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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, 1997

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

                           Commission File No. 0-16614

                                NEORX CORPORATION
             (Exact name of Registrant as specified in its charter)

        Washington                                        91-1261311
(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)


            410 West Harrison Street, Seattle, Washington 98119-4007
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (206) 281-7001

               Securities registered pursuant to Section 12(b) of the Act:
                                     None

               Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.02 Par Value
              9 3/4 % Convertible Subordinated Debentures, due 2014
           $2.4375 Convertible Exchangeable Preferred Stock, Series 1
                      Series 2 Convertible Preferred Stock
                      Series 3 Convertible Preferred Stock


    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 is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

    The  aggregate  market  value of voting stock held by  nonaffiliates  of the
Registrant as of March 3, 1998 was approximately $105.0 million.

     As of March 3, 1998,  approximately 20.7 million shares of the Registrant's
Common Stock, $.02 par value per share, were outstanding.

Documents Incorporated by Reference

    (1)  Portions of the  Registrant's  1998 Notice of Annual  Meeting and Proxy
Statement for the Registrant's  Annual Meeting of Shareholders to be held on May
13, 1998 are incorporated by reference in Part III of this Form 10-K.
--------------------------------------------------------------------------------
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<PAGE>



                                     PART I

ITEM 1. BUSINESS

This document includes certain  forward-looking  statements made pursuant to the
safe harbor provisions of the Private Securities  Litigation Reform Act of 1995.
All  statements in this document that are not  historical  facts are  considered
forward-looking  statements.  Sentences  or  phrases  that  use  words  such  as
"believes",  "anticipates",  "plans", "may", "hopes", "can", "will",  "expects",
"is designed to",  "with the intent",  and other similar terms are often used to
identify  such  statements,  but their  absence does not mean a statement is not
forward-looking.  Such statements reflect  management's  current opinion and are
designed to help readers understand management's thinking. By their very nature,
however,  such  statements are subject to certain risks and  uncertainties  that
could cause actual results to differ materially from those projected.  See "Risk
Factors."   Readers  are  cautioned  not  to  place  undue   reliance  on  these
forward-looking statements,  which speak only as of the date hereof. The Company
undertakes   no   obligation   to  release   publicly  any  revisions  to  these
forward-looking  statements that may be made to reflect events or  circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

PRODUCTS

NeoRx Corporation  ("NeoRx" or the "Company")  develops  innovative  therapeutic
biopharmaceuticals  primarily  for the  treatment  of cancer and  cardiovascular
disease.  As part  of its  cancer  treatment  program,  NeoRx  is  developing  a
proprietary  PRETARGET(TM)  platform  for the delivery of  therapeutic  products
directly to tumor sites.  The  Company's  first  PRETARGET(TM)  cancer  product,
AVICIDIN(R),  is entering  Phase II clinical  trials for the  treatment of solid
tumors such as prostate  and  colorectal  cancer.  The Company  expects to begin
Phase I trials  this year with a second  PRETARGET(TM)  cancer  product  for the
treatment  of  lymphoma.  The  Company's  product  portfolio  also  includes the
VERLUMA(R)  small cell lung cancer imaging kit that was cleared for marketing by
the United States Food and Drug Administration (the "FDA") in August 1996.

The Company's first cardiovascular product,  BIOSTENT(R),  is scheduled to begin
Phase II patient  accrual in 1998.  BIOSTENT(R)  is a  pharmaceutical  delivered
through a catheter  that is  designed  to reduce  restenosis  following  balloon
angioplasty.  NeoRx is also investigating the role of Transforming Growth Factor
Beta (TGF(beta)) for the treatment of certain  inflammatory  and  cardiovascular
diseases.  The Company has conducted a Phase I study to  investigate  the safety
and impact on TGF(beta)  levels of a certain drug. The results of this study are
being analyzed.



------------------------
VERLUMA(R) is a registered trademark of DuPont Merck Pharmaceutical Company.

                                       1
<PAGE>

CANCER AND ITS TREATMENT

Cancer  is  second  only to  cardiovascular  disease  as a cause of death in the
United  States.   The  American  Cancer  Society  estimates  that  approximately
1,229,000 new cases of cancer will be diagnosed in the United States in 1998, of
which 50% are  expected to be tumors of the lung,  colon,  breast and  prostate.
Cancer  is  a  large  group  of  diseases  characterized  by  uncontrolled  cell
proliferation.  Cancer cells have the tendency to dislodge  from the sites where
the tumors originate and metastasize,  spreading to other parts of the body, and
invading and destroying the organs in which they are growing.

Current  regimens for the  treatment of cancer  include  surgery,  external-beam
radiation,  chemotherapy,  hormone  therapy for some tumors and, more  recently,
certain  biological  agents  such  as  interferons  and  antibodies.  With  some
exceptions,  chemotherapy  is the  primary  therapy  for tumors that have spread
throughout  the body.  However,  chemotherapy  provides only modest  benefits to
patients with the most frequently  occurring  malignancies,  such as lung, colon
and breast cancers. Generally,  existing cancer therapy for these high-incidence
tumors is characterized by relatively low efficacy and considerable toxicity.

Chemotherapy drugs are usually  administered  intravenously so that the drug can
circulate  throughout the body to reach the metastases.  As  chemotherapy  drugs
circulate,  they  kill  cancer  cells,  but are  also  toxic  to  normal  cells.
Consequently,  cancer  patients  receiving  chemotherapy  often  suffer  severe,
sometimes  life-threatening  side effects, such as damage to bone marrow, lungs,
heart, kidneys and nerves.  Therefore,  the optimal drug dose for killing cancer
cells must often be reduced to avoid intolerable toxicities.

PRETARGET(TM):  NEORX'S APPROACH TO CANCER THERAPY.  NeoRx's cancer  therapeutic
products  under  development   employ  proprietary   monoclonal   antibody-based
technology. Antibodies are proteins produced by certain white blood cells in the
body's  immune  system in  response  to antigens  (foreign  substances)  such as
viruses,  bacteria,  toxins and specific types of cancer cells. An antibody will
recognize and bind specifically  only to a single type of antigen.  This quality
makes antibodies  potentially useful as "targeting vehicles" for the delivery of
imaging and therapeutic products to disease sites.

Radiation is known to kill cancer cells that are exposed to  sufficiently  large
doses. In the conventional approach to radioimmunotherapy ("RIT"), the radiation
is linked to the antibody which is then  administered  to patients.  Because the
antibody is a large molecule,  the antibody and the linked  radiation  circulate
for a long time through the bloodstream  before eventually  reaching the tumors.
This prolonged  circulation  can cause "innocent  bystander"  toxicity to normal
organs such as the bone marrow.

NeoRx's PRETARGET(TM) technology takes advantage of the high binding affinity of
two  molecules:  biotin and  streptavidin.  Since biotin is a small  molecule it
travels  rapidly  through the  bloodstream  and  penetrates  the tumor site much
faster than a large  molecule  such as an  antibody.  The problem is that biotin
does not bind at the tumor site.  If  streptavidin  could be  "targeted"  to the
surface of a tumor,  then the biotin molecules would bind to the streptavidin on
the  tumor's  surface  and thus  deliver  whatever  therapeutic  molecule it was
carrying.

                                       2
<PAGE>

With PRETARGET(TM), an antibody that will bind to antigen markers on the surface
of particular tumor cells is linked to streptavidin.  This antibody-streptavidin
conjugate (the "conjugate") is then administered to the patient and over a 24-48
hour  period  will  accumulate  on the  surface  of the  tumor  cells.  Since no
radiation  is  attached  to the  conjugate,  there  is no  "innocent  bystander"
toxicity during this period of circulation. Depending on the antibody, different
tumors will be targeted in different amounts. Because almost all antibodies also
bind to some normal tissues,  the display of streptavidin on normal tissues will
also depend on the particular antibody.

Because  conjugate  continues to  circulate,  an  injection of biotin  linked to
radiation could first bind to the conjugate before reaching the tumor. To reduce
the conjugate in the  circulation,  a "clearing  agent" is injected to clear the
conjugate to the liver where it is metabolized.  The therapy (e.g.,  radiation),
linked to biotin,  is then  administered  to the patient.  The  biotin-radiation
molecule   rapidly   passes  through  the   bloodstream   and  attaches  to  the
pre-localized  antibody-streptavidin conjugate. The remainder that does not bind
to the streptavidin is rapidly eliminated through the kidneys,  thereby reducing
the  radiation  dose to the bone marrow and other normal organs  resulting  from
circulating  radioactivity.  Thus the PRETARGET(TM)  technology more efficiently
locates the radiation on the tumor, reduces "innocent  bystander" toxicity,  and
has  allowed  higher  radiation  doses  to  be  safely  administered  than  with
conventional RIT.

AVICIDIN(R):  THE FIRST NEORX PRODUCT TO USE THE PRETARGET(TM) PLATFORM.

The Company's first PRETARGET(TM)  product,  AVICIDIN(R),  links the therapeutic
radionuclide yttrium-90 to the biotin molecule. Yttrium-90 emits a beta particle
(a high energy electron) that can kill cancer cells.  AVICIDIN(R)  completed the
Phase I  clinical  trials  in 1997.  The  purpose  of the  Phase I study  was to
determine  the maximum  tolerated  dose ("MTD") of  radiation,  to determine the
optimal timing and dosing of each component,  and to observe anti-tumor effects.
The Company  believes  that the  dose-limiting  toxicity  determined  in Phase I
trials was  exhibited  by diarrhea  that the Company  believes is caused by some
binding  of the  antibody  to the  large  intestine.  Previous  preclinical  and
clinical trials have  demonstrated  that,  compared to conventional RIT, the MTD
for  AVICIDIN(R) is more than 5-fold what the Company  believes to be the MTD of
conventional  therapy  using  yttrium-90.  It is  generally  held  that the more
radiation  to which  the  tumor is  exposed,  the more  likely  the  tumor is to
regress,  and the longer  that the tumor  regression  will last.  In the Phase I
trials tumor  regression  has been observed in some patients  following a single
AVICIDIN(R) dose, including patients with advanced, bulky tumors.

The Company  expects  Phase II trials to study the  efficacy of  AVICIDIN(R)  in
patients with cancers of the lung,  colon, and prostate who have failed standard
therapy to begin early in 1998.  These trials will be conducted with the current
murine antibody.  Because human anti-mouse antibodies (HAMA) are usually created
when  a  murine  antibody  is  used,  only  one  dose  of  AVICIDIN(R)  will  be
administered  to each  patient in the early  stage of the Phase II  trials.  The
Company believes that a product that can be administered  more than once to each
patient is more  likely to achieve a greater  rate of  response  as well as more
significant responses than a product that is given only once.

                                       3
<PAGE>

During  1997,  the  Company  began  testing  of its  "humanized"  version of the
antibody that is designed to reduce the HAMA response.  During 1998, the Company
expects to incorporate this humanized  antibody into its therapeutic  studies to
determine if the reduction of HAMA also reduces  antibodies to  streptavidin  to
levels sufficiently low to enable multiple doses to be administered.

LYMPHOMA:  Lymphomas are tumors of the lymph cells in the body,  and represent a
variety of different disease entities. In general, lymphomas may be divided into
Hodgkins  Disease  and  Non-Hodgkins  Lymphoma  (NHL),  with the latter  further
divided into T-cell and B-cell NHL depending on their cell of origin.  Most NHLs
are  derived  from  B-cells,  and thus  referred  to as  B-cell  Lymphomas.  The
incidence of B-cell  lymphomas is rising (50% in the last fifteen  years) due in
part to the  improved  longevity  of patients  with AIDS and to the aging of the
population.  There is  common  consensus  that  the low  and  intermediate-grade
lymphomas  are  generally  responsive to  chemotherapy  and that these  diseases
represent the majority of the lymphoma cases.  While responsive to chemotherapy,
low-grade lymphomas are rarely cured and  intermediate-grade  lymphomas that are
not cured by intensive  chemotherapy (~50%) are also rarely cured. Therefore the
need exists for additional and improved therapies.

Patients with recurrent low-grade lymphoma treated at the Fred Hutchinson Cancer
Research   Center  and  the   University   of  Washington   using   conventional
radioimmunotherapy   (RIT)  at  doses   requiring  a  bone   marrow   transplant
demonstrated a very high complete response rate (~80%) with long median duration
of response. The Company believes its PRETARGET(TM)  technology might be able to
deliver high tumor doses without requiring a bone marrow transplant. If so, this
would constitute a major improvement in the cost and treatment of this disease.

Accordingly,  the Company began a project in the latter part of 1997 to create a
product for the treatment of lymphoma.  This product is based on the AVICIDIN(R)
product,  except  that a  "lymphoma-seeking"  antibody  is  substituted  for the
AVICIDIN(R)  antibody. As soon as the lymphoma  antibody-streptavidin  conjugate
can be constructed,  and the IND  (Investigational  New Drug Application)  filed
with and  cleared by the FDA,  the  Company  will begin  Phase I trials to study
whether  such doses may be safely  administered.  The Company  anticipates  this
study will begin in the first half of 1998.

NeoRx is also testing the delivery of  additional  therapeutic  products such as
other forms of radiation,  and immune response  modifiers  (e.g.  tumor necrosis
factor). The PRETARGET(TM) platform may offer the first practical opportunity to
deliver  alpha  emitters,  a form of  radiation  significantly  more potent than
yttrium-90, effectively and safely to solid tumors. NeoRx has received two Small
Business  Innovative  Research  ("SBIR")  grants to study  alpha  emitters  with
PRETARGETTM technology.

VERLUMA(R)  KIT:  IMAGING FOR SMALL CELL LUNG CANCER.  The VERLUMA(R) kit is the
Company's  diagnostic  imaging  product that is  indicated  to detect  extensive
disease in patients with biopsy-confirmed,  previously untreated small cell lung
cancer.  Boehringer Ingelheim International GmbH ("Boehringer  Ingelheim") holds
world-wide   manufacturing  rights.  The  DuPont  Merck  Pharmaceutical  Company
("DuPont  Merck")  markets  the  VERLUMA(R)  kit in the United  States and holds

                                       4

<PAGE>

exclusive  North American  rights to market the  VERLUMA(R)  kit. In addition to
paying NeoRx $4.5 million upon the FDA marketing clearance in the United States,
DuPont Merck is required to pay NeoRx  royalties on sales of the  VERLUMA(R) Kit
in North America.  The VERLUMA(R) kit is approved only in the United States, and
royalties to NeoRx thus far have been negligible; significant increases in those
royalties are not anticipated.  No applications for foreign  approvals have been
filed or planned.

CARDIOVASCULAR DISEASE AND ITS TREATMENT

The American Heart Association estimates that approximately 60 million Americans
have  one or  more  types  of  cardiovascular  disease,  and  that  the  cost of
cardiovascular  diseases and stroke in 1997 will be approximately  $250 billion.
Nearly one million people die of cardiovascular  disease each year in the United
States, making it the leading cause of death.

Cardiovascular  disease  is  divided  into  four  main  categories:  high  blood
pressure,  coronary artery disease,  stroke and valvular heart disease.  Medical
procedures to treat coronary  artery disease include  percutaneous  transluminal
coronary angioplasty and coronary artery bypass surgery.  Heart  transplantation
is reserved for patients with intractable heart failure or arrhythmia,  which is
usually the result of coronary artery disease or  cardiomyopathy  (muscle damage
due to  environmental  or infectious  agents).  NeoRx's  cardiovascular  product
development   program  is  focused  on  coronary  artery  disease   (restenosis,
atherosclerosis, and inflammation).

