmaceutical, Inc.
 
     We have audited the accompanying consolidated balance sheets of Coulter
Pharmaceutical, Inc. (a development stage company) (the "Company") as of
December 31, 1997 and 1998, and the related consolidated statements of
operations and cash flows for each of the three years in the period ended
December 31, 1998 and for the period from inception (February 16, 1995) to
December 31, 1998 and the related statement of stockholders' equity for the
period from inception (February 16, 1995) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coulter
Pharmaceutical, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 and for the period from inception (February 16, 1995) to
December 31, 1998, in conformity with generally accepted accounting principles.
 
                                                 /s/ ERNST & YOUNG LLP
 
Palo Alto, California
January 27, 1999
 
                                       39
<PAGE>   40
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1997            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $ 20,451        $ 89,808
  Short-term investments....................................      54,994          49,970
  Prepaid expenses and other current assets.................         269           3,063
                                                                --------        --------
          Total current assets..............................      75,714         142,841
Property and equipment, net.................................       2,263           9,449
Employee loans receivable...................................         568             907
Other assets................................................         126             233
                                                                --------        --------
                                                                $ 78,671        $153,430
                                                                ========        ========
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  1,838        $  4,068
  Accrued liabilities.......................................       7,959           6,353
  Current portion of equipment financing obligations and
     debt facility..........................................         715           1,157
                                                                --------        --------
          Total current liabilities.........................      10,512          11,578
Non current portion of equipment financing obligations and
  debt facility.............................................       2,298           6,659
Commitments
Stockholders' equity:
  Preferred stock, issuable in series, $.001 par value:
     20,000,000 shares authorized; none outstanding at
      December 31, 1997 and 1998............................          --              --
  Common stock, $.001 par value:
     30,000,000 shares authorized; 13,570,224 and 16,704,103
      shares issued and outstanding at December 31, 1997 and
      1998, respectively....................................          14              17
Additional paid-in capital..................................     111,598         182,390
Accumulated other comprehensive loss........................          (7)            (32)
Deferred compensation.......................................      (1,085)           (565)
Deficit accumulated during the development stage............     (44,659)        (46,617)
                                                                --------        --------
          Total stockholders' equity........................      65,861         135,193
                                                                --------        --------
                                                                $ 78,671        $153,430
                                                                ========        ========
</TABLE>
 
                            See accompanying notes.
 
                                       40
<PAGE>   41
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                              FOR THE PERIOD FROM
                                               YEAR ENDED DECEMBER 31,             INCEPTION
                                           -------------------------------      (FEB. 16, 1995)
                                             1996        1997       1998      TO DECEMBER 31, 1998
                                           --------    --------    -------    --------------------
<S>                                        <C>         <C>         <C>        <C>
Corporate partner revenues...............  $     --    $     --    $34,250          $ 34,250
Operating expenses:
  Research and development...............    13,681      21,045     28,698            65,963
  Selling, general and administrative....     2,409       7,610     11,758            22,358
                                           --------    --------    -------          --------
Total operating expenses.................    16,090      28,655     40,456            88,321
Interest income and other, net...........       752       2,327      4,248             7,454
                                           --------    --------    -------          --------
Net loss.................................  $(15,338)   $(26,328)   $(1,958)         $(46,617)
                                           ========    ========    =======          ========
Basic and diluted net loss per share.....  $(649.39)   $  (2.58)   $ (0.13)
                                           --------    --------    -------
Shares used in computing basic and
  diluted net loss per share.............        24      10,197     14,562
                                           ========    ========    =======
</TABLE>
 
                            See accompanying notes.
 
                                       41
<PAGE>   42
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
                               CONVERTIBLE PREFERRED                                        ACCUMULATED
                                       STOCK               COMMON STOCK       ADDITIONAL       OTHER
                               ----------------------   -------------------    PAID-IN     COMPREHENSIVE     DEFERRED
                                 SHARES       AMOUNT      SHARES     AMOUNT    CAPITAL         LOSS        COMPENSATION
                               -----------   --------   ----------   ------   ----------   -------------   ------------
<S>                            <C>           <C>        <C>          <C>      <C>          <C>             <C>
Issuance of Series A
  convertible preferred stock
  to founders at $1.00 per
  share for cash and
  technology in February
  1995.......................    7,500,000   $  2,500           --    $--      $     --        $ --          $    --
Issuance of Series B
  convertible preferred stock
  to a founder at $1.50 per
  share for cash in August
  and October 1995, less
  issuance costs of $11......    2,333,333      3,489           --     --            --          --               --
Exercise of common stock
  options by a consultant at
  $0.30 per share for cash in
  November 1995..............           --         --        2,059     --             1          --               --
Net loss.....................           --         --           --     --            --          --               --
                               -----------   --------   ----------    ---      --------        ----          -------
Balances at December 31,
  1995.......................    9,833,333   $  5,989        2,059     --      $      1          --               --
Issuance of Series C
  convertible preferred stock
  and warrants for 498,705
  shares of common stock to
  investors at $2.25 per
  share for cash in April
  1996, less issuance costs
  of $55.....................    9,964,607     22,366           --     --            --          --               --
Issuance of common stock to a
  prospective officer at
  $0.45 per share for cash in
  March 1996.................           --         --      400,000      1           179          --               --
Issuance of common stock
  pursuant to stock option
  exercises..................           --         --       35,553     --            14          --               --
Deferred compensation related
  to grants of certain stock
  options....................           --         --           --     --         2,294          --           (2,294)
Amortization of deferred
  compensation...............           --         --           --     --            --          --              330
Net loss.....................           --         --           --     --            --          --               --
Unrealized loss on securities
  available-for-sale, net....           --         --           --     --            --          (3)              --
  Comprehensive Loss.........           --         --           --     --            --          --               --
                               -----------   --------   ----------    ---      --------        ----          -------
Balances at December 31,
  1996.......................   19,797,940   $ 28,355      437,612    $ 1      $  2,488        $ (3)         $(1,964)
 
<CAPTION>
                                 DEFICIT
                               ACCUMULATED
                               DURING THE        TOTAL
                               DEVELOPMENT   STOCKHOLDERS'
                                  STAGE         EQUITY
                               -----------   -------------
<S>                            <C>           <C>
Issuance of Series A
  convertible preferred stock
  to founders at $1.00 per
  share for cash and
  technology in February
  1995.......................   $     --       $  2,500
Issuance of Series B
  convertible preferred stock
  to a founder at $1.50 per
  share for cash in August
  and October 1995, less
  issuance costs of $11......         --          3,489
Exercise of common stock
  options by a consultant at
  $0.30 per share for cash in
  November 1995..............         --              1
Net loss.....................     (2,993)        (2,993)
                                --------       --------
Balances at December 31,
  1995.......................   $ (2,993)      $  2,997
Issuance of Series C
  convertible preferred stock
  and warrants for 498,705
  shares of common stock to
  investors at $2.25 per
  share for cash in April
  1996, less issuance costs
  of $55.....................         --         22,366
Issuance of common stock to a
  prospective officer at
  $0.45 per share for cash in
  March 1996.................         --            180
Issuance of common stock
  pursuant to stock option
  exercises..................         --             14
Deferred compensation related
  to grants of certain stock
  options....................         --
Amortization of deferred
  compensation...............         --            330
Net loss.....................    (15,338)       (15,338)
Unrealized loss on securities
  available-for-sale, net....         --             (3)
                                               --------
  Comprehensive Loss.........         --        (15,341)
                                --------       --------
Balances at December 31,
  1996.......................   $(18,331)      $ 10,546
</TABLE>
 
                            See accompanying notes.
                                       42
<PAGE>   43
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
                               CONVERTIBLE PREFERRED                                        ACCUMULATED
                                       STOCK               COMMON STOCK       ADDITIONAL       OTHER
                               ----------------------   -------------------    PAID-IN     COMPREHENSIVE     DEFERRED
                                 SHARES       AMOUNT      SHARES     AMOUNT    CAPITAL         LOSS        COMPENSATION
                               -----------   --------   ----------   ------   ----------   -------------   ------------
<S>                            <C>           <C>        <C>          <C>      <C>          <C>             <C>
Conversion of convertible
  preferred stock into common
  stock......................  (19,797,940)  $(28,355)   6,599,287    $ 6      $ 28,349        $ --          $    --
Issuance of 2,875,000 shares
  of common stock at $12.00
  per share less issuance
  costs of $3,226............           --         --    2,875,000      3        31,274          --               --
Issuance of common stock
  pursuant to stock options
  exercises..................           --         --       77,358     --            45          --               --
Issuance of common stock
  pursuant to warrant
  exercises..................           --         --      385,315      1         3,127          --               --
Deferred compensation related
  to grant of certain stock
  options....................           --         --           --     --           206          --             (206)
Amortization of deferred
  compensation...............           --         --           --     --            --          --            1,085
Issuance of common stock
  pursuant to the employee
  stock purchase plan........           --         --       33,152     --           280          --               --
Issuance of 3,162,500 shares
  of common stock at $15.50
  per share less issuance
  costs of $3,190............           --         --    3,162,500      3        45,829          --               --
Net loss.....................           --         --           --     --            --          --               --
Unrealized loss on securities
  available-for-sale, net....           --         --           --     --            --          (4)              --
  Comprehensive Loss.........           --         --           --     --            --          --               --
                               -----------   --------   ----------    ---      --------        ----          -------
Balance at December 31,
  1997.......................           --         --   13,570,224     14       111,598          (7)          (1,085)
Issuance of 239,607 shares of
  common stock pursuant to
  contract with corporate
  partner....................           --         --      239,607     --         7,250          --               --
Issuance of common stock
  pursuant to stock options
  exercises..................           --         --      164,785     --           538          --               --
Issuance of common stock
  pursuant to warrant
  exercise...................           --         --       16,787     --            --          --               --
Deferred compensation related
  to grant of certain stock
  options....................           --         --           --     --           156          --             (156)
Amortization of deferred
  compensation...............           --         --           --     --            --          --              676
Issuance of common stock
  pursuant to the employee
  stock purchase plan........           --         --       67,700     --           712          --               --
Issuance of 2,645,000 shares
  of common stock at $25.00
  per share less issuance
  costs of $3,986............           --         --    2,645,000      3        62,136          --               --
Net loss.....................           --         --           --     --            --          --               --
Unrealized loss on securities
  available-for-sale, net....           --         --           --     --            --         (25)              --
  Comprehensive Loss.........           --         --           --     --            --          --               --
                               -----------   --------   ----------    ---      --------        ----          -------
Balance at December 31,
  1998.......................           --   $     --   16,704,103    $17      $182,390        $(32)         $  (565)
                               ===========   ========   ==========    ===      ========        ====          =======
 
<CAPTION>
                                 DEFICIT
                               ACCUMULATED
                               DURING THE        TOTAL
                               DEVELOPMENT   STOCKHOLDERS'
                                  STAGE         EQUITY
                               -----------   -------------
<S>                            <C>           <C>
Conversion of convertible
  preferred stock into common
  stock......................   $     --       $     --
Issuance of 2,875,000 shares
  of common stock at $12.00
  per share less issuance
  costs of $3,226............         --         31,277
Issuance of common stock
  pursuant to stock options
  exercises..................         --             45
Issuance of common stock
  pursuant to warrant
  exercises..................         --          3,128
Deferred compensation related
  to grant of certain stock
  options....................         --             --
Amortization of deferred
  compensation...............         --          1,085
Issuance of common stock
  pursuant to the employee
  stock purchase plan........         --            280
Issuance of 3,162,500 shares
  of common stock at $15.50
  per share less issuance
  costs of $3,190............         --         45,832
Net loss.....................    (26,328)       (26,328)
Unrealized loss on securities
  available-for-sale, net....         --             (4)
                                               --------
  Comprehensive Loss.........         --        (26,332)
                                --------       --------
Balance at December 31,
  1997.......................    (44,659)        65,861
Issuance of 239,607 shares of
  common stock pursuant to
  contract with corporate
  partner....................         --          7,250
Issuance of common stock
  pursuant to stock options
  exercises..................         --            538
Issuance of common stock
  pursuant to warrant
  exercise...................         --             --
Deferred compensation related
  to grant of certain stock
  options....................         --             --
Amortization of deferred
  compensation...............         --            676
Issuance of common stock
  pursuant to the employee
  stock purchase plan........         --            712
Issuance of 2,645,000 shares
  of common stock at $25.00
  per share less issuance
  costs of $3,986............         --         62,139
Net loss.....................     (1,958)        (1,958)
Unrealized loss on securities
  available-for-sale, net....         --            (25)
                                               --------
  Comprehensive Loss.........         --         (1,983)
                                --------       --------
Balance at December 31,
  1998.......................   $(46,617)      $135,193
                                ========       ========
</TABLE>
 
                            See accompanying notes.
                                       43
<PAGE>   44
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                      FOR THE PERIOD
                                                                                      FROM INCEPTION
                                                                                      (FEBRUARY 16,
                                                         YEAR ENDED DECEMBER 31,         1995) TO
                                                      -----------------------------    DECEMBER 31,
                                                        1996       1997      1998          1998
                                                      --------   --------   -------   --------------
<S>                                                   <C>        <C>        <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................  $(15,338)  $(26,328)  $(1,958)     $(46,617)
Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization.....................        49        250       712         1,023
  Amortization of deferred compensation.............       330      1,085       676         2,091
Changes in operating assets and liabilities:
  Prepaid expenses and other current assets.........      (459)       230    (2,794)       (3,063)
  Employee loans receivable.........................      (389)      (148)     (339)         (907)
  Other assets......................................        (9)       (91)     (107)         (233)
  Accounts payable..................................     1,235        237     2,230         4,068
  Accrued liabilities...............................     4,152      3,629    (1,604)        6,442
                                                      --------   --------   -------      --------
          Net cash used in operating activities.....   (10,429)   (21,136)   (3,184)      (37,196)
                                                      --------   --------   -------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................   (10,879)   (61,525)  (82,336)     (154,740)
Maturities of short-term investments................       986     14,144    82,261        97,391
Sale of short-term investments......................     2,270         --     5,073         7,343
Purchases of property and equipment.................      (876)    (1,589)   (7,899)      (10,469)
                                                      --------   --------   -------      --------
          Net cash used in investing activities.....    (8,499)   (48,970)   (2,901)      (60,475)
                                                      --------   --------   -------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing obligations and debt
  facility..........................................       (44)      (531)     (817)       (1,392)
Borrowings under equipment financing obligations and
  debt facility.....................................     1,800      1,700     5,620         9,120
Proceeds from issuances of convertible preferred
  stock, net........................................    22,366         --        --        28,355
Proceeds from issuance of common stock, net.........       194     80,562    70,639       151,396
                                                      --------   --------   -------      --------
Net cash provided by financing activities...........    24,316     81,731    75,442       187,479
                                                      --------   --------   -------      --------
Net increase in cash and cash equivalents...........     5,388     11,625    69,357        89,808
Cash and cash equivalents at beginning of period....     3,438      8,826    20,451            --
                                                      --------   --------   -------      --------
          Cash and cash equivalents at end of
            period..................................  $  8,826   $ 20,451   $89,808      $ 89,808
                                                      ========   ========   =======      ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid.......................................  $     --   $    283   $   385      $    668
Schedule of non-cash investing and financing
  activities:
Net exercises of warrant to purchase common stock...  $     --   $    453   $   512      $    965
Acquisition of equipment pursuant to supplemental
  lease obligation..................................  $     78   $     --   $    --      $     78
Deferred compensation related to grant of certain
  stock options.....................................  $  2,294   $    206   $   156      $  2,656
</TABLE>
 