RESTENOSIS:  Angioplasty  is a medical  procedure  used to  increase  blood flow
through  coronary  arteries that have been partially  blocked by the build-up of
plaque  on the  interior  of the  arterial  wall.  Restenosis  is the  recurrent
narrowing of an artery  following  angioplasty.  This  narrowing,  which reduces
blood flow through the artery,  is believed to be caused by a combination  of at
least three  distinct but  interrelated  factors:  (1) vascular  remodeling,  or
chronic  constriction  of the  artery,  (2)  blood  clot  formation  and (3) the
migration  and  proliferation  of  smooth  muscle  cells  at  the  site  of  the
angioplasty  procedure  that  encroach  upon the flow of blood.  Data from human
studies  suggests  that  vascular  remodeling  accounts  for the majority of the
restenosis following balloon angioplasty.

The Company  believes  that over  500,000  angioplasties  were  performed in the
United States in 1996,  and that  approximately  30 - 40% of these patients will
experience restenosis following the angioplasty procedure. If restenosis occurs,
it may necessitate open heart surgery (coronary artery bypass graft),  sometimes
on an emergency basis, or additional coronary  angioplasty  procedures,  such as
repeat  angioplasty  and/or  the  placement  of a  metal  stent  in  the  artery
("stenting").  The  Company  believes  that metal  stenting  is  becoming a more
frequently used procedure with the initial angioplasty.

BIOSTENT(R):  NEORX'S APPROACH TO TREATING RESTENOSIS. The Company's BIOSTENT(R)
product under development is designed to inhibit vascular  remodeling  following
balloon angioplasty. By addressing remodeling,  BIOSTENT(R) may be complementary
to the  anti-thrombotics  currently on the market or under  development by other
companies for the treatment of restenosis. The drug is delivered via catheter to
the angioplasty site immediately following the procedure.

                                       5
<PAGE>

NeoRx's   preclinical   studies  have  shown  that   administering   BIOSTENT(R)
immediately after angioplasty  inhibits chronic  constriction of the artery wall
and thus helps  maintain its dilated  position.  As a normal  response to injury
caused by angioplasty, the muscle cells in the ballooned arterial wall secrete a
biological  "cement"  called  collagen,  a supportive  protein of the body.  The
Company  believes that the collagen forms a rigid matrix,  thereby  biologically
supporting or "stenting" the arterial wall during the period that treatment with
BIOSTENT(R) inhibits arterial constriction.

NeoRx scientists  assessed the effects of the BIOSTENT(R)  treatment method in a
swine femoral  artery model that was then extended to swine  coronary  arteries.
Analysis of swine  femoral  arteries  for as long as eight  weeks,  and of swine
coronary arteries for as long as three weeks, following a single exposure to the
BIOSTENT(R)  product  suggests that the  treatment  sustains the increase in the
luminal area following balloon trauma compared to the ballooned,  but untreated,
arteries.

The BIOSTENT(R) treatment method consists of the cytoskeletal  inhibiting agent,
cytochalasin B, delivered through a specialized intracoronary delivery catheter.
The catheter is an over-the-wire design that allows rapid placement of the agent
using  the  same  guidewire  used for  balloon  dilation.  Commercialization  of
BIOSTENT(R)  will depend,  in part,  on obtaining  FDA approval of the catheter,
which  is  manufactured  by a  third  party.  NeoRx  completed  and  analyzed  a
multicenter,  randomized,  double-blinded  Phase I trial of BIOSTENT(R) in 1997.
There was no evidence of drug-related toxicity and 5 of 13 (38%) placebo-treated
patients, as compared to 6 of 30 (20%) BIOSTENT(R)-treated patients, experienced
clinical restenosis by the end of six months.  Patient numbers were too small to
achieve statistical  significance.  During 1997 NeoRx completed a second Phase I
study with a different catheter.  The second Phase I study,  consistent with the
first,  did not demonstrate any drug related side effects.  The side effects
observed  in either  Phase I study  involved  dissections  (tears)  in the inner
layers of the artery wall that frequently  occur with balloon  angioplasty.  The
delivery  procedure  resulted  in some  new,  or  worsening  of  some  existing,
dissections. Patient accrual for a large (300-400) Phase II trial is expected to
commence in 1998.

ATHEROSCLEROSIS AND INFLAMMATION:  Atherosclerosis is a complex disease of blood
vessels commonly  understood as clogging of arteries with  cholesterol.  It is a
leading  cause of death from heart  attack and stroke.  Clogged  arteries do not
deliver  oxygen-carrying blood to organs as well as normal arteries and are more
likely to become  completely  restricted  with  blood  clots that shut off blood
flow. The result is that the affected organ receives insufficient oxygen and may
die if flow is not restored rapidly,  leading to conditions such as heart attack
and stroke.  Surgery and/or  angioplasty (as described  above) can improve blood
flow, but prevention or reduction in the disease progression would be preferred.

RAISING  TGF(BETA)  LEVELS:   NEORX'S  APPROACH  TO  TREATING   ATHEROSCLEROSIS.
Scientists  at  University  of  Cambridge in the United  Kingdom  ("Cambridge"),
working with NeoRx,  have discovered that patients with advanced coronary artery
disease have low levels of active TGF(beta), a protein that regulates the growth
of certain cell types such as those found in the lining of  arteries.  They have
reported that segments of arteries  prone to  atherosclerosis  are low in active
TGF(beta) and that the elevation of active TGF(beta) can prevent the development
of lesions in arteries of a mouse  animal  model that  express the human  apo(a)
gene associated with atherosclerosis lesions in humans.

                                       6
<PAGE>

A Phase I dosing  study has been  conducted  to  determine  the  safety  and the
appropriate dose of a drug that is believed to increase  activated  TGF(beta) in
patients with advanced  coronary artery  disease.  The results of that study are
currently  being  evaluated.  This drug has been  provisionally  licensed from a
third party.

CARDIOVASCULAR  AND INFLAMMATORY  DISEASES.  TGF(beta)  research that began with
investigations  in  atherosclerosis  has since led to  observations  that may be
relevant to the  treatment of other  inflammatory  diseases  such as  rheumatoid
arthritis and asthma.  NeoRx has  established an exclusive  relationship  with a
University of Cambridge  scientist  wherein NeoRx will have exclusive  rights to
all of his laboratory's research for the next three years.


PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>

The following table summarizes products under development by NeoRx:

     PRODUCT                              INDICATION                            Q1 1998 STATUS
     -------                              ----------                            --------------

 CANCER THERAPY:

  <S>                                  <C>                                    <C>
  AVICIDIN(R)                          Prostate Cancer                        Phase II clinical trials*
                                       Colon Cancer                           Phase II clinical trials*
                                       Lung Cancer                            Phase I clinical trials*

  PRETARGET(TM) Lymphoma               Relapsed B-cell Lymphoma               Preclinical
</TABLE>

* with  murine  antibody  at single  dose;  final  formulation  expected  to use
humanized antibody.
<TABLE>
<CAPTION>

CARDIOVASCULAR THERAPY:

<S>                                    <C>                                    <C>
ANTI-RESTENOSIS
  BIOSTENT(R)                          Inhibition of restenosis               Phase I clinical trials
                                                                              complete.

ATHEROSCLEROSIS
  TGF(beta) upregulation               Treatment of atherosclerosis           Phase I clinical trials -under
                                                                              analysis
</TABLE>


RELATIONSHIP WITH JANSSEN PHARMACEUTICA

In 1997 NeoRx granted  Janssen  Pharmaceutica  NV  ("Janssen"),  a subsidiary of
Johnson & Johnson,  Inc., an exclusive  worldwide  license for the  development,
manufacture,  and  distribution of NeoRx's  AVICIDIN(R)  cancer therapy product.
Under this  agreement  NeoRx received $5 million in 1997 for the license fee and
$5 million for the purchase of NeoRx Series 4 Convertible Preferred Stock, which
was acquired by Johnson & Johnson Development Corporation, and then converted to
833,334  shares of common  stock.  In addition to royalties on any future sales,

                                       7
<PAGE>

NeoRx may receive  additional  payments up to $50 million upon achieving certain
development  milestones.  In January  1998,  the  Company  received a $7 million
milestone payment from Janssen,  reflecting Janssen's decision to begin Phase II
trials of AVICIDIN(R)  cancer  therapy.  Under this  agreement,  Janssen assumed
responsibility for worldwide  registration and commercialization of the product,
and  agreed  to  fund  an  estimated  95% of the  remaining  costs  for  product
development  and  clinical  trials.  Janssen  also  received  the right of first
negotiation   to   subsequent   oncology   products   employing   the  Company's
PRETARGET(TM)  technology.  Additional  oncology  products  that fall  under the
Janssen agreement will trigger royalty obligations to the Company and may result
in additional milestones to NeoRx.

RELATIONSHIP WITH SCHWARZ PHARMA

In 1997, the Company granted Schwarz Pharma AG ("Schwarz Pharma") a license that
provides  Schwarz  Pharma with exclusive  North American and European  marketing
rights to distribute NeoRx's  BIOSTENT(R)  restenosis  treatment product.  Under
this agreement NeoRx received $8 million for the license fee and the purchase of
NeoRx  Common  Stock,  par value $.02 per share (the  "Common  Stock"),  and may
receive  additional  milestone  payments  up  to  $22  million  in  addition  to
royalties.  The $1.3 million  excess  received over the $6.7 million fair market
value of the Common Stock was recorded as license revenue.  Under the agreement,
Schwarz Pharma is responsible for all of the remaining  BIOSTENT(R)  development
costs,  milestone  payments  and  payments  for  the  purchase  of  manufactured
products.  NeoRx has retained  manufacturing  rights on a  world-wide  basis and
marketing rights outside of North America and Europe.

PATENTS AND PROPRIETARY RIGHTS

The Company's policy is to protect its proprietary technology  aggressively.  It
has filed  applications  for U.S. and foreign  patents  issued in its portfolio,
covering numerous aspects of its technology. The Company currently has in excess
of 100 issued and allowed U.S. patents.

NeoRx has been awarded 15 U.S. patents related to its PRETARGET(TM)  technology,
and has additional U.S. and foreign  applications  pending.  The Company also is
the exclusive licensee of Stanford University patents issued in the U.S., Europe
and Japan  related to the  underlying  technology  used in  NeoRx's  AVICIDIN(R)
product currently in clinical trials.  The Company holds a co-exclusive  license
for the monoclonal  antibody used in its cancer imaging and treatment  products,
and has  obtained  U.S. and foreign  patent  protection  for its cancer  imaging
technology, including its VERLUMA(R) small cell lung cancer imaging product.

The Company has received a notice of allowance  for a U.S.  patent  covering its
BIOSTENT(R)  product,  and has additional pending U.S. and foreign  applications
related to the product. In addition, NeoRx holds seven issued U.S. patents, with
additional  U.S.  and  foreign  applications  pending,  relating  to the  use of
TGF(beta) elevating agents to treat  cardiovascular  indications.  NeoRx is also
the  exclusive  assignee of the rights of its  Cambridge  collaborators  to this
technology.

There can be no assurance that any of the pending or future  applications of the
Company or its collaborators will result in issued patents.  Moreover, there can
be no  assurance  that the patents  owned by or  licensed  to the  Company  will
provide  substantial  protection  or commercial  benefit.  In addition to patent

                                       8
<PAGE>

protection,  the  Company  relies  upon trade  secrets,  unpatented  proprietary
know-how and  continuing  technological  innovation  to develop and maintain its
competitive position.  There can be no assurance that others will not acquire or
independently  develop  the same or similar  technology,  or that the  Company's
issued patents or those it has licensed will not be circumvented, invalidated or
rendered  obsolete by new technology.  Moreover,  there can be no assurance that
others will not gain access to the Company's proprietary technology, or disclose
such technology, or that the Company can meaningfully protect its rights in such
unpatented proprietary technology.

The rapid rate of development and the intense  research  efforts  throughout the
world in biotechnology,  the significant lag time between the filing of a patent
application  and  its  review  by  appropriate   authorities  and  the  lack  of
significant legal precedent involving biotechnology inventions make it difficult
to predict  accurately  the breadth or degree of  protection  that  patents will
afford  the  Company's  or  its  licensees'   biotechnology  products  or  their
underlying  technology.  It is also  difficult to predict  whether valid patents
will be granted based on biotechnology  patent  applications or, if such patents
are  granted,  to predict the nature and scope of the claims of such  patents or
the extent to which they may be enforceable.

Under U.S. law, although a patent has a statutory  presumption of validity,  the
issuance of a patent is not  conclusive as to validity or as to the  enforceable
scope of its claims.  Accordingly,  there can be no  assurance  that the patents
owned or licensed by the Company  will not be  infringed  or designed  around by
others or that others  will not obtain  patents  that the Company  would need to
license or design around.

It is the Company's  policy to respect the valid patent rights of others.  NeoRx
has obtained patent licenses from various parties covering technologies relating
to its products.  The Company,  however, may need to acquire additional licenses
or, if such licenses are denied or are not available on commercially  reasonable
terms,  successfully prevail in the event that litigation is commenced by patent
owners to interfere with the development or  commercialization  of the Company's
products.

COMPETITION

NeoRx faces  significant  competition  from emerging  companies and  established
biotechnology,  pharmaceutical and chemical  companies.  Many emerging companies
have corporate  partnership  arrangements with large,  established  companies to
support research, development and commercialization efforts of products that may
be competitive with those being developed by the Company. In addition,  a number
of established  pharmaceutical companies are developing proprietary technologies
or have  enhanced  their  capabilities  by entering into  arrangements  with, or
acquiring,  companies with proprietary monoclonal  antibody-based  technology or
other technologies applicable to cancer therapy, the prevention of restenosis or
the  treatment  of  atherosclerosis  and  inflammatory  diseases.  Many  of  the
Company's existing or potential competitors have or have access to substantially
greater financial, research and development,  marketing and production resources
than those of the Company.

                                       9
<PAGE>

The Company's  cancer therapy  products under  development  are designed for the
treatment of metastatic  cancer or where there is a very high  statistical  risk
that  the  cancer  has  spread.  The  Company  anticipates  that  the  principal
competition   in  this  type  of  cancer   treatment  will  come  from  existing
chemotherapy,  hormone  therapy and  biological  therapies  that are designed to
treat the same cancer stage. Many  pharmaceutical,  emerging  pharmaceutical and
biotechnology  companies  are  testing  a  large  array  of  alternative  cancer
treatments. If any of these proves to be more effective, safer or less expensive
than  the  Company's  products  under  development,  the  Company's  competitive
position could be materially adversely affected.

The Company's  anti-restenosis  product under development is designed to prevent
restenosis of blood vessels following angioplasty where such narrowing is due to
vascular  remodeling.  Due to  the  incidence  and  severity  of  cardiovascular
diseases,  the market for  therapeutic  products  that address such  diseases as
restenosis and atherosclerosis is large, and competition is intense and expected
to increase.  Many  pharmaceutical,  emerging  pharmaceutical  and biotechnology
companies are testing a large array of alternative heart disease treatments.  If
any of these  proves  to be more  effective,  safer or less  expensive  than the
Company's products under development,  the Company's  competitive position could
be materially adversely affected.

Other  companies  may develop and introduce  products and processes  competitive
with or superior to those of the Company.  Further, the development by others of
new cancer treatment,  anti-restenosis,  atherosclerosis or inflammatory disease
treatment products or prevention products could render the Company's  technology
and products under development less competitive, uneconomical or obsolete.

Timing of market introduction and health care reform,  both uncertainties,  will
affect the competitive position of the Company's products.  The Company believes
that  competition  among products  approved for sale will be based,  among other
things, on product safety, efficacy, reliability, availability, price and patent
protection.

GOVERNMENT REGULATION AND PRODUCT TESTING

The  manufacture  and  marketing  of the  Company's  proposed  products  and its
research and  development  activities  are subject to extensive  regulation  for
safety,  efficacy and quality by numerous  government  authorities in the United
States  and other  countries.  In the United  States,  drugs and  biologics  are
subject to rigorous  regulation by the FDA. The Federal Food,  Drug and Cosmetic
Act of 1976, as amended, and the regulations promulgated  thereunder,  and other
federal and state  statutes and  regulations  govern,  among other  things,  the
testing,  manufacture,  safety,  efficacy,  labeling,  storage,  record keeping,
approval,   advertising  and  promotion  of  the  Company's  products.   Product
development and approval within this regulatory framework take a number of years
to accomplish and involve the expenditure of substantial resources.

The steps required before a pharmaceutical product may be marketed in the United
States include (i) preclinical laboratory tests, IN VIVO preclinical studies and
formulation  studies,  (ii) the submission to the FDA of an Investigational  New
Drug Application ("IND"), which must become effective before clinical trials can
commence,  (iii) adequate and  well-controlled  clinical trials to establish the
safety and  efficacy  of the drug,  (iv) the  submission  of a Biologic  License

                                       10
<PAGE>

Application  ("BLA") or New Drug  Application  ("NDA")  to the FDA,  and (v) FDA
approval of the BLA or NDA prior to any commercial sale or shipment of the drug.
In addition to obtaining  FDA  approval for each  product,  each  domestic  drug
manufacturing  establishment must be registered with, and inspected by, the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA  and  must  comply  with  current  Good   Manufacturing   Practice  ("cGMP")
regulations  enforced by the FDA through its facilities  inspection  program for
biologics,  drugs and devices.  To supply products for use in the United States,
foreign  manufacturing  establishments  must comply with cGMP and are subject to
periodic  inspection by the FDA or by corresponding  regulatory agencies in such
countries under reciprocal agreements with the FDA.

Preclinical  studies  include  laboratory  evaluation  of product  chemistry and
formulation,  as well as animal  studies,  to assess  the  potential  safety and
efficacy  of  the  product.  Preclinical  safety  tests  must  be  conducted  by
laboratories  that comply with the FDA  regulations  regarding  Good  Laboratory
Practice.  The results of the  preclinical  studies are  submitted to the FDA as
part of an IND and are  reviewed  by the FDA prior to  commencement  of clinical
trials.  Unless  the FDA  provides  comments  to an IND,  the  IND  will  become
effective 30 days  following  its receipt by the FDA.  There can be no assurance
that  submission  of an IND will  result in the FDA  authorization  to  commence
clinical trials.

Clinical trials involve the  administration of the  investigational  new drug to
healthy volunteers or to patients under the supervision of a qualified principal
investigator.  Clinical  trials  are  conducted  in  accordance  with the  FDA's
Protection  of Human  Subjects  regulations  and Good Clinical  Practices  under
protocols that detail the objectives of the study,  the parameters to be used to
monitor safety and the efficacy criteria to be evaluated.  Each protocol must be
submitted to the FDA as part of the IND.  Further,  each clinical  study must be
conducted  under the  auspices  of an  independent  Institutional  Review  Board
("IRB")  at the  institution  where 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 are typically  conducted in three  sequential  phases,  but the
phases may overlap. In Phase I, the drug is tested for safety (adverse effects),
dosage  tolerance,  metabolism,  distribution,  excretion  and  pharmacodynamics
(clinical  pharmacology).  Phase  II  involves  studies  in  a  limited  patient
population  to (i)  determine  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. When a compound is found to
have  potential  efficacy and to have an acceptable  safety  profile in Phase II
clinical  trials,  Phase III clinical trials are undertaken to further  evaluate
clinical  efficacy  and to further  test for safety  within an expanded  patient
population at  geographically  dispersed  clinical study sites.  There can be no
assurance that Phase I, Phase II or Phase III clinical  trials will be completed
successfully  within any specific time period, if at all, with respect to any of
the Company's products subject to such trials.  Furthermore,  the Company or the
FDA may  suspend  clinical  trials  at any  time if it is  determined  that  the
subjects or patients are being exposed to an unacceptable health risk.

                                       11
<PAGE>

The results of the pharmaceutical development,  preclinical studies and clinical
trials are  submitted to the FDA in the form of a BLA or NDA for approval of the
marketing  and  commercial  shipment  of the  drug.  The  testing  and  approval
processes are likely to require  substantial time and effort and there can be no
assurance  that any approval will be granted on a timely  basis,  if at all. The
FDA may deny a BLA or NDA if applicable  regulatory  criteria are not satisfied,
may require  additional  testing or  information,  or may require  postmarketing
testing and  surveillance to monitor the safety of the Company's  products if it
does not view the BLA or NDA as containing  adequate  evidence of the safety and
efficacy of the drug.

Notwithstanding  the submission of such data, the FDA may ultimately decide that
the application does not satisfy its regulatory criteria for approval. Moreover,
if  regulatory  approval  of  a  drug  is  granted,  such  approval  may  entail
limitations on the indicated uses for which it may be marketed. Finally, product
approvals  may be  withdrawn  if  compliance  with  regulatory  standards is not
maintained or if problems occur following initial marketing.

Among  the  conditions  for BLA or NDA  approval  is the  requirement  that  the
prospective  manufacturers' quality control and manufacturing procedures conform
to  cGMP.  In  complying  with   standards  set  forth  in  these   regulations,
manufacturers  must  continue to expend  time,  money and effort in the areas of
production and quality control to ensure full technical compliance.

EMPLOYEES

As of March 2, 1998,  the Company  had 71  full-time  employees  and 8 part-time
employees,  17 of whom hold Ph.D.  degrees and 3 of whom hold M.D.  degrees.  Of
this  number,   60  employees   were  engaged  in  research,   development   and
manufacturing activities and 19 were employed in finance and administration.

The Company  considers its relations with its employees to be good.  None of the
Company's employees is covered by a collective bargaining agreement.

RISK FACTORS

This document includes certain  forward-looking  statements made pursuant to the
safe harbor provisions of the Private Securities  Litigation Reform Act of 1995.
The words "believes",  "anticipates",  "plans",  "may", "hopes",  "can", "will",
"expects",  "is designed  to",  "with the intent",  and other  similar terms are
intended  to identify  such  forward-looking  statements.  Such  statements  are
subject to certain risks and  uncertainties  that could cause actual  results to
differ  materially from those anticipated by the statements made by the Company.
Factors  which could affect the Company's  actual  results are described in this
section.   Readers  are  cautioned   not  to  place  undue   reliance  on  these
forward-looking statements,  which speak only as of the date hereof. The Company
undertakes  no  obligation  to publicly  release the results of any revisions to
these  forward-looking  statements  that  may  be  made  to  reflect  events  or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated events.

                                       12
<PAGE>

NO ASSURANCE THAT NEW PRODUCTS WILL BE SUCCESSFULLY DEVELOPED

The Company's  realization of its long-term potential will be dependent upon the
successful   development  and  commercialization  of  products  currently  under
development.  There can be no assurance  that these  products  will be developed
successfully  or  receive  regulatory  approval.  Furthermore,  there  can be no
assurance that these  products,  if developed and approved,  can be successfully
manufactured in quantities necessary for commercialization or that such products
will receive market acceptance.

UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING

Before  obtaining  regulatory  approvals for the  commercial  sale of any of the
Company's  potential new  products,  the products will be subjected to extensive
preclinical  and clinical  testing to  demonstrate  their safety and efficacy in
humans.  Results of initial  preclinical and clinical  testing of products under
development by the Company are not  necessarily  indicative of results that will
be obtained from subsequent or more extensive  preclinical and clinical testing.
Furthermore,  there can be no assurance  that clinical  trials of products under
development  will be  completed or will  demonstrate  the safety and efficacy of
such products at all, or to the extent necessary to obtain regulatory approvals.
Companies in the biotechnology  industry have suffered  significant  setbacks in
advanced  clinical  trials,  even after achieving  promising  results in earlier
trials.  The  failure to  adequately  demonstrate  the safety and  efficacy of a
therapeutic product under development could delay or prevent regulatory approval
of such products.

The rate of completion of clinical  trials depends on, among other factors,  the
enrollment of patients. Patient accrual is a function of many factors, including
the size of the patient population, the proximity of patients to clinical sites,
the  eligibility  criteria  for the  study,  and the  existence  of  competitive
clinical trials.  Delays in planned patient  enrollment in the Company's current
clinical trials or future clinical trials may result in increased costs, program
delays or both.

GOVERNMENTAL REGULATIONS: NO ASSURANCE OF PRODUCT APPROVAL

The  manufacture  and  marketing  of the  Company's  proposed  products  and its
research  and  development  activities  are  subject to  regulation  for safety,
efficacy and quality by numerous government authorities in the United States and
other countries.  Clinical trials,  manufacturing  and marketing of products are
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory authorities. Clinical trials and regulatory approval can take
a number of years to  accomplish  and require  the  expenditure  of  substantial
resources.  There can be no assurance  that  clinical  trials will be started or
completed  successfully within any specified time period. Delays in approval can
occur  for a number  of  reasons,  including  the  Company's  failure  to obtain
necessary  supplies of monoclonal  antibodies or other  materials or to obtain a
sufficient  number of  available  patients to support the claims  necessary  for
regulatory approval. There can be no assurance that requisite FDA approvals will
be obtained on a timely  basis,  if at all, or that any  approvals  granted will
cover all the  clinical  indications  for which the Company  may seek  approval.
Delays or  failure  to obtain  regulatory  approval  would  adversely  affect or
prevent the  marketing  of products  developed by the Company and its ability to
receive  royalty or other product  revenues.  The  manufacture  and marketing of

                                       13
<PAGE>

drugs are subject to  continuing  FDA review and later  discovery of  previously
unknown  problems  with a  product,  manufacturer  or  facility  may  result  in
restrictions, including withdrawal of the product from the market. Marketing the
Company's  products  abroad will require  similar  regulatory  approvals  and is
subject  to  similar  risks.  In  addition,   federal  and  state  agencies  and
congressional  committees  have  expressed  interest  in further  regulation  of
biotechnology.  The  Company  is unable to  estimate  the  extent  and impact of
regulation in the biotechnology  field resulting from any future federal,  state
or local legislation or administrative action.

For clinical  investigation and marketing outside the United States, the Company
or  its   collaborative   partners  also  are  subject  to  foreign   regulatory
requirements  governing human clinical trials and marketing  approval for drugs.
The requirements  governing the conduct of clinical trials,  product  licensing,
pricing and  reimbursement  vary widely for European  countries  both within and
outside the European Community.

HISTORY OF OPERATING LOSSES AND UNCERTAINITY OF FINANCIAL RESULTS

The  Company  has  been  unprofitable  since  inception  and  expects  to  incur
additional  operating losses over the next several years. These operating losses
may fluctuate from period to period.  The Company's  existing capital  resources
and interest income thereon are currently  expected to be sufficient to fund the
Company's  operations  through the year 1999. The Company's actual  expenditures
will depend on numerous  factors,  including results of research and development
activities, clinical trials, the levels of resources that the Company devotes to
establishing and expanding marketing and manufacturing capabilities, competitive
and   technological   developments  and  the  timing  of  revenues  and  expense
reimbursements  resulting  from  relationships  with  parties  to  collaborative
agreements.  The Company will require  substantial  additional funds to complete
the development of its therapeutic products.  Adequate funds for these purposes,
whether through additional financings, collaborative arrangements with corporate
sponsors  or other  sources,  may not be  available  on terms  favorable  to the
Company, if at all. If funding is insufficient,  the Company will be required to
delay,  reduce  or  eliminate  some  or  all  of its  research  and  development
activities, clinical trials and manufacturing programs.

DEPENDENCE ON SUPPLIERS

The Company depends on the timely  delivery from suppliers of certain  materials
and services. In connection with its research,  preclinical studies and clinical
trials, the Company has periodically  experienced  interruption in the supply of
monoclonal antibodies.  Interruptions in these and other supplies could occur in
the future.  The  Company,  or its  partners,  will need to develop  sources for
commercial  quantities  of  yttrium-90,  the  radionuclide  used in its proposed
cancer  therapeutic  products,  and for the antibody,  streptavidin and clearing
agent used in the AVICIDIN(R) product. There is no assurance that the Company or
its partners will be able to develop such sources.  The catheter used to deliver
the Company's proposed BIOSTENT(R) product has not yet been approved for sale by
the FDA; commercial use of such catheter depends on receiving such approval.  In
addition, the Company depends on a supply of the catheter from its manufacturer;
any failure by the  manufacturer to supply catheters timely and adequately would

                                       14
<PAGE>

have a material  adverse  effect on the  Company's or its  partners'  ability to
commercialize  BIOSTENT(R).  The drug used in the atherosclerosis clinical trial
to raise activated TGF(beta) levels is only provisionally  licensed from a third
party and is dependent on that third party for supply.

DEPENDENCE ON OTHERS FOR COMMERCIAL MANUFACTURING AND MARKETING

The Company has entered  into two  collaborative  commercial  manufacturing  and
marketing agreements. There can be no assurance that the Company will be able to
negotiate  additional  collaborative  arrangements  in the  future,  or that its
current or future collaborative arrangements will be successful. The Company has
no  manufacturing  facilities  for  commercial  production of its products under
development.  The  Company  also  has  no  experience  in  sales,  marketing  or
distribution. In most cases, the Company's strategy for commercialization of its
potential  products requires  entering into various  arrangements with corporate
collaborators,  licensors,  licensees and others to manufacture,  distribute and
market such products;  the Company will depend on the successful  performance of
these third parties.  Although the Company believes that parties to its existing
and any future  arrangements  will have an economic  incentive to perform  their
contractual responsibilities  successfully,  these activities will not be within
the Company's control.  There can be no assurance that such parties will perform
their  obligations,  that  the  Company  will  derive  any  revenues  from  such
arrangements,  or that  the  Company's  reliance  on  others  for  manufacturing
products will not result in unforeseen problems with product supply.

Pursuant to the Janssen  AVICIDIN(R)  agreement,  Janssen has certain  rights to
manufacture  AVICIDIN(R)  and some or all of the  components  of  certain  other
PRETARGET(TM)  products.  If  Janssen  should  decide  to cease  development  of
AVICIDIN(R),  there can be no assurance  that the Company will be able to secure
alternative  commercial scale manufacturing for the AVICIDIN(R)  components on a
timely  basis  or for a  reasonable  price.  Schwarz  Pharma  has  been  granted
marketing  rights in North  America  and Europe for  BIOSTENT(R).  NeoRx has the
responsibility for commercial manufacturing of the BIOSTENT(R) drug. The Company
has no history of  manufacturing a product on a commercial scale with acceptable
quality for human use,  and there can be no  assurance  that such  manufacturing
capacity can be developed.

TECHNOLOGICAL CHANGE AND COMPETITION

The competition for development of cancer therapies and cardiovascular  products
is intense.  There are numerous competitors developing products to treat each of
the  diseases  for which the  Company  is  seeking  to  develop  products.  Some
competitors have adopted product development  strategies  targeting cancer cells
with monoclonal  antibodies.  Many emerging companies have corporate partnership
arrangements with large, established companies to support research,  development
and  commercialization  efforts of products that may be  competitive  with those
being  developed  by  the  Company.   In  addition,   a  number  of  established
pharmaceutical   companies  are  developing  proprietary  technologies  or  have
enhanced their  capabilities by entering into  arrangements  with, or acquiring,
companies  with  proprietary  monoclonal   antibody-based  technology  or  other
technologies applicable to the treatment of cancer and cardiovascular  diseases.
Many major pharmaceutical companies,  either alone or through collaboration with
smaller companies, have active programs in anti-restenosis therapy. Metal stents

                                       15
<PAGE>

are now being used  routinely to hold open the  arteries  after  angioplasty  by
mechanical means,  preventing  chronic  remodeling;  however,  the presence of a
"foreign  body"  has  created  other  problems.   Several  major  pharmaceutical
companies  market HMG  CoA-reductase  inhibitor  drugs  that  reduce the risk of
atherosclerosis  and heart attack.  Many of the Company's  existing or potential
competitors have or have access to substantially greater financial, research and
development,  marketing and  production  resources than those of the Company and
may be better equipped than NeoRx to develop,  manufacture and market  competing
products. The Company's competitors may have, or may develop and introduce,  new
products  that  would  render  the  Company's   technology  and  products  under
development less competitive, uneconomical or obsolete.