                            See accompanying notes.
                                       44
<PAGE>   45
 
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Organization and Principles of Consolidation
 
     Coulter Pharmaceutical, Inc. (the "Company" or "Coulter") was incorporated
in the State of Delaware on February 16, 1995 to engage in the research and
development of products for the treatment of cancer. The Company's principal
activities to date have involved conducting research and development, recruiting
management and technical personnel, obtaining financing and securing operating
facilities. Therefore, the Company is classified as a development stage company.
 
     In the course of its development activities, the Company has sustained
continuing operating losses and expects such losses to continue over the next
several years. The Company plans to continue to finance its operations with a
combination of stock sales, collaborative agreements with corporate partners,
revenues from product sales and technology licenses.
 
     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Coulter Pharma Belgium, SA which was formed
under the laws of Belgium in June 1996. Intercompany balances and transactions
have been eliminated.
 
     In connection with its formation, the Company issued 5,000,000 shares of
its Series A preferred stock (since converted to 1,666,666 shares of common
stock) to Coulter Corporation in exchange for rights to certain intellectual
property, contractual rights and other assets pertaining to Bexxar(TM). In 1997
Beckman Instruments acquired Coulter Corporation (now known as "Beckman
Coulter"). Prior to the acquisition, all shares of the Company's stock were
distributed to the members of the Coulter family. Beckman Coulter retains the
rights to the assignment agreement and under the terms of the agreement,
royalties are payable to Beckman Coulter upon commercial sale of product, if
any, derived from these licenses. Beckman Coulter also has the right, in lieu of
receiving cash, to purchase shares of the Company's equity securities at the
then current fair market value of such securities with respect to the first $4.5
million payable to Beckman Coulter under this assignment agreement. This
transaction was accounted for as an acquisition of assets from an affiliate with
the amounts brought over at their historical basis of $0.
 
  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.
 
  Net Loss Per Share
 
     Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128, "Earnings Per Share," ("SFAS 128") and Securities
and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB 98"). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if dilutive, for all periods presented. Basic
earnings per share is computed by dividing income or loss applicable to common
stockholders by the weighted-average number of common shares outstanding for the
period net of certain common shares outstanding which are subject to continued
vesting and the Company's right to repurchase. Basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
net loss per share has not been presented separately as, given the Company's net
loss position, the result would be antidilutive. SAB 98 eliminates the inclusion
in the calculation of net loss per share of common and common equivalent shares
(stock options, warrants, convertible notes and preferred stock) issued during
the 12 month period prior to an initial public offering at prices below the
initial public offering price as if they were outstanding for all periods
presented. All loss per
 
                                       45
<PAGE>   46
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
share amounts for all periods presented have been presented and, where
appropriate, restated to conform to SFAS 128 and SAB 98.
 
     The following have been excluded from the calculation of loss per share
because the effect of inclusion would be antidilutive: approximately 150,000
common shares which are outstanding but are subject to the Company's right of
repurchase which expires June 30, 2000; and options to purchase approximately
2,506,500 shares of common stock at a weighted average price of $15.46 per
share. The repurchasable shares and options will be included in the calculation
at such time as the effect is no longer antidilutive, as calculated using the
treasury stock method.
 
     A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1996            1997           1998
                                                    ------------    ------------    -----------
<S>                                                 <C>             <C>             <C>
Net loss..........................................  $(15,338,000)   $(26,328,000)   $(1,958,000)
                                                    ============    ============    ===========
Basic and diluted
Weighted-average shares of common stock
  outstanding used in computing basic and diluted
  net loss per share..............................        23,619      10,197,225     14,561,950
                                                    ============    ============    ===========
Basic and diluted net loss per share..............  $    (649.39)   $      (2.58)   $     (0.13)
                                                    ============    ============    ===========
</TABLE>
 
  Current Vulnerability to Certain Concentrations
 
     The Company has contracted with two third-party manufacturers, Boehringer
Ingleheim Pharma KG ("BI Pharma KG") and LONZA Biologics plc ("Lonza"), to
produce a monoclonal antibody (the "Anti-B1 Antibody"). The Company has also
contracted with a third-party manufacturer, MDS Nordion, Inc. ("Nordion") for
the radiolabeling of the Anti-B1 Antibody in a centralized facility. However,
should the Company not be able to obtain sufficient quantities of the Anti-B1
Antibody from BI Pharma KG or Lonza or radiolabeled Anti-B1 Antibody from
Nordion, or additional suppliers, certain research and development activities
may be delayed.
 
  Cash, Cash Equivalents and Short-Term Investments
 
     The Company considers all highly liquid investments with maturities of
three months or less from the date of purchase to be cash equivalents.
Short-term investments consist of investments with original maturities greater
than three months, but less than two years.
 
     The Company accounts for its cash equivalents and short-term investments
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under the
provisions of SFAS 115, the Company has classified its cash equivalents and
short-term investments as "available-for-sale." Such investments are recorded at
fair value and unrealized gains and losses, which are considered to be
temporary, are recorded as a separate component of stockholders' equity until
realized. Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are included in interest income.
The cost of securities sold is based on the specific identification method. The
Company classifies all investments in its available-for-sale portfolio as
current assets.
 
  Revenue Recognition
 
     Nonrefundable contract fees for which no further performance obligations
exist are recognized when the payments are received or when collection is
assured. In return for contract payments, contract partners may receive certain
marketing and manufacturing rights or products for clinical use and testing.
 
                                       46
<PAGE>   47
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Foreign Currency Translation
 
     The functional currency of Coulter Pharma Belgium, SA is the United States
Dollar. Assets and liabilities of Coulter Pharma Belgium, SA are translated at
current exchange rates, and the related revenues and expenses are translated at
average exchange rates in effect during the period. The resulting translation
adjustment is recorded in selling, general and administrative expense in the
accompanying consolidated statements of operations and has been immaterial since
the formation of the subsidiary in June 1996.
 
  Property and Equipment
 
     Purchased property and equipment are stated at cost less accumulated
depreciation which is calculated using the straight-line method over the
estimated useful lives of the respective assets of three to five years.
 
  Sponsored Research and License Fees
 
     Research and development expenses paid to third parties under sponsored
research arrangements are recognized as the related services are performed,
generally ratably over the period of service. License fees are expensed when the
related obligation is incurred.
 
  Stock-Based Compensation
 
     The Company generally grants stock options to employees for a fixed number
of shares with an exercise price equal to the fair value at the date of grant.
In accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations in accounting
to employees under its stock option plans and to adopt the pro forma disclosure
alternative as described in SFAS 123 (See Note 10). Options granted to all
others are accounted for using the fair value method prescribed by SFAS 123.
 