TECHNOLOGICAL UNCERTAINTIES REGARDING HUMAN IMMUNE RESPONSE TO FOREIGN PROTEINS

The Company's  AVICIDIN(R)  cancer therapy  product  currently uses a monoclonal
antibody  of murine  (mouse)  origin  coupled  to  streptavidin,  a  protein  of
bacterial origin. These molecules appear as foreign proteins to the human immune
system  that  develops  its own  antibody  in  response.  The "human  anti-mouse
antibody" ("HAMA") or the "human anti-streptavidin  antibody" ("HASA") responses
may limit the number of doses that may be safely or effectively  administered to
a patient,  thereby  limiting a product's  efficacy.  The Company  believes that
humanized  antibodies may reduce HAMA and that  modification of streptavidin may
reduce  HASA.  Gene  cloning  technology  permits  splicing  of human and murine
antibody portions together,  thereby yielding humanized molecules.  Although the
Company  has  produced  a  humanized  version  of the  murine  antibody  used in
AVICIDIN(R) and has initiated a collaboration to modify streptavidin,  there can
be no  assurance  that either  would reduce the extent to which HAMA or HASA may
limit the  effectiveness  of the Company's  cancer therapy  products or that the
Company and its partners will successfully  develop and  commercialize  products
incorporating the humanized antibody.

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

The patent position of  biotechnology  firms is generally  highly  uncertain and
involves complex legal and factual  questions.  Currently,  no consistent policy
has emerged  regarding the breadth of claims allowed in  biotechnology  patents.
Products  and  processes  important  to NeoRx are  subject to this  uncertainty.
Accordingly,  there can be no assurance that the Company's  patent  applications
will result in additional patents being issued or that, if issued,  patents will
afford protection against competitors with similar technology,  nor can there be
any assurance that any patents issued to the Company will not be infringed by or
designed  around by others  or that  others  will not  obtain  patents  that the
Company  would  need to  license  or design  around.  Moreover,  the  technology
applicable to the Company's products is developing rapidly. Research institutes,
universities and biotechnology  companies,  including the Company's competitors,
have filed  applications  for,  or have been  issued,  numerous  patents and may
obtain  additional  patents  and  proprietary  rights  relating  to  products or
processes  competitive  with or relating to those of the Company.  The scope and
validity  of such  patents,  the extent to which the  Company may be required to
obtain licenses  thereunder or under other  proprietary  rights and the cost and
availability of licenses are unknown. To the extent licenses are required, there
can be no  assurance  that they will be  available  on  commercially  reasonable

                                       16
<PAGE>

terms, if at all. The Company also relies on unpatented proprietary  technology.
There  can  be  no  assurance  that  others  will  not   independently   develop
substantially  equivalent  proprietary  information and techniques,  that others
will not  otherwise  gain access to the  Company's  proprietary  technology,  or
disclose  such  technology,  or that the  Company can  meaningfully  protect its
rights in such unpatented proprietary technology.

RISK OF PRODUCT LIABILITY

The testing,  manufacturing,  marketing  and sale of human  healthcare  products
under  development by the Company entail an inherent risk that product liability
claims will be asserted  against the  Company.  Although  the Company is insured
against such risks up to a $10 million annual aggregate limit in connection with
clinical trials and commercial  sales of its products under  development,  there
can be no assurance that the Company's  present product  liability  insurance is
adequate.  A  product  liability  claim in  excess  of the  Company's  insurance
coverage could have a material adverse effect on the Company and may prevent the
Company from obtaining  adequate  product  liability  insurance in the future on
affordable terms. In addition,  there can be no assurance that product liability
coverage will continue to be available in sufficient amounts or at an acceptable
cost.

UNCERTAINTY OF PHARMACEUTICAL PRICING, HEALTHCARE REFORM AND REIMBURSEMENT

The levels of revenues and  profitability  of  pharmaceutical  companies  may be
affected by the  continuing  efforts of  government  and  third-party  payors to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to governmental  control. In the United States,  there have been, and
the  Company  expects  that there will  continue  to be, a number of federal and
state proposals to implement similar governmental  control. It is uncertain what
legislative proposals will be adopted or what actions federal,  state or private
payors for healthcare  goods and services may take in response to any healthcare
reform proposals or legislation. Even in the absence of statutory change, market
forces are changing the healthcare sector. The Company cannot predict the effect
healthcare reforms may have on its business,  and there can be no assurance that
any such  reforms  will not  have a  material  adverse  effect  on the  Company.
Further,  to the extent that such  proposals or reforms have a material  adverse
effect  on  the  business,   financial  condition  and  profitability  of  other
pharmaceutical  companies that are prospective  collaborators for certain of the
Company's  potential  products,  the  Company's  ability  to  commercialize  its
products under development may be adversely affected.  In addition,  both in the
United States and elsewhere,  sales of  prescription  pharmaceuticals  depend in
part on the  availability  of  reimbursement  to the consumer  from  third-party
payors, such as governmental and private insurance plans. Third-party payors are
increasingly  challenging the prices charged for medical  products and services.
If the Company succeeds in bringing one or more products to market, there can be
no assurance  that these  products  will be considered  cost-effective  and that
reimbursement  to the consumer  will be available or will be sufficient to allow
the Company to sell its products on a competitive basis.
  
                                     17
<PAGE>

RELIANCE ON KEY PERSONNEL

The  Company's  success  will  depend  in part on the  efforts  of  certain  key
scientists and management  personnel.  Because of the specialized  nature of the
Company's business,  the Company's ability to maintain its competitive  position
will depend in part on its ability to attract  and retain  qualified  personnel.
Competition  for such  personnel is intense.  There can be no assurance that the
Company will be able to hire sufficient qualified personnel on a timely basis or
retain such personnel.  The loss of key management or scientific personnel could
have a material adverse effect on the Company's  business.  The Company does not
maintain key person insurance on any of its scientists or management personnel.

COMPLIANCE WITH ENVIRONMENTAL REGULATIONS; HAZARDOUS MATERIALS

The Company is subject to federal, state and local laws, rules,  regulations and
policies  governing the use,  generation,  manufacture,  storage,  air emission,
effluent  discharge,  handling and disposal of certain  materials  and wastes in
connection with its research and development activities and its manufacturing of
clinical  trial  materials.  Although the Company  believes that it has complied
with  these  laws and  regulations  in all  material  respects,  there can be no
assurance that it will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future.

The Company's  research and  development  and clinical  manufacturing  processes
involve  the  controlled  use of small  amounts  of  hazardous  and  radioactive
materials. Although the Company believes that its safety procedures for handling
and disposing of such  materials  comply with the  standards  prescribed by such
laws and regulations,  the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting  damages,  and any such liability
could exceed the Company's resources.

ITEM 2. PROPERTIES

The Company occupies approximately 36,000 square feet of office,  laboratory and
manufacturing space at 410 West Harrison Street,  Seattle,  Washington,  under a
lease that  expires May 31, 2001.  The lease is renewable  through May 31, 2006.
The Company  anticipates  leasing  additional  space  during the next two years,
after which it may either  enlarge its current  space or move to a new facility.
Such additional leases and/or moves would require additional investments.

NeoRx  believes its  facilities  are in good  condition and are adequate for all
present  uses. A portion of its  facilities is used for pilot  manufacturing  to
produce  certain of its products  under  development  for clinical  trials.  The
Company believes that the production  capacity of its pilot facility is adequate
to satisfy the Company's Phase I clinical trial  requirements,  and it passed an
FDA  inspection  for these  purposes  in 1993 and a  Washington  State  Board of
Pharmacy inspection in 1996.

                                       18
<PAGE>


The Company is obligated to manufacture the BIOSTENT(R) drug for Schwarz Pharma.
Such production may be carried out contractually,  but the Company may decide to
produce the drug itself.  Such production would require a further  investment in
facilities  and  equipment,  the cost of which is not expected to exceed several
million  dollars,  but there can be no guarantees  that the estimated  costs are
accurate. Such cost would not be incurred for at least two years.

ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings pending against the Company.

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

Not applicable.

                                       19
<PAGE>


                                     PART II

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

    The Company's Common Stock is traded on the Nasdaq National Market under the
symbol NERX. The following table sets forth, for the periods indicated, the high
and low sales price for Common  Stock as reported  by Nasdaq.  These  quotations
reflect inter-dealer prices without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>

                                               HIGH            LOW
                                               ----            ---
        1997:
        <S>                                   <C>            <C>
        First Quarter......................   $6 5/16        $4 1/16
        Second Quarter.....................    5 5/8          3 3/16
        Third Quarter......................    7 9/16         3 9/16
        Fourth Quarter.....................    8  1/2         4 7/16

        1996:
        First Quarter......................   $9 13/16        $6 3/16
        Second Quarter.....................    8 1/4           4 5/8
        Third Quarter......................    6 3/8           4 3/8
        Fourth Quarter.....................    6 13/16         4

</TABLE>

    There were  approximately  1,013 shareholders of record as of March 3, 1998.
This figure does not include the number of shareholders whose shares are held on
record by a broker or clearing  agency,  but includes such a brokerage  house or
clearing agency as one holder of record.

    The Company has not paid any cash  dividends  on the Common  Stock since its
inception  and does not intend to pay cash  dividends on the Common Stock in the
foreseeable future.

    In May 1997 the Company  received $4 million from Schwarz Pharma for 698,702
shares of unregistered  Common Stock.  The $1.3 million excess received over the
$6.7  million  fair  market  value of the Common  Stock was  recorded as license
revenue. In connection with the Janssen AVICIDIN(R) Agreement, Johnson & Johnson
Development  Corporation  ("JJDC")  purchased 1,000 shares of Series 4 Preferred
Stock at a stated  value of $5,000 per share and with a dividend  rate of 7% per
annum.  In  accordance  with the JJDC  Stock  Purchase  Agreement,  the Series 4
Preferred Stock  automatically  converted into 833,333 shares of Common Stock on
September 12, 1997,  when the Common Stock attained an average  closing price of
at least  $6.00 per  share.  These  converted  shares  of  Common  Stock are not
tradable for one year and are subject to volume  limitations in the second year.
At December 31, 1997, none of the Series 4 Preferred Stock remained outstanding.

                                       20
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA (In thousands, except per share data)
<TABLE>
<CAPTION>

                                                          YEARS ENDED DECEMBER 31,
                                     ----------------------------------------------------------------
                                        1997          1996           1995          1994          1993
                                        ----          ----           ----          ----          ----

STATEMENT OF OPERATIONS DATA:

<S>                                   <C>            <C>           <C>           <C>            <C>
Revenue............................   $10,352        $ 4,784       $   307       $ 1,568        $ 3,676

Operating expenses.................    14,647         14,763        13,343        12,605         12,334

Loss from operations...............    (4,295)        (9,979)      (13,036)      (11,037)        (8,658)

Net loss...........................    (2,550)        (9,001)      (12,271)      (11,144)        (8,536)

Net loss per common share -
   basic and diluted...............   $ (0.31)       $ (0.68)      $ (0.98)      $ (1.02)       $ (1.10)

Weighted average common
   shares outstanding -
   basic and diluted...............    18,065         15,604        13,142        11,616          8,449


BALANCE SHEET DATA:

Cash and cash equivalents..........   $ 1,949        $ 2,945       $ 7,182       $ 2,428        $14,347

Short term investments.............    31,760         15,322         8,937        14,723         13,421

Working capital....................    33,775         17,523        15,245        15,992         26,934

Total assets.......................    36,321         20,510        18,518        20,035         29,848

Long-term debt.....................     1,199          1,242         1,283         1,212          1,222

Shareholders' equity...............   $33,368        $17,079       $14,892       $15,841        $26,776

---------------------
</TABLE>
                                       21

<PAGE>


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

INTRODUCTION

    The  following  discussion of results of  operations,  liquidity and capital
resources  includes certain  forward-looking  statements.  The words "believes",
"anticipates",  "plans, "may", "hopes", "can", "will",  "expects",  "is designed
to",  "with the intent",  and other  similar terms are intended to identify such
forward-looking  statements.  Such statements are based on current  expectations
and are  subject to certain  risks and  uncertainties  that could  cause  actual
results to differ  materially  from those  anticipated by the statements made by
the Company.  Certain risk factors have been  identified  which could affect the
Company's actual results and are described in Item I above.

OVERVIEW

    NeoRx  develops  biopharmaceutical  products  primarily for the treatment of
cancer and cardiovascular  disease. The Company completed Phase I trials in 1997
for AVICIDIN(R),  a cancer therapy product, and BIOSTENT(R),  a product designed
to reduce  restenosis.  The Company's  revenues have  consisted  principally  of
license  fees from  Janssen,  Schwarz  Pharma,  DuPont  Merck,  and from federal
government  research  contracts.  In  1997  the  Company  entered  into  two new
licensing  agreements with corporate  partners  (Janssen and Schwarz Pharma) and
plans to pursue additional agreements in the future. Expenses incurred have been
primarily for research and development activities and administration.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

   The  Company's  revenues  in 1997,  1996 and 1995 were  $10.4  million,  $4.8
million  and $0.3  million,  respectively,  and  consisted  of license  fees and
payments  received under its licensing  agreements.  Revenues for 1997 increased
significantly  over 1996, as the result of two new licensing  agreements  during
the year.  In the third quarter of 1997,  NeoRx  entered into an agreement  with
Janssen for the worldwide  development,  manufacture and distribution of NeoRx's
AVICIDIN(R) cancer therapy product. As a part of this agreement,  NeoRx received
$5 million in revenue (license fees) and $5 million for the purchase of Series 4
Convertible  Preferred  Stock.  In  January  1998,  NeoRx  received a $7 million
milestone payment from Janssen,  reflecting Janssen's decision to begin Phase II
trials of AVICIDIN(R).

   During the second  quarter of 1997,  NeoRx  entered  into an  agreement  with
Schwarz  Pharma to license the North American and European  marketing  rights to
NeoRx's BIOSTENT(R) product. The Company received $4.0 million in licensing fees
and $4.0 million for the purchase of NeoRx Common Stock.  The excess amount paid
($1.3  million)  over the fair  market  value of Common  Stock was  recorded  as
revenue.  Revenues in 1996  consisted  primarily of license fees of $4.5 million
from  DuPont  Merck for  exclusive  North  American  rights  to  market  NeoRx's
VERLUMA(R) lung cancer imaging products.

   The Company's total operating expenses were $14.6 million,  $14.8 million and
$13.3 million in 1997, 1996 and 1995, respectively.  Of these amounts,  research
and development  expenditures were $11.0 million, $10.7 million and $9.3 million
in  1997,  1996  and  1995,  respectively.  Research  and  development  expenses
increased 3% in 1997 and 14% in 1996.  The increase in research and  development
expenses  in  1997  is   attributed   to   expenditures   relating  to  antibody
humanization,   clinical  trial  activities  and  royalty  costs.  Research  and
development  expenses are shown net of reimbursements for payments made to third
parties  received  under  collaborative  agreements.  During  1997  the  Company
received $3.4 million from  corporate  partners and government  research  grants
under such collaborative agreements.

                                       22
<PAGE>


    In 1996 the  increase in  research  and  development  was  primarily  due to
activities   relating  to  antibody   humanization,   increased  clinical  trial
activities,   patent  filing  costs,   and  a  one-time  payment  to  sublicense
PRETARGET(TM)  technology.  In 1996 and 1995,  amounts  received from  corporate
partners and government grants were insignificant.

   General and administrative  expenses were $3.7 million, $4.1 million and $4.0
million  in 1997,  1996  and  1995,  respectively.  General  and  administrative
expenses decreased 10% in 1997 and increased 2% in 1996. The decrease in general
and  administrative  expenses  in 1997 was  primarily  due to reduced  costs for
compensation,  as well as reduced costs for legal and professional  services. In
1996 the increase in general and  administrative  expenses was  primarily due to
legal costs associated with collaborative agreements.

   Investment  and  interest  income was $1.9  million,  $1.1  million  and $1.0
million in 1997, 1996 and 1995, respectively.  The increase in 1997 and 1996 was
primarily due to higher average cash balances resulting from sales of Common and
Preferred Stock. Interest expense was $0.1 million in 1997, 1996 and 1995.

LIQUIDITY AND CAPITAL RESOURCES

   Cash, cash equivalents and short-term  investments  totaled $33.7 million and
$18.3  million at  December  31,  1997 and 1996  respectively.  During  1997 the
Company  increased  cash, cash  equivalents and short-term  investments by $15.4
million.

   Cash used in operating activities for 1997 totaled $2.9 million. 1997 Revenue
derived  mainly  from the two new  licensing  agreements  (Janssen  and  Schwarz
Pharma) and  investment  and  interest  income of $1.9 million were used to fund
total operating expenses of $14.6 million.

   Cash provided by financing  activities  for 1997 totaled $18.7  million.  The
majority of the funds were raised from three stock transactions:  the JJDC Stock
Purchase agreement ($5.0 million),  the Schwarz Pharma agreement ($2.6 million),
and the private placement transactions $(11.4 million).

   Cash used in investing activities for 1997 totaled $16.8 million. During 1997
the Company invested excess cash in short-term  investments that will be used to
fund future operating costs.  During 1997 the Company also invested $0.3 million
in equipment,  furniture and  leasehold  improvements,  primarily to support its
research and manufacturing  activities. As of December 31, 1997, the Company was
committed  to spending  approximately  $1.8 million  pursuant to  operating  and
capital lease obligations.

   In August 1997,  the Company  received $5.0 million from the sale of Series 4
Convertible  Preferred  Stock to JJDC.  In March and  April of 1997 the  Company
received  $11.4 million from the sale to private  investors of 120,000 shares of
Series 3 Preferred  Stock  convertible at a discount.  In accordance with an SEC
accounting interpretation,  the associated discount of $2.1 million was recorded
as a one time non-cash  dividend.  In May 1997, the Company  received $4 million
from Schwarz Pharma for 699,000 shares of unregistered stock, representing a 50%
premium over the fair value of the stock. The associated premium of $1.3 million
was recorded as revenue.

   In January 1996,  the Company sold 370,000  shares of Common Stock and 47,000
shares of Series 2  Convertible  Preferred  Stock in  private  transactions  and
received $6.6 million.  During 1996,  the Company sold 464,000  common stock and
preferred  stock and received  $3.8 million,  and during 1995,  the Company sold
186,000  shares of common stock and  received  $1.2  million.  Also during 1995,
NeoRx  received  $8.3 million from the sale of 1.4 million  units  consisting of
Common Stock and three-year warrants.

                                       23
<PAGE>


   The Company's cash investment  policy is to earn a market rate of interest on
its  marketable  securities  while  assuming  minimal  risk  of  principal.  The
investment  portfolio  must  meet  the  following  objectives:  preservation  of
principal,  fulfillment of liquidity  needs,  reasonable  yield and avoidance of
inappropriate  concentrations.  All investments  must carry an investment  grade
rating and no single non-Federal government issue may represent more than 10% of
portfolio assets.

   The Company  expects that its capital  resources and interest  income will be
sufficient  to finance its  currently  anticipated  working  capital and capital
requirements  through at least the second quarter of 1999. The Company's working
capital and capital  requirements will depend upon numerous  factors,  including
results of research and development  activities,  clinical trials, the levels of
resources that the Company devotes to establishing  and expanding  marketing and
manufacturing  capabilities,  competitive and technological developments and the
timing and cost of relationships with parties to collaborative  agreements.  The
Company will need to raise substantial  additional funds to conduct research and
development  activities,  preclinical  studies and clinical trials  necessary to
bring  its  products  to  market,   and  to  establish   marketing  and  limited
manufacturing  capabilities.  The  Company  intends to seek  additional  funding
through  public  or  private  equity  financings,  arrangements  with  corporate
collaborators or other sources.  Adequate funds may not be available when needed
or on terms acceptable to the Company.

IMPACT OF THE YEAR 2000

   In 1997 the Company  initiated the  installation  of a new accounting  system
that is compliant with the year 2000  requirements  and is currently  evaluating
other  systems for Year 2000  concerns.  The Company  has not  initiated  formal
communications  with its significant  suppliers to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue.  There can be no guarantee that the systems of other  companies
on which the  Company  relies  will be timely  converted,  or that a failure  to
convert  by another  company  would not have a  material  adverse  effect on the
Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                       24
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

                                                                                 Page
                                                                                 Number
                                                                                --------
     <S>                                                                         <C>
     Reports of Independent Public Accountants.............................      26 - 27
     Balance Sheets - December 31, 1997 and 1996...........................        28
     Statements of Operations - For the Years Ended
        December 31, 1997, 1996 AND 1995...................................        29
     Statements of Shareholders' Equity - For the Years
        Ended December 31, 1997, 1996 AND 1995.............................        30
     Statements of Cash Flows - For the Years Ended
        December 31, 1997, 1996 AND 1995...................................        31
     Notes to Financial Statements.........................................        32

</TABLE>

     All other financial schedules are omitted since the required information is
not applicable or has been  presented in the financial  statements and the notes
thereto.

                                       25
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders of NeoRx Corporation:

    We have audited the  accompanying  balance sheet of NeoRx  Corporation as of
December 31,  1997,  and the related  statements  of  operations,  shareholders'
equity and cash flows for the year then ended.  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 audit.

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

    In our opinion,  the financial  statements referred to above present fairly,
in all material  respects,  the financial  position of NeoRx  Corporation  as of
December 31, 1997,  and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.



                              KPMG Peat Marwick LLP

Seattle, Washington
January 30, 1998

                                       26
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of NeoRx Corporation:

     We have audited the  accompanying  balance  sheet of NeoRx  Corporation,  a
Washington  corporation,  as of December 31, 1996 and the related  statements of
operations,  cash flows and  shareholders'  equity  for each of the years  ended
December 31, 1996 and 1995. 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 financial  position of NeoRx  Corporation  as of
December 31, 1996 and the results of its  operations and its cash flows for each
of the years ended  December 31, 1996 and 1995,  in  conformity  with  generally
accepted accounting principles


                                                           ARTHUR ANDERSEN LLP

Seattle, Washington
February 25, 1997

                                       27
<PAGE>
<TABLE>
<CAPTION>

                                                 NEORX CORPORATION
                                                  BALANCE SHEETS
                                         (In thousands, except share data)
                                                                                       DECEMBER 31,
                                                                                   ---------------------
                                         ASSETS                                      1997         1996
                                                                                   ---------    --------
CURRENT ASSETS:
<S>                                                                                <C>          <C>
Cash and cash equivalents.......................................................   $   1,949    $  2,945
Short-term investments ..........................................................     31,760      15,322
Prepaids and other ..............................................................      1,820       1,445
                                                                                    --------    --------
         Total current assets ...................................................     35,529      19,712
                                                                                    --------    --------
FACILITIES AND EQUIPMENT, AT COST:
Leasehold improvements ..........................................................      3,300       3,237
Equipment and furniture .........................................................      4,023       3,744
                                                                                    --------    --------
                                                                                       7,323       6,981
Less: accumulated depreciation and amortization .................................     (6,642)     (6,295)
                                                                                    --------    --------
     Facilities and equipment, net ..............................................        681         686
                                                                                    --------    --------
Other assets ....................................................................        111         112
                                                                                    --------    --------
         TOTAL ASSETS ...........................................................   $ 36,321    $ 20,510
                                                                                    ========    ========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................    $    800    $  1,235
Accrued liabilities .............................................................        911         910
Current portion of capital leases ...............................................         43          44
                                                                                    --------    --------
         Total current liabilities ..............................................      1,754       2,189

LONG-TERM LIABILITIES:
Convertible subordinated debentures .............................................      1,195       1,195
Capital leases, less current portion ............................................          4          47
                                                                                    --------    --------
         TOTAL LIABILITIES ......................................................      2,953       3,431
                                                                                    --------    --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred  stock,  $.02 par  value,  3,000,000  shares  authorized:  Convertible
  exchangeable preferred stock, Series 1, 208,240 shares issued
    and  outstanding  at December 31, 1997 and 1996  (entitled in liquidation to
    $5,248 at December 31, 1997 and $5,245 at December 31,1996)
  Convertible  preferred  stock,  Series 2,  5,167 and 6,667  shares  issued and
    outstanding  at  December  31,  1997 and  1996,  respectively  (entitled  in
    liquidation to $517 at December 31, 1997 and $667 at December 31, 1996)
  Convertible  preferred  stock,  Series 3,  1,000  and -0-  shares  issued  and
    outstanding at December 31, 1997 and 1996, respectively (entitled in
    liquidation to $100 at December 31, 1997 and $0 at December 31, 1996)........          4            4
Common stock, $.02 par value, 60,000,000 shares authorized,
    20,707,251 and 16,450,565 shares issued and outstanding, at
    December 31, 1997 and 1996, respectively.....................................        414          329
Additional paid-in capital.......................................................    162,612      140,789
Accumulated deficit..............................................................   (129,662)    (124,043)
                                                                                   ---------    ---------
         Total shareholders' equity..............................................     33,368       17,079
                                                                                   ---------    ---------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                $  36,321    $  20,510
                                                                                   =========    =========


<FN>
               See accompanying notes to the financial statements.
</FN>
</TABLE>
                                       28
<PAGE>
<TABLE>
<CAPTION>

                                                 NEORX CORPORATION
                                             STATEMENTS OF OPERATIONS
                                       (In thousands, except per share data)



                                                                                        YEARS ENDED DECEMBER 31,
                                                                                    --------------------------------
                                                                                      1997        1996        1995
                                                                                    --------    --------    --------

<S>                                                                                 <C>         <C>         <C>
Revenue .........................................................................   $ 10,352    $  4,784    $    307
                                                                                    --------    --------    --------
OPERATING EXPENSES:
Research and development ........................................................     10,961      10,682       9,349
General and administrative ......................................................      3,686       4,081       3,994
                                                                                    --------    --------    --------
          Total operating expenses ..............................................     14,647      14,763      13,343
                                                                                    --------    --------    --------
Loss from operations ............................................... ............     (4,295)     (9,979)    (13,036)
OTHER INCOME (EXPENSE):
   Investment and interest income, net ..........................................      1,881       1,120       1,002
   Interest expense .............................................................       (136)       (142)       (140)
   Litigation expense, net ......................................................         --          --         (97)
                                                                                    --------    --------    --------
Net loss ........................................................................   $ (2,550)   $ (9,001)   $(12,271)
                                                                                    ========    ========    ========
Preferred stock dividends .......................................................     (3,069)     (1,684)       (597)
                                                                                    --------    --------    --------
Net loss applicable to common shares ............................................   $ (5,619)   $(10,685)   $(12,868)
                                                                                    ========    ========    ========
Net loss per common share -
       basic and diluted ........................................................   $   (.31)   $   (.68)   $   (.98)
                                                                                    ========    ========    ========
Weighted average common shares
       outstanding - basic and diluted ..........................................     18,065      15,604      13,142
                                                                                    ========    ========    ========


<FN>
                     See accompanying notes to the financial statements.
</FN>
</TABLE>
                                       29
<PAGE>
<TABLE>
<CAPTION>


                                                                NEORX CORPORATION
                                                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                                      (In thousands, except per share data)

                                     PREFERRED STOCK     COMMON STOCK
                                     ---------------    --------------
                                     NUMBER              NUMBER              ADDITIONAL                                  TOTAL
                                       OF       PAR        OF     PAR         PAID-IN      DEFERRED     ACCUMULATED   SHAREHOLDERS'
                                     SHARES    VALUE     SHARES   VALUE       CAPITAL    COMPENSATION     DEFICIT        EQUITY
                                     ------    -----     ------   -----      ----------  ------------   -----------   -------------

<S>                                    <C>     <C>       <C>       <C>        <C>           <C>        <C>              <C>
BALANCE, DECEMBER 31, 1994 .....       298     $  6      11,865    $237       $115,614      $(232)     $ (99,784)       $15,841
Sale of common stock
   and warrants ................        --       --       1,700      34          9,181         --             --          9,215
Exercise of stock options ......        --       --         219       4            419         --             --            423
Issuance of common stock in
   payment of expenses .........        --       --         321       6          1,932         --             --          1,938
Exchange of preferred stock for
   common stock ................       (90)      (2)        225       5            703         --           (706)            --
Issuance of compensatory stock
   options .....................        --       --          --      --             91         --             --             91
Amortization of deferred
   compensation ................        --       --          --      --             --         93             --             93
Preferred stock dividends ......        --       --          29       1            158         --           (597)          (438)
Net loss .......................        --       --          --      --             --         --        (12,271)       (12,271)
                                      ----     ----      ------    ----       --------      -----      ---------        --------
BALANCE, DECEMBER 31, 1995 .....       208        4      14,359     287        128,098       (139)      (113,358)        14,892

Sale of common stock ...........        --       --         803      16          5,751         --             --          5,767
Sale of preferred stock ........        47        1          --      --          4,417         --             --          4,418
Exercise of stock options ......        --       --         281       6            719         --             --            725
Issuance of common stock in
  payment of expenses ..........        --       --         116       2            691         --             --            693
Exchange of preferred stock for
  common stock .................       (40)      (1)        860      17            (16)        --             --             --
Amortization of deferred
  compensation .................        --       --          --      --             --        139             --            139
Preferred stock dividends ......        --       --          32       1          1,129         --         (1,684)          (554)
Net loss .......................        --       --          --      --             --         --         (9,001)        (9,001)
                                      ----     ----      ------    ----       --------      -----      ---------        -------
 BALANCE, DECEMBER 31, 1996 ....       215        4      16,451     329         14,789         --       (124,043)        17,079

Sale of common stock ...........        --       --         699      14          2,633         --             --          2,647
Sale of preferred stock ........       121        2          --      --         16,396         --             --         16,398
Exercise of stock options ......        --       --         114       2            376         --             --            378
Issuance of common stock in
  payment of expenses ..........        --       --          22       1            100         --             --            101
Exchange of preferred stock for
  common stock .................      (122)      (2)      3,366      67            (65)        --             --             --
Preferred stock dividends ......        --       --          55       1          2,383         --         (3,069)          (685)
Net loss .......................        --       --          --      --             --         --         (2,550)        (2,550)
                                      ----     ----      ------    ----       --------      -----      ---------        -------
BALANCE, DECEMBER 31, 1997 .....       214     $  4      20,707    $414       $162,612      $  --      $(129,662)       $33,368
                                      ====     ====      ======    ====       ========      =====      =========        =======
<FN>

                                              See accompanying notes to the financial statements.