  New Accounting Standards
 
     As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 established new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net loss or stockholder's equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities which, prior to
adoption, were reported separately in stockholders' equity, to be included in
other comprehensive income or loss. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
 
     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 superseded SFAS 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public business enterprises report selected information about
operating segments in annual financial statements. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. Because the Company operates as one reportable segment, the
adoption of SFAS 131 will have no impact on the Company's consolidated results
of operations or financial position.
 
     In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. Adoption is required in fiscal years beginning after June 15, 1999.
Because the Company does not use derivatives, management does not anticipate
that the adoption of SFAS 133 will have a significant impact on the Company's
consolidated financial position or results of operations.
 
                                       47
<PAGE>   48
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
     The following is a summary of available-for-sale securities (in thousands):
 
<TABLE>
<CAPTION>
                                                         GROSS         GROSS
                                          AMORTIZED    UNREALIZED    UNREALIZED    ESTIMATED
                                            COST         GAINS         LOSSES      FAIR VALUE
                                          ---------    ----------    ----------    ----------
<S>                                       <C>          <C>           <C>           <C>
December 31, 1998
Money market funds......................  $  1,719        $--           $ --        $  1,719
Commercial paper........................   100,897         --             (8)        100,889
Corporate Bond..........................    17,624          4            (29)         17,599
Certificates of deposit.................    13,924          1             --          13,925
                                          --------        ---           ----        --------
          Total.........................   134,164          5            (37)        134,132
Less amounts classified as cash
  equivalents...........................   (84,170)        --             (8)        (84,162)
                                          --------        ---           ----        --------
          Total short-term
            investments.................  $ 49,994        $ 5           $(29)       $ 49,970
                                          ========        ===           ====        ========
December 31, 1997
Money market funds......................  $  1,409        $--           $ --        $  1,409
Commercial paper........................    22,792         --             (7)         22,785
Corporate Bond..........................    23,661          5             (8)         23,658
US Government-backed securities.........    11,061         --             (4)         11,057
Certificates of deposits................    16,316          4             --          16,320
                                          --------        ---           ----        --------
          Total.........................    75,239          9            (19)         75,229
Less amounts classified as cash
  equivalents...........................   (20,238)        --             (3)        (20,235)
                                          --------        ---           ----        --------
          Total short-term
            investments.................  $ 55,001        $ 9           $(16)       $ 54,994
                                          ========        ===           ====        ========
</TABLE>
 
     Realized gain or losses on available-for-sale securities for the years
ended December 31, 1998, 1997 and 1996 were not significant.
 
     At December 31, 1998, the contractual maturities of short-term investments
were as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                 AMORTIZED    ESTIMATED
                                                   COST       FAIR VALUE
                                                 ---------    ----------
<S>                                              <C>          <C>
Due in one year or less........................   $42,752      $42,726
Due after one year through two years...........     7,242        7,244
                                                  -------      -------
                                                  $49,994      $49,970
                                                  =======      =======
</TABLE>
 
 3. PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following at December 31 (in
thousands):
 
<TABLE>
<CAPTION>
                                                      1997      1998
                                                     ------    ------
<S>                                                  <C>       <C>
Machinery and equipment............................  $1,427    $4,737
Furniture and fixtures.............................     176       480
Construction in process............................     967     5,252
                                                     ------    ------
                                                      2,570    10,469
Less accumulated depreciation and amortization.....    (307)   (1,020)
                                                     ------    ------
Property and Equipment.............................  $2,263    $9,449
                                                     ======    ======
</TABLE>
 
                                       48
<PAGE>   49
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
 4. SPONSORED RESEARCH AND LICENSE AGREEMENTS
 
     The Company has entered into numerous agreements with research
institutions, universities, and other entities for the performance of research
and development activities and for the acquisition of licenses related to those
activities. Included in research and development expenses for 1998, 1997, 1996
and for the period from inception (February 16, 1995) to December 31, 1998 is
$0.8 million, $0.8 million, zero and $1.6 million, respectively, to fund
activities under these agreements. As of December 31, 1998, noncancelable
commitments under these arrangements were approximately $0.8 million. In order
to maintain certain of these licenses, the Company must pay specified annual
license fees. Certain of the licenses provide for the payment of royalties by
the Company on future product sales, if any.
 
 5. COLLABORATIVE DEVELOPMENT AND COMMERCIALIZATION AGREEMENTS
 
     In December 1998, the Company and SmithKline Beecham Corporation ("SB")
entered into a collaborative agreement for the development and commercialization
of Bexxar, which is in late-stage development for the treatment of non-Hodgkin's
lymphoma (NHL). Under the terms of the agreement, Coulter may receive milestone
payments, shared profits and royalties. The agreement also provides for the
sharing of certain costs related to clinical development, manufacturing
development, and sales & marketing costs. The Company and SB will prepare a
joint profit & loss statement to account for the sharing of sales, cost of goods
sold, and costs related to selling, marketing, distribution and certain other
Bexxar-related activities. Research and Development expenses for 1998 have been
reduced by approximately $2.2 million which has been charged to SB under the
terms of the agreement.
 
     The agreement provides for an upfront non-refundable license fee of $34.25
million and the purchase of $7.25 million of the Company's common stock. The
license fee was recognized as corporate partner revenues in fiscal year 1998. In
addition, the agreement provides for a $15.0 million credit line. The Company
may receive additional payments based upon completion of certain milestones.
Future development expenses for Bexxar will generally be shared by both
companies, with the Company retaining responsibility for funding certain
predetermined development costs. In addition, the companies will jointly explore
the potential of other indications for the product. Upon regulatory approval,
the Company and SB will jointly market Bexxar in the United States following
regulatory approval, and the two companies will share profits and losses
equally. Outside the United States, excluding Japan, the Company has granted SB
exclusive marketing and distribution rights in return for product royalties. SB
may also have access to second generation anti-CD20 compounds.
 
 6. ACCRUED LIABILITIES
 
     Accrued liabilities consists of the following at December 31 (in
thousands):
 
<TABLE>
<CAPTION>
                                                      1997      1998
                                                     ------    ------
<S>                                                  <C>       <C>
Accrued research and development expenses..........  $6,426    $4,028
Accrued clinical trial costs.......................     620       543
Other..............................................     913     1,782
                                                     ------    ------
          Total....................................  $7,959    $6,353
                                                     ======    ======
</TABLE>
 
 7. LONG TERM DEBT
 
  Equipment Financing
 
     In December 1996, the Company entered into a $3,827,000 equipment lease
financing and debt facility with a financing company, none of which remain
available at December 31, 1998. The Company makes
 
                                       49
<PAGE>   50
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
monthly payments plus interest on amounts borrowed over the 48-month term of the
facility followed by a balloon payment. Interest rates under the facility range
from 11.75% to 11.93%. Amounts outstanding under the equipment facility are
secured by the underlying assets. Included in property and equipment at December
31, 1998 are assets with a cost of $1,486,000 ($1,165,000 at December 31, 1997)
acquired pursuant to a fixed interest rate equipment loan. Accumulated
amortization of assets acquired pursuant to these obligations was approximately
$456,000 and $196,000 at December 31, 1998 and 1997, respectively.
 