</FN>
</TABLE>
                                       30
<PAGE>
<TABLE>
<CAPTION>


                                                 NEORX CORPORATION
                                             STATEMENTS OF CASH FLOWS
                                                  (In thousands)


                                                                                        YEARS ENDED DECEMBER 31,
                                                                                    --------------------------------
                                                                                      1997        1996        1995  
                                                                                    --------    --------    --------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                 <C>         <C>         <C>
  Net loss ......................................................................   $ (2,550)   $ (9,001)   $(12,271)
  Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization .................................................        348         381         402
  Compensation expense on stock awards
    and options .................................................................         --         167         184
  Common stock for services .....................................................        101         290         239
  (Increase) decrease in prepaids ...............................................       (375)         57         554
  Increase (decrease) in accounts payable .......................................       (435)       (276)        908
  Increase (decrease) in accrued liabilities ....................................        (38)        708         (64)
   Decrease in deferred revenue .................................................         --        (250)         --
                                                                                    --------    --------    --------
  Net cash used in operating activities .........................................     (2,949)     (7,924)    (10,048)
                                                                                    --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of short-term investment............................. .....     59,987      36,989      43,213
  Purchases of short-term investments ...........................................    (76,425)    (43,374)    (37,427)
  Facilities and equipment purchases ............................................       (343)       (250)       (129)
                                                                                    --------    --------    --------
  Net cash provided by (used in) investing activities                                (16,781)     (6,635)      5,657
                                                                                    --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of capital lease obligations .......................................        (44)        (48)        (35)
  Proceeds from sale of common stock and warrants ...............................      2,647       5,767       9,215
  Proceeds from sale of preferred stock .........................................     16,398       4,418        --
  Proceeds from stock options exercised .........................................        378         693         423
  Preferred stock dividends .....................................................       (645)       (508)       (458)
                                                                                    --------    --------    --------
  Net cash provided by financing activities .....................................     18,734      10,322       9,145
                                                                                    --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS ...................................................................       (996)     (4,237)      4,754
CASH AND CASH EQUIVALENTS:
  Beginning of year .............................................................      2,945       7,182       2,428
                                                                                    --------    --------    --------
  End of year ...................................................................   $  1,949    $  2,945    $  7,182
                                                                                    ========    ========    ========




<FN>

                                     See accompanying notes to the financial statements.
</FN>
</TABLE>


                                       31

<PAGE>

                                NEORX CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1. THE COMPANY

    NeoRx  Corporation  (the  "Company")  develops   biopharmaceutical  products
primarily for the treatment of cancer and  cardiovascular  disease.  The Company
operates in a highly regulated and competitive environment.  The development and
manufacturing of pharmaceutical  products requires approval from, and is subject
to, ongoing oversight by the Food and Drug Administration  ("FDA") in the United
States and by comparable  agencies in other countries.  Obtaining approval for a
new therapeutic  product is never certain and may take several years and involve
expenditure of substantial resources. Competition in researching, developing and
marketing  pharmaceutical  products is intense. Any of the technologies covering
the  Company's  existing  products or products  under  development  could become
obsolete  or  diminished  in  value by  discoveries  and  developments  of other
organizations.

      The Company's  development  activities involve inherent risks. These risks
include,  among  others,  dependence  on  key  personnel,  availability  of  raw
materials,  determination  of the  patentability  of the Company's  products and
processes  and  approval by the FDA before the  Company's  products  may be sold
domestically. Expenses incurred have been primarily for research and development
activities and  administration.  Successful  future  operations  depend upon the
Company's ability to develop,  obtain regulatory approval for, and commercialize
its products.  The Company will require a substantial amount of additional funds
to complete  the  development  of most of its  products  and to fund  additional
operating  losses  which the Company  expects to incur  during the next  several
years.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH AND CASH EQUIVALENTS.  All highly liquid  investments with a remaining
maturity  of three  months or less when  purchased,  are  considered  to be cash
equivalents.

     ESTIMATES AND  UNCERTAINTIES.  The  preparation of financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

     RESEARCH AND DEVELOPMENT REVENUES AND EXPENSES. Revenues from collaborative
agreements are recognized as earned as the Company performs research  activities
under the terms of each  agreement.  Billings  in excess of  amounts  earned are
classified as deferred  revenue.  License fees earned are  recognized as revenue
unless  subject to a  contingency,  which results in a deferral of revenue until
the  contingency is satisfied.  Research and  development  costs are expensed as
incurred.  It is the  Company's  practice to offset  third  party  collaborative
reimbursements  received as a reduction  of research and  development  expenses.
Third party  reimbursements  for 1997 were  $3,448,286.  In 1996 and 1995, third
party reimbursements were insignificant.

     INCOME  TAXES.  The  Company  computes  income  taxes  using  the asset and
liability  method,  under  which  deferred  income  taxes are  provided  for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities.

     FAIR VALUE OF FINANCIAL INSTRUMENTS.  The Company has financial instruments
consisting of cash, cash equivalents, short-term investments, note from officer,
accounts payable, capital leases and convertible subordinated debentures. All of
the  Company's  financial  instruments,  based on current  market  indicators or
quotes from brokers, approximate their carrying amount.

                                       32
<PAGE>


     FACILITIES AND EQUIPMENT.  Facilities  and equipment,  including  equipment
under capital  leases,  are stated at cost.  Depreciation  is provided using the
straight-line  method over an estimated  useful life of five years for equipment
and furniture.  Leasehold  improvements  and equipment  under capital leases are
amortized  using  the  straight-line  method  over the  shorter  of the  assets'
estimated useful lives or the terms of the leases.

    NET LOSS PER COMMON SHARE.  In 1997,  the Company  adopted the provisions of
Statement  of  Financial  Accounting  Standards  No.  128,  Earnings  Per  Share
("Statement 128"), that establishes standards for the computation,  presentation
and  disclosure of earnings per share  ("EPS"),  replacing the  presentation  of
Primary EPS with a presentation of Basic EPS. It also requires dual presentation
of Basic EPS and Diluted EPS on the face of the income  statement  for  entities
with complex  capital  structures.  Basic EPS is based on the  weighted  average
number of common shares outstanding  during the period.  Diluted EPS is based on
the potential  dilution that would occur on exercise or conversion of securities
into  common  stock  using the  treasury  stock  method.  The  adoption  of this
statement did not result in a change in previously reported EPS.

     RECLASSIFICATIONS. Certain reclassifications were made to the 1996 and 1995
financial statements to make them comparable with the 1997 presentation.

NOTE 3. SHORT-TERM INVESTMENTS

     Short-term investments consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                        DECEMBER 31,
                                                  -----------------------
                                                   1997             1996
                                                  -------         -------
<S>                                               <C>             <C>
Federal government and agency securities.......   $ 4,997         $ 9,485
Corporate debt securities......................    26,763           5,837
                                                  -------         -------
                                                  $31,760         $15,322
                                                  =======         =======
</TABLE>

     The Company  considers all  short-term  investments  as  available-for-sale
securities.  All  securities  mature within one year of the date of issuance and
are  carried  at fair  value.  The  fair  value of the  securities  approximates
amortized cost at December 31, 1997 and 1996.

NOTE 4. ACCRUED LIABILITIES

     Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    ---------------------
                                                     1997            1996
                                                    -----           -----
<S>                                                 <C>             <C>
Compensation...................................     $ 743           $ 781
Other..........................................       168             129
                                                    -----           -----
                                                    $ 911           $ 910
                                                    =====           =====
</TABLE>

                                       33
<PAGE>

NOTE 5.  LEASES

     The Company leases certain  equipment  under capital leases which expire on
various  dates through 1999.  The total cost of equipment  under capital  leases
included in  facilities  and  equipment on the  accompanying  balance  sheet was
$293,966 at December 31, 1997 and 1996, and accumulated  amortization applicable
to such leases was $243,284 and $183,861 respectively.

     The lease for the Company's principal location expires in 2001 and contains
one five-year  renewal option.  Total rent payments under operating  leases were
$535,812, $515,412 and $449,755 for 1997, 1996 and 1995, respectively.

     Minimum lease  payments and the present value of capital lease  obligations
as of December 31, 1997, were as follows (in thousands):

<TABLE>
<CAPTION>

                                                                       OPERATING     CAPITAL
YEAR                                                                    LEASES        LEASES
                                                                       ---------     -------
<C>                                                                     <C>            <C>
1998 .............................................................      $  518         $44
1999 .............................................................         518           5
2000 .............................................................         494           -
2001 .............................................................         177           -
                                                                        ------         ---
     Total minimum lease payments ................................      $1,707          49
                                                                        ======
Less: amount representing interest (5% - 9% annual interest rates)                      (2)
                                                                                       ---
      Present value of capital lease obligations .................                      47
Less: current portion of capital leases ..........................                     (43)
                                                                                       ---
      Obligations under capital leases, non-current ..............                     $ 4
                                                                                       ===
</TABLE>

NOTE 6.  CONVERTIBLE SUBORDINATED DEBENTURES

     The  Company  has  $1,195,000  in  principal  of  Convertible  Subordinated
Debentures (the  "Debentures")  outstanding,  that will be retired in June 2000.
The  Debentures  are  convertible at the option of the holder into the Company's
Common Stock at a conversion  price of $25.80 per share,  subject to  adjustment
under certain conditions.  Interest at 93/4% is payable  semi-annually on June 1
and December 1. The Debentures are redeemable, in whole or in part, at any time,
at the  option  of the  Company  at  101.95%  of par,  reducing  to par by 1999,
together with accrued  interest.  The  Debentures are  subordinated  in right of
payment to any outstanding senior indebtedness of the Company, as defined in the
indenture.

NOTE 7. SHAREHOLDERS' EQUITY

     COMMON STOCK  TRANSACTIONS.  During 1997, the Company issued 720,862 shares
of Common Stock and received  net  proceeds and services  valued at  $2,748,542.
During 1996,  the Company issued 919,632 shares of Common Stock and received net
proceeds and services  valued at  $6,459,701.  During 1995,  the Company  issued
464,502 shares of common stock and received net proceeds and services  valued at
$2,845,858.  Also in 1995, the Company sold in separate  transactions  1,557,048
shares of Common Stock and  1,634,907  three-year  warrants to purchase  408,727
shares of Common Stock,  exercisable at a price of $5.31 per share. Net proceeds
amounted to $8,308,746.

                                       34
<PAGE>


     During 1997,  the Company also issued  3,366,690  shares of Common Stock in
exchange for 1,500 shares of Series 2 Preferred Stock,  119,000 shares of Series
3 Preferred  Stock and 1,000  shares of Series 4 Preferred  Stock.  Dividends of
$266,448  were also paid on the  Series 2  Preferred  Shares by  issuing  54,769
shares of Common Stock.

     In 1996,  the Company issued 859,861 shares of Common Stock in exchange for
40,000  shares of Series 2 Preferred  Stock.  Dividends of $173,783 were paid on
the shares of Series 2 Preferred Stock by issuing 32,252 shares of Common Stock.

     In 1995,  the Company issued 225,000 shares of Common Stock in exchange for
90,000  shares of Series 1 Preferred  Stock.  Dividends of $158,925 were paid on
the shares of Series 1 Preferred Stock by issuing 29,186 shares of Common Stock.

     PREFERRED  STOCK  TRANSACTIONS.  Holders  of Series 1  Preferred  Stock are
entitled to receive an annual cash  dividend of $2.4375 per share if declared by
the  Board of  Directors  (the  "Board"),  payable  semi-annually  on June 1 and
December 1. Dividends are cumulative.  Each share of Series 1 Preferred Stock is
convertible  into  approximately  1.14  shares  of  Common  Stock,   subject  to
adjustment in certain events.  The Series 1 Preferred Stock is redeemable at the
option of the  Company at $25.49 per  share,  decreasing  to $25.00 per share by
1999.  Holders  of Series 1  Preferred  Stock have no voting  rights,  except in
limited circumstances.

     In 1996, the Company  issued 46,667 shares of Series 2 Preferred  Stock and
received net proceeds of  $4,418,037.  During  1996,  40,000  shares of Series 2
Preferred  Stock were converted to 859,861  shares of Common Stock.  In February
1997,  1,500 shares of Series 2 Preferred  Stock were converted to 32,934 shares
of Common Stock.

     Holders of Series 2  Preferred  Stock are  entitled  to receive  cumulative
dividends at the rate of 8% per annum compounded quarterly on the $100 per share
stated value of the Series 2 Preferred Stock.  The dividend is payable,  in cash
or Common  Stock at the  Company's  option,  at the time the Series 2  Preferred
Stock is redeemed or converted into Common Stock.  The Series 2 Preferred  Stock
is redeemable  at the option of the Company at $120.50 per share.  Each share of
the Series 2 Preferred Stock is convertible at the option of the holder into the
number of shares of Common Stock  determined by dividing  $120.50 by the average
stock  market  closing bid price of the Common  Stock for the five  trading days
prior to the day of conversion,  but not less than $4.41 nor more than $8.36 per
share.  The  discount to be realized by the  difference  between the  conversion
value and the stated value of the Series 2 Preferred Stock issued was recognized
by the Company as a non-cash dividend charge of $955,830 in 1996. The holders of
the  Series  2  Preferred  Stock  have  no  voting  rights,  except  in  limited
circumstances. The Series 2 Preferred Stock ranks junior to the Company's Series
1 Preferred Stock, as to dividends, distributions and payments in liquidation.

    In 1997,  the Company  sold  120,000  shares of Series 3 Preferred  Stock in
private transactions and received net proceeds of $11,441,012. Also during 1997,
119,000 shares of Series 3 Preferred Stock were converted into 2,500,423  shares
of Common Stock.

    Holders of the Series 3 Preferred  Stock are entitled to receive  cumulative
dividends at the rate of 7% per annum compounded quarterly on the $100 per share
stated value of the Series 3 Preferred Stock.  The dividend is payable,  in cash
or Common Stock at the Company's  option,  quarterly or at the time the Series 3
Preferred  Stock is  redeemed  or  converted  into  Common  Stock.  The Series 3

                                       35
<PAGE>

Preferred  Stock is  redeemable  at the  option of the  Company in the first two
years  following  issuance  at $117.65  per share  plus  accrued  dividends  and
interest. Each share of the Series 3 Preferred Stock is convertible in the first
two years  following  issuance at the option of the holder,  and is  mandatorily
convertible  two years after the date of issuance,  into the number of shares of
Common  Stock  determined  by  dividing  the $100  stated  value of the Series 3
Preferred  Stock by 85% of the  average  stock  market  closing bid price of the
Common  Stock  for the five  trading  days  ending  one day  prior to the day of
conversion,  but not less than $4.41 nor more than $6.42 per share, plus accrued
dividends and interest.  A non-cash dividend charge of $2,117,647 was recognized
by the Company during 1997 for the amount of the excess of the conversion  value
over the stated  value.  The  holders of the  Series 3  Preferred  Stock have no
voting  rights  except in limited  circumstances.  The Series 3 Preferred  Stock
ranks junior to the Company's Convertible  Exchangeable  Preferred Stock, Series
1, and on parity with the  Company's  Series 2 Preferred  Stock as to dividends,
distributions and payments in liquidation.

    In  connection  with  a  1997  agreement  with  Janssen   Pharmaceutica   NV
("Janssen"),  a  subsidiary  of  Johnson  &  Johnson,  Inc,  Johnson  &  Johnson
Development  Corporation  ("JJDC"),  also a  subsidiary  of  Johnson &  Johnson,
purchased 1,000 shares of Series 4 Preferred Stock, $.02 par value per share, at
a stated  value of $5,000  per share with a  dividend  rate of 7% per annum.  In
September  1997,  the Series 4  Preferred  Stock  automatically  converted  into
833,333 shares of Common Stock, in accordance with the JJDC agreement,  when the
Common  Stock  attained  an  average  closing  price of $6.00 per  share.  These
converted  shares of Common  Stock are not freely  tradable for one year and are
subject to volume  limitations in the second year. At December 31, 1997, none of
the Series 4 Preferred Stock remained outstanding.

    SHAREHOLDERS'   RIGHTS  PLAN.  On  April  10,  1996,  the  Board  adopted  a
Shareholders'  Rights Plan  intended to protect  the rights of  shareholders  by
deterring coercive or unfair takeover tactics.  The Board declared a dividend to
holders  of  the  Company's  Common  Stock,   payable  on  April  19,  1996,  to
shareholders  of record on that date, of one preferred share purchase right (the
"Right")  for  each  outstanding  share  of  the  Common  Stock.  The  Right  is
exercisable 10 days following the offer to purchase or acquisition of beneficial
ownership  of 20% of the  outstanding  Common  Stock  by a  person  or  group of
affiliated  persons.  Each Right entitles the registered holder,  other than the
acquiring  person or group,  to purchase from the Company  one-hundredth  of one
share of Series A Junior  Participating  Preferred  Stock  ("Series A  Preferred
Stock") at a price of $40, subject to adjustment. The Rights expire in 2006. The
Series A Preferred  Stock will be entitled to a minimum  preferential  quarterly
dividend of $1 per share and has liquidation provisions.  Each share of Series A
Preferred Stock has 100 votes, and will vote with the Common Stock. Prior to the
acquisition  by a person or group of 20% of the  outstanding  Common Stock,  the
Board may redeem each Right at a price of $.001.

    In lieu of exercising the Right by purchasing one one-hundredth of one share
of Series A Preferred Stock,  the holder of the Right,  other than the acquiring
person or group, may purchase for $40, that number of the Company's Common Stock
having a market value of twice that price.

    The Board may,  without  further action by the  shareholders of the Company,
issue  preferred  stock in one or more series and fix the rights and preferences
thereof,  including dividend rights,  dividend rates,  conversion rates,  voting
rights, terms of redemption, redemption price or prices, liquidation preferences
and the number of shares  constituting  any series or the  designations  of such
series.

                                       36
<PAGE>


     STOCK  OPTIONS.  The  Company  has two  stock  option  plans  with  options
available  for grant:  the 1994 Stock Option Plan (the "1994 Plan") and the 1991
Stock Option Plan for Non-Employee Directors (the "Directors Plan").

    The 1994 Plan authorizes the Board or an Option  Committee  appointed by the
Board to grant  options  to  purchase a maximum  of  2,500,000  shares of Common
Stock.  In May 1997 the  Board  of  Directors  and  shareholders  authorized  an
increase of 1,500,000  shares to the 1994 Plan for a maximum of 4,000,000 shares
of Common  Stock.  The 1994 Plan  allows for the  issuance  of  incentive  stock
options  and  nonqualified  stock  options to  employees,  officers,  Directors,
agents,  consultants,  advisors  and  independent  contractors  of the  Company,
subject to certain  restrictions.  All option  grants  expire ten years from the
date of grant. In general, two-thirds of the option grants become exercisable in
increments  at a rate of 25% per year  over a  four-year  period  from the grant
date, and the remaining  one-third  becomes  exercisable over a period of one to
six years from the grant date at the  discretion  of the Option  Committee.  The
exercise  price of  options  granted  under  the 1994  Plan is equal to the fair
market value of the Common Stock at the date of grant.  As of December 31, 1997,
there were  1,465,073  shares of Common Stock  available for issuance  under the
1994 Plan.

    In 1996,  the Company  canceled and  reissued at an exercise  price range of
$5.13 - $5.25 per share,  the fair market  value of the Common Stock on the date
of  cancellation,  all options held by  non-executive  employees  with  exercise
prices greater than the price range of $5.13 - $5.25 per share.

    The Directors  Plan  authorizes  the grant of stock options to  non-employee
Directors  to purchase a maximum of 250,000  shares of Common  Stock.  Under the
terms of the amended plan, each eligible Director receives annually,  concurrent
with the annual  election of  Directors,  an option to purchase  5,000 shares of
Common  Stock at an exercise  price equal to the fair market value of the Common
Stock on the date of grant.  The options become  exercisable in two equal annual
installments  beginning with the first annual meeting of shareholders  after the
date of grant. In addition,  each newly appointed non-employee Director receives
a  one-time  initial  option to  purchase  10,000  shares of Common  Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Options expire on the earlier of ten years from the date of grant or five
years after the Director's  termination of service as a Director. As of December
31, 1997, there were 109,375 shares of Common Stock available for issuance under
the Directors Plan.

    Effective in 1998, the number of shares purchasable under options granted to
each Director  under the Directors Plan was increased to 10,000 shares of Common
Stock  concurrent  with annual election as a Director and to 20,000 shares for a
Directors' initial appointment to the Board.

                                       37
<PAGE>


    Information  relating to activity under the Company's  stock option plans is
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>


                                              1997                      1996                      1995
                                      -----------------------   ----------------------   ------------------------
                                                   WEIGHTED                  WEIGHTED                  WEIGHTED
                                       NUMBER      AVERAGE       NUMBER       AVERAGE      NUMBER       AVERAGE
                                      OF SHARES   SHARE PRICE   OF SHARES   SHARE PRICE   OF SHARES   SHARE PRICE
                                      ---------   -----------   ---------   -----------   ---------   -----------
<S>                                      <C>          <C>           <C>         <C>           <C>        <C>
Outstanding at beginning of year ....    2,809        $5.11         2,911       $4.85         2,985      $4.61
Granted .............................      600         5.09           994        6.19           174       5.35
Exercised ...........................     (114)        3.32          (281)       2.62          (219)      1.93
Canceled ............................     (147)        5.87          (815)       6.35           (29)      4.98
                                         -----        -----         -----       -----         -----      -----
Outstanding at end of year ..........    3,148        $5.14         2,809       $5.11         2,911      $4.85
                                         =====        =====         =====       =====         =====      =====
Exercisable at end of year ..........    1,679        $5.54         1,267       $6.03         1,104      $6.86
                                         =====        =====         =====       =====         =====      =====
</TABLE>

     Information  relating  to stock  options  outstanding  and  exercisable  at
December 31, 1997 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>


                                               OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                       ------------------------------------   -----------------------
                                                    WEIGHTED
                                                    AVERAGE        WEIGHTED                WEIGHTED
                                        NUMBER     REMAINING       AVERAGE     NUMBER      AVERAGE
RANGE OF EXERCISE PRICES               OF SHARES  LIFE IN YEARS  SHARE PRICE  OF SHARES   SHARE PRICE
------------------------               ---------  -------------  -----------  ---------   -----------
<S>                                      <C>          <C>          <C>            <C>        <C>
$1.50 - $3.75                            1,398        6.40         $ 2.93         928        $ 2.89
$4.74 - $6.38                            1,141        8.41           5.23         341          5.54
$6.75 - $21.75                             609        6.35          10.05         410         11.54
                                         -----        ----          -----       -----        ------
                                         3,148        7.12         $ 5.14       1,679        $ 5.54
                                         =====        ====          =====       =====        ======
</TABLE>

     The fair value of each stock option  granted is valued on the date of grant
using the  Black-Scholes  option pricing model. The weighted average  grant-date
fair value of stock  options  granted  during 1997 was $3.73 per share using the
assumptions of expected  volatility of 66%, expected option lives of five to ten
years and risk-free  rates of interest of 5.7 - 6.8%.  During 1996, the weighted
average grant-date fair value of stock options granted was $3.66 per share using
the assumptions of expected  volatility of 70%, expected option lives of five to
ten years and  risk-free  rates of  interest  of 6.5 - 6.7%.  During  1995,  the
weighted  average  grant-date  fair value of stock options granted was $3.74 per
share using assumptions of expected  volatility of 70%, expected option lives of
five to ten years and  risk-free  rates of  interest of 6.0 - 6.7 %. The Company
assumed a dividend yield of zero for all years.

                                       38
<PAGE>


    In 1996, the Company adopted the disclosure-only  provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation,"  effective  for years  beginning  after  December 15,  1995.  The
Company  has  continued  to  measure   compensation   cost  for  employee  stock
compensation  plans under the  guidelines  of APB 25, as allowed by SFAS 123. No
compensation  cost has been recognized for options issued to employees under the
plans.  Had  compensation  cost for these stock option plans been  determined in
accordance  with SFAS 123,  the  Company's  "Net  Loss" and "Net Loss Per Common
Share" would have  increased to the following  pro forma amounts for 1997,  1996
and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                  1997           1996          1995
                                                                 -------        -------      --------
<S>                              <C>                             <C>            <C>          <C>
Net loss.....................    As reported................     $(2,550)       $(9,001)     $(12,271)
                                 Pro forma..................      (3,777)        (9,503)      (12,364)

Net loss per common share,       As reported................       $(.31)         $(.68)        $(.98)
    basic and diluted........    Pro forma..................        (.38)          (.72)         (.99)
</TABLE>

     Because  the SFAS 123 method of  accounting  has not been  applied to stock
options  granted before  January 1, 1995,  the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.

     RESTRICTED  STOCK.  The  Company  also has a  Restricted  Stock  Plan  (the
"Restricted  Stock Plan") under which restricted stock may be granted or sold to
selected  employees,  officers,  agents,  consultants,  advisors and independent
contractors of the Company.  Under the Restricted  Stock Plan,  adopted in 1991,
250,000 shares are authorized for grant,  of which 194,000 remain  available for
grant at December 31, 1997.

     WARRANTS.  In connection  with financing  transactions in 1995, the Company
issued 1,634,907 three-year warrants to purchase 408,727 shares of Common Stock,
exercisable at a price of $5.31 per share. The warrants expire in 1998.

     In 1992, the Company  issued Common Stock  purchase  warrants to Boehringer
Ingelheim  to acquire  625,000  shares of Common  Stock at a per share  exercise
price ranging from $15.84 to $21.12. The warrants expired in 1997.

NOTE 8. REVENUES

     The  Company  entered  into an  agreement  in 1997,  with  Janssen  for the
worldwide  development,  manufacture  and  distribution  of NeoRx's  AVICIDIN(R)
cancer therapy product. The Company received a $5,000,000 license fee, which was
recorded as revenue,  and rights to  potential  future  milestone  payments  and
royalties on product sales.

     Also in 1997,  the Company  received a $4,000,000  license fee from Schwarz
Pharma for marketing rights to NeoRx's  BIOSTENT(R) product in North America and
Europe and  $4,000,000  for 698,702  unregistered  shares of NeoRx  Common Stock
representing  a 50%  premium  over the fair value of the stock.  The  $4,000,000
license fee and the excess  amount  received  over the fair market  value of the
Common Stock ($1,333,334) were recorded as revenue.

                                       39
<PAGE>


     In 1996,  the Company  recorded as revenue a $4,500,000  milestone  payment
from DuPont Merck upon FDA approval to market  VERLUMA(R) in the United  States.
The Company does not anticipate further material revenue from this product.

NOTE 9. CASH FLOW

     No capital lease  obligations  were incurred during 1997 and 1996.  Capital
lease obligations incurred to acquire equipment were $143,312 in 1995.

     Interest paid by the Company was $134,955,  $142,613 and $140,511 for 1997,
1996 and 1995, respectively.

NOTE 10. FEDERAL INCOME TAXES

     Temporary  differences and carryforwards giving rise to deferred tax assets
were as follows (in thousands):
<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                            -------------------
                                                             1997        1996
                                                            -------     -------
<S>                                                         <C>         <C>
Net operating loss carryforwards .......................    $19,900     $18,900
Research and experimentation credit carryforwards.......      1,600         900
Depreciation and amortization...........................        630         600
Other ..................................................        340         500
                                                            -------     -------
     Deferred tax assets ...............................     22,470      20,900
Deferred tax asset valuation allowance .................    (22,470)    (20,900)
                                                            -------     -------
     Net deferred taxes ................................    $    --     $    --
                                                            =======     =======
</TABLE>


     The Company has  established a valuation  allowance  equal to the amount of
deferred  tax assets  because the Company has not had taxable  income  since its
inception and significant  uncertainty exists regarding the ultimate realization
of the deferred tax asset.  Accordingly,  no tax benefits  have been recorded in
the accompanying statements of operations.  The valuation allowance increased by
2,400,000 and 3,700,000 in 1996 and 1995, respectively.

     The Company's net operating  loss  carryforwards  expire  beginning in 1999
through 2011. Research and experimentation credits expire from 2006 to 2018.

NOTE 11. SUBSEQUENT EVENTS

     In January 1998, the Company received a $7,000,000  milestone  payment from
Janssen,  reflecting  Janssen's decision to begin phase II trials of AVICIDIN(R)
cancer  therapy as part of the  agreement  entered  into with  Janssen in August
1997.

NOTE 12. RELATED PARTY TRANSACTIONS

     The  Company's  Chairman  of  the  Board  of  Directors,  has a  consulting
agreement  with the Company that provides that he shall be retained as a general
advisor and consultant to the Company's  management on all matters pertaining to
the Company's business. In exchange for such services, he is compensated $30,000
for each  calendar  quarter  of  services,  plus  reasonable  travel  and  other

                                       40
<PAGE>

expenses.  In addition,  under the  agreement,  in 1993 the Company  granted him
options to  purchase,  at a 15%  discount,  a total of up to  125,000  shares of
Common  Stock over four years.  In 1996,  the Board  accelerated  vesting of his
remaining  40,000  unvested  shares for his  assistance  in the  Company's  1996
financing.  On February 21, 1997, the Board granted him, under the Restated 1994
Stock Option Plan,  options to purchase 60,000 of the Company's Common Stock for
his services as Chairman of the Board of Directors.  The options were granted at
the then current market price of the Common Stock,  and vest and are exercisable
in two equal installments beginning one year after the date of grant.

     The Company has a demand note  receivable from an officer with a balance of
$111,938 at December 31, 1997 and $131,219 at December 31, 1996.
  
                                     41
<PAGE>

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

    In April 1997, the Board of Directors,  at the  recommendation  of the Audit
Committee,  terminated  the  engagement of Arthur  Andersen LLP as the Company's
certifying accountants.

    The report of Arthur Andersen LLP on the Company's financial  statements for
either of the last two  fiscal  years did not  contain  any  adverse  opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.

    During the  Company's two most recent  fiscal years and  subsequent  interim
periods  preceding the date of termination of the engagement of Arthur  Andersen
LLP, the Company was not in disagreement  with Arthur Andersen LLP on any matter
of  accounting  principles  or  practices,  financial  statement  disclosure  or
auditing  scope  or  procedure,  which  disagreement,  if  not  resolved  to the
satisfaction  of Arthur  Andersen LLP, would have caused Arthur  Andersen LLP to
make reference to the subject matter of the  disagreement in connection with its
report.

    The  required  letter from  Arthur  Andersen  LLP with  respect to the above
statements made by the Company is filed as an exhibit hereto.

    Also in April 1997,  the Board of Directors,  at the  recommendation  of the
Audit  Committee,  engaged  KPMG Peat  Marwick LLP as the  Company's  certifying
accountants. The Company had not consulted with KPMG Peat Marwick LLP during its
previous two most recent fiscal years or during any  subsequent  interim  period
prior to its engagement regarding the application of accounting  principles to a
specified transaction, either completed or proposed, or the type of audit option
that might be rendered on the Company's financial statements.

                                       42
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    (a) DIRECTORS.  The information required by this item is incorporated herein
by reference to the section  captioned  "Election of Directors" in the Company's
Proxy  Statement for the Annual  Meeting of  Shareholders  to be held on May 13,
1998,  filed with the  Securities  and Exchange  Commission  (the  "Commission")
pursuant to Section  14(a) of the  Securities  Exchange Act of 1934,  as amended
(the "Exchange Act").