  Operating Lines of Credit
 
     In November 1998, the Company entered into a $10.0 million revolving loan
facility with a commercial bank of which $5.0 million remained available at
December 31, 1998. The loan is secured by the assets of the Company. Interest is
paid each month on the outstanding balance at prime rate plus 0.5% (8.75% at
December 31, 1998) . In accordance with the agreement principal payments are due
in 48 monthly installments beginning in November 1999, followed by a balloon
payment of approximately $2.1 million due in November 2003. The agreement also
requires the maintenance of a $5 million compensating balance with the bank
until the entire amount of the facility has been drawn down.
 
     At December 31, 1998, the Company's aggregate commitment under such
agreements, together with the net present value of the obligations, is as
follows (in thousands):
 
<TABLE>
<CAPTION>
             YEARS ENDING DECEMBER 31:
             -------------------------
<S>                                                   <C>
  1999..............................................  $1,855
  2000..............................................   2,441
  2001..............................................   1,585
  2002..............................................   1,072
  2003..............................................   2,859
                                                      ------
                                                       9,812
Less amounts representing interest..................  (1,996)
Less current portion................................  (1,157)
                                                      ------
                                                      $6,659
                                                      ======
</TABLE>
 
 8. COMMITMENTS
 
     The Company leases its offices under operating leases which expire at
various dates beginning in 1999 through 2010. Rent expense under these leases
totaled approximately $1,057,000, $461,000, $186,000 and $1,775,000 for the
years ended December 31, 1998, 1997 and 1996, and for the period from inception
(February 16, 1996) to December 31, 1998, respectively.
 
     At December 31, 1998, the aggregate noncancelable future minimum payments
under the operating leases are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                     OPERATING
             YEARS ENDING DECEMBER 31:                LEASES
             -------------------------               ---------
<S>                                                  <C>
  1999.............................................   $ 2,278
  2000.............................................     2,295
  2001.............................................     2,316
  2002.............................................     2,227
  2003.............................................     2,210
  Thereafter.......................................    17,510
                                                      -------
          Total....................................   $28,836
                                                      =======
</TABLE>
 
                                       50
<PAGE>   51
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     On November 7, 1997, the Company entered into an agreement to lease
additional facilities. The lease was amended on November 10, 1998 to include a
second building. The monthly rent payments range from $78,000 to $241,000
throughout the term of the lease. In connection with this lease agreement, the
Company obtained a $2 million letter of credit agreement from a bank which
secures the aggregate future payments under the lease.
 
     At December 31, 1998, the Company had approximately $16.1 million in
noncancelable purchase commitments with BI Pharma KG and Lonza, two of its third
party manufacturers. In the event of cancellation by Coulter prior to
fulfillment of its obligation, the agreements contain certain economic penalty
provisions which would be applied and determined at the point in time when
cancellation occurs.
 
 9. RELATED PARTY TRANSACTIONS
 
     The Company issued loans to employees totaling $485,000 prior to December
31, 1996. These loans were either repaid in full or converted to new loan
agreements in 1997. The Company entered into loan agreements with certain key
employees, totaling $670,000 for the period ended December 31, 1997 and $438,000
for the period ended December 31, 1998. The loans are non-interest bearing with
various terms ranging from four to ten years. The forgiven amount and the repaid
amount is calculated on a pro-rata basis over years one through ten of continued
employment. In the event an employee ceases to be employed by the Company, the
loan becomes interest-bearing and due within a reasonable period not to exceed
three months. Each loan is secured by a Second Deed of Trust on employee's
residence.
 
10. STOCKHOLDERS' EQUITY
 
  Preferred Stock
 
     In January 1997, the Company completed its initial public offering of
common stock under the Securities Act of 1933, in which approximately $31.3
million in net proceeds was realized (including net proceeds from the exercise
of the underwriter's over-allotment option). Upon the completion of the initial
public offering all of the Series A, B and C preferred stock outstanding
converted into 6,599,287 shares of common stock. Also upon the completion of the
offering, the Company's Certificate of Incorporation was amended to authorize
3,000,000 shares of preferred stock, none of which are issued or outstanding.
The Company's board of directors is authorized to determine the designation,
powers, preferences and rights of any such series. The company has reserved
200,000 shares of preferred stock for potential issuance under the Share
Purchase Rights Plan.
 
  Common Stock
 
     In July 1998, the Company completed a follow-on public offering of
2,400,000 shares of common stock at a price to the public of $25.00 per share,
resulting in net proceeds to the Company of approximately $56.3 million. Also,
in August 1998, the underwriters of that offering purchased 245,000 additional
shares of common stock upon a partial exercise of their over-allotment option,
raising additional net proceeds of $5.8 million. The total net proceeds from
this offering were $62.1 million.
 
  Equity Incentive Plans
 
     The 1995 Equity Incentive Plan (the "1995 Plan") was adopted in 1995 by the
Board of Directors and allowed for the granting of options for up to 866,666
shares of common stock to employees, consultants and directors.
 
     In December 1996, the Board of Directors adopted the 1996 Equity Incentive
Plan (the "1996 Plan") under which a total of 1,400,000 shares of the Company's
authorized but unissued common stock has been
 
                                       51
<PAGE>   52
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
reserved for issuance thereunder. In February 1998, the Board of Directors
approved an amendment to increase the number of shares of common stock
authorized from 1,400,000 to 2,800,000 shares. The amendment was approved by the
Company's stockholders in May 1998.
 
     Stock options granted under the 1995 and 1996 Plans (collectively, the
"Plans") may be either incentive stock options or non-qualified stock options.
Incentive stock options may be granted to employees with exercise prices not
less than the fair market value at the date of grant and nonqualified stock
options may be granted at exercise prices of no less than 85% of the fair market
value of the common stock on the date of grant. The options vest over four years
pursuant to a formula determined by the Company's Board of Directors and expire
after ten years. The 1995 Plan terminated upon the closing of the Company's
initial public offering in January 1997.
 
     Activity under the Plans was as follows:
 
<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING
                                              ----------------------------
                                 OPTIONS       NUMBER         EXERCISE          WEIGHTED-
                                AVAILABLE        OF             PRICE            AVERAGE
                                FOR GRANT      SHARES         PER SHARE       EXERCISE PRICE
                                ----------    ---------    ---------------    --------------
<S>                             <C>           <C>          <C>                <C>
Shares authorized.............     333,333           --    $            --        $   --
Options granted...............    (220,756)     220,756    $           0.30       $ 0.30
Options exercised.............          --       (2,059)   $           0.30       $ 0.30
                                ----------    ---------    ---------------        ------
Balance at December 31,
  1995........................     112,577      218,697    $           0.30       $ 0.30
Shares authorized.............     533,333           --    $            --            --
Options granted...............    (658,492)     658,492    $  0.30 - $12.00       $ 1.99
Options exercised.............          --      (35,551)   $  0.30 - $ 2.25       $ 0.41
Options canceled..............      19,333      (19,333)   $  0.30 - $30.75       $ 0.73
                                ----------    ---------    ---------------        ------
Balance at December 31,
  1996........................       6,751      822,305    $  0.30 - $12.00       $ 1.64
Shares authorized.............   1,400,000           --    $            --        $   --
Options granted...............  (1,010,100)   1,010,100    $  8.50 - $19.13       $10.83
Options exercised.............          --      (77,358)   $  0.30 - $ 2.25       $ 0.59
Options canceled..............     106,063     (106,063)   $  0.30 - $10.75       $ 2.04
Options terminated............    (100,314)          --    $            --            --
                                ----------    ---------    ---------------        ------
Balance at December 31,
  1997........................     402,400    1,648,984    $  0.30 - $19.13       $ 7.29
Shares authorized.............   1,400,000           --    $            --        $   --
Options granted...............  (1,117,800)   1,117,800    $ 19.38 - $32.38       $24.77
Options exercised.............          --     (164,785)   $  0.30 - $24.13       $ 3.26
Options canceled..............      95,505      (95,505)   $  0.30 - $24.50       $ 4.34
Options terminated............     (63,042)          --    $            --            --
                                ----------    ---------    ---------------        ------
Balance at December 31,
  1998........................     717,063    2,506,494    $  0.30 - $32.38       $15.46
                                ==========    =========    ===============        ======
</TABLE>
 
     Options were exercisable to purchase 11,104 shares (at a weighted-average
exercise price of $0.30 per share), 65,440 shares (at a weighted-average
exercise price of $0.43 per share), 222,201 shares (at a weighted-average
exercise price of $6.52 per share) and 557,676 shares (at a weighted-average
exercise price of $13.30 per share) for the years ended at December 31, 1995,
1996, 1997 and 1998, respectively.
 
                                       52
<PAGE>   53
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Exercise prices for options outstanding under the Plans as of December 31,
1998 ranged from $0.30 to $32.38 per share. The weighted-average remaining
contractual life of those options is 8.8 years.
 
<TABLE>
<CAPTION>
                                                 WEIGHTED-      EXERCISABLE OPTIONS
                      OPTIONS OUTSTANDING         AVERAGE     ------------------------
                   --------------------------    REMAINING                WEIGHTED-
                                 WEIGHTED-      CONTRACTUAL                AVERAGE
 EXERCISE PRICE                   AVERAGE          LIFE                    EXERCISE
      RANGE         NUMBER     EXERCISE PRICE   (IN YEARS)    NUMBER        PRICE
-----------------  ---------   --------------   -----------   -------   --------------
<S>                <C>         <C>              <C>           <C>       <C>
$ 0.30  - $ 4.50 ..   438,884     $ 1.6590          7.6       213,417      $ 1.3732
$ 8.50  - $ 8.50 ..   140,500     $ 8.5000          8.3        53,702      $ 8.5000
$ 8.625 - $ 8.625..   480,417     $ 8.6250          8.6       155,346      $ 8.6250
$ 8.875 - $22.50 ..   418,893     $16.3155          8.8       108,745      $14.3813
$22.75  - $24.0313..   155,000    $23.0849          9.6         1,226      $23.0000
$24.125 - $32.375..   872,800     $25.5228          9.6        25,240      $24.1250
                   ---------      --------          ---       -------      --------
                   2,506,494      $15.4618          8.8       557,676      $ 7.6934
</TABLE>
 
     The Company has reserved 3,223,557 shares of its common stock for options
to purchase common shares which may be issued under the Plans.
 
     In March 1996, 400,000 shares of common stock were purchased at $0.45 per
share by an officer of the Company. The Company has the right to repurchase
these shares under certain conditions. At December 31, 1998, 150,000 common
shares were available for repurchase.
 
     The Company recorded deferred compensation expense of $2.3 million for the
difference between the exercise price and the deemed fair value for financial
statement presentation purposes of the Company's common stock, as determined by
the board of directors, for common stock issued and stock options granted prior
to the Company's initial public offering in January 1997. Additionally, deferred
compensation of approximately $361,000 was recorded based on the deemed fair
values of common stock options granted subsequent to the Company's initial
public offering. The deferred compensation is being amortized over the
corresponding vesting period of each respective share purchase or option,
generally four years. Amortization of approximately $676,000, $1.1 million,
$330,000, and $2.1 million was recorded in fiscal years 1998, 1997, 1996, and
for the period from inception (February 16, 1995) to December 31, 1998,
respectively.
 
     Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using the
minimum value method with weighted-average risk-free assumptions for 1996 of
6.06%. The weighted-average expected life of the options was approximately 5.1
years 1996. The fair value of employee stock options granted subsequent to
December 1996 was estimated at the date of grant using a Black-Scholes option
pricing model for the single option approach and the following weighted-average
assumptions:
 
<TABLE>
<CAPTION>
                                                       1997      1998
                                                       ----      ----
<S>                                                    <C>       <C>
Risk-free interest rate -- options...................  5.81%     5.32%
Risk-free interest rate -- ESPP......................  5.69%     5.50%
Volatility...........................................    68%       68%
Expected life in years (from granting
  date) -- options...................................   4.1       4.0
Expected life in years -- ESPP.......................   1.2       1.2
Dividend yield.......................................     0%        0%
</TABLE>
 
     The pro forma information required by SFAS 123 includes compensation
expenses related to the Company's employee stock purchase plan and has also been
calculated based on the fair value method using a Black-Scholes option pricing
model using the weighted-average assumptions discussed above.
 
                                       53
<PAGE>   54
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows (in thousands, except for earnings per
share information):
 
<TABLE>
<CAPTION>
                                  YEAR ENDED DECEMBER 31,
                              -------------------------------
                                1996        1997       1998
                              --------    --------    -------
<S>                           <C>         <C>         <C>
Pro forma net loss..........  $(15,378)   $(27,296)   $(5,482)
Pro forma net loss per
  share.....................  $  (2.65)   $  (2.68)   $ (0.38)
</TABLE>
 
     The weighted average fair market value of options granted for the years
ended December 31, 1996, 1997 and 1998 was $1.46, $10.83 and $24.77,
respectively.
 
  1996 Employee Stock Purchase Plan
 
     In December 1996, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan (the "Purchase Plan") under which employees can purchase shares of
the Company's common stock based on a percentage of their compensation. The
purchase price per share must be equal to at least 85% of the market value on
the date offered or the date purchased. A total of 350,000 shares of common
stock are reserved for issuance thereunder. As of December 31, 1998, 100,852
shares had been issued under the Purchase Plan (33,152 shares as of December,
1997).
 
     The Company has reserved sufficient shares of its common stock, which may
be issued under the Purchase Plan.
 
  Share Purchase Rights Plan
 
     In July 1997, the Company adopted a Share Purchase Rights Plan (the "Rights
Plan"), commonly known as a "poison pill". The Rights Plan provides for the
distribution of certain rights to acquire shares of the Company's Series A
Junior Participating Preferred Stock (the "Rights") as a dividend for each share
of common stock held of record as of August 20, 1997. Under certain conditions
involving an acquisition or proposed acquisition by any person or group holding
20% or more of the common stock, the Rights permit the holders (other than the
20% holder) to purchase the Company's common stock at a 50% discount from the
market price at that time, upon payment of an exercise price of $70 per Right.
In addition, in the event of certain business combinations, the Rights permit
the purchase of shares of common stock of an acquirer at a 50% discount from the
market price at that time. The Rights have no voting privileges and are attached
to and automatically trade with the Company's common stock. The Rights expire on
July 30, 2007.
 
  Warrants
 
     In January 1997, the Company received approximately $3.1 million from the
cash exercise of warrants to purchase 347,530 shares of its common stock and
issued an additional 37,785 shares of its common stock upon the net exercise of
warrants to purchase 151,173 shares of its common stock.
 
     In May 1998, the Company issued 16,787 shares of its common stock upon the
net exercise of a warrant to purchase 24,666 shares of its common stock. As of
December 31, 1998, no warrants were outstanding.
 
11. INCOME TAXES
 
     As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $42,200,000. The federal net operating loss
carryforwards will expire at various dates beginning in 2010 through 2018 if not
utilized.
 