     (b) EXECUTIVE OFFICERS. Information with respect to the Company's executive
officers is set forth below.
<TABLE>
<CAPTION>

            NAME                        AGE        POSITION WITH THE COMPANY

<S>                                      <C>       <C>
      Paul G. Abrams, M.D., J.D.         50        President, Chief Executive Officer
                                                   and Director

      Richard L. Anderson.               58        Senior Vice President, Finance
                                                   and Operations, and Chief Financial Officer

      Becky J. Bottino                   49        Vice President, Operations

      John M. Reno, Ph.D.                51        Vice President, Research and Development

      Robert W. Schroff, Ph.D., M.B.A.   43        Vice President and General Manager,
                                                   Cardiovascular Products

      Bruce H. Walters                   54        Vice President, Human Resources
</TABLE>


BUSINESS EXPERIENCE

     DR.  PAUL G. ABRAMS is a  co-founder  of the  Company,  has been a Director
since January 1985 and has been President and Chief Executive  Officer since May
1990. Dr. Abrams holds M.D., J.D. and B.A. degrees from Yale University. He is a
board-certified  internist and medical oncologist and is an Affiliate  Associate
Professor in the Department of Radiology at the University of Washington.


     RICHARD L. ANDERSON has been Senior Vice President,  Finance and Operations
and Chief  Financial  Officer since September 1997. He was Senior Vice President
and Chief Financial Officer from January 1996 to August 1997. From November 1994
to January 1997, Mr.  Anderson was Vice President and Controller at Mosaix Inc.,
a provider  of  computer  telephony  integration  products  and  services.  From
September  1993 to October  1994,  Mr.  Anderson was Vice  President of Finance,
Chief Financial Officer and Secretary of Merix Corporation  (formerly a division
of Tektronix),  a manufacturer of printed circuit boards.  Mr. Anderson holds an
M.S. degree in Management from Johns Hopkins University,  a M.S. degree in Solid
State Physics from the  University of Maryland,  a B.S. in Physics from Bucknell
University and is a Certified Public Accountant.

     BECKY J. BOTTINO has been Vice  President  of  Operations  since  September
1997. She was the Company's  Director of Manufacturing  and Product  Development
from October 1996 through September 1997,  Director of Product  Development from
1992 to 1994 and Manager of Product  Development  from 1989 to 1992. Ms. Bottino
joined  NeoRx in 1985 as a  Research  Technologist.  She holds a M.S.  degree in
Chemistry  from  the  University  of  Washington  and a  B.S.  degree  from  the
University of Utah.

                                       43
<PAGE>


     DR. JOHN M. RENO has been Vice President,  Research and  Development  since
January 1993. He was the Company's  Director,  Research and Development from May
1991 until December 1992. He holds a Ph.D.  degree in Biochemistry from Michigan
State  University.  DR.  ROBERT W. SCHROFF has been Vice  President  and General
Manager,  Cardiovascular  Products  since  January  1993.  He was the  Company's
Director,  Business  Development  and  Analytical  Labs from  September  1991 to
December 1992. Dr.  Schroff holds a Ph.D.  degree in Immunology  from the Bowman
Gray School of Medicine of Wake Forest  University.  He  performed  postdoctoral
studies at the  University of California at Los Angeles.  Dr. Schroff also holds
an M.B.A.  degree from the University of  Washington.  BRUCE H. WALTERS has been
Vice  President,  Human Resources since May 1989. From April 1987 to April 1989,
he was the Company's Director,  Human Resources. Mr. Walters holds a B.A. degree
in Bacteriology from the University of California at Los Angeles.

    (c)  COMPLIANCE  WITH  SECTION  16(A) OF THE EXCHANGE  ACT. The  information
required  by this  item is  incorporated  herein  by  reference  to the  section
captioned "Compliance With Section 16(a) of the Securities Exchange Act of 1934"
in the Company's  Proxy  Statement for the Annual Meeting of  Shareholders to be
held on May 13, 1998, filed with the Commission pursuant to Section 14(a) of the
Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by this item is incorporated herein by reference to
the sections captioned "Executive Compensation" in the Company's Proxy Statement
for the Annual Meeting of  Shareholders  to be held on May 13, 1998,  filed with
the Commission pursuant to Section 14(a) of the Exchange Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this item is incorporated herein by reference to
the section  captioned  "Security  Ownership  of Certain  Beneficial  Owners and
Management"  in  the  Company's  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on May 13, 1998,  filed with the Commission  pursuant to
Section 14(a) of the Exchange Act.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information  required by this item is detailed in the Notes to Financial
Statements   contained   herein  in  the  section   captioned   "Related   Party
Transactions".

                                       44

<PAGE>


                                     PART IV

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

    (a) (1)   Financial Statements -- See Index to Financial Statements.

    (a) (2)   Financial Statement Schedules -- Not applicable.

    (a) (3)   Exhibits -- See Exhibit Index filed herewith.

    (b)       Reports on Form 8-K -- Not applicable.

    (c)       Exhibits -- See Exhibit Index filed herewith.

                                       45
<PAGE>


                                                    SIGNATURES

    Pursuant to the requirements of Section 13 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.

                             NEORX CORPORATION
                             (Registrant)


                                            /s/ RICHARD L. ANDERSON
                             --------------------------------------------------
                                               Richard L. Anderson
                             Senior Vice President Finance and Operations, Chief
                                            Financial Officer, Secretary

                                               Date: March 25, 1998

    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 date indicated.
<TABLE>

<S>                                                       <C>                             <C>

                   /s/ PAUL G. ABRAMS
-------------------------------------------------------
                       Paul G. Abrams                     President, Chief Executive      March 25, 1998
                              Officer and Director
                                                          (Principal Executive Officer)

                 /s/ RICHARD L. ANDERSON
-------------------------------------------------------
                     Richard L. Anderson                  Senior Vice President,          March 25, 1998
                                                          Finance and Operations,
                                                          Chief Financial Officer
                                                          (Principal Financial and
                                                          Accounting Officer)

                   /s/ FRED B. CRAVES
-------------------------------------------------------
                       Fred B. Craves                     Chairman of the Board of        March 25, 1998
                                                          Directors

                  /s/ JAMES G. ANDRESS
-------------------------------------------------------
                      James G. Andress                    Director                        March 25, 1998



                   /s/ JACK L. BOWMAN
-------------------------------------------------------
                       Jack L. Bowman                     Director                        March 25, 1998



                /s/ LAWRENCE H. N. KINET
-------------------------------------------------------
                    Lawrence H.N. Kinet                   Director                        March 25, 1998


                  /s/ CARL-HEINZ POMMER
-------------------------------------------------------
                      Carl-Heinz Pommer                    Director                        March 25, 1998



</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                                                   EXHIBIT INDEX

                                                                                          INCORPORATION
             EXHIBIT                DESCRIPTION                                          BY REFERENCE TO
             -------                -----------                                          ---------------

              <S>     <C>                                                                 <C>
              3.1(a)  Restated Articles of Incorporation, dated April 29, 1996                   *

              3.1(b   Articles of Amendment, dated March 31, 1997, to Restated Articles
                      of Incorporation                                                           **
              3.1(c)  Articles of Amendment, dated August 8, 1997, to Restated Articles
                      of Incorporation                                                     Filed herewith
              3.2     Bylaws, as amended, of the registrant                                Filed herewith
              4.1     Form of Indenture, dated as of June 1, 1989, between NeoRx
                      Corporation and First Interstate Bank of Washington, N.A., as
                      Trustee                                                                   ***
              4.2     Specimen Warrant Certificate                                              +++
              4.3     Form of Purchase Agreements  dated as of April 18,  1995  between
                      NeoRx Corporation and the Purchasers                                      +++
              4.4     Form of Purchase Agreements dated as of January 30, 1996 between
                      NeoRx Corporation and the Purchasers                                      ++++
              4.5     Rights Agreement, dated April 10, 1996, between NeoRx Corporation
                      and First Interstate Bank of Washington, N.A.                            ++++++
              10.1    Restated 1994 Stock Option Plan (^)                                        &
              10.2    Lease Agreement for 410 West Harrison facility, dated February 15,
                      1996, between NeoRx Corporation and Diamond Parking, Inc                   #
              10.3    1991 Stock Option Plan for Non-Employee Directors, as amended (^)          ++
              10.4    1991 Restricted Stock Option Plan (^)                                    ******
              10.5    Stock and Warrant  Purchase  Agreement,  dated as of September 11,
                      1992, between NeoRx Corporation and Boehringer Ingelheim
                      International GmbH                                                         ****
              10.6    Amendment to Stock and Warrant Purchase Agreement, dated as of
                      September 17, 1992, between NeoRx Corporation and Boehringer
                      Ingelheim International GmbH                                               +
              10.7    Second  Amendment to Stock and Warrant Purchase Agreement, dated
                      as of September 29, 1993, between NeoRx Corporation and Boehringer
                      Ingelheim International GmbH                                               +
              10.8    Development and License Agreement, dated as of September 11, 1992,
                      between NeoRx Corporation and Boehringer Ingelheim International
                      GmbH                                                                      ****
              10.9    First Amendment to Development  and  License  Agreement, dated
                      September 22, 1994, between NeoRx Corporation and Boehringer
                      Ingelheim International GmbH                                               ++
              10.10   Second  Amendment to  Development  and License  Agreement,
                      dated  October 31, 1994,  between  NeoRx  Corporation  and
                      Boehringer Ingelheim International GmbH                                    ++
              10.11   Technology  License  Agreement,  dated as of  September  11, 1992,
                      between NeoRx Corporation and Boehringer Ingelheim International
                      GmbH                                                                      ****
              10.12   License Agreement, dated as of September 18, 1992, between NeoRx
                      Corporation and Sterling Winthrop Inc                                     ****
              10.13   Agreement, dated as of December 15, 1995                                 +++++
              10.14   License Option Agreement, dated June 1, 1991, between NeoRx
                      Corporation and the UAB Research Foundation                                +
              10.15   Research  Agreement  (With Option to License),  dated  February 8,
                      1993,  between  NeoRx  Corporation  and Southern  Research
                      Institute                                                                  +
              10.16   Consulting  Agreement,  effective March 15, 1993,
                      between NeoRx Corporation and Oxford Molecular Inc                         +
              10.17   Agreement, dated as of August 1, 1993,  between NeoRx Corporation
                      and Avalon Medical Partners                                                +
              10.18   Registration Rights Agreement, dated September 1993, between NeoRx
                      Corporation and Avalon Medical Partners                                    +
              10.19   Consulting Agreement, dated as of July 7, 1993, between NeoRx
                      Corporation and Dr. Fred Craves (^)                                        +
                      Amendment to consulting agreement, dated May 9,1995 between NeoRx
              10.20   Corporation and Dr. Fred Craves (^)                                       +++++
              10.21   Engagement letter, dated as of June 22, 1993, between NeoRx
                      Corporation and the Placement Agents                                      *****
              10.22   Purchase Agreements, dated May 19, 1993, between NeoRx Corporation
                      and the Purchasers or representatives thereof                             *****

</TABLE>
 
                                      i
<PAGE>
<TABLE>

                                       
              <S>     <C>                                                                 <C>             
              10.23   Stock Purchase Agreement, dated as of October 5, 1994, between
                      NeoRx  Corporation  and The  DuPont  Merck  Pharmaceutical
                      Company                                                                    ++
              10.24   License Agreement, dated as of October 5, 1994, between NeoRx
                      Corporation and The DuPont Merck Pharmaceutical Company                    ++
              10.25   Supply Agreement, dated  November 10, 1994, between Cordis
                      Corporation and NeoRx Corporation                                          ++
              10.26   License  Agreement,  effective  as of October  12, 1994, between
                      Indiana University Foundation and NeoRx  Corporation, as amended           ++
              10.27   Agreement, dated as of June 1, 1987, between NeoRx Corporation
                      and the Board of Trustees of the Leland Stanford Junior 
                      University, as amended                                                     ++
              10.28   Amendment No.3, dated November 15, 1995, to Contract between
                      Corporation and the Board of Trustees of the Leland Stanford
                      Junior University                                                         +++++
              10.29   Form of Registration Rights Agreement, dated January 30, 1996, by
                      and among NeoRx Corporation and Grace Brothers, Ltd., Genesee Fund,
                      Ltd. and SBSF Biotechnology Partners                                       ++++
              10.30   Indemnification Agreement (^)                                               #
              10.31   Change of Control Agreement (^)                                             ##
              10.32   Form of Key Executive Severance Agreement (^)                               ##
              10.33   Development, Distribution and Supply Agreement between NeoRx
                      Corporation  and Schwarz Pharma AG, dated March 31, 1997                    X
              10.34   Stock Purchase Agreement, dated May 24, 1997, between Schwarz
                      Pharma AG and NeoRx Corporation                                            XXX
              10.35   Preferred Stock Purchase Agreement, dated August 8, 1997, between
                      Johnson & Johnson Development Corporation and NeoRx Corporation            XXXX 
              10.36   Agreement,  entered into as of July 1, 1997, 
                      between Janssen Pharmaceutica, N.V. and NoeRx Corporation                  XXXX
              16.1    Letter Regarding Change in Certifying Accountants                           XX
              23.1    Consent of KPMG Peat Marwick LLP                                     Filed herewith
              23.2    Consent of Arthur Andersen LLP                                       Filed herewith
</TABLE>
<TABLE>

            <S>       <C>
            *         Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
            **        Filed as an exhibit to the Company's Registration Statement on  Form  S-3
                      (Registration No. 333-25161), filed April 14, 1997 and incorporated herein
                      by reference.
            ***       Filed as an exhibit to the Company's Registration Statement on Form S-1
                      (Registration No. 33-28545)effective May 31, 1989 and incorporated herein
                      by reference.
            ****      Filed as an exhibit to the Company's Annual Report on Form 10-K for the 
                      fiscal year ended September 30, 1992 and incorporated herein by reference.
            *****     Filed as an exhibit to the Company's  Registration Statement on Form  S-3
                      (Registration No. 33-64992) effective August 25, 1993 and incorporated herein
                      by reference.
            ******    Filed as an exhibit to the Company's Annual Report on Form 10-K for the
                      fiscal year ended September 30, 1991 and incorporated herein by reference.
            +         Filed as an exhibit to the Company's Registration Statement on Form  S-2
                      (Registration No. 33-71164) effective December 13, 1993 and incorporated herein
                      by reference.
            ++        Filed as an exhibit to the Company's Form 10-K for the fiscal year 
                      ended December 31, 1994 and incorporated herein by reference.
            +++       Filed as an exhibit to the Company's Registration Statement on Form S-3
                      (Registration  No. 33-60029) effective August 8, 1995 and incorporated herein
                      by reference.
                      Filed as an exhibit to the Company's  Registration Statement on Form  S-3
            ++++      (Registration No. 333-00785) effective February 7, 1996 and incorporated herein
                      by reference.
            +++++     Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
                      December 31, 1995 and incorporated herein by reference.
            ++++++    Filed as an exhibit to the  Company's Registration Statement on  Form 8-A, 
                      dated April 15, 1996  and incorporated herein by reference.
            &         Filed as an exhibit to the Company's Registration Statement on  Form  S-8,
                      filed July 31, 1997 and incorporated herein by reference.

</TABLE>

                                       ii
<PAGE>

<TABLE>
                                      

            <S>       <C>                                                            
            #         Filed as an exhibit to the Company's Form 10-Q for the quarterly period
                      ended March 31, 1996 and incorporated herein by reference.
            ##        Filed as an exhibit to the Company's Form 10-Q for the quarterly period
                      ended June 30, 1996 and incorporated herein by reference.
            X         Filed as an exhibit to the Company's Form 10-Q for the quarterly period 
                      ended March 31, 1997 and incorporated herein by reference.
            XX        Filed as an exhibit to the Company's Form 8-K dated April 11, 1997 and
                      incorporated herein by reference.
            XXX       Filed as an exhibit to the Company's Form 8-K dated June  11, 1997 and
                      incorporated herein by reference.
            XXXX      Filed as an exhibit to the Company's Form 8-K dated October 7, 1997 and 
                      incorporated herein by reference.
            ^         Management contract or compensatory plan.

</TABLE>
                                      iii
<PAGE>