                                       54
<PAGE>   55
                          COULTER PHARMACEUTICAL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
 
     Significant components of the Company's deferred tax assets are as follows
at December 31 (in thousands):
 
<TABLE>
<CAPTION>
                                                           1997        1998
                                                         --------    --------
<S>                                                      <C>         <C>
Net operating loss carryforwards.......................  $ 14,900    $ 14,700
Capitalized research and development...................     2,100       2,200
Research credit carryforwards (expiring 2010 - 2012)...       600       1,500
Other -- net...........................................       100         200
                                                         --------    --------
          Total deferred tax assets....................    17,700      18,600
Valuation allowance....................................   (17,700)    (18,600)
                                                         --------    --------
Net deferred tax assets................................  $     --    $     --
                                                         ========    ========
</TABLE>
 
     Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $10,400,000 during the year ended December 31, 1997.
 
                                       55
<PAGE>   56
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Identification of Directors and Executive Officers
 
     The information required by this Item concerning the Company's directors
and executive officers is incorporated by reference from the Registrant's
Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A
in connection with the 1999 Annual Meeting (the "Proxy Statement") under the
headings "Nominees" and "Executive Officers."
 
  Compliance with Section 16(a) of the Exchange Act
 
     The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Executive Compensation."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated by reference from the
Proxy Statement under the "Certain Transactions."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Certain Transactions" and "Executive
Compensation."
 
                                       56
<PAGE>   57
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) LISTING OF EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT   EXHIBIT
FOOTNOTE  NUMBER                      DESCRIPTION OF DOCUMENT
--------  -------                     -----------------------
<C>       <C>       <S>
  (1)      3.1      Amended and Restated Certificate of Incorporation of the
                    Registrant.
  (1)      3.2      Bylaws of the Registrant.
  (1)      4.1      Reference is made to Exhibits 3.1 and 3.2.
  (1)      4.2      Specimen stock certificate.
  (1)      4.3      Amended and Restated Investors' Rights Agreement, dated
                    April 18, 1996, between the Registrant and certain
                    investors.
  (1)      4.4      Warrant Agreement to purchase Common Stock, dated December
                    6, 1996, between the Registrant and Lease Management
                    Services, Inc.
  (1)      10.1     Form of Indemnity Agreement to be entered into between the
                    Registrant and its officers and directors.
  (2)      10.2     1996 Equity Incentive Plan.
  (2)      10.3     Form of Equity Incentive Stock Option.
  (2)      10.4     Form of Nonstatutory Stock Option.
  (2)      10.5     1996 Employee Stock Purchase Plan.
  (1)      10.6     Assignment Agreement, dated February 24, 1995, between the
                    Registrant, Beckman Coulter and certain investors.
  (1)      10.7     Manufacturing Agreement, dated August 20, 1996, between
                    Lonza Biologics PLC and the Registrant.
  (1)      10.8     Equipment Lease Financing Agreement, dated December 6, 1996,
                    between the Registrant and Lease Management Services, Inc.
  (1)     10.9+     First Amendment to Manufacturing Agreement, dated November
                    21, 1996, by and between Lonza Biologics PLC and the
                    Registrant.
  (1)     10.10+    Development Agreement, dated November 15, 1995, by and
                    between MDS Nordion Inc. and the Registrant.
  (1)     10.11+    Patent License Agreement, dated March 15, 1996, by and
                    between the Region Wallone, the Universite Catholique de
                    Louvain and Coulter Pharma Belgium, SA.
  (3)     10.12+    Second Amendment to Manufacturing Agreement, dated June 30,
                    1997, by and between Lonza Biologics PLC and the Registrant.
  (4)     10.13+    Third Amendment to Manufacturing Agreement, date September
                    26, 1997, by and between Lonza Biologics PLC and the
                    Registrant.
  (4)     10.14+    Fourth Amendment to Manufacturing Agreement, dated September
                    17, 1997, by and between Lonza Biologics PLC and the
                    Registrant
  (5)     10.15+    Contract Research and Development Agreement, dated October
                    22, 1997, by and between Dr. Karl Thomae GmbH and the
                    Registrant.
  (5)     10.16+    Fifth Amendment to Manufacturing Agreement, dated October
                    27, 1997, by and between Lonza Biologics PLC and the
                    Registrant.
  (5)     10.17+    Lease Agreement, dated November 7, 1997, by and between HMS
                    Gateway Office L.P. and the Registrant.
  (6)     10.18+    Commercial Supply Agreement, dated May 28, 1998, by and
                    between Lonza Biologics PLC and the Registrant.
</TABLE>
 
                                       57
<PAGE>   58
 
<TABLE>
<CAPTION>
EXHIBIT   EXHIBIT
FOOTNOTE  NUMBER                      DESCRIPTION OF DOCUMENT
--------  -------                     -----------------------
<C>       <C>       <S>
  (7)     10.19+    Supply agreement, dated August 31, 1998, by and between MDS
                    Nordion, Inc. and the Registrant.
  (7)     10.20+    Facilities agreement, dated August 31, 1998, by and between
                    MDS Nordion, Inc. and the Registrant.
          10.21+    Stock Purchase Agreement, dated October 23, 1998, by and
                    between SmithKline Beecham Corporation and the Registrant.
          10.22+    Security Agreement, dated October 23, 1998, by and between
                    SmithKline Beecham Corporation and the Registrant.
          10.23+    Grant of Security Interest, dated October 23, 1998, by and
                    between SmithKline Beecham Corporation and the Registrant.
          10.24+    Loan Agreement, dated October 23, 1998, by and between
                    SmithKline Beecham Corporation and the Registrant.
          10.25+    Collaboration Agreement, dated October 23, 1998, by and
                    between SmithKline Beecham Corporation and the Registrant.
          10.26+    Supply Agreement, dated November 3, 1998, by and between
                    Boehringer Ingelheim Pharma KG and the Registrant.
          10.27+    First Amendment to Lease Agreement, dated November 10, 1998,
                    by and between HMS Gateway Office L.P. and the Registrant.
          10.28+    Amendment #1 to the Collaboration Agreement, dated November
                    30, 1998 by and between SmithKline Beecham Corporation and
                    the Registrant.
          10.29+    Loan and Security Agreement, dated October 29, 1998, by and
                    between Silicon Valley bank and the Registrant.
  (1)      21.1     Subsidiaries of the Registrant.
           23.1     Consent of Ernst & Young LLP, Independent Auditors.
           27.1     Financial Data Schedule.
</TABLE>
 
---------------
 
(1) Incorporated by reference to the indicated exhibit in the Company's
    Registration Statement on Form S-1 (File No. 333-17661), as amended.
 
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
    (No. 333-23265) and incorporated herein by reference.
 
(3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended June 30, 1997 and incorporated herein by reference.
 
(4) Filed as an exhibit to the Registrant's Special Report on Form 8-K filed
    September 29, 1997 and incorporated herein by reference.
 
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
    year ended December 31, 1997 and incorporated herein by reference.
 
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended June 30, 1998 and incorporated herein by reference.
 
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1998 and incorporated herein by reference.
 
 +  Portions omitted pursuant to a request of confidentiality filed separately
with the Commission.
 
(b) REPORTS ON FORM 8-K
 
     There were no reports on Form 8-K filed by the Registrant during the last
quarter covered by this Report.
 
                                       58
<PAGE>   59
 
                                   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.
 
                                          COULTER PHARMACEUTICAL, INC.
 
                                          BY: /s/ MICHAEL F. BIGHAM
                                            ------------------------------------
                                            Michael F. Bigham
                                            President and CEO
 
     Date: March 29, 1999
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael F. Bigham and William G. Harris
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<S>                                                    <C>                              <C>
               /s/ MICHAEL F. BIGHAM                    President, Chief Executive      March 29, 1999
---------------------------------------------------        Officer and Director
                (Michael F. Bigham)                    (Principal Executive Officer)
 
               /s/ WILLIAM G. HARRIS                     Vice President and Chief       March 29, 1999
---------------------------------------------------    Financial Officer (Principal
                (William G. Harris)                      Financial and Accounting
                                                                 Officer)
 
                 /s/ BRIAN ATWOOD                                Director               March 29, 1999
---------------------------------------------------
                  (Brian Atwood)
 
            /s/ JOSEPH R. COULTER, III                           Director               March 29, 1999
---------------------------------------------------
             (Joseph R. Coulter, III)
 
                /s/ DONALD L. LUCAS                              Director               March 29, 1999
---------------------------------------------------
                 (Donald L. Lucas)
</TABLE>
 
                                       59
<PAGE>   60
 
<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<S>                                                    <C>                              <C>
                 /s/ ROBERT MOMSEN                               Director               March 29, 1999
---------------------------------------------------
                  (Robert Momsen)
 
                /s/ ARNOLD ORONSKY                               Director               March 29, 1999
---------------------------------------------------
                 (Arnold Oronsky)
 
             /s/ GEORGE J. SELLA, JR.                            Director               March 29, 1999
---------------------------------------------------
              (George J. Sella, Jr.)
 
                    /s/ SUE VAN                                  Director               March 29, 1999
---------------------------------------------------
                     (Sue Van)
</TABLE>
 
                                       60
<PAGE>   61
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT    EXHIBIT
FOOTNOTE   NUMBER                      DESCRIPTION OF DOCUMENT
--------   -------                     -----------------------
<C>        <C>       <S>
  (1)       3.1      Amended and Restated Certificate of Incorporation of the
                     Registrant.
  (1)       3.2      Bylaws of the Registrant.
  (1)       4.1      Reference is made to Exhibits 3.1 and 3.2.
  (1)       4.2      Specimen stock certificate
  (1)       4.3      Amended and Restated Investors' Rights Agreement, dated
                     April 18, 1996, between the Registrant and certain
                     investors.
  (1)       4.4      Warrant Agreement to purchase Common Stock, dated December
                     6, 1996, between the Registrant and Lease Management
                     Services, Inc.
  (1)      10.1      Form of Indemnity Agreement to be entered into between the
                     Registrant and its officers and directors.
  (2)      10.2      1996 Equity Incentive Plan.
  (2)      10.3      Form of Equity Incentive Stock Option.
  (2)      10.4      Form of Nonstatutory Stock Option.
  (2)      10.5      1996 Employee Stock Purchase Plan.
  (1)      10.6      Assignment Agreement, dated February 24, 1995, between the
                     Registrant, Beckman Coulter and certain investors.
  (1)      10.7      Manufacturing Agreement, dated August 20, 1996, between
                     Lonza Biologics PLC and the Registrant.
  (1)      10.8      Equipment Lease Financing Agreement, dated December 6, 1996,
                     between the Registrant and Lease Management Services, Inc.
  (1)      10.9+     First Amendment to Manufacturing Agreement, dated November
                     21, 1996, by and between Lonza Biologics PLC and the
                     Registrant.
  (1)      10.10+    Development Agreement, dated November 15, 1995, by and
                     between MDS Nordion Inc. and the Registrant.
  (1)      10.11+    Patent License Agreement, dated March 15, 1996, by and
                     between the Region Wallone, the Universite Catholique de
                     Louvain and Coulter Pharma Belgium, SA.
  (3)      10.12+    Second Amendment to Manufacturing Agreement, dated June 30,
                     1997, by and between Lonza Biologics PLC and the Registrant.
  (4)      10.13+    Third Amendment to Manufacturing Agreement, date September
                     26, 1997, by and between Lonza Biologics PLC and the
                     Registrant.
  (4)      10.14+    Fourth Amendment to Manufacturing Agreement, dated September
                     17, 1997, by and between Lonza Biologics PLC and the
                     Registrant
  (5)      10.15+    Contract Research and Development Agreement, dated October
                     22, 1997, by and between Dr. Karl Thomae GmbH and the
                     Registrant
  (5)      10.16+    Fifth Amendment to Manufacturing Agreement, dated October
                     27, 1997, by and between Lonza Biologics PLC and the
                     Registrant.
  (5)      10.17+    Lease Agreement, dated November 7, 1997, by and between HMS
                     Gateway Office L.P. and the Registrant.
  (6)      10.18+    Commercial Supply Agreement, dated May 28, 1998 by and
                     between Lonza Biologics PLC and the Registrant.
  (7)      10.19+    Supply agreement, dated August 31, 1998 by and between MDS
                     Nordion, Inc. and the Registrant
</TABLE>
 
                                       61
<PAGE>   62
 
<TABLE>
<CAPTION>
EXHIBIT    EXHIBIT
FOOTNOTE   NUMBER                      DESCRIPTION OF DOCUMENT
--------   -------                     -----------------------
<C>        <C>       <S>
  (7)      10.20+    Facilities agreement, dated August 31, 1998 by and between
                     MDS Nordion, Inc. and the Registrant
           10.21+    Stock Purchase Agreement, dated October 23, 1998, by and
                     between SmithKline Beecham Corporation and the Registrant
           10.22+    Security Agreement, dated October 23, 1998, by and between
                     SmithKline Beecham Corporation and the Registrant
           10.23+    Grant of Security Interest, dated October 23, 1998, by and
                     between SmithKline Beecham Corporation and the Registrant
           10.24+    Loan Agreement, dated October 23, 1998, by and between
                     SmithKline Beecham Corporation and the Registrant
           10.25+    Collaboration Agreement, dated October 23, 1998, by and
                     between SmithKline Beecham Corporation and the Registrant
           10.26+    Supply Agreement, dated November 3, 1998, by and between
                     Boehringer Ingelheim Pharma KG and the Registrant
           10.27+    First Amendment to Lease Agreement, dated November 10, 1998,
                     by and between HMS Gateway Office L.P. and the Registrant.
           10.28+    Amendment #1 to the Collaboration Agreement, dated November
                     30, 1998 by and between SmithKline Beecham Corporation and
                     the Registrant.
           10.29+    Loan and Security Agreement, dated October 29, 1998, by and
                     between Silicon Valley bank and the Registrant.
  (1)      21.1      Subsidiaries of the Registrant.
           23.1      Consent of Ernst & Young LLP, Independent Auditors
           27.1      Financial Data Schedule
</TABLE>
 
---------------
(1) Incorporated by reference to the indicated exhibit in the Company's
    Registration Statement on Form S-1 (File No. 333-17661), as amended.
 
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
    (No. 333-23265) and incorporated herein by reference.
 
(3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended June 30, 1997 and incorporated herein by reference.
 
(4) Filed as an exhibit to the Registrant's Special Report on Form 8-K filed
    September 29, 1997 and incorporated herein by reference.
 
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
    year ended December 31, 1997 and incorporated herein by reference.
 
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended June 30, 1998 and incorporated herein by reference.
 
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
    the quarter ended September 30, 1998 and incorporated herein by reference.
 
 +  Portions omitted pursuant to a request of confidentiality filed separately
    with the Commission.
 
                                       62